Report: UK firms swimming in £70bn of unsustainable debt
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UK firms have racked up £70bn-worth of unsustainable debt, a new report reveals, with more than £20bn of that coming from government-backed Covid schemes.
This figure is down on the previous estimation of £102bn, partially due to government stimulus packages introduced this year, data from TheCityUK revealed.
Government-guaranteed lending schemes such as the coronavirus business interruption loan scheme (CBILS) have produced an improved economic outlook.
Meanwhile the level of unsustainable debt accrued by small to medium-sized enterprises (SMEs) is expected to decrease from earlier projections of £35bn down to a figure of around £20bn.
But the industry group warned SMEs still face an uphill struggle.
Research from TheCityUK showed nearly 40 per cent of businesses will encounter difficulties in repaying their loans, up from a previous figure of 30 per cent.
The data followed the latest UK employment figures published this month, with 4.1 per cent of the labour force currently out of work, alongside a decrease in payrolls of around 695,000 since March 2020.
TheCityUK chief executive Miles Celic praised the “steady progress towards economic recovery” while urging caution for the road ahead.
He said: “The UK has made progress, but the projected unsustainable debt is still very large, and this will slow SME recovery up and down the country.
“Focus must turn from immediate firefighting to addressing these longer-term challenges — and supporting the recapitalisation of millions of SMEs remains a critical issue.”
TheCityUK’s recapitalisation group (RCG) offered some solutions to ensuring huge swathes of SMEs do not go under in the near future.
This includes increasing the current holiday on the capital or repayment government scheme loans by an extra 12 months, which it said would be more economically viable for taxpayers.
Omar Ali, UK financial services managing partner at EY and chair of TheCityUK recapitalisation technical working group, said: “The fog of economic uncertainty that descended with this crisis has started to lift, and the obstacles to economic recovery that lie ahead are coming into sharper focus.”
He added: “The key challenge now is how we help SMEs service the huge amounts of debt they have taken on as a consequence of the pandemic.
“Not finding a solution will impact SMEs up and down the country and lead to significant job losses, the majority of which would be outside of London.
“The industry remains united in supporting government to help businesses bounce back from the crisis.”