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Government should take a stake in UK businesses

With many seasonal and high street businesses still struggling whilst support schemes come to an end the alternative could be a Government investment.

Something has to be done to continue to support businesses. The Government cannot be expected to go on providing blanket support but investing in UK companies could be the answer – after all this is what happened in the banking crisis.

The taxpayer could become shareholders of some very interesting companies and there could be a good pay-back for the economy. It would keep more businesses going and there could be a good return for shareholders.

It would certainly be no worse than companies closing and the taxpayer having to foot the bill in terms of unemployment and other payments.

As UK businesses start to trade post-lockdown, they will now have a greater ability to both assess the impact of COVID-19 and plan more accurately for the future. This will undoubtedly result in the requirement for some businesses for further cashflow support and the Government needs to continue to support these businesses to avoid previous measures being in vain, but there has to be some creative thinking going forward.

There are a wide range of businesses likely to require additional funding. Ranging from seasonal business, those in the hardest hit sectors of leisure, tourism and hospitality or simply those businesses that initially anticipated that lockdown would be eased sooner and need to revise their plans.

The current Coronavirus Business Interruption Loan Scheme (CBILS) comes to an end at the end of September, and UK Businesses can still access this funding, but is further borrowing the only answer?

Many businesses that required immediate funding at the start of the pandemic have done so and will face difficulty in accessing further borrowing often struggling to meet the banks affordability criteria given existing borrowings.

The key issue causing the affordability assessment to be difficult to achieve is that CBILs lending is restricted to six-year loans with a five-year repayment profile. An immediate step the Government could take is to underwrite these loans on a longer term e.g. over a 10-year term which makes affordability easier to achieve.

Borrowing may be suitable for businesses that have suffered a gap in their cashflows but will return to normal trading. But for seasonal businesses that have suffered a permanent gap in their income, sector specific grants or other alternatives must be considered to get these businesses through the fallow months of autumn and winter to ensure they survive into the spring of 2021.

The alternative is for the Government to take an equity stake in these businesses. The future fund had a very limited use due to the criteria required for eligibility.

However, the Government could easily design a scheme aimed at the SME sector to provide additional funding without it being in the form of debt. This would allow the UK Government to share in the success either in the form of dividends from these businesses or a buyout of their equity stakes.

The current measures have allowed many UK businesses to survive until this point and maintained as many people in employment as possible.

However, to avoid these funds simply having been used to defer redundancy the Government should not now turn off all measures over the next few months without further support measures for the most hard-hit businesses.

The Government already has a big bill if these businesses fail having provided guarantees for bounce back and CBIL lending as well as future costs to support the unemployed. It needs to act now and come up with a plan so that the money spent so far is not wasted.

Investing in firms could be the answer, saving the money that has been spent and keeping businesses that will otherwise fail going. Having come so far, the Government needs to see this through to the end and given businesses a chance to return to normality.

Would you like to know more?

If you would like to discuss any of the above guidance, please contact Richard Churchill or your usual Blick Rothenberg contact.

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