Coronavirus Business Interruption Loan Scheme

I beg to move,

That this House believes the Coronavirus Business Interruption Loan Scheme is not adequately fulfilling its role for SMEs across the UK; and urges Government intervention to ensure that all businesses are provided with the financial support they need.

I thank the Backbench Business Committee for allocating time for this important debate. My co-sponsor, the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) and I applied for this debate some months ago after hearing of the anguish felt by business owners in our constituencies who could not access emergency support and were left struggling to find critical funds to see them through the crisis. I know that colleagues from all parties in this House and from all parts of the UK will have heard similar tales: people who did not know where to turn when the billions of pounds they heard being bandished about were no more than fantasy figures doing nothing to help the reality faced by the businesses they had to work so hard to build. The situation has been in constant flux and the support schemes have been a moveble feast—or a never-ending famine, certainly for those who have been excluded so far—so I want to reflect on the current situation and dangers going forward, rather than dwelling too long on some of the errors of the past.

A rising tide of debt is making the coronavirus business interruption loan scheme an issue again. Changes to the scheme announced by the Treasury so far do not go far enough to see businesses through to the end of this crisis. The pandemic has gone far beyond anything imagined when CBILS was first announced. England begins lockdown again today and most of Scotland remains severely restricted. The feared second wave is upon us and will possibly be worse than the first. Debt and desperation are rising, yet at the same time support is being cut, withdrawn or very reluctantly extended, without due time to plan or prepare. Those excluded remain so, and banks are getting more tetchy about lending. There has never been a more crucial time to review the effectiveness of Government-backed loans and support, and to make sure we better meet the needs of everyone across the UK.

When lockdown began, CBILS was one of the first schemes off the blocks, with a promise of £350 billion being made available in this and other Government-backed loans. Although grants would certainly have been better than loans, I commend the Chancellor for that swift action. It is a pity that after seven months, £62 billion—less than one fifth of that figure—has actually been approved via the various loan schemes. We need to find better ways to make funds accessible to those who need them and to hope that bold replacement mechanisms for CBILS and the bounce back loan scheme, with an emphasis on grants, can be found. Those would plug the gaps in the support already in place and would help to stimulate recovery.

Flaws in CBILS quickly became apparent. It was reported on 12 April, only three weeks after the scheme was launched, that 300,000 inquiries had been made yet only 1.4% of those went on to be successfully approved for loans. Some people did not pursue loans beyond the call to the bank, whereas others gave up before completion of the heavily bureaucratic process. Some seven months later, on 18 October, 73,094 companies had been approved for CBILS out of 159,277 completed applications—that is still an approval rating of less than half of those who completed the process, never mind those who were too worried about the debt to take it on in the first place.

I thank the hon. Gentleman for bringing forward this important debate, because although there have been successes with CBILS, there are some shortcomings too and it is right that we discuss them. I accept, to a great extent, the point he makes about grants rather than loans. However, he would probably accept that grants have been made as well as supporting loans, in the form of the job retention scheme and the business rate grants.

I do accept that point, and it is important that some of those grants have been in place. I would far rather have seen some of the large sums available through CBILS and the bounce back loan scheme made available as grants, as opposed to loans, which add to the debt burden on business.

I, too, am grateful to the hon. Gentleman for bringing forward this debate. Ninety-four businesses in my constituency have taken out a CBILS loan, but they are really concerned now about their ability to pay it back, even with the new measures in place. Does he share my concern that we need to see some underpinning and underwriting in order to secure these businesses for the future?

I absolutely do, and I hope that some of the points I will make later will address the hon. Lady’s concern.

Although improvements were made, the mechanics remain flawed, and take-up is not helped by the fact that the state guarantor is for only 80% of the loan, so risk-averse banks are the gatekeepers to lending decisions. Initially, banks were cherry-picking the very best—the blue chips and the big corporations—while lending for the rest was far harder to find. Now we see a second wave of banks becoming less willing to lend as the uncertainty of the crisis continues and worries grow about the ability to repay. We need the Government to step in to fix that. Of course, getting cash to smaller firms was aided by the launch of the bounce back loan scheme in May, and again I commend the Chancellor for taking the action to introduce that. It is a faster process, with a far greater take-up, accounting for about two thirds of the total loans received, with about two thirds of those reaching small and medium-sized enterprises. That is aided by the Government guarantee of 100%, the capped interest at 2.5% and the lender agreeing not to charge fees. That is far closer to what I think CBILS should be if it cannot be a grant. It is a pity that bounce back loans remain limited to up to £50,000, which is nowhere near enough for the needs of many businesses around the country. I hope the replacement for CBILS will take account of the mechanics of the bounce back loan scheme.

