Business leaders and unions have criticised Vince Cable's nascent business bank, saying it will provide "nowhere near enough" money to kickstart the economy.
The business secretary was given the go-ahead to announce the business bank today; it will be funded using £1bn of taxpayers money found through governmental cost cutting, and will be run "at arm's length" from the Treasury and the government.
Cable said he hoped the private sector would also contribute another £9bn into the bank, which is due to launch with 12-18 months.
However, entrepreneurs, unions and business chiefs have expressed scepticism about whether private funding will be forthcoming, and whether the bank can have a meaningful impact without the additional funds.
Tony Dolphin, a senior economist at the Institute for Public Policy Research, told Huffington Post UK that the £1bn funding would be "small beer" in an economy of £1.5trn.
"By comparison, under Project Merlin, the government sought assurances from banks that they would lend £76bn to small businesses – and £190bn to businesses in total – during 2011," Dolphin explained.
"Given the fiscal situation and the Treasury’s determination not to relax its programme of spending cuts, Vince Cable will probably feel he has done well to get even £1bn of funding. But this does feel like a missed opportunity."
The TUC's general secretary Brendan Barber expressed cynicism about whether we can believe the government's claim that £1bn of investment from the taxpayer could support £10bn of business lending.
"With the UK trapped in double dip recession, this is nowhere near enough to deal with the scale of our economic crisis," he said.
“If this bank is as good as ministers claim it will be, they should give it the backing it deserves and vastly increase its funds. Multiplying the government’s stake tenfold could support £100bn of additional lending. This is the level of support businesses really need.”
And entrepreneurs were unconvinced too; Tony Rafferty, chief executive of the AIM listed Printing.com, said while the funding may help plug some longer term loan gaps, it leave "myriad funding challenges" for early stage entrepreneurs.
"At a point where Nick Clegg is calling for higher taxation on top earners and wealth tax, further consideration should be given to enhancing Enterprise Investment Schemes (EIS)," he said.
"Encouraging top earners to invest further high risk capital in early day businesses would also be a step in the right direction. For instance, if each tax payer could invest £10,000 with a 50% tax break, and recover half of that through the top rate that they pay, this would add to the circulation of money.”
Simon Dixon, founder of the crowdsourcing and crowdlending platform BankToTheFuture,com, told Huffington Post UK that the government shouldn't waste time trying to convince the big five high street banks to invest in the business bank.
"They're not made to do that sort of thing, and trying to persuade an old institution to do a new thing is too difficult," he said.
"I'm supportive of the initiative and Vince Cable has done some good work... but the government should launch an awareness campaign about the crowdfunding sector as it's the purest way of fundraising."
However, the Confederation for British Industry's director general John Cridland welcomed the news on the bank, saying it had "the potential to support lending and help small and medium-sized businesses to grow".
The Federation of Small Businesses said the move would open the door to alternative lenders and create new ways for small businesses to get finance, such as credit unions.
"We are certain the newly created ‘small business bank’ will help boost confidence and deliver growth in the economy," said national chairman John Walker.