Chancellor’s ‘Bounce-back’ loan scheme strengthens government support for small businesses, but MPs call for further flexibilities in Coronavirus support schemes
The government is to introduce a new micro-loan scheme for small businesses amid fears that many have been unable to access other government-backed Coronavirus loan schemes.
The Coronavirus ‘Bounce Back’ loan scheme was announced by chancellor Rishi Sunak in a statement to MPs in the House of Commons on Monday.
The scheme will launch from Monday 4 May and enable businesses to:
- Access loans of between £2,000 and £50,000 for up to six years, from a network of accredited lenders
- For most firms, ‘loans should arrive within 24 hours of approval’
- Apply via a ‘simple, quick, standard form’ with ‘no complex eligibility criteria’ or ‘forward-looking tests of business eligibility’
- Borrow interest-free for the first 12 months, with no repayments due during that time
He acknowledged that not all businesses will want to take on extra debt in uncertain times and said that for those businesses, support was available in the form of grants, business rate exemptions and tax deferrals.
Unlike the Coronavirus Business Interruption Loan Scheme (CBILS), the government is to guarantee 100 per cent of these loans (as opposed to 80 per cent).
Sunak told MPs that this would ensure that the scheme would ‘carefully target…those who need it most’. He added that the £50,000 cap on the amount that can be borrowed would balance the risks to taxpayers with the need to support our smallest businesses.
Responses to the scheme
Shadow Chancellor Anneliese Dodds welcomed the scheme but asked for clarity on the ability of banks to process loan applications. She also asked the government to consider extending loan guarantees to 100 per cent, changing the Universal Credit ‘budgeting advance’ from a loan to a grant and to consider introducing additional flexibility into the furlough scheme.
The chancellor said that banks were ‘re-engineering’ their systems to ensure applications could be fast tracked in 48-hours. He acknowledged that Switzerland had provided more generous loan guarantees, but added they had not ‘provided much else’ in way of support and had required businesses to pay more towards the costs of their furlough scheme. Sunak also defended efforts to ‘strengthen the safety net’ by allowing for more generous welfare payments.
The chancellor had earlier told MPs that he remained ‘unconvinced’ by the case for underwriting all government-backed loan schemes – such as the CBILS – with a 100 per cent guarantee. He said that this would burden ‘ordinary taxpayers’ with the debts of some businesses who have little prospect of repaying ‘not necessarily because of…coronavirus.’
Mel Stride, the chair of the House of Commons Treasury Select Committee, said the success of the scheme would be judged on the response of lenders. In a statement, Stride said the government’s measures were ‘extremely welcome’ but added there needed to be ‘full and regular transparency’ on the scheme’s progress to ensure that lending was ‘out the door fast’.
In response to a question from Alison Thewliss (SNP) calling for additional support for those in receipt of welfare benefits, Sunak defended the changes made by the government to the Universal Credit system.
Other topics covered during the debate included:
A roadmap for easing lockdown restrictions
Theresa Villiers (Conservative) and Steve Baker (Conservative) called on the government to produce a roadmap for exiting the lockdown. The chancellor assured Villiers that work was ‘ongoing’ and would be made clearer in the coming days. He assured both Baker and Andrea Leadsom (Conservative) that advance notice would be given to businesses on when restrictions would be lifted and said that work had already taken place with ‘businesses, unions and others’.
Support for the self-employed
Sir Edward Davey (Liberal Democrat) argued that more could be done to support the self-employed with dividends earnings who were receiving ‘little or no help’ from government. Sunak said that many organisations representing the self-employed had welcomed the government’s support measures and that further changes would risk delays in providing support to millions.
Conservative Steve Brine suggested that the government could do more to help those self-employed who fall just outside the limits of the government’s support schemes. The chancellor said he remained open to responding to circumstances without providing any specific guarantees.
Alistair Carmichael (Liberal Democrat) said these challenges justified consideration of a Universal Basic Income (UBI) that could be designed to claw back payments via the tax system for those without need. Rishi Sunak said he did not agree with UBI and that the government’s schemes would benefit up to 3.5 million self-employed people.
Coronavirus Job retention Scheme (CJRS)
Sir Graham Brady (Conservative) suggested that the CJRS could be modified as businesses gradually return to work. Sunak confirmed that the government would make ‘gradual refinements to social and economic restrictions’ whether that be to strengthen or allieviate the interventions already in place.
Anthony Browne (Conservative) said it was important to ensure that when the CJRS and other schemes were rolled-back, this was done in a manner that minimises further economic disruption. The chancellor said a lot of careful thinking was needed to ensure that economic recovery was not hampered.
Stephen Metcalfe (Conservative) said the scheme had excluded some workers that had started employment in March but weren’t on the payroll for the CJRS cut-off date of 28 February. Sunak said that the cut-off date had been extended to 19 March, meaning that around 30 million people could now benefit from it.
Alan Brown (SNP) called on the government to find a solution for low-paid workers who rely on commissions to top up their basic salaries to ensure they can access 80 per cent of their typical earnings. Sunak said it would be ‘very difficult’ to make further changes to the furlough schemes, adding that there was ‘flexibility and generosity’ within the CJRS to help account for average earnings.
Harriet Baldwin (Conservative) suggested a windfall tax on hedge fund managers to help pay for the costs of the government’s economic response package while Peter Kyle (Labour) said there were some companies that were now ‘relying on the largesse and generosity of taxpayers’ despite having ‘aggressively’ avoided paying tax in the UK. Responding to his call to aim for ‘business as better’ post-lockdown and ensure such businesses play a fuller part in the economy, Rishi Sunak called on businesses to act responsibility and ensure the UK recovers as one. He didn’t allow himself to be drawn on potential future tax measures or the content of future budgets.
Coronavirus Business Interruption Loan Scheme
Labour’s Angela Eagle said that the process for applying for the CBILS should be simplified. The chancellor said that he was ‘striving’ to make the process ‘as seamless and as quick as possible’. He said that thanks to improvements, 20,000 loans had been issued, 40,000 were being processed and 80 per cent of applications were being accepted.
Sunak had earlier told Alison Thewliss that the process for accessing micro-loan scheme would reduce the need for bank viability tests. He acknowledged that many businesses may not wish to access loans and said that efforts had also been focused on improving access to overdraft facilities and other forms of credit.
Kevin Hollinrake (Conservative) suggested that the CBILS scheme should follow the micro-loan scheme in removing the forward viability test. The chancellor said Hollinrake’s representations to ministers had helped ensure businesses would no longer have to provide this information when accessing the CBILS scheme.
Matt Western (Labour) also pressed the chancellor on the speed of loan applications and payments, saying France (7x) and Germany (3x) had lent more. The chancellor said the scope of the UK’s interventions were more comprehensive and that the CBILS had issued more than the equivalent German scheme.
Jim Shannon (Democratic Unionist) called on the government to extend its CBILS loan guarantee from 80 to 100 per cent to support the hospitality sector and private bus companies in Northern Ireland. Sunak said the structure of the Northern Ireland economy meant many businesses there would be able to benefit from the micro-loan scheme.
A range of MPs also called on the chancellor to consider extending the various government support schemes to support the travel, tourism, leisure and hospitality sectors. The chancellor defended the government’s measures to date but assured those MPs that he continued to keep the situation under review.
Regional and devolved support
A number also asked about regional support. Rishi Sunak assured Stephanie Peacock (Labour) of the government’s commitment – both in terms of its Coronavirus response and its wider commitment to levelling up the nations and regions of the UK – to supporting regional economic growth. He also told John Lamont (Conservative) that since the March Budget, an additional £4 billion had been provided to Scotland to support its pandemic response.