Businesses left “high and dry” with unsustainable Covid debt, says Dodds

Anneliese Dodds will accuse Rishi Sunak of having left businesses “high and dry” in the economic fallout from the pandemic by not using the Budget delivered earlier this month to support firms struggling with unsustainable Covid debts.

In an annual lecture to the Labour Finance and Industry Group on Tuesday, the Shadow Chancellor is expected to call on ministers to reform the Covid loan schemes as she warns that 750,000 businesses and two million jobs are on a “knife edge”.

Businesses across the country have taken out a total of £73bn through the 80% guaranteed coronavirus business interruption loan scheme (CBILS) and the 100% guaranteed bounce back loans scheme (BBLS) since the pandemic began last year.

The first repayments are due in the next few weeks, but the Office for Budget Responsibility has estimated that without any change to the schemes £27.2bn will never be repaid. Labour has warned that this will result in lost jobs and livelihoods.

“Forcing businesses to start making debt repayments before they are back on their feet will squeeze the amount they have to invest, to grow and take on new staff,” Dodds will tell those attending the online event at Aston University.

“For some, it could mean going to the wall. Hundreds of thousands of businesses across the country are on a knife edge.

“If they falter or fail, it’s not just a tragedy for the owners who lose their livelihoods and the staff who lose their jobs – it will damage the recovery and hold us all back. It’s a completely false economy for the Chancellor to leave these businesses high and dry.”

Labour urged the Chancellor last month to convert the BBLS into a student-style loan, where businesses start repaying when making profits again, and to create a new British business recovery agency to help those struggling with CBILS loans.

“The Chancellor has been asleep at the wheel. His so-called ‘pay-as-you-grow’ scheme might make for a good soundbite but it’s misleading; there is no link to growth at all. He has simply shifted deadlines back by a few months,” Dodds will say.

“While that might help some businesses, the fact is that we are still on course to see billions of public money written off in unpaid loans because the Chancellor is refusing to act.”

The Treasury announced its pay-as-you-grow scheme last year, introducing more flexible terms for firms that took out loans under the BBLS with an offer to pay off debt over ten years rather than the initially proposed six.

The change, unveiled after the OBR predicted in November that £29.5bn of BBLS and CBILS debt would never be repaid, also allows companies to take out a 6 month holiday from repayments or to switch to interest-only repayments for 18 months.

Labour has warned that companies are already struggling in the pandemic, with over 350,000 reporting that they faced rising debt payments over the last month and nearly 400,000 saying that they expect them to increase in the months ahead.

Using Office for National Statistics research, the party has highlighted that in the two weeks to March 7th 760,000 businesses employing 2,080,000 people reported low or no confidence that they will be able to survive the next three months.