PARLIAMENTARY DEBATE
Coronavirus Business Interruption Loan Scheme - 5 November 2020 (Commons/Commons Chamber)

I beg to move,

That this House believes the Coronavirus Business Interruption Loan Scheme is not adequately fulfilling its role for SMEs across the UK; and urges Government intervention to ensure that all businesses are provided with the financial support they need.

I thank the Backbench Business Committee for allocating time for this important debate. My co-sponsor, the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) and I applied for this debate some months ago after hearing of the anguish felt by business owners in our constituencies who could not access emergency support and were left struggling to find critical funds to see them through the crisis. I know that colleagues from all parties in this House and from all parts of the UK will have heard similar tales: people who did not know where to turn when the billions of pounds they heard being bandished about were no more than fantasy figures doing nothing to help the reality faced by the businesses they had to work so hard to build. The situation has been in constant flux and the support schemes have been a moveble feast—or a never-ending famine, certainly for those who have been excluded so far—so I want to reflect on the current situation and dangers going forward, rather than dwelling too long on some of the errors of the past.

A rising tide of debt is making the coronavirus business interruption loan scheme an issue again. Changes to the scheme announced by the Treasury so far do not go far enough to see businesses through to the end of this crisis. The pandemic has gone far beyond anything imagined when CBILS was first announced. England begins lockdown again today and most of Scotland remains severely restricted. The feared second wave is upon us and will possibly be worse than the first. Debt and desperation are rising, yet at the same time support is being cut, withdrawn or very reluctantly extended, without due time to plan or prepare. Those excluded remain so, and banks are getting more tetchy about lending. There has never been a more crucial time to review the effectiveness of Government-backed loans and support, and to make sure we better meet the needs of everyone across the UK.

When lockdown began, CBILS was one of the first schemes off the blocks, with a promise of £350 billion being made available in this and other Government-backed loans. Although grants would certainly have been better than loans, I commend the Chancellor for that swift action. It is a pity that after seven months, £62 billion—less than one fifth of that figure—has actually been approved via the various loan schemes. We need to find better ways to make funds accessible to those who need them and to hope that bold replacement mechanisms for CBILS and the bounce back loan scheme, with an emphasis on grants, can be found. Those would plug the gaps in the support already in place and would help to stimulate recovery.

Flaws in CBILS quickly became apparent. It was reported on 12 April, only three weeks after the scheme was launched, that 300,000 inquiries had been made yet only 1.4% of those went on to be successfully approved for loans. Some people did not pursue loans beyond the call to the bank, whereas others gave up before completion of the heavily bureaucratic process. Some seven months later, on 18 October, 73,094 companies had been approved for CBILS out of 159,277 completed applications—that is still an approval rating of less than half of those who completed the process, never mind those who were too worried about the debt to take it on in the first place.

I thank the hon. Gentleman for bringing forward this important debate, because although there have been successes with CBILS, there are some shortcomings too and it is right that we discuss them. I accept, to a great extent, the point he makes about grants rather than loans. However, he would probably accept that grants have been made as well as supporting loans, in the form of the job retention scheme and the business rate grants.

I do accept that point, and it is important that some of those grants have been in place. I would far rather have seen some of the large sums available through CBILS and the bounce back loan scheme made available as grants, as opposed to loans, which add to the debt burden on business.

I, too, am grateful to the hon. Gentleman for bringing forward this debate. Ninety-four businesses in my constituency have taken out a CBILS loan, but they are really concerned now about their ability to pay it back, even with the new measures in place. Does he share my concern that we need to see some underpinning and underwriting in order to secure these businesses for the future?

I absolutely do, and I hope that some of the points I will make later will address the hon. Lady’s concern.

Although improvements were made, the mechanics remain flawed, and take-up is not helped by the fact that the state guarantor is for only 80% of the loan, so risk-averse banks are the gatekeepers to lending decisions. Initially, banks were cherry-picking the very best—the blue chips and the big corporations—while lending for the rest was far harder to find. Now we see a second wave of banks becoming less willing to lend as the uncertainty of the crisis continues and worries grow about the ability to repay. We need the Government to step in to fix that. Of course, getting cash to smaller firms was aided by the launch of the bounce back loan scheme in May, and again I commend the Chancellor for taking the action to introduce that. It is a faster process, with a far greater take-up, accounting for about two thirds of the total loans received, with about two thirds of those reaching small and medium-sized enterprises. That is aided by the Government guarantee of 100%, the capped interest at 2.5% and the lender agreeing not to charge fees. That is far closer to what I think CBILS should be if it cannot be a grant. It is a pity that bounce back loans remain limited to up to £50,000, which is nowhere near enough for the needs of many businesses around the country. I hope the replacement for CBILS will take account of the mechanics of the bounce back loan scheme.

