I make specific reference to my register of interests; I am associated with a business that has received a CBIL.
Faced with a profound crisis, the Government responded magnificently with a suite of measures of emergency loan schemes to support businesses badly affected by covid-19, in particular CBIL and the bounce back loan scheme. Put together at great speed, the schemes shovelled money from lending banks into viable businesses to support their cash flow in the short term, with capital sums repayable over five or six years—a vital support to large sectors of our economy and one that we will look back on with awe.
As we come out the other side of the initial crisis, the requirement to repay those debts in just five to six years will, in its turn, damage our ability to grow the economy. Just when we need businesses to be investing in growth and creating employment, they will have to focus on repaying their covid debt, in addition to any other pre-crisis leverage repayment plans. Just when we want banks to lend money to support employment-enhancing growth, they will have swollen covid-19 balance sheets and so be less likely to lend more. That is the opposite of what we need to happen.
There is a simple-ish solution: if we take the covid loan books of the banks and place the loans in a special purpose vehicle, turning them into covid loan-backed securities with varying maturities of up to 30 years, we could transform our economic recovery at a stroke and reduce capital repayments by a factor of six. We would free up whole swathes of the economy from zombie status, releasing funds for investment in growth. It would reduce business failures and increase the market for investment debt as effective business debt ratios are reduced.
At the same time, it would increase the banks’ lending appetite, since their current covid loan books would have been sold to institutional investors, so reflating their balance sheets. It would create the long-term, very low-risk, fixed income investment sought after by pension funds, particularly if the coupon were tax-free. The risk, after all, would be made up of businesses that were confident that they could repay sums over five or six years now doing so over 30 years, with individual risk further softened by their amalgamation.
Finally, it would create a whole new sector in finance in which the City could excel. I cannot think of a single policy that could do so much to re-establish our growth businesses so quickly, and all without significant recourse to the taxpayer. Does that sound too good to be true? Well, like any complex financial product, there are risks that will need to be explored both by the Treasury and by the Bank of England, but my earnest hope is that this proposal will be given the serious and immediate consideration it deserves.