Insolvency

Bill Esterson Excerpts

Wednesday 28th April 2021 Commons Chamber

[Bill Esterson (Sefton Central) (Lab) [V]]

As the Minister said, we are not out of the woods yet. There is a very long way to go, and it is right that we protect businesses that would be viable were it not for the pandemic and the resulting loss of revenue. These regulations play their part, but as the long-term impact of these challenges begin to make themselves known, it is clear that these measures are only part of the answer.

There are significant question marks over how the Government plan to support businesses in the long term. For example, in the absence of an impact assessment, it is unclear which businesses are benefiting from the exemption on the rules about wrongful trading. What contribution does the Minister believe the regulations have made in enabling businesses to recover? After the imminent end of the lockdown restrictions, businesses will continue to need support to recover, and it would be helpful to understand whether these regulations have worked up to now and what the likely impact of their removal will be.

Three million is the estimated number of individuals in business who have been wholly or partly excluded from financial support by this Government over the past year. That includes around 2 million owner-managers, also known as the ForgottenLtd, as well as the self-employed, freelancers, women who became pregnant and people who changed jobs at the wrong time. Let us remember that half of the excluded groups have not even been able to claim universal credit.

Similarly, we need to know the impact on businesses repaying the emergency coronavirus loans—CBILS, coronavirus large business interruption loans and bounce back loans. As we head closer to the end of the lockdown cliff edge, those businesses that took out loans and have been unable to trade will need to know what the implications are for them, their staff and, indeed, the economy as a whole. Let us not forget the 7.5 million employees of the ForgottenLtd, who will need to know what will happen to them, their jobs and the companies they work for when the loans have to be repaid.

Before the Minister says that the ForgottenLtd owner-managers took out loans and therefore had support, he should note that those loans were for their business costs, including for rates and for energy or electricity for equipment. Many owner-managers have been unable to pay themselves through furlough as they are paid dividends. Unless businesses have time to rebuild their profitability, they will simply be unable to restart because of the deferred business rates, corporate and personal taxes and covid loans.

There is a real problem of massive potential unemployment and business closure unless the end of the regulations is not just the start of financial problems induced by forced repayment—repayment that is simply not possible without sufficient income having first been re-established. According to the Government’s own Business Banking Resolution Service, nearly half of small businesses that have taken out emergency coronavirus loans do not intend to repay them, not because they do not want to but because they will not be able to do so. Are company owners right to be concerned that the end of the regulations will mean that business are forced to close because of an inability to pay mounting debts and the associated legal problems of trading insolvently?

The Government declined to support the excluded groups, but it was not because of a lack of money. Billions of pounds were available for friends of the Health and Social Care Secretary, for the International Trade Secretary’s adviser and for £7,000-a-day consultants to a centralised contact tracing system that still does not work, and having the Chancellor or the Prime Minister’s phone number meant paydays for moguls in the realm of millions of pounds. Will money now be available so that businesses can start the process of recovery, their staff can keep their jobs after furlough ends, and debt repayments can be delayed until they can be afforded? Will the Government adopt Labour’s suggestion of allowing businesses to wait to repay loans until they are making enough money to do so, in a way similar to that adopted for the repayment of student loans?

More than 1 million small businesses do not expect to recover from this pandemic, which is why we need to know where the regulations fit into the strategy for economic recovery. Millions of microbusinesses and owners of small and medium-sized business are trying to figure out how they are going to put food on the table and pay their workers. More needs to be done to give businesses stability and security than just extending the existing provisions again and again. That means looking at proper business support and enabling smaller firms, microbusinesses, sole traders and self-employed workers—all of them—direct access to Government contracts. That is how the US Small Business Administration operates. Why not do the same in the United Kingdom?

Does the Minister share my concern that, through David Cameron’s access to the Chancellor, Lex Greensill made so much progress in proposing invoice factoring in the public sector? The public sector is supposed to follow the prompt payment code. Why were Ministers and officials even considering invoice factoring? Will the Government use the recovery from the crisis as a reason to revisit the prompt payment code’s effectiveness, and particularly to ensure that smaller firms and microbusinesses are paid in 30 days? Direct procurement and payment in 30 days for small and microbusinesses are just two ways in which firms can be supported, alongside a delay in debt repayment. I hope the Minister will respond to those suggestions. I also hope he will empower the Small Business Commissioner with the proper resources to insist on prompt payment, including in the public sector.

The Minister could do worse than look at the United States, where they know the value of small businesses to the economy. The US Federal Reserve bank found that 30% of small businesses in the US—that is 9 million of them—did not expect to survive 2021 without assistance, which is why the US Small Business Administration has been tasked with supporting small businesses to build back better, alongside President Biden’s American Rescue Plan Act. In the UK, more than 1 million small businesses face similar concerns. Would it not be great if the UK had a small business administration to look after microbusinesses, the self-employed and SMEs? As the Minister should know, it is vital to distinguish between those fundamentally different types of business. The US Small Business Administration shows clear intent to support smaller businesses as part of a concerted and thought-out plan for the long term, not just a quick fix.

The excluded groups, the ForgottenLtd owner-managers, microbusinesses, sole traders and partnership businesses can all be viable again, but they need a plan that goes beyond the end of measures such as the Corporate Insolvency and Governance Act 2020. The failure to plan will lead to disaster for millions of people and just add to the significant problems that we have already seen as we come out of the crisis and into recovery.