Coronavirus Business Interruption Loan Scheme

Lucy Powell Excerpts

Thursday 5th November 2020 Commons Chamber

[Lucy Powell (Manchester Central) (Lab/Co-op)]

It is always a pleasure to follow the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), although I do not agree with his last sentiment. I thank the hon. Member for Midlothian (Owen Thompson) and the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) —that is my best Welsh—for securing this important debate. It could not come at a more opportune moment, given that today marks the first day of the second lockdown and given the Chancellor’s statement earlier.

The coronavirus pandemic has hit our economy hard and continues to do so. Unfortunately, until the Government get a handle on the public health measures to control the virus, particularly sorting out test, track, trace and isolate, it will continue to have more far-reaching economic consequences than it needed to. We have already seen hundreds of companies going to the wall, tens of thousands of businesses shuttered, hundreds of thousands of redundancy notices handed out, and millions more workers worried about whether they will have jobs in the future. At least some will have been given respite today, but unfortunately, for way too many, it has come too late.

None of that was inevitable. The failure of the Government to act earlier on a circuit breaker means that the economic pain of this lockdown will be greater and more far-reaching. Having said that, we have supported the Government’s actions to control the virus and to protect the economy, as it is right for us to do in these difficult times. Much more needs to be done, however, especially for those who have been excluded from support again and again, and for those businesses that seem to have been deemed non-viable, when they are perfectly viable in normal times.

We welcomed the CBIL scheme when it was introduced and we support its extension. The provision of loans with state-backed guarantees was essential in the early phase of the crisis to prevent a liquidity and insolvency crisis among UK firms, but as the long-term nature of the public health crisis and the resultant economic one become clearer, there needs to be some review, alongside some other measures.

As well as loans, we have supported the furlough scheme in its various incarnations and the grant schemes. There were also legal protections in the Corporate Insolvency and Governance Act 2020 that we supported through the House. That support was right in March. The question is, why were Ministers not prepared to accept earlier that if those schemes were right in March, they were right today too? The recent sharp rise in infections was predictable—in fact, predicted—yet the Government always seem to be playing catch up. The Chancellor has repeatedly acted late. His economic plans do not seem to last a week, let alone the winter.

When Greater Manchester was asking in September for the same support that its workers and shut-down businesses received in March, the Chancellor said no, only to change his tune now. He should never have tried to lock down the north on the cheap. The row with the north was misplaced and wasted valuable time. Andy Burnham, Steve Rotheram and other metro Mayors were right, and the Chancellor has now confirmed it.

It is welcome news that the Chancellor has extended the furlough scheme, but if businesses go bust, there will be no companies for those workers to be furloughed from. The grant schemes have become less generous just as businesses face particular cash-flow problems after months of the crisis. Typically, they are now worth a third per week of what they were in March, so how can that be right? For medium-sized businesses, the grants were not enough, which is why they were so reliant on the CBIL scheme in the first place.

Now is the moment for a long overdue long-term reset plan, because it is clear that we will be living with this virus for longer and many of the provisions previously put in place, including the CBIL scheme, need to be looked at in that context. Many businesses will have already taken a loan thinking that it was for two or three months of the first lockdown. They will have been struggling for many months with reduced demand and trade hit by social restrictions through the various tiers and things that came before that. Any long-term plan needs to include more support now for cash flow. Businesses cannot and should not rely on loans to pay fixed overheads during a period of enforced Government closure. That is morally wrong.

We need a six-to-12-month plan—or at least a six-month plan—to support the economy, with a flexible and sufficient package, not all the chopping and changing we have seen. The support available needs to match and reflect the plight of businesses that have suffered many months with fixed costs and little income. Alongside that, the Institute of Directors has said that the Government must expand and extend the measure suspending wrongful trading in line with other measures in the Corporate Insolvency and Governance Act, and we agree with that. That would go some way to prevent the predatory sort of behaviour that others have mentioned.

The measures introduced to support businesses in the first phase of the pandemic must now rise to the challenge the economy faces now and for the medium term. A debt-laden economy will make any recovery more difficult and longer. As we have heard from hon. Members on both sides of the House, there are several outstanding issues with the CBILS loans, and they should be looked at as a matter of urgency. We need more transparency about who is getting the loans. We need to look at fraud, misuse and mis-selling, and we need to look at how lenders are setting their own interest rates, because wide discrepancies have crept in between banks and other lenders. The Government paid more than £65 million in interest to lenders between April and June. Ministers should have got a better deal, and the costs will soon fall to business.

The Office for Budget Responsibility has estimated that one in 10 business loans may default, and I suspect the number will be even higher than that. That is why it is so important that the Government do all they can to stop viable businesses—previously viable businesses—going bust in the lockdown. As we have heard, the concern is the effect on the economy of that huge debt burden of between £70 billion and £100 billion, weighing down the recovery. It would result in continuous waves of business insolvencies, especially as we see the end of the tax breaks, tax deferrals and business rate holidays and all the costs that that will cause to our economy. What is more, a debt-laden recovery is no recovery at all, as it is investments that pay the price—investments in people, in technology, in research and development, in new business plans and in infrastructure, all not happening because businesses need to pay down debts from a covid crisis that was no fault of their own.

The Government need to set out a clear package of support: sufficient grants, some loans and rates relief and other measures for businesses of whatever capacity to operate in. Crucially, we need a plan for reopening businesses working in weddings, events, live music, the arts and other forums, as well as those that are now affected by the second lockdown. I am sure the Minister will agree that when we speak to businesses, they say that most of all they want to trade. They want the certainty of when they can trade, and they want a clear timetable to give them that certainty. At the end of the day, it will be hard-working, decent business people who spent years and years of their lives and their life savings building up businesses that could now go bust through no fault of their own. Not only do we have an economic obligation to support those businesses through this crisis, but we have a moral one too. The Government need to step up to the plate and do more to support them.