Chancellor George Osborne and senior Liberal Democrats want to see the scheme extended beyond 2013 and moved more towards business lending rather than mortgages.
The Financial Times reported today deputy prime minister Nick Clegg as having said he wants to put the FLS “on steroids” following a slump in lending in the final three months of the last year.
A senior Lib Dem told the FT “We are pushing for FLS to be extended and there is general agreement between both sides of the coalition.
“Can we extend it, can we increase it and can we direct it to SMEs? These are the things on the table.”
Some bankers have claimed that the government may act on calls from Labour to split the scheme into two pots to enable banks which are shrinking their legacy mortgage books to still qualify for the cheapest rate on SME funds.
The FT also reported that government officials have also discussed the idea of introducing some kind of risk guarantees to promote mortgages to first time buyers.
The Bank of England recently downplayed below par FLS figures for the last quarter of 2012 blaming seasonal factors for a £2.4bn contraction in net lending.
However the BoE said it had been encouraged by an upsurge in new business lending in January and would prefer to wait before declaring the FLS in its current form a failure.
Sylvia Waycot, editor of Moneyfacts.co.uk, said: “FLS has failed to improve lending to SMEs and sticking it ‘on steroids’ may encourage more lending activity in this much needed area.
"However, what is certain is that both business savers and retail savers will pay the price in ultra low returns on their savings.
"This is already happening and extending the deadline will only serve to continue this wreckage of the savings market for longer than originally planned as politicians review the impact of lending without regard for the impact this has on the thousands of people reliant of their savings to supplement their incomes."
