THE Coalition was last night accused of failing Britain's businesses and making policy "on the hoof" after it was suggested its flagship scheme to get banks to lend to businesses and so kickstart the UK economy was being wound down.

The National Loan Guarantee Scheme (NLGS), announced with a flourish by George Osborne last autumn, was meant to make available £20 billion of so-called "credit easing".

However, today the UK Government is launching a new scheme called Funding for Lending with a pot of £80bn.

It is thought that banks will prefer the new scheme because they will be rewarded – the more they lend, the bigger the cut in fees.

Treasury sources insisted the NLGS would continue alongside Funding for Lending. They pointed out that the two schemes were different, with Funding for Lending being open not only to businesses but households too.

A Whitehall source said: "NLGS has helped 16,000 businesses with more than £2.5bn. It's still there and it's not being withdrawn or sidelined, but there is an expectation that over time most banks will want to use the bigger scheme."

Yet critics are expected to point out that, under the

NLGS, small and medium businesses could benefit from a 1% discount to the rate they would normally get – a discount which will not apply to the Funding for Lending scheme.

However, Treasury sources said anticipation of the new scheme was already having an effect with reports of a price war opening up between high street banks.

Funding for Lending was unveiled by the Treasury and Bank of England earlier this month with a pledge by Mr Osborne that it would "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 eurozone debt storm".

The Chancellor insisted the scheme would "aim to make mortgages and loans cheaper and more easily available, providing welcome support to businesses that want to expand and families aspiring to own their own home".

While the Treasury last night declined to make a formal statement ahead of today's launch of Funding for Lending, Labour went on the attack. Chris Leslie, the shadow Treasury minister, said winding down the NLGS would be an "incredible U-turn and it would be a classic example of policy-making on the hoof". He claimed it would be "yet another blow to the Chancellor's dwindling credibility".

He went on: "If the NLGS was always supposed to be replaced by the new Funding for Lending scheme, then why, two weeks after that new scheme was announced, did George Osborne say the NLGS would be extended?"

Mr Leslie pointed out that despite promises from ministers, net lending to businesses had fallen in every month the Coalition had been in power.

He also stressed that there were serious questions about whether the new Funding for Lending scheme would really see loans to businesses become cheaper and easier to access.

"It's clear this Government is letting down British businesses. That is why Labour is demanding a real plan for jobs and growth, including tax breaks for small firms taking on extra workers, and examining the case for a British Investment Bank too."