Why the UK coronavirus rescue plan doesn’t work | Business


reo not be misled by the government’s painful attempt to present as doubling of coronavirus loans to small businesses as good news. The figures are still shockingly low: 6,020 companies borrowed a total of £ 1.1 billion in three weeks. Last week’s doubling is just an improvement from a net dribble. Rishi Sunak, the chancellor, had promised a flood.

Dig deeper into statistics on the Coronavirus, or CBILS, business interruption loan scheme, and there are at least three areas of concern.

First, £ 1.1 billion in loans must be seen in the context of the stock of loans outstanding to small and medium-sized enterprises before the pandemic. That figure was around £ 155 billion, according to figures from the Bank of England in February. CBILS has barely moved the dial.

Second, the Royal Bank of Scotland said it had approved around 3,000 loans and lent £ 500 million under CBILS. It therefore represents almost half of the total in value and volume, or about twice its “natural” share under normal conditions. Why? Are the other banks dragging their feet? Or are RBS systems simply better equipped to handle requests for ultra-low sums such as £ 5,000 where demand is greatest?

Or, as some suggest, are other banks caught up in the thicket of “Know Your Client” rules when making loans to new borrowers? If so, why wasn’t that the problem, a long-standing industry grumble planned by the Treasury? At the very least, the authorities should insist that loan data be communicated bank by bank so that everyone can see where the bottlenecks are.

Third, why is there a huge gap between the number of inquiries about CBILS, which is estimated to be over 300,000, and the 28,461 actual inquiries? Duplicate requests distort the picture, but it is not a complete response. As the Federation of Small Businesses asks, how many companies drop out at the application stage and why? UK Finance, the bankers’ trading agency, doesn’t even offer a figure for rejected requests, another gap in the data. The visibility is terrible.

A quick and popular proposition is to extend the state guarantee on CBILS loans to 100%, instead of 80%. Germany made the change and lent € 7 billion under its equivalent program. Pressure is mounting on the Treasury to follow.

The danger of a 100% free and easy approach is moral hazard. Some unsustainable businesses would be funded, which would increase losses to the state. Fraud could also increase. An 80% system gives banks a hard time in the game, in the jargon, and thus protects public funds, so we can see why the Treasury has taken this route.

However, the risk in the current configuration is that too little money will reach small businesses at the point of maximum stress. They must be there for recovery. One adjustment, as discussed in the select Treasury committee on Wednesday, would be to put a 100% guarantee only on loans under £ 25,000. It’s an idea, and the Treasury may have other ideas. But that should do something: CBILS does not deliver.

Ferguson’s perverse obsession with full American registration

If the shareholders do not cooperate, change the shareholders. This seems to be the approach of Ferguson, the builders’ merchants of the FTSE 100 that we still remember as Wolseley.

The company’s operations are almost entirely in the United States these days and, with local activist Nelson Peltz doing backstage, the board wants to move the stock exchange listing to New York, so- saying looking for more capital. However, there is a problem: 75% shareholder approval is required and Ferguson does not think he would get it. British investors, some constrained by their mandates, prefer to hold stocks listed in the United Kingdom.

Ferguson’s solution is ingenious or sneaky, depending on your point of view. First, it will look for a secondary listing in the United States, which should attract more American funds to the registry. Then, a year from now, the board of directors will warm up the idea of ​​a full move to New York and hope that the newly arrived shareholders will push the majority above 75%.

It’s a plan, and it can work. Yet Ferguson’s board’s obsession with a complete US list seems perverse. Simply get a secondary registration and evaluate the thesis of the “capital pool” over the course of a few years. This is the obvious compromise solution when shareholder opinion is divided. British investors, we hope, will hold out.


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