Some of Britain’s largest companies are effectively turning themselves into banks to ease the punishing overdraft and loan rates being imposed on their suppliers by high street lenders.

VT Group, the defence and support services company formerly known as Vosper Thornycroft, recently told 80 of its biggest suppliers that they should talk to the company, rather than to their banks, if they were in financing difficulties.

The number of Britain’s 4.7 million small businesses set to collapse before Christmas is expected to rise to 100 a day as the Government and high street banks clash over the cost and extent of keeping small and medium-sized enterprises fully funded.

Next week, Alistair Darling, the Chancellor, is expected to outline the options the Government is considering to make banks free up lending. He and Lord Mandelson, the Business Secretary, have already threatened to use legal action against the banks and are looking into putting the voluntary cose of practice onto a statutory footing.

The Government’s £1 billion lifeline to industry, unveiled in the PreBudget Report, will not be effective until the new year.

Mike Jeffries, the chairman of VT Group, said: “We want to make sure there is as little disruption to the supply chain as possible. If it was critical, we could bankroll a supplier – it’s part of the risk assessment the directors are bound to make now.”

A spokesman for the company said: “We told our suppliers: ‘Come and talk to us if you are having problems, before going to the banks.’ There are things we could do, such as expediting payments, if people are having difficulties.”

VT’s initiative arose after a small IT company that supplied the company went bankrupt. Although it was not critical to the company’s operations, there are larger suppliers whose loss would be. VT has about 2,000 strategic suppliers, with which it spends between £500 million and £600 million a year. “We are particularly concerned to ensure the continuity of these strategic suppliers, and hence the continuity of our business,” the spokesman said.

Justin King, chief executive of Sains-bury’s, said it had set up a system for small suppliers to draw down payments early to ease their credit problems. Waitrose said it was prepared to make early payments to suppliers with short-term liquidity problems.

Stephen Alambritis, head of corporate affairs for the Federation of Small Businesses, said that the efforts the companies were making with their suppliers was symptomatic that the business world now believed banks would not begin lending to small businesses again until at least next spring.

GKN, the car parts manufacturer that has issued two profit warnings in the past month, said that it was anxious to “keep the door open” to its many suppliers and give them as much information as possible about slowdowns in its business. It said that it had suffered from being given little notice by carmakers of their cuts in production and was anxious that its suppliers were not treated the same way.

Meanwhile, about 184,000 small businesses will be hit by this Monday’s VAT reduction. Companies that take advantage of the Government’s flat-rate VAT scheme will have to hand over a higher proportion of the tax they collect after their rates fell by less than the reduction in the headline rate. Small businesses can profit from flat rates of VAT of between 2 per cent and 12 per cent by opting into the scheme, while at the same time charging their customers the top tax rate and keeping the difference.

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