Coronavirus Business Interruption Loan Scheme

Owen Thompson 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 Debt and desperation are rising, yet at the same time support is being cut, withdrawn or very reluctantly extended, without due time to plan or prepare.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.

[Rachael Maskell (York Central) (Lab/Co-op)]

I, too, am grateful to the hon. Gentleman for bringing forward this debate. Ninety-four businesses in my constituency have taken out a CBILS loan, but they are really concerned now about their ability to pay it back, even with the new measures put in place. Does he share my concern that we need to see some underpinning and underwriting in order to secure these businesses for the future?

[Owen Thompson]

I absolutely do and I hope that some of the points I will make later will address the hon. Lady’s concern.

Although improvements were made, the mechanics remain flawed, and take-up is not helped by the fact that the state guarantor is only for 80% of the loan, so risk-averse banks are the gatekeepers to lending decisions. Initially, banks were cherry-picking the very best—the blue chips and the big corporations—while lending to the rest was far harder to find. Now we see a second wave of banks becoming less willing to lend as the uncertainty of the crisis continues and worries grow about the ability to repay. We need the Government to step in to fix that. Of course getting cash to smaller firms was aided by the launch of the bounce back loan scheme in May, and again I commend the Chancellor for taking the action to introduce that. It is a faster process, with a far greater take-up, accounting for about two thirds of the total loans received, with about two thirds of those reaching small and medium-sized enterprises. That is aided by the Government guarantee of 100%, the capped interest at 2.5% and the lender agreeing not to charge fees. That is far closer to what I think CBILS should be if it cannot be a grant. It is a pity that bounce back loans remain limited to up to £50,000, which is nowhere near enough for the needs of many businesses around the country. I hope the replacement for CBILS will take account of the mechanics of the bounce back loan scheme.

By contrast, the commercial companies approved for CBILS can set the rates for business interruption loans, with massive variation in what is offered, averaging around 6% but going up to almost 15%. One local business told me that the initial rate it had been offered was 34%. That may bail out companies in an immediate cash-flow crisis, but it will lead to crippling debt in the longer term when the taxpayer support ends. As The Sunday Times reported this week, some CBILS-accredited lenders are not only charging double-digit interest rates but are charging arrangement fees of up to 5%, a considerable sum to any business. Some are apparently marketing the loans as ways to fund management buy-outs or to refinance existing debts. It looks like some of these loans are less emergency support and more picking the bones of companies in trouble.

Covid-19 has certainly brought out the best and worst in our society. We have seen the very best in the public spiritedness of our communities, essential workers, volunteers and small businesses struggling to keep things moving supporting the vulnerable and saving lives. The very worst, though, are those who see the pandemic as an opportunity simply to make a quick buck on the back of other people’s struggles, whether through price gouging on hand sanitiser, creaming off cash from shadily signed Government contracts for personal protective equipment or, in this case, hiking up fees and interest on loans to desperate companies. There are always people out there who see a disaster as an opportunity to make money, but they should not be able to do so with a Government badge of approval.

Many companies are not taking on CBILS or BBLS loans because having more and more debt around their necks is the very last thing they need. Small and medium-sized enterprises in Midlothian told me that it was an absolute last resort, and that the schemes were far better suited to big players. They say they needed a short-term financial injection, not a loan, but businesses were being pushed towards debt as the only option. One local business that contacted me put it far better than I could have put it myself:

“Business owners are being unfairly expected to shoulder a massively disproportionate share of the burden. Many SMEs have been built up over years of toil and are supported by personal guarantees of directors who are being pushed into positions of potential or actual insolvency which can lead to personal bankruptcy. This is at the bequest of people in authority who are at no personal risk at all. Are they aware that these businesses are where the tax receipts come from that will be needed to pay back the debt now being built? Many of them took years to build into the position where they pay and collect a good level of taxes and if these companies are forced to fail it could take many years to build their replacements”

I hope the Treasury Bench will take note of those comments.

In May 2020, the Office for Budget Responsibility forecast a likely 10% default rate on the loans. By July, that was updated to 40%. In September, the Department for Business, Energy and Industrial Strategy’s annual report went even further, estimating losses ranging from 35% to 60%. TheCityUK recapitalisation group’s report estimated that UK businesses will have £100 billion of toxic debt by 2021, with £35 billion of that related to the Government schemes. The report warned that up to 3 million jobs across the UK, and 780,000 SMEs, are at risk if urgent action is not taken to tackle that projected £35 billion of unsustainable debt from covid loans.

