In Brief

Chancellor urged to cover 100% of business loans

With payday looming, the roll-out of the government’s flagship bailout scheme is facing mounting criticism

wd-rishi_sunak_-_peter_summersgetty_images.jpg

The chancellor is facing mounting pressure to fully underwrite loans to hundreds of thousands of small businesses ahead of payday this week.

Under the government’s flagship £330bn bailout scheme unveiled last month, the Treasury has promised to cover 80% of wages up to £2,500 a month to businesses who furlough staff rather than making them redundant.

However, one month into the lockdown, and with Friday’s payday looming, “businesses are fast running out of cash” but “money is only trickling out of [Chancellor Rishi] Sunak’s £330bn bailout fund”, says The Times.

As of the middle of last week, only £1.1 billion had been lent to about 6,000 of Britain’s 5.8 million small companies. Yet today up to 2.3 million businesses are eligible to apply for government furlough cash to pay wages, “potentially flooding HMRC’s new website when it opens”, says The Times.

Comments by Bank of England Governor Andrew Bailey that an extension of government guarantees to lenders from 80% to 100% could speed up the delivery of financial assistance to cash-strapped firms and make the process less complicated has “heaped additional pressure on the Chancellor to follow the example of other countries” says the BBC.

Once again Germany has been held up as the example to follow. Fully backed by the state, its scheme has already lent out €7bn compared with just £1.1bn in the UK.

US lenders have approved more than 300 times as much lending as in the UK while even Swiss banks have approved 98,000 loans, compared to just over 6,000 in the UK.

Arguing “numerous restrictions to both lenders and borrowers show the state-backed loan scheme is not currently fit for purpose”, The Telegraph says “banks still feel the need to put a big effort into the so-called ‘forward-looking viability assessment’, which is supposed to work out the chance of a company actually having a business on the other side of the crisis”.

“Many have said they are worried the British Business Bank, the administrator of the loans, will use inadequate assessments as an excuse to walk away from the 80% of the loan that the government is guaranteeing,” the paper says.

The BBC reports that “currently banks do not feel they can dispense with normal credit checks just because they may ‘only’ lose 20% of the sum advanced”.

Shadow business secretary Ed Miliband is one of a growing number arguing that the state should fully underwrite the loans rather than just 80% of the value as it currently does.

“On the other side of the crisis, you will not wish you had done less but that you had done more,” he said.

However, the BBC adds that “expanding the guarantee to 100% would mean the taxpayer would be taking all the risk that the loans were not repaid”, an outcome Miliband has admitted creates a “moral hazard”.

–––––––––––––––––––––––––––––––For a round-up of the most important stories from around the world - and a concise, refreshing and balanced take on the week’s news agenda - try The Week magazine. Start your trial subscription today –––––––––––––––––––––––––––––––

Recommended

‘I can’t save every job’: Sunak warns of long, hard winter
Rishi Sunak
In Brief

‘I can’t save every job’: Sunak warns of long, hard winter

Covid-19: everything you need to know about coronavirus
coronavirus.jpg
Coronavirus

Covid-19: everything you need to know about coronavirus

Indian Wells tennis cancelled - is Wimbledon in danger?
Novak Djokovic kisses the winner’s trophy after beating Roger Federer in the Wimbledon final
In Brief

Indian Wells tennis cancelled - is Wimbledon in danger?

Coronavirus impact on sport: ‘serious concerns’ for Olympics
Officials at the Japan Coast Guard base in Yokohama where a cruise ship is in quarantine following an outbreak of coronavirus
In Brief

Coronavirus impact on sport: ‘serious concerns’ for Olympics

Popular articles

What do Covid vaccines cost - and who is paying over the odds?
People wait to be vaccinated at Salisbury Cathedral
Getting to grips with . . .

What do Covid vaccines cost - and who is paying over the odds?

Best TV crime dramas to watch in 2021
Line of Duty series six returns to BBC One in 2021
In Depth

Best TV crime dramas to watch in 2021

Ten Things You Need to Know Today: 26 Jan 2021
10 Downing Street
Daily Briefing

Ten Things You Need to Know Today: 26 Jan 2021

Free 6 issue trial then continue to