Banks in the UK are calling on the government to introduce a student loan style approach to lending to avoid three million job losses.
The industry believes as many as 800,000 businesses could go bust next year if they cannot defer repayments on government-backed loans.
To avoid that scenario, banks are proposing a system where coronavirus loans can be converted into tax debt to be repaid over the next decade. It would mean businesses start to repay their loans only when they can afford it.
Banking industry lobby group TheCityUK has recommended the creation of a ‘UK Recovery Corporation’, managed by HMRC to operate the system.
The group believes a system such as this would be far easier and quicker to manage than the UK government taking control of hundreds of thousands of businesses.
So far, over £46 billion worth of government-backed loans have been taken out in the wake of the coronavirus pandemic, and there is widespread belief that many businesses will struggle to repay them.
The government has provided guarantees on the loans, meaning it will repay the loan to the lender if a business defaults. It does not mean that the government will step in to save the business if it goes bust.
The Treasury said the idea was “a useful contribution to discussions on how businesses can be best supported through this difficult time”.
On Tuesday, Chancellor Rishi Sunak said the bar for government intervention to step in and save businesses should be ‘very high’ and “exceptionally rare and only in situations where companies have some strategic value, clearly have a long-term viable future and where the creditors and shareholders have shared in the burden and are not just looking for a free ride on the taxpayer”.