Coronavirus Business Interruption Loan Scheme

Kevin Hollinrake Excerpts

Thursday 5th November 2020 Commons Chamber

[Owen Thompson (Midlothian) (SNP)]

I beg to move,

That this House believes the Coronavirus Business Interruption Loan Scheme is not adequately fulfilling its role for SMEs across the UK; and urges Government intervention to ensure that all businesses are provided with the financial support they need.

I thank the Backbench Business Committee for allocating time for this important debate. My co-sponsor, the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) and I applied for this debate some months ago after hearing the anguish felt by business owners in our constituencies who could not access emergency support and were left struggling to find critical funds to see them through the crisis. I know that colleagues from across all parties in this House from all parts of the UK will have heard similar tales: people who did not know where to turn when the billions of pounds they heard being brandished about were no more than fantasy figures doing nothing to help the reality faced by the businesses they had to work so hard to build. The situation has been in constant flux and the support schemes have been a movable feast—or a never-ending famine, certainly for those who have been excluded so far—so I want to reflect on the current situation and dangers going forward, rather than dwell too long on some of the errors of the past.

A rising tide of debt is making the coronavirus business interruption loan scheme an issue again. Changes to the scheme announced by the Treasury so far do not go far enough to see businesses through to the end of this crisis. The pandemic has gone far beyond anything imagined when CBILS was first announced. England begins lockdown again today and most of Scotland remains severely restricted. The feared second wave is upon us and will possibly be worse than the first. Debt and desperation are rising, yet at the same time support is being cut, withdrawn or very reluctantly extended, without due time to plan or prepare. Those excluded remain so again, and banks are getting more tetchy about lending. There has never been a more crucial time to review the effectiveness of Government-backed loans and support, and to make sure we better meet the needs of everyone across the UK.

When lockdown began, CBILS was one of the first schemes out of the blocks, with a promise of £350 billion being made available in this and other Government-backed loans. Although grants would certainly have been better than loans, I commend the Chancellor for that swift action. It is a pity that after seven months, £62 billion—less than one fifth of that figure—has actually been approved via the various loan schemes. We need to find better ways to make funds accessible to those who need them and to hope that bold replacement mechanisms for CBILS and the bounce back loan scheme, with an emphasis on grants, can be found. Those would plug the gaps in the support already in place and would help to stimulate recovery.

Flaws in CBILS quickly became apparent. It was reported on 12 April, only three weeks after the scheme was launched, that 300,000 inquiries had been made yet only 1.4% of those went on to be successfully approved for loans. Some people did not pursue loans beyond the call to the bank, whereas others gave up before completion of the heavily bureaucratic process. Some seven months later, on 18 October, 73,094 companies had been approved for CBILS out of 159,277 completed applications—that is still an approval rating of less than half of those who completed the process, never mind those who were too worried about the debt to take it on in the first place.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I thank the hon. Gentleman for bringing forward this important debate, because although there have been successes with CBILS, there are some shortcomings too and it is right that we discuss them. I accept, to a great extent, the point he makes about grants rather than loans. However, he would probably accept that grants have been made as well as supporting loans, in the form of the job retention scheme and the business rate grants.

[Owen Thompson]

I do accept that point, and it is important that some of those grants have been in place. I would far rather have seen some of the large sums available through CBILS and the bounce back loan scheme made available as grants, as opposed to loans, which add to the debt burden on business.

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[Owen Thompson]

Yes. Charities, who spend so much of their time having to collect from the public and are now having to adapt to new ways of doing that, are among those many who have been pushed into an impossible situation, where the only game in town is what they had to take. We absolutely need to look to see what we can do to support them, to help them out of this situation.

[Kevin Hollinrake]

It is an interesting point, but how would it be fair to people who did not take a loan, or to businesses that paid back their loan, if you wrote off the debt of businesses that did not pay back their loan? How could that possibly be fair?

[Owen Thompson]

Each business took its decision about what position it was in at the time. Many would face the prospect of going out of business; the heart of our communities would vanish overnight. One swift step by the Treasury could solve that, to support and maintain our communities.

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[Kevin Hollinrake]

It is an interesting point, and it is worth having a debate about it, but lots of businesses, including mine—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—took loans on the basis of a safety net. Not only did they not need it, but they were unsure about their commercial circumstances and they will be able to pay that debt off without going bust, and intend to. Are you intending to write off the debt to my business, which I did not need, which the taxpayer has funded, even though I do not need that money, on the basis that everybody should just get free money?

[Owen Thompson]

As I say, every business took the decision about why they needed to take a covid loan or a bounce back loan. This is about ensuring that we protect the jobs and security for those businesses going forward, and making sure that our communities are protected.

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[Kevin Hollinrake (Thirsk and Malton) (Con)]

I thank the hon. Member for Midlothian (Owen Thompson) and the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) for bringing forward this important debate; I agree with many points made by the hon. Member for Midlothian. I also draw the attention of the House to my entry in the Register of Members’ Financial Interests.

