Of "Credit Easing" and P2P Finance

Source: Bank of England

The governments proposal to intervene directly in the corporate and small business funding markets shows how grave it is that lending to UK businesses is shrinking.

But it seems crazy for the taxpayer to prop up zombie banks - subsidising tax-free savings rates that allow banks an average margin of 11% - and then to use more public money to shunt aside nascent private competitors. Surely, the result will be a never-ending spiral of financial dependency on the public purse. 

As NESTA recently reported, there are more innovative ways to finance small business. But the current regulatory framework - ironically designed to protect us from the banks - makes it unduly painful in terms of time and money to start true competitors. Which is why the P2P Finance Association was formed to help inform the move to a new regulatory framework and pave the way for new entrants. Without any of the vast subsidies the banks receive, these new platforms will lend more than £100 million this year to individuals and small businesses - and they already account for over 2% of the UK personal loan market.

So why doesn't the government foster the growth and development of alternative means of finance, rather than use public money to put them at risk?

For instance, why not extend the ISA tax-free cash subsidy to lending via peer-to-peer platforms?