Let's look at the Mandelson package. The Government has just announced a £500m scheme, (looking remarkably similar to one prepared earlier by the Conservatives) to pay employers £2500 when they hire someone who has been unemployed for at least six months. 

The Business Secretary then announced a package of measures to address the difficulties faced by companies in accessing finance, which was the Government's response to the Conservative Party's call for a £50bn national loan guarantee scheme.

Banks will pay a premium to government for what is effectively risk insurance. As a condition of receiving the guarantees banks must use any capital freed up as a result to increase new lending. The aim is for the first guarantees to become operational by 1st March. The Conservatives' criticism of the plan centres around what they regard as the unnecessary complexity of the package, its lack of sufficient scale and questions about whether it is focussed on the right target (i.e. providing the bulk of the guarantees for less risky working capital requirements, rather than where the credit crunch is biting most deeply).

Some would say that there are only two key opinions that will matter; on one side, that of the incoming Obama Administration and the Brown Government, on the other, US and British consumers.

The crux of the issue is that the opinions of consumers may actually in this instance prove to be more important than even the opinions of the Obama Administration and the Brown Government. This would not be a palatable conclusion for those whose whole political strategy is based on the belief that government action can ‘buck the market' - or put another way, can persuade millions of people to behave in way that may be contrary to their human nature. In the face of economic uncertainty, the natural human instinct is to ‘tighten your belt'. The Government's 2.5% cut in VAT is designed to encourage consumers to do the opposite and to continue to spend. If they don't in effect the Government is promising to spend on their behalf, with an increased tax bill a certainty at the end of it.

This political and economic strategy is a huge gamble of double or quits, but the Government arguably has few other options open to it. In a situation where voters, in response to economic uncertainty, appear to have decided (albeit that the post-Christmas picture of like-for-like sales reported by retailers is mixed) not to open their wallets, the taxman dipping into it on their behalf is not the most obvious way to court popular support.

Whatever the politics, things do seem to be moving. The last injection of funds into the banks was just absorbed like a sponge. This time the banks must be persuaded and forced to lend under normal criteria. It is vital this happens and afterall we seem to own a sizeable chunk of them now so isn't it time they did as they are told?

The key elements of the new Mandelson package are:

• A £10bn Working Capital Scheme targeted on ordinary risk companies with turnover up to £500m. The Government will guarantee 50 per cent of the risk on existing and new working capital portfolios worth up to £20bn. This scheme extends a £1bn facility announced in the PBR for smaller exporters;
• A £1bn Enterprise Finance Guarantee Scheme (which essentially extends the eligibility criteria of the existing Small Firms Enterprise Guarantee Scheme) focussed on small firms with turnover up to £25m to secure £1.3bn of additional long-term bank loans of up to 31m with a term of up to 10 years, with Government guaranteeing 75% of the loan and banks covering the rest;
• A £50m Capital for Enterprise Fund (which will be managed externally) to provide equity for small businesses. Government funds would be augmented by £25m from the banks. It is not clear whether this is new money or an initiative that is being ‘re-branded'. In the PBR the Chancellor announced a £50m fund to allow small firms to convert debt into equity.

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