Sunak rejects City plan to refinance crisis loans - report
Chancellor Rishi Sunak is ready to reject a City of London proposal for a state-backed body to refinance tens of billions of pounds of loans made to businesses during the Covid-19 crisis, according to a report.
A City taskforce warned in July that small and medium enterprises had borrowed £35bn of unsustainable debt, raising the prospect of mass bankruptcies and millions of job losses in 2021. It called on the government to establish a UK Recovery Corporation to issue, hold and manage the debt backed by the government.
The taskforce said the radical move would help SMEs manage their borrowing and that the private sector should be encouraged to invest in the debt over time. Smaller SMEs could pay back unmanageable loans through tax and larger businesses could convert loans into preference shares or long-term subordinated debt, the report said.
But after months of talks the Treasury has dismissed the idea with its position hardening over the summer, the Financial Times reported. The Treasury said the problem was overstated and that corporate debt was low by historical standards before the crisis, the FT said.
"The chancellor is not convinced that this issue is a pressing one as of today," an official told the paper.
The government's lending programmes have provided almost £53bn to 1.2m companies with the bulk of the loans made by banks and 100% backed by the Treasury. Banks are worried they will be forced to chase struggling businesses for the debt.
The City report said as many as 3m jobs and 780,000 businesses were at risk when the loans come up for repayment at the end of March. Firms face intensifying pressure as government support measures such as the furlough scheme come to an end.
A City executive close to the talks told the FT: "There is a refusal to recognise that there is a recapitalisation problem … "Even if the recovery is better than first expected there is still a big problem."
Sunak responded to the Covid-19 crisis and economic lockdown with radical government support including paying wages for furloughed workers and grants and loans for businesses. But he is taking a hard line on withdrawing support despite intensifying calls from opposition politicians to extend the programmes.