Worryingly, there are reports of banks bringing in specialist debt collectors to help lead the recovery of loans. Of course, the loans spare the banks from the credit risk, but if they cannot be repaid, will we witness thousands of small family businesses pursued through the courts for recovery before the guarantee kicks in? The National Audit Office report into the bounce back loan scheme published on 8 October stated that

“the Bank expects lenders to pursue ‘appropriate recovery processes’”

if companies default. However, it is not clear what that means, and the UK Government need to provide clearer guidance on that process. Given that funds were provided on terms set by the Treasury, it is only fair that, as a minimum, there is a clear framework for recovery, so that customers are treated fairly and consistently, regardless of their banking provider. Even better, why not take the stress off the shoulders of small business and dump the debt that will only hold back recovery? There are also small businesses facing bigger debt on their loans than others, because they rushed to take out the loan when it was the only game in town. They could face a 50 or 60% increase in repayments compared with a bounce back loan. The banks do not seem particularly keen to make it clear that businesses may switch these loans, and I hope that the Government will help to get the message out there—that one simple step could make a big difference to so many companies.

As the pandemic crisis continues and companies try to adapt and rebuild, the best thing the Government could do would be to write off the outstanding debt to SMEs altogether. That would help small businesses have room to recover. The Association of Accounting Technicians called for the bounce back debts to be written off for small businesses, accounting for £40 billion of loans. It says that the “pay as you grow” scheme does not solve the problem; it just defers it, whereas writing off the debt would be a much-needed boost for SMEs and the economy.

[Rachael Maskell]

Charities have been pushed in the direction of CBILs as well, and of course that is completely inappropriate, so to add to the list, will the hon. Gentleman say that charities should have their debt written off as well?

[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.

[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.

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

My hon. Friend has been making a powerful speech. Does he agree that when businesses across the nations of the UK have not needed public funds, they have returned the money, in their many millions? Would that not be exactly the same circumstances that he would be calling for here?

[Owen Thompson]

Absolutely; I completely agree with my hon. Friend. This is about ensuring the security and the future of thousands of businesses across these islands. It is a bold move—I accept that—but we are in a crisis and bold action is exactly what is needed.

[Liz Saville Roberts (Dwyfor Meirionnydd) (PC)]

I am wondering whether consideration might be given to certain sectors, because we know that, sector-specifically, there are areas such as tourism that have been able to make no money whatever over the summer. Could this be a medium by which that could be addressed?

[Owen Thompson]

That is an excellent suggestion. Tourism, events—a number of industries have no opportunity to make the income that they need at the moment. Looking forward, there is no immediate prospect of their being able to do so, which is where the threat of those loans becoming due for repayment really starts to come into its own.

The Government, when considering a replacement for CBILS, need to look at ways to use the remainder of the £350 billion promised to be released on direct grants, perhaps equity, and make sure that reaches those who actually need it. Many viable businesses have received nothing so far, and they are not going away either.

Today—5 November—is an important day to hold this debate. It is not just the beginning of the new lockdown in England, but it commemorates the date of a failed gunpowder plot. Let us make it our day to properly remember, and not leave a giant powder-keg sitting under the businesses across our nations. We must ensure that our businesses survive and our democracy works for the people it is supposed to serve. I urge the UK Government to act now, to prevent a debt crisis, to boost support for businesses, and to stop more jobs and livelihoods going up in smoke.

--- Later in debate ---

[Owen Thompson]

We have seen a great degree of consensus this afternoon around the important part that the loan schemes have played. There has been recognition of the absolute need for the schemes, but it is almost as important—if not more important—that we take the opportunity to highlight any shortcomings and the challenges ahead. As we look forward, I certainly want there to be as many opportunities as possible to ensure that the debt burden on so many small businesses across our nations does not become the next crisis that ends up tearing the heart out of communities the length and breadth of the country. There also remain countless businesses that are not able to trade in any shape or form in many different industries and sectors. That needs to be addressed.

I thank all Members for their participation in the debate. I suspect that it is an issue that we will return to in the months ahead.

Question put and agreed to.

Resolved,

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.

[Madam Deputy Speaker (Dame Eleanor Laing)]

In order to allow the safe exit of hon. Members participating in this item of business and the safe arrival of those participating in the next time, I am suspending the House for three minutes.