HM Treasury Says it’s the Responsibility of Lenders, Not the Government, to Recover Debts Under COVID-related Loan Schemes

The HM Treasury has stated that it’s ultimately the responsibility of lenders, and not necessarily the nation’s government, to recover debts under the different COVID-19 loan schemes and packages.

The UK government’s four main business support schemes, which includes the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), have provided approximately £65.5 billion (appr. $87.2 billion) to UK-based companies as of November 16, 2020, according to data provided by the British Business Bank.

Now that the money has been loaned out to all these businesses, there are concerns that many of these outstanding loans might not be paid back in time or at all.

A report released by the Recapitalization Group, Big Four auditing firm EY and TheCityUK lobby group (in June 2020) had estimated that around £36 billion in government-backed business loans might turn “toxic” (not likely to be recovered) by March 2021.

TheCityUK, EY and several other agencies had recommended that the UK Recovery Corporation could try turning risky debts into manageable payment options, like tax liabilities.

Responding to this issue, the Treasury stated that the government has been quite clear that the private sector needs to be the first port of call for any company or business interested in refinancing or restructuring their outstanding debt.

The Treasury also noted that the UK government has welcomed TheCityUK’s Recapitalization Group report on supporting firms during the COVID-related economic recovery as a meaningful contribution to ongoing discussions on how local businesses can be effectively supported.

The Treasury added that while they’ve considered their proposals, along with other suggestions in the report like contingent tax liabilities and student loan type structures, they still believe that accredited lenders, and not the UK government, are well-positioned to extend support to borrowers repay government-guaranteed loans.

The Treasury further noted that the government realizes that the industry brings a lot of creativity and insight to the discussions, so that’s why they’re looking forward to hearing other  ideas and recommendations, led by the UK’s private sector, to recapitalize local companies and businesses.

As reported by Peer2Peer Finance News, Mel Stride MP, the Chair of the Treasury Committee, said that the Treasury’s response confirms that accredited or approved lenders, and not the government, must try to recover the outstanding government-guaranteed loans.

Stride also pointed out that the committee has expressed concerns regarding the lack of capacity and willingness of the UK’s private industry to come forward and offer viable solutions for dealing with corporate indebtedness.

He also mentioned that there’s still a possibility of corporate indebtedness leading to more economic problems which could lead to serious long-term issues.

Last month, the HM Treasury and local trade agency UK Finance began working on a standardized framework for addressing issues related to recovering loans from BBLS borrowers.

UK think tank Onward suggested in September 2020 that the government should consider letting local firms repay state-guaranteed COVID-related loans after they’ve managed to become profitable.

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