The Treasury has confirmed that it is the responsibility of lenders, not government, to recover debts under the coronavirus loan schemes.
The government’s four business support schemes, including the coronavirus business interruption loan scheme (CBILS) and the bounce back loan scheme (BBLS), had deployed almost £65.5bn to firms as of 16 November, according to the latest data from the British Business Bank.
But there have been growing concerns that many of these loans will not be paid back.
In June, a report from the Recapitalisation Group, auditor EY and lobby group TheCityUK predicted up to £36bn worth of government-backed business loans could become toxic by March of next year.
TheCityUK, EY and others called for a UK Recovery Corporation that could turn risky debts into more manageable forms, such as tax liabilities.
“The government has always been clear the private sector should be the first port of call for any business looking to refinance or restructure their debt,” the Treasury said in its response.
“The government welcomed TheCityUK’s Recapitalisation Group report on supporting businesses through the economic recovery as a useful contribution to discussions on how businesses can be best supported through this difficult time.
“Whilst we have considered their proposals, alongside similar suggestions in your report such as contingent tax liabilities and student loan type structures, we remain of the view that accredited lenders, not the government, are best placed to support borrowers repay government-guaranteed loans.
“The government recognises the creativity and insight that industry brings to these discussions, so we welcome further ideas and initiatives, led by the private sector, to recapitalise businesses.”
Mel Stride MP, chair of the Treasury committee, highlighted that the Treasury’s response states that accredited lenders, not government, need to recover the government-guaranteed loans.
“However, the committee is concerned that there may be a lack of capacity and willingness on the part of the private sector to step in to provide solutions for corporate indebtedness,” Stride added.
“There remains a possibility of corporate indebtedness prolonging the downturn and causing economic scarring.”
In October, the Treasury was reportedly working with banking trade body UK Finance to develop a standard framework for dealing with BBLS borrowers in difficulty.
And in September, think tank Onward recommended that the government should allow businesses to repay state-backed Covid-19 support loans only when they turn a profit.