Mr Balls made his comments in response to the governments “funding for lending” scheme, which was announced last week and aims to lower the cost of borrowing.
The Shadow Chancellor said: “The figures show that lending has fallen every month for the last couple of years. There is clearly an element of banks needing to build their balance sheets but it is much more to do with demand rather than supply of credit.
“I am deeply sceptical that the reason why banks wouldn’t be lending to corporate customers at the moment is because corporate customers feel the cost of finance is the real hurdle.
“Fundamentally it is about confidence and expectations of market growth rather than the availability of credit.”
He added: “The right thing to do is to inject stimulus into the economy. I would have a VAT cut right now.”
Also speaking following the announcement of the “funding for lending” scheme, John Cridland, CBI director-general, said in a statement: “The Bank of England's action on liquidity is a sensible pre-emptive move and will provide new liquidity to banks at a time of greater Eurozone related turbulence in the financial markets.”
He added: “The new 'Funding for Lending' scheme will need to be practical for banks to participate, offer lower funding costs than found on the markets and most importantly, be easily accessible to small and medium-sized businesses who will be the backbone of our future economic recovery.”
For more information, please visit www.milsted-langdon.co.uk
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