A scheme to avert a second credit crunch through a multibillion-pound credit-easing programme for small firms, funded by the Treasury, has been unveiled by the chancellor, George Osborne.
The credit will be provided by the Treasury through an arm's-length operation direct to companies, with the Bank of England acting as the Treasury's agent. Under the scheme, the Treasury will buy small firms' corporate bonds, providing cash direct to struggling firms unable to gain funds from the banks.
The initiative is separate from the quantitative easing by the Bank of England which is, in effect, the printing of money. Ministers also view the credit easing as a medium-term way of developing a US-style credit market for small and medium-sized firms that does not depend on banks.
The proposal – an admission that banks are still not lending properly – represents a major step by the Treasury and brings it closer to direct involvement in monetary policy, formerly the sole preserve of the Bank.
The move was presented as a sign that the Treasury is responding to events in a way that does not involve abandoning deficit reduction. Officials insisted the move did not represent a state bank or the start of the government picking winners.
Osborne also announced that anyone applying to make a claim at an employment tribunal will have to pay a fee of between £100 and £150. A full-scale hearing will cost £1,000, and any claim for more than £30,000 in compensation will cost more.
The money will be recoverable if the claim is won, but Treasury officials believe the costs will deter vexatious claims.
The fees will be charged on all employment tribunal cases, including sex and race discrimination cases, as well as on unauthorised deduction of earnings cases. Last year, there were 382,400 applications, of which 47,900 were unfair dismissal cases.
The fees are in addition to plans to extend the qualification period from one to two years of continuous employment, a move that will exclude millions of employees from employment protection.
Defending the tribunal changes, Osborne said the heritage of his party was to respect employment rights, but he added: "We respect the right of those who have spent their whole lives building a small business not to see that achievement destroyed by a vexatious appeal to an employment tribunal."
The business secretary, Vince Cable, said the changes to unfair dismissal rules could save nearly £6m a year for British business.
But Len McCluskey, the Unite general secretary, said: "He [Osborne] is a chancellor who wants to make it easier to hire and fire at will while making it harder for workers to challenge bad bosses.
"George Osborne then has the nerve to repeat the discredited claim that we are all in this together."
The chancellor also confirmed that Britain will abandon its leadership role in climate change when he said it would not go further than other EU countries in its commitment to cut its carbon emissions.
"We're not going to save the planet by putting our country out of business," he said.
Osborne's overall tone was to provide reassurance and some optimism for the future, insisting that "together we will ride out the storm".
He told delegates at the Conservative conference in Manchester: "I don't want anyone to underestimate the gravity of the situation facing the world economy. But I also don't want anyone to think that the situation is hopeless, that there is nothing we can do.
"Our economic problems were not visited on this country by some cruel act of God or blind force of nature. They were created by the mistakes of human beings, and the endeavour of human beings can put them right."
Treasury officials also hailed the way in which Standard and Poor's credit ratings agency had confirmed Britain's AAA credit rating in the middle of the speech, insisting they had no influence over the content or timing of the announcement.
Osborne also rebuffed those in the cabinet who have been proposing a £5bn to £10bn fiscal stimulus, pointing out that that kind of stimulus would be dwarfed if it led to higher interest rates.
"We would be risking our nation's credit rating for a few billion pounds more, when that amount is dwarfed by the scale and power of the daily flows of money in the international bond markets, swirling around ready to pick off the next country," he said.
"We will not take that risk. We are in a debt crisis – it is not like a normal recovery. You can't borrow your way out of debt.
"I'm a believer in tax cuts – permanent tax cuts paid for by sound public finances. Right now, temporary tax cuts or more spending are two sides of exactly the same coin, a coin that has to be borrowed. More debt that has to be paid off."
Labour claimed the resort to credit easing was a sign that Project Merlin was not working and said that deal with the banks had been designed to ease the flow of credit to small firms.
The shadow Treasury spokeswoman, Angela Eagle, said: "George Osborne has finally admitted that his Project Merlin deal with the banks has failed to increase lending to small businesses, but even Treasury ministers cannot explain how a policy of credit easing would work – so we will wait to see the details."
Osborne admitted in his speech: "Because the banks are damaged, they won't lend at the current low rates. It's like putting your foot on the accelerator but, because the transmission mechanism is not working properly, the car wheels won't respond."
The Treasury officials said the credit rating plan stemmed from an approach to the economy first laid out by Osborne in a 2007 speech, and was similar to the national loan guarantee scheme he had proposed in the UK.
The Treasury credit would not add to the deficit because the Treasury is buying assets, and therefore does not represent spending money that will not be recovered.
The chancellor said the Conservatives had changed and were ready to "tackle banks without fear … speak truth unto power and wealth".
Osborne made a bold pitch for the aspirational centre, using the booing of Tony Blair's name at the Labour conference as a sign Labour was no longer in touch with the centre ground.
"To all those people who heard these boos and realised they were aimed at them, for all those people who aspire, who want a strong society and a strong economy, to those people abandoned by Labour, today I say the Conservative party will be your voice," he said.