Kate Andrews
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All this makes the Chancellor’s emergency measures even more important, as the Government does all it can to position the UK’s economy to kickstart as soon as it is safe to do so. In today’s press conference, Rishi Sunak paid lip service to the latest measure to keep industry afloat: a £1.25bn package to support high-growth start-ups that don’t have the status or profit to benefit from other government schemes. Like all business and employment schemes announced so far, it comes with the warning that not all start-ups will qualify (money dished out through the Future Fund, for example, must be matched by private investment) but it’s received fairly positive feedback from industry experts thus far.
But the big news came as the Chancellor delivered updates on the measures that sit at the heart of the Government’s rescue packages: the Covid business loans and the Job Retentions Scheme. As of 4pm, 140,000 business have applied to the furlough scheme since, which only went online this morning; in less than a day, up to 80 per cent of the salaries will be covered for over one million British employees. Meanwhile, 12,000 loans have been approved – double the amount a week ago – with 80-90 per cent of loans getting the green light from banks.
That’s the good news. But as revealed in City AM’s long-read today, the vast majority of businesses who have applied for Covid loans are still struggling to access the loans, facing high levels of scrutiny and bureaucracy as they try to secure them. The pressure on banks is immense, as they are responsible not only for processing these loans, but for taking on 20 per cent of the risk, if businesses default down the road. If the Treasury’s internal analysis turns out to be more accurate than the OBR’s, it is a near guarantee that some businesses borrowing big sums of money will not make it out on the other side. When asked about updating the business loans model to a Swiss-style system, in which 100 per cent of the loans are backed by government, the Chancellor suggested it could result in a shorter turnaround for applications, but ultimately rejected it, framing the timeline as a trade-off for other, generous schemes (like the furlough scheme) which aren’t on offer in other countries.
The Chancellor has previously indicated that the higher the price tag for the furlough scheme, the more proof there is that it’s working. Given the original projection was for ten per cent of businesses to take up the scheme, by this unique assessment, it is turning out to be a roaring success (i.e. very, very expensive). But if this is the Government’s measurement, the business loans leave plenty to be desired. If the goal is to cut costs, a tough path to Covid loans will do the trick. But if the goal, as the Chancellor laid out today, is to get money into the pockets of hibernating business, the doubling of the loans is a relatively small step on the way to success.
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