Chan­cel­lor seeks to avoid busi­ness cash crunch with ex­tended help

The Daily Telegraph - Business - - Business - By Tom Rees

THE Chan­cel­lor is rac­ing to stave off a win­ter cash crunch for busi­nesses, by boost­ing loans and tax sup­port be­ing used to prop up more than one mil­lion Bri­tish com­pa­nies.

A new “Pay as you Grow” scheme will al­most halve loan re­pay­ment costs for small firms, Rishi Su­nak re­vealed, as he also pushed back the dead­lines on emer­gency loan schemes that have handed out nearly £60bn.

Mr Su­nak sought to ad­dress mount­ing wor­ries over the debt moun­tain fac­ing small firms by giv­ing them the op­por­tu­nity to ex­tend tax­payer-backed bank loans granted un­der a raft of emer­gency schemes rolled out when the cri­sis first struck.

Un­der “Pay as you Grow”, busi­nesses that ac­cessed the Bounce Back Loans Scheme can ex­tend the length of the loan from six to 10 years, al­most halv­ing their monthly re­pay­ment costs. They can also sus­pend re­pay­ments for up to six months.

Firms will now be able to tap state­backed loans un­til the end of Novem­ber, with EU state aid rules stop­ping Mr Su­nak from pro­vid­ing longer sup­port. How­ever, the Chan­cel­lor said a suc­ces­sor to the busi­ness loan schemes was in the works and ex­pected to launch in Jan­uary, plans first re­vealed by The Tele­graph last month.

Mr Su­nak said: “Right now, busi­nesses need ev­ery ex­tra pound to pro­tect jobs rather than repaying loans and tax de­fer­rals. If we want to pro­tect jobs this win­ter, the sec­ond ma­jor chal­lenge is help­ing busi­nesses with cash flow.”

The loan guar­an­tee schemes have been vi­tal in help­ing firms to sur­vive the cash crunch caused by the pan­demic, but econ­o­mists feared that busi­ness in­vest­ment could be held back by this huge debt bur­den. Un­der the emer­gency loans scheme, the state boosted lend­ing by cov­er­ing all or up to 80pc of losses suf­fered by banks.

The Bank of Eng­land sought to ease any pres­sure on banks from the longer loan terms an­nounced by the Trea­sury by also ex­tend­ing a scheme which pro­vides cheap fund­ing for lenders that help small and medium-sized firms.

Other mea­sures to ease the pres­sure on busi­nesses in­cluded re­duc­ing or spread­ing the tax bur­den on busi­nesses.

Half a mil­lion firms will be al­lowed to split their de­ferred VAT bill into 11 pay­ments, mean­ing they will pay just 9pc rather than 100pc of the cost when the money falls due in March 2021. A to­tal of £27.5bn is owed, with the av­er­age de­ferred VAT bill stand­ing at £60,000.

The Chan­cel­lor also ex­tended a hos­pi­tal­ity and tourism VAT cut by more than two months un­til the end of March. The rate for the hard-hit in­dus­tries was slashed from 20pc to 5pc in July.

Jonathan Gel­dart, head of the In­sti­tute of Di­rec­tors, said the loan schemes and tax de­fer­rals will “go some way to de­fus­ing a rapidly-ap­proach­ing trip­wire of built-up debt”.

He added: “Ex­tend­ing the loan schemes marks another sen­si­ble pre­cau­tion. With rev­enues still limited by the virus, di­rec­tors look­ing to adapt their or­gan­i­sa­tions will come up against cash crunches in waves.”

David Page, head of macro re­search at AXA In­vest­ment Man­agers, said the mea­sures would ease com­pa­nies’ wor­ries over cash flow, and could be vi­tal in help­ing them get through the win­ter.

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