UK unveils funding for lending to restart growth By David Milliken and Matt Scuffham LONDON (Reuters) - Britain gave details on Friday of its new scheme to get banks to lend, with some 80 billion pounds ($123 billion) of cheap loans available provided they go to households and businesses. Part of efforts to lift the economy out of recession, the "funding for lending" plan was jointly announced by finance minister George Osborne and Bank of England Governor Mervyn King last month. However, the challenges facing the scheme became clear just hours after it was announced, when one of Britain's biggest banks, HSBC (HSBA.L), said it did not want to take part and preferred to fund lending from its customers' deposits. Previous schemes to spur lending since the financial crisis have failed to give a clear boost to the economy, putting pressure on the BoE and the Conservative-led coalition government, which have been quick to blame much of the country's economic woes on the neighboring euro zone debt crisis. Osborne and the BoE insist this scheme will be different, as it ties banks' access to the scheme and the cost of using it directly to whether they raise total lending to British firms and households. "The Treasury and the Bank of England are taking coordinated action to inject new confidence into our financial system and support the flow of credit to where it is needed in the real economy - showing that we are not powerless to act in the face of the euro zone debt storm," Osborne said. Britain's top banks fell short of their government targets to lend to small businesses last year and not all economists are convinced that the scheme will lead to a pick up in lending or that individuals and businesses have the appetite to borrow. "The economic outlook is currently both worrying and highly uncertain, so banks may still be reluctant to lend to many companies and households whatever the cost of their funding because of the perceived risks involved," said Howard Archer of IHS Global Insight. Labour finance spokesman Chris Leslie said the government had not gone far enough and needed to relax austerity measures. "To address the biggest problems in our economy -- a lack of confidence and a lack of demand -- we need a change of course from the government on tax rises and spending cuts which go too far and too fast," Leslie said. Others were more positive. Philip Monks, chief executive of Aldermore, a recently established bank that lends to small businesses and home-buyers, said the latest initiative had more chance of succeeding than previous measures. "The (scheme) should be a key plank in ensuring a greater flow of lending to small businesses and homeowners right across the country," he said. BoE executive director for markets Paul Fisher sought to play down the significance of HSBC's refusal to participate. "HSBC are a special case because they are awash with retail deposits and other things which they don't know what to do with," he told Bloomberg TV. They did launch a new mortgage product this morning, billed as the lowest mortgaging rate for 40 years, and that is part of the competitive pressure that we want to see working. The scheme follows the BoE's decision last week to restart its quantitative easing program, which involves buying government bonds with newly created money -- which mainly benefits those companies large enough to bypass banks and raise money direct from capital banks. Under the new scheme, banks and building societies will initially be able to borrow up to 5 percent of their stock of existing lending from the BoE -- a sum of around 80 billion pounds. They will be charged a 0.25 percent annual fee for this, but must commit to keeping lending steady. If they cut lending, they have to pay more, up to 1.5 percent on a sliding scale. The BoE believes that total outstanding lending in Britain would be at risk of falling without the scheme -- especially as some government-run banks such as major lenders Lloyds (LLOY.L) and RBS (RBS.L) must sell assets to comply with state aid rules. Some categories of lending, such as that to small businesses, already show marked year-on-year declines. New entrants into Britain's retail banking sector, such as Metro Bank, Virgin Money and Aldermore have emerged since the 2008 financial crisis looking to fill the gap created by big players deleveraging and shrinking their balance sheets. Banks that increase total lending will be able to borrow more from the BoE scheme. They access funds by swapping collateral on their books for Treasury bills from the BoE, increasing liquid assets which then support lending. Apart from HSBC, other major banks gave the scheme a cautious welcome, though their industry body, the British Bankers' Association, has said that lack of demand is a major reason why lending has fallen. "Banks want to lend to viable businesses and individuals -- and they want to encourage those requiring finance to come forward," the BBA said in response to the proposals. The BoE said it expected banks to be able to drum up more demand by using the cheaper funding to lower interest rates and ease terms and conditions. Banks have 18 months, starting on August 1, to draw down BoE funding, which will then last for four years. ($1 = 0.6492 British pounds) Reporting by David Milliken and Matt Scuffham; Editing by Jeremy Gaunt/Ruth Pitchford