The UK Government has acted at pace to protect companies and jobs. So far around £6billion in grants from local authorities have reached small businesses. And the Job Retention Scheme started strongly on Monday, safeguarding nearly three million jobs, latest figures show.
But fresh weekly CBILS data, which shows more than £2.8 billion of lending provided to 16,000 firms so far, highlights the need to accelerate the delivery of existing support. The CBI’s Industrial Trends Survey (ITS) revealed business sentiment and investment plans in the manufacturing sector worsening at record rates (since 1958), highlighting the need to re-examine what more can be done to help companies still struggling (See Notes to Editors).
With lockdown renewed and the crisis continuing, no sector has been left unaffected. Four out of five manufacturers have seen a negative impact on their domestic output. And two-thirds of firms faced cash flow difficulties, the ITS found.
Pressure on manufacturers, transportation, distribution and other retail sector suppliers is unrelenting. These firms are ineligible for grants or relief from business rates. Smaller companies cannot access CBILs as they lack evidence to pass the affordability and viability criteria. For others, high fixed costs and tight margins mean existing loans and tax deferrals aren’t enough to survive, despite help with staff costs.
The CBI recommends two steps governments should take now to get faster support to distressed firms:
- First, accelerate the delivery of CBILs to smaller firms through three actions:
- Develop, with lenders, a fast and simple route to loans under £25k for small businesses who may be completely new to borrowing, possibly backed by 100% government guarantee
- Increase the government guarantee from 80% to 100% for CBILs loans up to £500k, which could improve speed of delivery though it is not a silver bullet. Allow lenders the option to provide a longer repayment schedule for loans up to this ceiling from 6 years to 10 years.
- Streamline documentation to speed up eligibility and viability assessments, with standard templates as in Germany and Switzerland.
Second, provide all firms in England, Scotland and Wales with a three-month business rates suspension (as in Northern Ireland) and consider grant schemes to help smaller firms unable to access existing support.
Dame Carolyn Fairbairn, CBI Director-General, said: “As the impact on businesses, livelihoods and the economy grows day by day, it’s vital to ensure help gets where it’s needed most. The current loan scheme is up, running and working for many. Now we need another big push to get money out the door faster.
“This is a race against time, and the only winning strategy is scale, speed and simplicity. Nothing should be left on the table.
“The Treasury, British Business Bank and lenders deserve huge credit for their speed and ambition so far. The millions of jobs they have saved today are vital livelihoods protected for the future.
“But with the lockdown extended there is no room to pause. The financial strain on some businesses cannot be underestimated.
“These recommendations are based on thousands of conversations with struggling firms of all sizes and aimed at helping those who have been left behind so far. A new wave of support is vital to local communities and our small and mid-sized businesses.
“Helping firms that have fallen through the cracks will protect jobs and livelihoods as the crisis unfolds and ensure a solid foundation to build on. It is far more cost effective to stop businesses collapsing now than create jobs in the future.
“The greater the number of companies helped to survive, the sooner the UK economy can restart and revive.”
CBI Industrial Trends Survey can be found here.
Policy detail
Three-month business rate suspension
- Introduce a 3-month business rates suspension for all businesses in England, Scotland and Wales regardless of sector or size. This should then be kept under review and the Government should consider extending this to 6 months if the situation gets worse (this suspension should include the central and local rating lists).
- A similar 3-month scheme is already being applied in Northern Ireland.
- The total cost of this suspension would be around £7.9bn, including the previously announced relief for retail, leisure and hospitality businesses, or approximately an additional cost of £5.5bn based on the distribution of rateable value across sectors [NB - ENGLAND ONLY COSTS]. Barnett consequentials to be applied and distributed to devolved governments.
Fast-track CBILs by extending loan guarantees alongside further process improvements
- Work with industry at speed to provide a simple solution to approve loans under £25,000 for small businesses around the UK to support our high streets, manufacturers and entrepreneurs, possibly backed by a 100% government guarantee.
- An extension of government guarantees for the SME loan scheme under £500k from 80% to 100%, which could improve speed of delivery but is not a silver bullet.
- Process improvements to make loans under £500k more affordable to medium-sized businesses in distressed sectors, including allowing repayment terms to be extended from 6 to 10 years for some firms, to help them pass bank affordability assessments.
- Streamline documentation to speed up eligibility and viability assessments, with standard template documentation as in Germany and Switzerland.
Extension of grants to businesses in greatest distress
The easiest and quickest way to get extra grant support to businesses is through the current system which uses the business rates process to disseminate funds. Other delivery mechanisms, such as using HMRC, could link grant support to affected income but may take time to set up. As business rates policy is devolved, the existing grants available differ slightly across the devolved nations. Therefore, the policy solution is slightly different for each nation.
Consider extending the two existing schemes in England to capture all businesses that fall within the eligible rateable value brackets. Based on the latest data, this would capture 90% of properties and 28% of the tax base. Indicative costing based on the distribution of properties and rateable value as per the local ratings list suggests this could cost around £10bn. This involves the following two policy changes:
- Extend the Small Business Grant Fund (SBGF) to all properties with a rateable value below £15,000, so that these businesses receive a £10,000 grant.
- Extend the Retail, Hospitality and Leisure Grant (RHLG) to all businesses with a rateable value between £15,001 and £51,000 regardless of sector, so that these businesses receive a £25,000 grant.
Options also need to be considered for medium sized businesses with larger properties (up to £99,999 rateable value), but some qualifying criteria would be needed to target the support at the most distressed. Properties with a rateable value between £51,001 and £99,999 represent a further 5% of properties and 11% of the total tax base. As with the current scheme the value of the grant could be determined by the average rateable value of the property which is £70,000 for this bracket. The cost of this extension would depend on how businesses could be targeted through the qualifying criteria.