A joint Bank of England and Treasury announcement to extend its flagship lending scheme, with a focus on finance for SMEs, has been dismissed as unlikely to clear the 'credit bottleneck' that banks are currently struggling with.

As part of changes to the Funding for Lending Scheme (FLS), incentives for banks to increase lending to smaller businesses have been improved. For every £1 of net lending to SMEs in 2014, banks will be able to draw £5 from the scheme, and to encourage such action sooner rather than later, every £1 of net lending to SMEs during the remainder of 2013 will be worth £10 of initial borrowing allowance in 2014.

Introduced in August last year, FLS will now not end until January 2015 and George Osborne, Chancellor of the Exchequer, said: 'This is a big boost for the small and medium sized businesses that are at the heart of the British economy. The Funding for Lending Scheme has already reduced the costs of household mortgages and loans for businesses. This innovative extension will now do even more for [sic] SMEs so that they can play their full part in creating new jobs.'

However, Adam Tavener, chairman of Clifton Asset Management, said: 'The banks themselves have warned that this extension will not clear the credit bottleneck on its own and it is our view that this further inducement to pass on the benefits of subsidised lending to SMEs will only have a marginal effect.'