The FINANCIAL -- U.K. Chancellor of the Exchequer George Osborne will abandon fixed targets for lending in an upcoming new deal with banks, the Financial Times reported Friday, without citing its sources.

It said that instead of having fixed lending targets, treasury officials are looking to push down the interest rate on small-business loans, by offering government guarantees on bank funding as long as the cost savings are passed on to companies.

According to Borsa Italiana - London Stock Exchange Group , fixed targets for business lending were the key plank in the Project Merlin deal reached with major banks in early 2011. The five biggest U.K. banks agreed to make GBP190 billion of credit available to businesses under the agreement, up from GBP179 billion of actual lending in 2010.

Talks between the treasury and banks over a new agreement are close to a conclusion, the FT said.

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