Labour plans state investment bank

Billions of pounds of funds for exporters, infrastructure and start-up businesses could be channelled through a new state-backed investment bank.

The new institution being championed by Business Secretary Lord Mandelson would be modelled on Germanys KfW bank, which sprang from the Marshall Plan after the Second World War.

Whitehall discussions over the plan are still underway, but an announcement could come in Alistair Darlings March Budget.

Digging deep: The Crossrail construction site at Tottenham Court Road Underground station. Crossrail is among 13 key transport projects identified by the British Chamber of Commerce

Ministers hope the new body, which has yet to be named, would bring some coherence to the plethora of government schemes currently in existence.

These include export credit guarantees, infrastructure funding, venture capital support and regional development agency funding.

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Improving mechanisms for doling out infrastructure investment is seen as particularly important.

Pushing 13 key transport projects forward in the next Parliament could deliver an 85bn boost to the economy, according to research from the British Chambers of Commerce today.

The moves come amid signs that key UK industries are still being starved of funds because of the banking collapse.

A poll from manufacturing lobby group the EEF will today show that two-fifths of engineering firms have suffered-further increases in the cost of borrowing over the past two months.

Funding: Infrastructure would be specifically targeted

Last week the Bank of England reported a record slump in business lending for December.

Mandelson has held talks with executives from Germany"s KfW as he pursues a more activist approach to government involvement in industry.

The overhaul comes amid signs of continued chaos in the banking sector.

Royal Bank of Scotland is this week expected to report 5.2bn of losses for last year, while Lloyds Banking Group may have lost anywhere between 3bn-11bn, analysts say.

RBS chief Stephen Hester has agreed to forego his 1.6m bonus as the bank continues to struggle, leaving Lloyds chief Eric Daniels under intense pressure to relinquish his 2.25m payout.

Separately, the Tories are proposing to offer discounted shares in RBS and Lloyds to the public when the state finally divests its holdings in the two firms.