Against a backdrop of the rising number of Covid infections, the threat of local lockdowns, the ending of the Job Retention Scheme in October, the end of rent holidays and deferred VAT payments, operational losses and Brexit looming, is there hope on the horizon? Will there be further support for SMEs?
There are reasons to be optimistic.
According to the CBI, despite falls in GDP of 25% across March and April, the economy did grow by 2.5% in May, 9% in June and is expected to have grown by around 10% in July. While there is a long way to go and the picture can vary significantly across sectors and location, there are suggestions that we are currently in a “benign window”.
How long the window will last is the question, with most commentators expecting Autumn and Winter to be difficult. As government support for the labour market is withdrawn and cashflow pressures rise, the CBI is calling for a new focussed and conditional support scheme for those subject to local lockdown restrictions and for the Treasury and HMRC to consider further VAT deferrals and enhancements to the Time to Pay initiatives.
Several recent surveys, including the British Chambers of Commerce/TSB and a report from TheCityUK have suggested that urgent action is required to tackle £35bn of unsustainable debt from Covid-19 loans. The government support provided has been critical to helping businesses survive, but unless solutions are found, the burden of debt they now face could drag them under.
TheCityUK report recommends establishing the UK Recovery Corporation. A government backed entity that would issue, hold, oversee and manage the already government guaranteed debt. Its aim would be to offer viable SMEs the opportunity to convert their loans into new products allowing then to manage their debt in more sustainable ways.
The proposals include a Business Repayment Plan, converting unmanageable loans into means tested tax liabilities and Business Recovery Capital, converting loans into preference shares or long-term subordinated debt. Neither product requires SMEs to give up equity.
Wayne Thomas, partner at Bates Weston comments:
“The SME sector is under extreme pressure. The problem of unsustainable debt is urgent and needs a solution. As deferred payments are no longer deferred, a solution needs to be in place soon after Christmas. As well as welcoming the TheCityUK proposals we also support the CBI’s call for a new focussed and conditional scheme to support jobs in sectors or regions subject to local lockdown, further VAT deferrals and enhancements to the Time to Pay scheme.”
Sources:
- The CBI’s latest economic update webinar 9 September
- TheCityUk is an industry-led body representing UK-based financial and related professional services. The report referenced overseen by EY and was compiled in consultation with HM Treasury, the Bank of England and the Financial Conduct Authority, as well as business trade associations representing a wide spectrum of business sectors and sizes.