UK Treasury Secretary Rishi Sunak on Wednesday launched a new government-backed loan program for businesses hit by the COVID-19 pandemic.
The new system offers loans from £ 25,000 to £ 10 million with a government guarantee of 80 percent and replaces the previous “bounce-back” program for small businesses and programs for larger companies.
Sunak did not disclose details of the interest rates or eligibility criteria for the new system. Media reports ahead of his budget plan suggested they are likely to be stricter.
Sunak seeks to reduce corporate reliance on previous government-backed lending systems as the UK prepares to relax lockdown restrictions that should lead to an economic recovery.
More than £ 45 billion has been borrowed from over 1.4 million companies under what is known as the Bounce-Back Loan for Small Businesses, which allows banks to lend up to £ 50,000 with 100 percent government support.
The country’s top spending watchdog warned last October that fraud and defaults would mean that more than half of that money could never be paid back as banks had limited checks to show.
A further £ 27 billion was lent through two medium and large business programs, with 80 percent of the lender’s commitment being funded by the state.
The lending support has helped many businesses in badly hit sectors such as retail and travel postpone or even prevent bankruptcies, which means UK banks are not yet having a major impact on their loan books due to the pandemic.
But the support has raised concerns that the loans are propping up “zombie” businesses that will collapse once the life-support plug is pulled.
The holiday program, which should end in April, will run in its current form until the end of June. By then, the government hopes to have lifted remaining coronavirus restrictions. But Sunak wants to avoid a cliff in the workplace by withdrawing the vacation program too quickly. It will last until the end of September, with employers gradually receiving a larger proportion of the wages of laid-off workers.
According to Sunak, corporate income tax will rise from 19 to 25 percent from April 2023.
But companies with profits less than £ 50,000 are still paying 19 percent, he says. He says this means only 10 percent of companies will pay the higher rate.
Sunak will not increase income tax rates, social security or VAT, he says. However, the personal tax thresholds are frozen. He says base pay will continue to rise to £ 12,570 as planned. But then it will stay at that level until 2026. And he says the higher rate threshold will also rise to £ 50,270. But then it will be frozen for the same period of time.