Almost three-quarters of a million businesses ‘at risk of failure over next three months’, economists warn

Labour demands switch to ‘student loan-style’ terms – giving threatened firms more time to repay

Rob Merrick
Deputy Political Editor
Tuesday 04 May 2021 02:00
<p>The chancellor has hailed the success of his bounce-back loan scheme, for issuing ‘three loans every minute’</p>

The chancellor has hailed the success of his bounce-back loan scheme, for issuing ‘three loans every minute’

Almost three-quarters of a million businesses in the UK are “at risk of failure over the next three months” because of the fallout from the Covid-19 pandemic, economists have warned.

The figure has prompted Labour calls for the chancellor, Rishi Sunak, to ease the pressure by allowing bosses to convert government loans to a “student-style” arrangement that would give them more time to repay.

Firms are being dragged down by more than £75bn of Covid debt from the government’s bounce-back loan scheme and similar initiatives, Labour said.

But the Treasury watchdog has estimated that £27.2bn of these liabilities will never be repaid – inflicting a huge cost on the taxpayer, on top of the loss of jobs and livelihoods.

“We need to get the economy firing on all cylinders again, but that won’t happen with businesses bogged down by debt,” said Anneliese Dodds, the shadow chancellor.

The warning comes as Sir Keir Starmer steps up his pressure on Boris Johnson over sleaze allegations, pledging to “clean up our politics”.

The Labour leader said: “When I was director of public prosecutions, I was not afraid to prosecute MPs who had broken the rules over MPs’ expenses. As prime minister, I would not be afraid to overhaul a system that still allows power to be abused.”

Labour has compared the possible cost of Mr Johnson’s flat makeover – No 10 has not denied it could have reached £200,000 – with the property market up and down the country.

The sum would pay for a terraced house in the UK (at an average price of £203,000), a flat in the southeast (£202,000) and a semi-detached house in the east Midlands (£195,000) or the northwest (£198,000), it said.

The warning of widespread business failure comes in an analysis by the London School of Economics, using the latest Business Insights and Impact survey.

It calculated that, in the two weeks to 4 April, more than 740,000 businesses – employing 1.9 million staff – had “low” or “no” confidence they would survive.

“Should all these businesses exit, roughly 1.9 million jobs would be lost,” Professor John Van Reenen and Peter Lambert wrote.

“The knock-on effects of this would be severe in terms of financial and macroeconomic stability. Unsurprisingly, the smaller the firm, the greater the risk of failure.”

But the authors acknowledged that the proportion of companies reporting “low” or “no” chance of survival had fallen by one-third since “the January 2021 peak”.

Mr Sunak has won praise for his bounce-back loan scheme, saying recently it had “worked so effectively that it issued three loans every minute since its launch last May”.

But Ms Dodds said: “The chancellor should free up British business to drive the recovery, making his loan schemes smarter so that companies only have to start repaying when they’re making a profit.”

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