By contrast, the commercial companies approved for CBILS can set the rates for business interruption loans, with massive variation in what is offered, averaging around 6% but going up to almost 15%. One local business told me that the initial rate it had been offered was 34%. That may bail out companies in an immediate cash-flow crisis, but it will lead to crippling debt in the longer term when the taxpayer support ends. As The Sunday Times reported this week, some CBILS-accredited lenders are not only charging double-digit interest rates but are charging arrangement fees of up to 5%, a considerable sum to any business. Some are apparently marketing the loans as ways to fund management buy-outs or to refinance existing debts. It looks like some of these loans are less emergency support and more picking the bones of companies in trouble.

Charities have been pushed in the direction of CBILs as well, and of course that is completely inappropriate, so to add to the list, will the hon. Gentleman say that charities should have their debt written off as well?

Yes. Charities, who spend so much of their time having to collect from the public and are now having to adapt to new ways of doing that, are among those many who have been pushed into an impossible situation, where the only game in town is what they had to take. We absolutely need to look to see what we can do to support them, to help them out of this situation.

It is an interesting point, but how would it be fair to people who did not take a loan, or to businesses that paid back their loan, if one wrote off the debt of businesses that did not pay back their loan? How could that possibly be fair?

Each business took its decision based on what position it was in at the time. Many would face the prospect of going out of business; the heart of our communities would vanish overnight. One swift step by the Treasury could solve that, to support and maintain our communities.

It is an interesting point, and it is worth having a debate about it, but lots of businesses, including mine—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—took loans on the basis of a safety net. Not only did they not need it, but they were unsure about their commercial circumstances and they will be able to pay that debt off without going bust, and intend to. Is the hon. Gentleman intending to write off the debt to my business, which I did not need, which the taxpayer has funded, even though I do not need that money, on the basis that everybody should just get free money?

As I say, every business took the decision about why it needed to take a covid loan or a bounce back loan. This is about ensuring that we protect the jobs and security for those businesses going forward, and making sure that our communities are protected.

My hon. Friend has been making a powerful speech. Does he agree that when businesses across the nations of the UK have not needed public funds, they have returned the money, in their many millions? Are those not exactly the same circumstances that he is calling for here?

Absolutely; I completely agree with my hon. Friend. This is about ensuring the security and the future of thousands of businesses across these islands. It is a bold move—I accept that—but we are in a crisis and bold action is exactly what is needed.

I am wondering whether consideration might be given to certain sectors, because we know that, sector-specifically, there are areas such as tourism that have been able to make no money whatever over the summer. Could this be a medium by which that could be addressed?

That is an excellent suggestion. Tourism, events—a number of industries have no opportunity to make the income that they need at the moment. Looking forward, there is no immediate prospect of their being able to do so, which is where the threat of those loans becoming due for repayment really starts to come into its own.

The Government, when considering a replacement for CBILS, need to look at ways to use the remainder of the £350 billion promised to be released on direct grants, perhaps equity, and make sure that reaches those who actually need it. Many viable businesses have received nothing so far, and they are not going away either.

Today—5 November—is an important day to hold this debate. It is not just the beginning of the new lockdown in England, but it commemorates the date of a failed gunpowder plot. Let us make it our day to properly remember, and not leave a giant powder-keg sitting under the businesses across our nations. We must ensure that our businesses survive and our democracy works for the people it is supposed to serve. I urge the UK Government to act now, to prevent a debt crisis, to boost support for businesses, and to stop more jobs and livelihoods going up in smoke.

We are running a bit behind schedule on account of the debate starting slightly later than anticipated. On the assumption that everyone turns up, I think speeches should probably last for about seven minutes.