The Government is set to guarantee billions of pounds of loans to small businesses in an effort to boost the credit available to companies across the UK.

It is understood that ministers will back about £20 billion of loans to small companies, which are businesses with 50 employees or fewer, which the taxpayer will end up underwriting if a firm goes bust.

Conservatives are calling for a similar plan offering a £50 billion commitment.

This morning, George Osborne, the shadow Chancellor, said the guarantee plan was a Conservative idea, and said the Government's “dither and delay” in implementing the scheme could cost more people their jobs.

Mr Osborne told the BBC's Today programme: “The Conservative party has been suggesting this for two months. The dither and delay of government has cost the jobs of many people because firms have gone bust. The government must now get on and implement the Conservative idea."

Sources said that under the scheme, which is expected to be presented tomorrow, the Government could guarantee up to 95 per cent of a company's loan.

The programme would run along the same principle as the present small business scheme, whereby the Government guarantees 75 per cent of a loan of up to £250,000. Although, loans of up to £1 million could be offered under a deal to be unveiled by Lord Mandelson, the Business Secretary.

The Body Shop, Waterstones, the bookshop owned by HMV, and Coffee Republic, the coffee chain, were all set up using funding from the small business loan guarantee scheme.

The move comes as thousands of businesses are struggling to stay afloat because banks are limiting or stopping access to credit to minimise risk and protect their capital.

The big banks pledged to boost their lending to businesses and homeowners after receiving a multibillion-pound bailout from the Government last year, but mortgages and business loans are still hard to acquire.

However, Alistair Darling, the Chancellor, is planning an even bigger announcement on freeing up bank lending to business and mortgage holders within the next week.

Stephen Alambritis, of the Federation of Small Businesses, said that the expected move by the Government would be welcome, but warned that the scheme would need to be monitored carefully to make sure that banks were using it.

"Banks don't like to process government ideas," he said. "The small-firm loan guarantee scheme took between five and ten years to gain traction.

"This is the last throw of the dice."

This morning, dismal figures from the British Chambers of Commerce's (BCC) survey of manufacturers and service companies showed that sales, confidence, employment and investment expectations had all fallen to record lows in the final three months of last year.

David Frost, the director-general of the BCC, said that the figures were “truly awful.”

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