UK government announces £10bn trade credit insurance scheme
The UK government has said it will guarantee up to £10bn of trade credit insurance transactions as it seeks to relieve some pressure on British manufacturers and construction firms amid the coronavirus pandemic.
The new scheme will be temporary, backdated to 1 April and run until 31 December this year, the Department for Business, Energy & Industrial Strategy and the Treasury said today.
Trade credit insurance is taken out by the seller of goods to insure them against a payment default by the company it is selling to.
It is particularly important to the manufacturing and construction sectors. It underwrites around £350bn of economic activity of more than 630,000 businesses in the UK each year.
But the government was worried that the coronavirus crisis could cause a rise in insolvencies that would mean trade insurance contracts were cancelled. This could mean firms demand payment upfront, squeezing firms further at an already difficult time.
“This reinsurance scheme is an important step as we carefully set about firing up our economy as we emerge from the pandemic,” said business secretary Alok Sharma.
John Glen, economic secretary to the Treasury, said: “Billions of pounds of business turnover is supported by Trade Credit Insurance each year.”
“This reinsurance scheme will see the government and insurers working closely together to ensure that the vast majority of this cover remains in place.”
Some help for trade credit insurance was announced in rough form last month. But the details were agreed after extensive discussions with the insurance sector.
The Treasury said it will see the vast majority of trade credit insurance coverage maintained across the UK. It hopes it will allow firms to trade with confidence, in the knowledge they will be protected if a customer defaults.
Stephen Phipson, chief executive of manufacturing body Make UK, said: “For most manufacturers, credit insurance is essential – giving them certainty that they will be paid for the orders they deliver.”
“We’re pleased that the government has taken action to jump-start the credit insurance market – which will provide a welcome boost to our nation’s makers as they recover from the Covid crisis.”