Large companies that borrow money under the government’s coronavirus loan scheme will not be able to pay cash bonuses to executives or dividends to shareholders until the money is repaid.
The new rules apply to companies borrowing more than £50m under the coronavirus large business interruption loan scheme (CLBILS). Dividends and bonuses already agreed before the loan is taken out will still be permitted, the Treasury said.
State-backed loans under the scheme can now be as large as £200m, up from £50m previously, after criticism from companies who said borrowing limits were not large enough.
Following a low level of take-up of loans by large firms, the government revamped the scheme, including the new conditions which will apply to any borrowing for a term of more than a year.
The Treasury has listened to the complaints but included measures to ensure the money is channelled into keeping businesses afloat. The Bank of England said: “These commitments are intended to create incentives for, and promote the ability of, businesses to repay their borrowings.”
Some other countries have also attached strings to their taxpayer support, including Denmark, which has excluded firms that take advantage of tax havens. Environmental groups have called for government bailouts to also be linked to carbon-reduction pledges.
Changes to the loan scheme came after a number of mid-sized firms complained that they could not access credit facilities provided by the Bank of England designed to help the largest firms, but the amounts available through the CLBILS were too small.
Loans under the scheme are arranged through banks, with 80 per cent of any losses covered by the government.
However, just £590m has so far been lent to 86 businesses. Meanwhile, £7.3bn has been lent by banks to 40,564 smaller companies under a separate scheme.
Patrick McFadden, Labour’s shadow Treasury minister, said large, capital-intensive industrial companies were in a particularly difficult position.
“These companies in sectors like steel and automotive are often the main employers in the towns and cities where they operate and are the backbone of our manufacturing sector.
“We welcome the Treasury lifting the CLBILS lending limit [to £200m], after Labour pressure, but the largest industrial companies are burning through more than this as a result of the lockdown. We must do more to help companies large and small through this crisis and avoid a repeat of the mass unemployment we have seen in the past.”
The smallest firms have been able to borrow under the bounce-back loan scheme, which is 100 per cent government backed. Banks have approved £14.2bn of lending to nearly 465,000 businesses, making it by far the most popular of the three schemes.
It is open to small businesses who can borrow up to 25 per cent of their turnover, up to a maximum of £50,000.
John Glen, economic secretary to the Treasury, said: “We’re determined to support businesses of all sizes throughout this crisis and our loans and guarantees have already provided over £22bn to thousands of firms.”
Register for free to continue reading
Registration is a free and easy way to support our truly independent journalism
By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists
Already have an account? sign in
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies