Labour urges Government to reform Covid loan schemes with 750,000 businesses and 2 million jobs “on a knife edge”
In a speech this evening Labour’s Shadow Chancellor Anneliese Dodds will warn that businesses across the country stand “on a knife edge” without Government help to make Covid loans smarter.
The warning comes as data shows that over 750,000 businesses in the UK have low or no confidence that they will survive the next three months. Taken together, those businesses represent 2.1 million jobs.
Speaking to the Labour Finance and Industry Group at on online event for Aston University this evening, Dodds will accuse Chancellor Rishi Sunak of having been “asleep at the wheel” by not using the March Budget to support firms struggling with unsustainable debt – leaving hundreds of thousands of businesses “high and dry”.
Since the start of the pandemic, businesses have taken out almost £73 billion in government-backed loans, primarily through the 80% guaranteed Coronavirus Business Interruption Loan Scheme (CBILS) or 100 per cent guaranteed Bounce Back Loan Scheme (BBLS).
The first debt and interest repayments for these loans will begin to fall due in the next few weeks. Firms are already struggling, with over 350,000 saying that they faced rising debt payments in the last month and nearly 400,000 saying they expect them to increase in the months ahead.
Without further Government action, the Office for Budget Responsibility (OBR) currently estimates that £27.2 billion of these loans will never be repaid, meaning a huge cost to the taxpayer as well as the loss of jobs and livelihoods.
Ahead of the Budget, Labour urged the Chancellor to convert BBLS loans into a student loan style arrangement under which businesses only start paying off loans when they are making profits again, and to create a new British Business Recovery Agency to help those firms struggling to pay off CBILS loans.
However, the Chancellor did not listen and instead pushed ahead with his ‘Pay As You Grow’ scheme, which has nothing to do with firm growth, but simply allows firms with Bounce Back Loans to delay or spread out their loan repayments. The Chancellor’s scheme made very little difference to the amount that the OBR assumes will never be repaid and has not changed the start date for CBILS repayments.
Warning of the risk to businesses, Anneliese Dodds will say:
“Forcing businesses to start making debt repayments before they are back on their feet will squeeze the amount they have to invest, to grow and take on new staff. For some, it could mean going to the wall.
“Hundreds of thousands of businesses across the country are on a knife edge. If they falter or fail, it’s not just a tragedy for the owners who lose their livelihoods and the staff who lose their jobs – it will damage the recovery and hold us all back.
“It’s a completely false economy for the Chancellor to leave these businesses high and dry.”
Criticising the Chancellor’s failure to act, she will add:
“The Chancellor has been asleep at the wheel. His so-called ‘Pay As You Grow’ scheme might make for a good soundbite but it’s misleading: there is no link to growth at all. He has simply shifted deadlines back by a few months.
“While that might help some businesses, the fact is that we are still on course to see billions of public money written off in unpaid loans because the Chancellor is refusing to act.”