THE Bank of England has revealed that net lending by the 40 banks and building societies taking part in its Funding for Lending scheme (FLS) shrank by £300m during the first three months of the year.

The £80bn scheme is designed to ease the flow of credit by offering discounted funds to banks, providing they pass on the benefits to businesses and households. 

The latest figures have fuelled concerns that the scheme is failing to get funding to cash strapped small firms.

TUC General Secretary Frances O'Grady, said: "The Funding for Lending scheme is not providing the support small businesses need in these tough economic times.

"Net lending by participating banks has fallen by £2.6bn in the two most recent quarters, with many giving the scheme a wide berth.

"It seems that some banks are just using Funding for Lending to improve their capital position. This is why we need a properly resourced state investment bank that can provide the assistance firms need to grow and create jobs."

"The picture of flat lending growth overall is broadly as expected at this stage, reflecting reductions in some legacy portfolios being roughly offset in aggregate by expanding new lending," said Paul Fisher, the BoE's executive director for markets.

"The plans of the FLS participants suggest that net lending volumes will pick up gradually through the remainder of 2013," he added.