It was glaringly obvious from day one of the coronavirus crisis - which was well before Rishi Sunak's March 11 budget - that small businesses were going to need the most massive support to get through whatever was going to hit them. I had a discussion on this with one business in mid-February. Despite that, Sunak's original offer of coronavirus support was in relative terms tiny, deeply conditional, and when it came to loans, entirely dependent on the willingness of banks to bear part of the risk of any advance made, which unsurprisingly few have been willing to take.
I criticised Sunak on Radio 2 on budget day, saying that his response was inadequate. I did so again when he offered loans subject to an 80% government guarantee, which from the moment that they were announced were glaringly obviously not going to meet the needs of the UK economy. That was especially true given the inadequacies of UK banking, which is almost universally hostile to business because of its dependence upon security, guarantees, and asset finance which is ill-suited to many small enterprises' needs.
And now, far too late in the day, but I suppose better late than never, the FT reports that:
Chancellor Rishi Sunak is preparing to offer 100 per cent guarantees on loans to Britain's smallest businesses, after sustained pressure from Conservative MPs and the Bank of England.
But let's not get too excited, they add that:
Mr Sunak's colleagues say he is “weighing up” whether to go against his instincts and offer full state backing to loans of up to £25,000 to “micro-SMEs” struggling to get credit to see them through the coronavirus crisis.
And they note that:
He said this week he was “not persuaded” that a total state guarantee was the right thing to do despite pleas from Tory MPs, Bank of England governor Andrew Bailey, and former Tory chancellor George Osborne to change course.
Despite that, the rumour is that the Treasury is working on a new scheme targeted at maybe one million of the smallest companies, typically employing a handful of workers.
However, I would not hold your breath as yet. He has yet to get one of these schemes right. Unlike Germany and Switzerland where the time-lapse from applying for a loan of this type to receiving the funds is hours, and the payments made are much larger, the hint is that the usual massive problems to access will be put in the way of this scheme. The usual paranoia will apply.
So, for example, expect there to be conditions that evidence must be supplied that all other options have been applied for and used before such loans can be given. That will include commercial loans.
And expect that there will be greater concern that small sums will be fraudulently claimed than for the survival of companies, a problem overcome in Germany by linking the claims in most cases to previously declared turnover for tax purposes.
Whilst since delivery will still be via banks, who are not in any way geared up for this, expect delay to be the order of the day. Many businesses will die of cash starvation before these funds might possibly reach them. If only we had a national investment bank, as I have long argued for, that could manage this process. It could even raise specific bonds to finance it, if that was considered desirable, as I think it would be. But we haven't got anything like that.
In summary, a clueless Chancellor who is in post solely because of his obedience to a prime minister who has put on record his contempt for business and who has displayed his lack of comprehension of business need for so long that even one of his ignoble predecessors has had to implore him to act, will now do so in falteringly inadequate fashion.
This is not party political comment. This is a simple statement of fact. And yes, I am angry about it. Real people will suffer as a result of this incompetence. If that is not reason to be angry, what is?
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The thing to learn from this in my opinion is that we need a form of nationalised bank on the high street which at anytime could be used as an instrument of Government policy. Tory MPs do not realise that the private bank’s first priority is their shareholders.
The thing is, we are living in a time of plague – if biblical language like that was used, maybe it might help these idiots understand what they were really dealing with.
But it shows you how hard wired the Tories are at destroying and carving things up rather than making Government work for the people – people who are expected to fight their wars, police the streets, put out fires and look after us when we are ill or infirm and whom actually generate the GDP and tax returns for the country.
If we’re going to use biblical language, then what we need is a Jubilee, where periodically in biblical times, debts were forgiven.
Pilgrim a good model for a national investment bank could be the Bank of North Dakota. It was set up at the turn of the 20th century by the socialist governor at that time. All state receipts and payments go through this bank. It lends money for mortgages and makes loans to local business. It has never engaged in speculative trading of any sort. As such it insulated against the financial crash of 2008. All profits go to reducing State taxes. Over the years there have been many attempts by ‘Wall Street’ to have it shut down or taken over. All such attempts have failed. The Bank of North Dakota is very popular. It works for the people and in support of local business.- It is almost a banking equivalent of our NHS.
It is a fantastic model
Harold Wilson introduced the “Giro Bank” which seemed quite good at the time and was accessed from the Post Office and not hampered by the traditions and strictures of the old banks. Of course this had to be flogged off into the private sector once the Tories got back in but it shows a national bank is possible.
I remember National Girobank Bill with a great deal of affection, since my left wing, canny parents pointed me in its direction as the place to have my first bank account. It was excellent – good service through Post Offices, paid postage, simple accounts. So of course Thatcher had to flog it off to the private sector.
