According to a report by an influential Conservative think tank, one in five UK businesses is a ‘zombie’, whose profits only cover debt interest payments.
Chancellor of the Exchequer Rishi Sunak is expected to ease rules on coronavirus debt repayments, Onward said, as he warned post-pandemic economic recovery would be hampered by “crippling levels of corporate debt”.
Loans taken out since the start of the Covid lockdown in March threaten to push 4.3% of businesses, employing 1.8 million people, into technical insolvency, and if dissolved they would have no assets to cover their debts, according to the study.
British businesses have taken out more than £50 billion ($65 billion) in state-guaranteed loans under government programs to help them cope with the pandemic. “Government loan programs have been very effective in helping businesses through the worst of the crisis, but they are a double-edged sword in that they have burdened businesses with debt just when we need it. that they are investing to drive the recovery,” report author Angus Groom said in a statement. Bloomberg
A reimbursement program could be managed by the Treasury and implemented and monitored by the banks, he said.
The warning puts further pressure on Sunak, after a British Chamber of Commerce survey found that one in four companies that took on debt through government loan schemes said they may have to cut its operations to repay it. Some fear that they will have to cease their activities completely. TheCityUK, a lobby group, estimated in July that £35bn of debt was unsustainable.
Sunak has been reluctant to restructure the programs, telling the Treasury Committee of Parliament in July that he was “not completely convinced of the scale of the problem at the moment”. He said UK businesses entered the crisis from a “relatively healthy place” in terms of debt, with corporate debt as a percentage of economic output low both by historical standards and compared to other countries. developed.
The report said the accommodation and food services sector, along with the arts, entertainment and recreation sector, suffered the most, and described around 40% of companies in these industries as “zombies”. He said even with Treasury loan and furlough schemes, 23% of businesses in those sectors will need to take on more debt to avoid closing permanently.
Dear reader,
Business Standard has always endeavored to provide up-to-date information and commentary on developments that matter to you and that have wider political and economic implications for the country and the world. Your constant encouragement and feedback on how to improve our offering has only strengthened our resolve and commitment to these ideals. Even in these challenging times stemming from Covid-19, we remain committed to keeping you informed and updated with credible news, authoritative opinions and incisive commentary on relevant topical issues.
However, we have a request.
As we battle the economic impact of the pandemic, we need your support even more so that we can continue to bring you more great content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of bringing you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism we are committed to.
Support quality journalism and subscribe to Business Standard.
digital editor
