A former chief economic adviser to Boris Johnson has urged the government to underwrite 100 per cent of coronavirus business loans.
Speaking exclusively to City A.M. editor Christian May on the City View podcast, Dr Gerard Lyons called on the government to do more to funnel loans to small businesses hit by coronavirus.
Lyons said he was “quite constructive” about measures to pay staff wages and help the self-employed. But he warned there are problems “with the policy itself and the execution of the policy” concerning lending cash to SMEs struggling to survive the lockdown.
“The government is underwriting 80 per cent of the loan when what we really need to see at the moment is money directed to those firms straight away,” he told City A.M.’s City View podcast.
“Ideally those firms want a grant, they don’t want to take on [debt] but in terms of the loans the government needs to underwrite 100 per cent of it. It’s either an area where the execution is wrong because of the banks or the policy itself, and i think the policy needs to be taken one step further.”
The latest coronavirus loans data showed banks have doubled lending in the past week to £2.8bn. But so far only 16,624 applications have been approved out of 36,000.
Lyons, who served as Johnson’s adviser when the Prime Minister was mayor of London, welcomed other government measures to contain the crisis. And he said the Bank of England was right to cut interest rates to historic lows of 0.1 per cent recently, and to bolster liquidity.
But he urged the Treasury to follow Europe’s example and cover 100 per cent of coronavirus loans, to ensure banks lend more freely to small businesses.
“Those who say it’s a policy problem itself say it needs to be sorted by the government absorbing 100 per cent of the risk and that’s the route I think we need to go down,” he said.
“So there is a longer standing issue that we need to still address in the future when we come out of this crisis about banks lending to the domestic economy more.
“The government needs to follow the example of… Spain, Switzerland, Germany, they had a package that got the money very quickly to the firms in need and we haven’t done that yet.”