By contrast, the commercial companies approved for CBILS can set the rates for business interruption loans, with massive variation in what is offered, averaging around 6% but going up to almost 15%. One local business told me that the initial rate it had been offered was 34%. That may bail out companies in an immediate cash-flow crisis, but it will lead to crippling debt in the longer term when the taxpayer support ends. As The Sunday Times reported this week, some CBILS-accredited lenders are not only charging double-digit interest rates but are charging arrangement fees of up to 5%, a considerable sum to any business. Some are apparently marketing the loans as ways to fund management buy-outs or to refinance existing debts. It looks like some of these loans are less emergency support and more picking the bones of companies in trouble.

Covid-19 has certainly brought out the best and worst in our society. We have seen the very best in the public-spiritedness of our communities: essential workers, volunteers and small businesses struggling to keep things moving, supporting the vulnerable and saving lives. The very worst, though, are those who see the pandemic as an opportunity simply to make a quick buck on the back of other people’s struggles, whether through price gouging on hand sanitiser, creaming off cash from shadily signed Government contracts for personal protective equipment or, in this case, hiking up fees and interest on loans to desperate companies. There are always people out there who see a disaster as an opportunity to make money, but they should not be able to do so with a Government badge of approval.

Many companies are not taking on CBILS or BBLS loans because having more and more debt around their necks is the very last thing they need. Small and medium-sized enterprises in Midlothian told me that it was an absolute last resort, and that the schemes were far better suited to big players. They say they needed a short-term financial injection, not a loan, but businesses were being pushed towards debt as the only option. One local business that contacted me put it far better than I could have put it myself:

“Business owners are being unfairly expected to shoulder a massively disproportionate share of the burden. Many SMEs have been built up over years of toil and are supported by personal guarantees of directors who are being pushed into positions of potential or actual insolvency which can lead to personal bankruptcy. This is at the bequest of people in authority who are at no personal risk at all. Are they aware that these businesses are where the tax receipts come from that will be needed to pay back the debt now being built? Many of them took years to build into the position where they pay and collect a good level of taxes and if these companies are forced to fail it could take many years to build their replacements”.

I hope the Treasury Bench will take note of those comments.

In May 2020, the Office for Budget Responsibility forecast a likely 10% default rate on the loans. By July, that was updated to 40%. In September, the Department for Business, Energy and Industrial Strategy’s annual report went even further, estimating losses ranging from 35% to 60%. TheCityUK recapitalisation group’s report estimated that UK businesses will have £100 billion of toxic debt by 2021, with £35 billion of that related to the Government schemes. The report warned that up to 3 million jobs across the UK, and 780,000 SMEs, are at risk if urgent action is not taken to tackle that projected £35 billion of unsustainable debt from covid loans.

Worryingly, there are reports of banks bringing in specialist debt collectors to help lead the recovery of loans. Of course, the loans spare the banks from the credit risk, but if they cannot be repaid, will we witness thousands of small family businesses pursued through the courts for recovery before the guarantee kicks in? The National Audit Office report on the bounce back loan scheme published on 8 October stated that

“the Bank expects lenders to pursue ‘appropriate recovery processes’”

if companies default. However, it is not clear what that means, and the UK Government need to provide clearer guidance on that process. Given that funds were provided on terms set by the Treasury, it is only fair that, as a minimum, there is a clear framework for recovery, so that customers are treated fairly and consistently, regardless of their banking provider. Even better, why not take the stress off the shoulders of small business and dump the debt that will only hold back recovery? There are also small businesses facing bigger debt on their loans than others, because they rushed to take out the loan when it was the only game in town. They could face a 50% or 60% increase in repayments compared with a bounce back loan. The banks do not seem particularly keen to make it clear that businesses may switch these loans, and I hope that the Government will help to get the message out there—that one simple step could make a big difference to so many companies.

