Phillip Blond, Director of ResPublica, says debt insurance waiver would be a safeguard. Photograph: Graeme RobertsonBanks should be obliged to ensure loans to small and medium-sized enterprises to guard against failures and encourage lending, according to an influential think tank.
Consumer lending should also be protected with insurance to encourage a wide range of lenders to make up for a deficit in the United Kingdom market for loans which equates to £ 40bn a year, ResPublica, who came to prominence as an adviser to David Cameron on Localism and mutualising public sector organisations, he said.
Phillip Blond, Director of thinktank, said a mandatory regime to ensure loans "could build confidence in lenders to lend and borrowers to borrow, and potentially could unlock billions of consumers spend".
Blonde said she was worried that the Government's efforts to kickstart lending had managed to bridge the gap between businesses and consumers who want to borrow and banks anxious, nervous about the loan. Bank of England figures showed lending to businesses has continued to fall despite Central Bank loan financing scheme that offers a wide range of banks, construction companies and leasing companies cheap loans.
A Credit Union, which offers loans to people in the airline industry, has revived the idea, but balasingam said that the treasure could have an immediate impact if said that banks to adopt the system of State ownership.
Treasury officials are likely to be nervous about the idea, which could be seen as a reworking of the infamous payment protection insurance scheme, which turned into one of the largest financial services industry scandals that have cost banks and other lenders more than £ 10bn and compensation costs.
Insurance adds to the price of a loan, whether in the form of a higher rate of interest or an extra monthly payment. PPI insurance could add as much as one-third to the cost of the loan and was blamed for thousands of borrowers who declare bankruptcy.
Balasingam says in his waiver at risk report: bridging the gap of protection and facilitating the flow of credit that the waiver of debt would be a "financial protection ethic" that outweighs the problems inherent in the PPI, with only a small charge associated with each loan. In the event of failure to pay the loan under certain circumstances, the lender would give that installment of the loan on behalf of the customer.
"Smes, the workhorses of the economy, are denied opportunities for growth. The small business loan market fell 25% from 2008, and rejection rates mortgage UK are twice those of France and Germany, "he said.
Several groups of loan have approached the Treasury to promote insurance schemes that could cover the cost of bad loans. The most popular involves the Government the first 3% of any losses on loans, based on the fact that the 3% of their loan book failing to repay creditors will face commonly. Banks would pay a fee to the Government's protection scheme, which should be added to the cost of the loan.
Balasingham said that a private sector could be made to be transparent and low cost, offering protection to borrowers as well as lenders.
Similar systems are very popular in the United States and Canada and CUNA Mutual insurer, which offers products of withdrawal in the United States for more than 75 years, said it will offer its first ' waiver ' airline partnership credit union savings plan, which has 8,000 members.
The scheme, which is supported by the Tory MPs Ian Liddell-Grainger and Heather Wheeler MP, was developed following a decrease of 58% in the provision of UK credit for consumers and small businesses.
"This has, in turn, influenced consumer spending and business growth, resulting in a substantial decrease in the GDP of the United Kingdom. The paper loss projects GDP contraction in lending between 2007 and 2012 to claim about £ 193bn, "the report says.
Paul Walsh, the boss of CUNA said: "Although not all offering had misselling PPI, everyone is paying the price of deception spread that went on – consumers, lenders, businesses and, ultimately, the economy of the United Kingdom. The time has arrived for lenders to proactively respond to the needs of their consumers and help them to overcome their fears and address this inertia in the market for loans.
"Many lenders want to offer a real solution for the ' protection gap ' that would benefit and protect both them and their customers. We know, from experience, that the waiver of CM will provide such a solution, "he said.
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