UK banks propose ‘student loans style’ scheme to help businesses and to avoid job cuts
UK banks fear up to 800,000 firms employing 3 million could go bust in the next year if they cannot defer repayments on government-backed loans.
The lending industry is proposing a student loans-type scheme, where coronavirus loans can be converted into a tax debt repayable over a decade.
Like student loans, the money would only be repayable when and if the businesses can afford it. Banks want the scheme to be administered by HM Revenue and Customs.
Banking industry lobby group TheCityUK is proposing to set up a "UK Recovery Corporation", through which companies could convert their short-term debts into a longer term financial obligation to HMRC and pay back the debt when they are making enough money - a so-called contingent tax obligation.
Coronavirus loans would likely be paid back over ten years – and payments wouldn’t begin until a business could afford it, meaning like many student loans they may never be paid back at all.
In time, say the banks, these IOUs from business could be parcelled up and sold to investors, much like the bundles of student loan debt and bad loans from the financial crisis have been, thus taking it off the government's hands.
The government is already on the hook for most of this debt through their coronavirus loan guarantees to the banks. The banks would also relish the opportunity of earning any fees associated with arranging these sales.
The Treasury described the proposals as "a useful contribution to discussions on how businesses can be best supported through this difficult time".
Posted on Jul 15, 2020.
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