The Treasury has made clear it thinks banks should be responsible for chasing up and restructuring loans made to struggling businesses during the coronavirus crisis, rebuffing calls from City lenders for government help in dealing with the issue.
In response to a report by MPs, The Treasury said “accredited lenders, not the government, are best placed to support borrowers to repay” their debts.
UK banks have lent out more than £65bn through the various government-backed coronavirus business loans schemes. Around £42bn of that has been through bounce back loans, which have a 100 per cent guarantee.
Lenders expect companies to struggle to repay much of this lending. But they have to chase it up before the government guarantee can kick in.
A report by lobby group The City UK said around £35bn of lending could become unsustainable. However, some in the City say banks are more worried about the reputational damage of chasing loans.
The City UK, together with auditor EY and other big names in the City, called for government support in the summer. The group said a “UK Recovery Corporation” could turn risky debts into more manageable forms like tax liabilities.
The Treasury Committee of MPs had highlighted the issue in a report from September.
Responding to the report today, the Treasury gave short shrift to City calls for help, however.
It said: “We remain of the view that accredited lenders, not the government, are best placed to support borrowers [to] repay government-guaranteed loans.”
Treasury says banks ‘first port of call’ on bad loans
The Treasury has made similar noises in recent months, but the response laid out its thinking clearly.
It said it is “clear the private sector should be the first port of call for any business looking to refinance or restructure their debt”.
In July, chancellor Rishi Sunak told MPs he was “not completely persuaded of the scale of the problem”. He added: “Corporate debt levels in the UK are in a relatively healthy place coming into this crisis.”
However, the Treasury Committee today said it remained concerned about the issue. The Committee is a powerful group of MPs that scrutinises economic policy.
Committee chair Mel Stride said he remained worried that “there may be a lack of capacity and willingness on the part of the private sector to step in to provide solutions for corporate indebtedness”.
Ultimately, the Treasury is likely to have to shoulder billions of pounds of the burden due to the government guarantees.