Finance & Leasing AssociationThe Chancellor is working on the shape of his Comprehensive Spending Review and Budget to determine what the Government can afford to spend and how spending should be allocated at a time of the greatest uncertainty. The pandemic is placing huge pressures on him to keep the taps open to maintain economic recovery. At the same time, his ability to raise taxes to pay for this largesse is severely constrained for the same reasons. There will be a gap in the country’s finances, and it may have to be met by borrowing. Fortunately, interest rates are low, and the Government remains credit worthy. It can afford to ease the pain of business and individuals through the winter.
Borrowing is, of course, not just a public sector matter. Businesses of all sizes and individuals have been borrowing afresh or rescheduling their debt to see them through the crisis. The new business borrowing has been backed in many cases by British Business Bank guarantees and Bank of England funding for banks. These have enabled the private sector to help keep millions of businesses afloat; to enable them to invest; and to adapt to the crisis through the use of new technology and new delivery systems. As a result, in the last month or so we have seen the economy start to climb out of the hole. Lending to businesses has increased from its low point in the Spring, the housing market is strong, and the motor market has recovered to pre-crisis levels.
Nevertheless, we are still in very difficult circumstances. We simply do not know what course the pandemic will take. Whilst we may not face another national lockdown, we do face a series of local and tailored restrictions. These damage very large numbers of businesses and, by adding to uncertainty, deter investment. Now is not the time for the British Business Bank to curtail its support schemes, not least because its schemes, unlike the Bank of England’s, channel funding and risk reducing guarantees through non-bank lenders. These lenders have a strong track record of serving SMEs before and during the crisis and need to keep doing so. The Bank of England’s scheme for banks runs into the Spring. The support for non-banks should do likewise.
In the Spring, the flow of funding will have to tighten. At that point we hope the recovery will be well on course, but many businesses will still be in real difficulty. City UK suggests 780,000 SMEs will have unsustainable levels of debt. Not all can or should be saved. The market will, of course, redistribute the resources of the uncompetitive to those who can grow and succeed. However, many businesses do deserve to survive, and the economy needs them to do so. Longer term schemes are needed to help those we need most.
In devising such schemes, the role of Government is to set out the national priorities: rejuvenating our economy and society by raising productivity and innovation, by taking on the challenge of net zero, and by helping to rebuild our less prosperous regions. The role of Government is not to pump money into a chosen few sectors and companies. Governments have never succeeded in picking winners. That’s the job of the private sector. Instead it should make clear what it wants to achieve through its support for lending and leave it to lenders to do what they do well – support those businesses that have promise and most to contribute.
To read the FLA's submission to the Chancellor ahead of the Comprehensive Spending Review, click here. Small Business and Consumers Minister, Paul Scully MP will address a panel discussion tomorrow morning (18 September) jointly hosted by the Finance & Leasing Association (FLA) and the Association of Chartered Certified Accountants (ACCA). The discussion will cover the issues raised in our response to the review.
Published 17 Sep 2020
