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Sunak mulls new lifelines for Covid-struck firms

Various people on towers of pound money
Various people on towers of pound money
Furlough figures embed
Furlough figures embed

The Treasury is considering ways of making it easier for businesses to access coronavirus support loans - ahead of expected measures from the Chancellor designed to create “jobs, jobs, jobs” in an effort to kick-start the economy.

Officials from the Treasury and the British Business Bank are reviewing access to state-backed loan schemes after the European Commission last week relaxed state aid rules that blocked lifelines for some UK firms.

A Treasury spokesman confirmed they “are considering the implications of this [EC’s] amendment for the loan schemes” and that the change by the EC was “an important step in ensuring all viable businesses receive the help they need”. Treasury sources said it was likely that UK firms rejected for emergency help under the EU’s financial difficulty tests could reapply if the loan schemes were altered.

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The UK was forced to adopt so-called “financial difficulty” tests under EU state aid rules, which blocked access to the loans by otherwise solid businesses, such as start-ups, that were loss-making because they have invested heavily for growth, or have complex structures.

The Commission last week published the amendment to the so-called “temporary framework” for all small and micro companies, opening the door to changes to the UK’s loan guarantee schemes.

The previous rules “seemed to disproportionately affect relief schemes in the UK”, according to Allie Renison, head of Europe and trade policy at the Institute of Directors, which had sent the Commission numerous examples of British firms denied aid.

She added: “The undertakings in difficulty tests has been a sticking point for a number of firms, blocking them from much-needed finance. We look forward to further guidance enabling companies to access the support they need.”

Chris Wilford, head of financial services policy at the Confederation of British Industry, said these “eligibility hurdles have been a real stumbling block for many firms across the UK throughout the crisis”.

He added: “They have had a real impact on the ability of some high growth firms and larger firms with more complex structures being able to access the schemes.”

However, he warned that it was still unclear how the changes would help those mid-tier firms who may still fall foul of these rules, adding: “Many of these are important regional employers and critical to our recovery.”

More than 1m firms have been lent £30bn under the Bounce Back Loan Scheme, which provided loans of up to £50,000 that are 100pc backed by the taxpayer. It was introduced after firms struggled to access help under a similar scheme that offered a 80pc guarantee.

Total covid-19 support costs 21 June
Total covid-19 support costs 21 June

The potential state aid lifeline comes ahead of an emergency statement by chancellor Rishi Sunak on Wednesday as the Government attempts to pull the economy back from its steep decline due to the lockdown.

Economists at the EY Item Club warned last month that 2019 levels of output might not be reached again until 2023, predicting a record 15pc contraction during the second quarter of 2020.

In his emergency statement, Sunak is expected to focus on measures to create jobs, and in particular opportunities for the under-25s whose employment prospects have been blighted by the pandemic. Job-centres are set to open in supermarkets and the number of work coaches will be doubled from 13,500 to 27,000.   Firms will also be given financial help to create more jobs, according to reports in The Sunday Times, which said a cash incentive of up to £3,000 per apprentice is one measure being discussed.

The Telegraph revealed last month that the Treasury was discussing plans for taxpayers to subsidise the wages of  hundreds of thousands of young workers, following Boris Johnson’s surprise pledge of an apprenticeship for all young people.

Mr Sunak has played down the prospect of VAT cuts, but he could provide targeted rate cuts for the hospitality industry. He is also expected to extend business rates relief and VAT deadlines.

Wider tax changes are not expected in Wednesday’s statement, but cuts to stamp duty are on the horizon amid lobbying from much of the housebuilding industry. Homeowners could also be given grants or loans to help improve or insulate their homes.

What loans are on offer to help businesses survive coronavirus?
What loans are on offer to help businesses survive coronavirus?

In perhaps the most eye-catching move to stimulate the economy, Mr Sunak is also reportedly exploring plans to hand out “consumption vouchers”.

Under the discussions reported by The Guardian, £500 vouchers could be given to adults and £250 to children, to spend in restaurants, high street shops, and other businesses hard hit by the pandemic.

Such schemes are proving successful in Wuhan, the Chinese city where the pandemic is believed to have started, as well as in Taiwan and Malta.

Officials are trying to avoid a return to 1980s-style unemployment when the government’s Coronavirus Job Retention Scheme, which supports the wages of workers on leave due to the lockdown, winds down in October.

Mr Sunak’s statement follows a major overhaul of the planning system announced last week by the prime minister Boris Johnson, to try and “build, build, build” a path out of the economic gloom.

Shops can be turned into cafes more easily and offices into flats, as part of an effort to cut red tape slowing down development, while Mr Johnson is also fast-tracking £5bn of infrastructure spending.

The Centre for Economics and Business Research expects unemployment to peak at a record 3.3m this year, but chief executive Doug McWilliams warned on Friday that it could be far higher. More than 12,000 job losses were announced by major employers including Airbus only last week.

According to an industry survey published by the manufacturing group Make UK on Friday, 46pc of manufacturers expect to make redundancies over the next six months, compared to 25pc in May.

Stephen Phipson, chief executive of Make UK, said: “With demand unlikely to return for some time, if at all, [some] are moving to the painful choice of redundancy.” The state has so far pumped more than £132bn into the economy during the pandemic, prompting warnings that the Government could be storing up trouble if interest rates rise.