This is such a key debate. We live and work in a capital society, so access to capital is not just a nice-to-have; it is absolutely vital. Unfortunately, the way that banking works in our society tends to mean that access to capital is available at times when we probably do not need it or when we need it least. It is like the old adage about being given an umbrella when the sun is shining and having it taken away when it is raining. That is definitely a feature of the way in which banking works in this country. But it does not need to be like that. In fact, it is not like that in many other very successful capitalist countries, as I will mention later.

We talk about building back better, and we have an opportunity to build banking back better. There is no doubt that banking can have a commercial purpose. As somebody who believes in free markets as the best way to drive down prices and drive up service, I absolutely think that commercial banking should be a feature of our financial system, but I also think that it should have a social purpose—through both our commercial banks and another form of banking. A mutual, not-for-profit approach to banking is a key feature of the banking systems in many other countries, including Germany, the US and Japan. I will talk more about that in a second.

Let me first discuss the main topic of the debate, which is CBILS. Although there have been some gaps, to which the hon. Member for Midlothian was quite right to draw attention, there is no doubt that there have also been huge successes. Some 73,000 businesses have been supported by the scheme, with around £17 billion. I do not think that anybody ever expected that there would be demand for £300 billion of loans. There have been £40 billion of bounce back loans; there is no cap on that, and the application process is very easy. There is probably a finite market for these loans, because most businesses will try to get through without taking a loan, but they have been a tremendous success.

My business has taken one of these loans. We will never touch it and we will pay it back. But if a message was sent out to businesses, saying, “You don’t need to pay this money back. Don’t worry, we’re going to write it off”, or if the repayment were subject to certain criteria, businesses would find a way of adjusting their business cases to meet those criteria. It is moral hazard to say to companies, “You’re just going to get this money and you don’t have to pay it back.” To my mind, that would not be fair to businesses that did not take a loan, or to businesses that can and do repay their loan.

It was Government intervention, of course, that made this scheme a success. There is no way on earth that our commercial banks would have made it a success without the intervention of the Government, so I applaud the efforts of the Minister and his colleagues on the Treasury Bench. Credit should also go to the British Business Bank, UK Finance and the banks themselves, which rolled out these schemes at tremendous pace, particularly the bounce back loans. We should recognise the successes.

Inevitably in such debates we need to talk about the flaws and the gaps in the measures, and there have been some in this scheme because it was rolled out at pace. The flaws are particularly sector-based, and this strikes at the heart of the problem with UK banking. Our commercial banks look at lots of these sectors, and are attracted to some and not very attracted to others. That has been a feature of the CBILS. The performing arts sector found it very difficult to get loans. Football clubs found it impossible to get them; they will not be supported. Despite the Government guaranteeing 80% of these loans, they were still inaccessible to some sectors.

Many SME housebuilders also found it difficult to get loans. As we know, the house building sector in the UK is increasingly dominated by large business. I come from very much a small business background so I always favour SMEs in my speeches in this place, and I think we should always try with our policies to look after small businesses. Lots of the banks simply will not provide finance to SME house builders. It is a key issue, it was an issue with CBILS loans, and I really hope that the Minister will look at it and try to address it.

The hon. Member for Midlothian is absolutely right that there have been some pricing issues. In the first year, of course, the taxpayer has to pay for that—it is a feature of the loans that the Government in effect fund the first year’s interest, so the taxpayer picked up the 12% interest that the hon. Gentleman was talking about. A company called SWIG used really quite exploitative pricing. The Government have done this to some extent, but we do need to look at top-ups for people who have taken a certain size of loan and will need more. We have done that for bounce back loans but we have not yet done it for CBILS, for which the exact same dynamic could apply. Bounce back loans have been a tremendous success, but we still need to work on the basis of the fact that lots of people bank with companies that do not have access to the term funding scheme for SMEs from the Bank of England and therefore do not have the liquidity to lend their customers bounce back loans. Tide is the most obvious example: those who bank with Tide cannot access a loan, because there is no funding for Tide’s customers because the bounce back loans are so cheap, at 2.5%, and if they try to go to another bank, all the doors are closed. Those doors are closed even in respect of opening a bank account. We really need to find a solution for non-bank lenders..

I agree with the hon. Member for Midlothian entirely about forbearance: we need a standardised process for it. As I have said a few times previously, I am the co-chair of the all-party group on fair business banking. We would love to be part of the conversation, because we can inform the debate that the Treasury is having with the banks about how we standardise forbearance.

In my final minute, I wish to talk about banks having a social purpose. Banking in the UK is massively dominated by our big commercial banks: 80% of SME finance is with the big four banks. It works completely differently in different countries. Germany is a classic example, where there are 1,500 not-for-profit mutual banks. That is so important. In the UK, between 2008 and 2013, the amount of finance extended to SMEs dropped by 25% because the banks drew in their horns and thought, “It’s all too risky, thanks very much. The shareholders come first.” That was understandable, but hardly good for UK plc. In the same five-year period, lending to SMEs in Germany went up 20%. We need to make sure that that happens here. There are lots of examples of fledgling organisations that want to provide regional mutual banking, including South West Mutual and Avon Mutual. They need funding from the Government to do it.