If memory serves me right, it ended up in the hands of A&L Building Society. To be fair, A&L weren’t bad, but still not as good as Girobank. Bang went the free postage for a start. Who subsequently demutualised themselves along with many others, and come the GFC went begging for rescue to Santander who took them over lock, stock and barrel, for £1 since they were about go bust. So much for the superiority of ‘free enterprise’ over state provision.
I had an account back in the day…..
Clueless is certainly the right word!
Firstly Sunak thinks the private banks should be creating the money out of thin air rather than the Treasury.
And of course all the guarantees must be for the banks and none at all for the business itself, which is always liable for the entirety of the loan.
With no certainty on anything if I ran a small business I’m not sure if I’d even bother getting in the queue for the loan, particularly as there’s been no statutory commercial rent holiday.
Sunak is truly a Chancellor for the rentiers.
While Sunak has had the best education money can buy and appears to be an exemplary representative of his professional & social caste, this is no indication that he has even the remotest idea of how a mature, complex economy functions. Or specifically how SMEs have to compete and survive in normal conditions, let alone during a pandemic. Why would he? To expect otherwise is unrealistic. Besides, he – like all the Tory front bench – have no ‘skin in the game’. When it all goes txts up they’re not going to be applying for UC, are they? Sometimes it does help to have run a whelk stall – even for a short while.
These too are the people who endlessly accept this abuse. If they rebelled against it, it would end. More comparison with other countries is needed to rouse them, and the question needs to be asked over and over, if other countries can be doing this, why can’t this one?
[…] The government is apparently considering advancing 100% loans to small business for sums up to £25,000. […]
Without wishing to support Sunak, I would note that the government scheme to issue £10k grants to premises in the hospitality sector (based on the business rate database) is working well in my local authority in Devon, where they have disbursed nearly 90% of the money. Cash arriving within 5 business days of application.
I might also note that it is being administered by local authorities and not HMG!
Depends on the local authority. I put in an application for the grant 30 days ago. No sign of it. Edinburgh as usual is slow. I am also a business tenant of the council and Can’t get a cheep out of them as to a policy on rent during the lockdown.
Germany not only has done a lot more – it has put the whole thing in english and has ads out about it – The drunk cowboy gunfighter/ Chancellor Sunak still can’t hit the side of the budget barn with his fifth shot.
The germans have given him a helping hand – can we please just implement this NOW.
https://www.bundesfinanzministerium.de/Content/EN/Standardartikel/Topics/Priority-Issues/Corona/faq-corona.html
Example:
‘We have set up an Immediate Assistance Programme (Soforthilfeprogramm) to provide grants to small businesses, self-employed individuals and freelancers. ‘
&
‘In addition, self-employed individuals can apply for basic benefits for jobseekers (Grundsicherung für Arbeitssuchende); the eligibility criteria for this programme have been simplified in response to the coronavirus pandemic.’
Plenty more there – i urge that everyone here reads it in full.
It is what the country needs and will get everyone through the summer without rebellion and riot & prepare for the second wave in the winter will likely hit with the flu season – which is the double whammy!
Precisely
And thanks
You’re right in Sunak’s aim
People faced by the uncertainty of lockdown and issues raised by the impact of un -parliamentary and undemocratic, incompetent management are going to be very careful in taking up any loan arrangements. Given that many small businesses are going to find it very difficult to restart ( I consider that is apppropriate given a probable 6 to 8 week interruption in trading) as most of the market has been on severely constrained budgets and incomes will have dropped. Who is going to risk a loan when a government can turn off the economy as has happened,almost overnight? This is a truly tragic situation.
I have mixed feelings about any sort of loan that is basically plugging a hole in small businesses’ turnover. If the government dictates that for the common good a business (restaurant, event organiser, driving instructor etc) should close for a period of time, then that government has an obligation, surely, to compensate the business? I think I have used the analogy before, guaranteeing a loan is rather like throwing a drowning man or woman a concrete block.
Also, pretty well all of the grants thus far provided are linked to business property. i.e. Rates relief and the £10k and £25k grants. What about businesses run from home?
I would dearly love to be a fly on the wall when these “loans” are being discussed by Sunak and his buddies And preferably, a fly with access to a high-powered megaphone.
Loans are no remedy to sudden loss of income. There is something truly reprehensible about encouraging hard working small business owners to slip a noose around their necks and expect them wait around until the stool is knocked from under their feet; as it surely will be if the loans are used to finance losses.
When times are good government encourages consumption by encouraging us to extend personal credit, and when times are bad, hey-presto, the solution is to offer extended borrowings.
I DESPAIR…
Vast numbers of these loans will go bad
Hence the need for equity stakes