THE Bank of Essex has won praise from the Government’s finance watchdog – but opposition councillors have condemned plans to spend £200,000 researching the scheme.

An Audit Commission report said Essex County Council’s initiative to help small businesses fight the recession by making loans was one of the best in the country.

But the authority’s Lib Dem group said it was worried by a decision to plough £200,000 into a study on the project.

Councillor David Kendall questioned why the research was not done earlier, as the bank has already been established, with finance giant Santander handed £50million to lend to struggling Essex firms.

His party recently raised doubts after the period over which the bank will carry on making loans was extended from two years to five.

Mr Kendall said: “Only a couple of weeks ago my group raised concerns about the council’s about-turn on lending criteria after only a few weeks of the start of the project.

“We were told this was on advice from Santander, the bank operating the project. Why the council had not checked appropriate lending criteria with Santander before launching the project remains a mystery.

“The increasingly haphazard fashion in which this project is being managed, accompanied by the increasingly significant amounts of taxpayers’ money being ploughed into it, is starting to ring alarm bells.”

Council leader Lord Hanningfield said the Audit Commission’s endorsement reinforced his view it was “one of the best things that Essex County Council had done”.

He said: “It offers real, practical support to our county’s small businesses when they need it most, keeping businesses afloat and people in jobs. I am pleased the scheme has been recognised nationally as one of the leading initiatives in the country to combat the impact of the recession.

Of criticisms, he said: “The only thing ringing alarm bells is the Lib Dems’ unwillingness to support Essex businesses and families during this recession.”

The Lib Dems have called in the decision to spend £200,000 on research, set to be discussed at a scrutiny meeting next month.