Community development finance institutions can also play a part. They need funding from the Government to do it. All we need to do is tell the banks, as they do in the US, to lend money to these organisations, which can lend money profitably and with sensible lending conditions, but with a social purpose. They can provide more patient capital and more financial inclusion. It is a huge opportunity. Before I sit down, let me give a last example. The state of Wisconsin in the US is the size of Yorkshire—around 5 million people live there—and there are 139 mutual banks with, collectively, around £100 billion-worth of assets. They are there for that financial inclusion and making sure that lending goes to the productive economy. I urge the Minister, who is a great businessman himself, to be part of building banking back better.

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[Jerome Mayhew (Broadland) (Con)]

I draw the attention of the House to my entry in the Register of Members’ Financial Interests—in particular, my significant shareholding in a business that has received a CBIL.

We have heard about the Government’s actions. We have heard about the enormous numbers that are involved, which were referred to directly by the hon. Member for Midlothian (Owen Thompson), and about how they are just fantasy numbers because they are outside the essence of our individual experience. It is just for the same for me. Big numbers mean little to most people, because we do not really understand them in our normal lives.

However, I have a very real experience of the transformative effect of the CBIL system. Prior to entering this place, I was the managing director of, and a significant shareholder in, a seasonal tourism-based leisure business of just the kind that we have heard so much about over the past six to nine months. It operates in 34 locations right across the United Kingdom, employing people in Scotland and in Wales as well as in England. In March this year, we had weathered our planned seasonal losses over the winter. The business had been invested in and had recruited a large number of staff, looking forward to Easter trading. It was an irony not lost on me and everyone else who was employed in the business that the lockdown was announced in the very week of our minimum cash flow in the entire year, by which I mean that we had the least amount of money to respond to an economic shock. As a result, the lockdown was an immediate existential crisis for that business, which employs up to 1,000 people in this country and 250 to 350 people in the United States of America.

Without doubt, the CBIL that we were able to obtain within a matter of weeks saved the business from the risk of collapse. It bought time. It cushioned the cash-flow blow—this crisis is primarily about cash flow—and allowed space for the business to adapt, survive, and then, I am very pleased to say, absolutely to thrive now, although I recognise that that is not the experience of an awful lot of other businesses in the sector. The Chancellor’s intervention directly saved hundreds of jobs and careers. Let us not forget now how fast the Government acted—and thank goodness they did, because without that, the economic damage to this country would have been so much greater.

In a previous debate, I highlighted what I considered to be one of the key weaknesses of the CBIL scheme. As we plan to grow out of the crisis phase and into the economic growth phase, we need our recovery to be led by businesses that have cash to invest, creating new products, investing in growth, increasing efficiencies, exploring new markets and, importantly, creating employment. To do this, they need access to cash, as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) has identified, at a time when the unwinding of the CBIL loans, with their straight line capital repayment scheme after the first 12 months, means that cash will actively be withdrawn—at that stage, in a one sixth per annum phase, but most likely, in reality, between two and five years. That would be taking money out of the productive economy just at the time when we want these businesses to be investing in growth. I was therefore delighted—and impressed, frankly—when the Chancellor announced recently the increased flexibility in interest and capital repayment requirements and increased the maximum period of capital repayment from six to 10 years. At a stroke, this almost halves the capital repayment requirements for businesses, it frees up a really significant sum of money to be reinvested in growth, and it focuses exactly on the businesses that are able to do it.

However, there is one further point that I hope the Treasury will look into. Lending banks currently have their covid loans sitting on their balance sheets, albeit supported by the Government’s partial guarantee. This reduces their capacity, and their appetite, to lend further to support the business-led recovery. I ask the Minister whether the Government could develop a scheme to allow these covid loan books to be sold to institutional investors via a special purpose vehicle, because this would provide long-term, very low-risk, fixed-income investments that are sought by pension funds, for example, particularly if the resulting coupon was tax-free. I know that is an ask of the Treasury, but it would ensure the success of the scheme.

[Kevin Hollinrake]

My hon. Friend makes an interesting point, but one of the mistakes we have made in past years is allowing the sale of loan books to very aggressive companies that pursue those loans and repayments in the most inappropriate way for SMEs. Does he propose some kind of restrictions on who those can be sold to?

[Jerome Mayhew]

It would be an unwise legislator who had not learned from the financial crisis of 2008-09. It would require regulation and careful oversight by the Bank of England, I suggest, but we should not throw the policy baby out with the execution bathwater. This suggestion is something the Treasury should look into, and I encourage it to do so, because in return the lending banks would have their balance sheets reflated and their risk removed from the sector, encouraging them to support business investment and recovery further. When Government finances are stretched as never before, the suggestion has the merit of allowing the market to provide much needed capital for growth and not the Treasury.

There is no doubt that the Government have invested massively and effectively in supporting our business community and the jobs, importantly, that they support, through the swathe of schemes that have been discussed today, most recently with the Chancellor’s announcement this afternoon of the extension of the furlough scheme. It gives me great confidence that the Government remain committed to the business sector and supporting them to lead the future economic recovery.