ENDING the zombie business crisis plaguing the economy would be a cheap and easy way to boost growth, the UK’s top turnaround group argued last night, urging George Osborne to push banks to take the plunge on bad debts and write off the thousands of firms that have no hope of recovery.
Around 50,000 firms are thought to have no hope of repaying their loans, and are seen as a drag on growth, tying up bank and labour resources unproductively. But they are hard to distinguish from 100,000 others with good growth potential but that are struggling in the weak economy.
The Institute for Turnaround (IfT) says big banks are best placed to judge which firms have a future and should embark on an intensive review of at-risk companies, pulling loans from those that cannot recover and offering extra support to those who can.
VIDEO: OSBORNE MUST TACKLE ZOMBIE FIRMS
IfT boss Christine Elliott has been in talks with Treasury and business department officials over setting up a new zombie business taskforce to drive through the plan, starting with state-backed banks RBS and Lloyds.
She says that though it would take up few Treasury resources it could solve much of the problem in a year.
“The taskforce could begin by adjudicating in situations where struggling firms have been in business support with their banks for over two years – that amounts to hundreds of firms in the state-backed banks alone,” she told City A.M. “Those without a future could be humanely run down; those that are viable in the long term could be supported and turned around.”
“This is about supporting firms so they can attract investment, increase pay, create sustainable jobs – currently we are wasting potential, and it is holding back the UK’s productivity.”
Current policies focus on increasing available credit and cutting interest rates. But the IfT believes this support cannot get through to SMEs when banks’ resources are tied up with tens of thousands of firms with no future.
As the government is short of cash, the zombie firm task force could appeal to the chancellor in the Budget.
Vince Cable yesterday told the British Chambers of Commerce he recognised the need for sensitivity: “The worst thing that could happen is if a large number of quite good companies that got into financial difficulties were hacked apart by insolvency practitioners rather than being taken over.”
RBS rejected the idea it should review struggling businesses rapidly.
“If someone’s running a firm and they’re paying their bills, paying their interest charges, and employing people then we can’t just run in and say we don’t think you’re very good,” said corporate banking boss Chris Sullivan.