As the pandemic crisis continues and companies try to adapt and rebuild, the best thing the Government could do would be to write off the outstanding debt to SMEs altogether. That would help small businesses have room to recover. The Association of Accounting Technicians called for the bounce back debts to be written off for small businesses, accounting for £40 billion of loans. It says that the “pay as you grow” scheme does not solve the problem; it just defers it, whereas writing off the debt would be a much-needed boost for SMEs and the economy.

Charities have been pushed in the direction of CBILs as well, and of course that is completely inappropriate, so to add to the list, will the hon. Gentleman say that charities should have their debt written off as well?

Yes. Charities, who spend so much of their time having to collect from the public and are now having to adapt to new ways of doing that, are among those many who have been pushed into an impossible situation, where the only game in town is what they had to take. We absolutely need to look to see what we can do to support them, to help them out of this situation.

It is an interesting point, but how would it be fair to people who did not take a loan, or to businesses that paid back their loan, if one wrote off the debt of businesses that did not pay back their loan? How could that possibly be fair?

Each business took its decision based on what position it was in at the time. Many would face the prospect of going out of business; the heart of our communities would vanish overnight. One swift step by the Treasury could solve that, to support and maintain our communities.

It is an interesting point, and it is worth having a debate about it, but lots of businesses, including mine—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—took loans on the basis of a safety net. Not only did they not need it, but they were unsure about their commercial circumstances and they will be able to pay that debt off without going bust, and intend to. Is the hon. Gentleman intending to write off the debt to my business, which I did not need, which the taxpayer has funded, even though I do not need that money, on the basis that everybody should just get free money?

As I say, every business took the decision about why it needed to take a covid loan or a bounce back loan. This is about ensuring that we protect the jobs and security for those businesses going forward, and making sure that our communities are protected.

My hon. Friend has been making a powerful speech. Does he agree that when businesses across the nations of the UK have not needed public funds, they have returned the money, in their many millions? Are those not exactly the same circumstances that he is calling for here?

Absolutely; I completely agree with my hon. Friend. This is about ensuring the security and the future of thousands of businesses across these islands. It is a bold move—I accept that—but we are in a crisis and bold action is exactly what is needed.

I am wondering whether consideration might be given to certain sectors, because we know that, sector-specifically, there are areas such as tourism that have been able to make no money whatever over the summer. Could this be a medium by which that could be addressed?

That is an excellent suggestion. Tourism, events—a number of industries have no opportunity to make the income that they need at the moment. Looking forward, there is no immediate prospect of their being able to do so, which is where the threat of those loans becoming due for repayment really starts to come into its own.

The Government, when considering a replacement for CBILS, need to look at ways to use the remainder of the £350 billion promised to be released on direct grants, perhaps equity, and make sure that reaches those who actually need it. Many viable businesses have received nothing so far, and they are not going away either.

Today—5 November—is an important day to hold this debate. It is not just the beginning of the new lockdown in England, but it commemorates the date of a failed gunpowder plot. Let us make it our day to properly remember, and not leave a giant powder-keg sitting under the businesses across our nations. We must ensure that our businesses survive and our democracy works for the people it is supposed to serve. I urge the UK Government to act now, to prevent a debt crisis, to boost support for businesses, and to stop more jobs and livelihoods going up in smoke.

We are running a bit behind schedule on account of the debate starting slightly later than anticipated. On the assumption that everyone turns up, I think speeches should probably last for about seven minutes.

I thank the hon. Member for Midlothian (Owen Thompson) and the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) for bringing forward this important debate; I agree with many points made by the hon. Member for Midlothian. I also draw the attention of the House to my entry in the Register of Members’ Financial Interests.

This is such a key debate. We live and work in a capital society, so access to capital is not just a nice-to-have; it is absolutely vital. Unfortunately, the way that banking works in our society tends to mean that access to capital is available at times when we probably do not need it or when we need it least. It is like the old adage about being given an umbrella when the sun is shining and having it taken away when it is raining. That is definitely a feature of the way in which banking works in this country. But it does not need to be like that. In fact, it is not like that in many other very successful capitalist countries, as I will mention later.

We talk about building back better, and we have an opportunity to build banking back better. There is no doubt that banking can have a commercial purpose. As somebody who believes in free markets as the best way to drive down prices and drive up service, I absolutely think that commercial banking should be a feature of our financial system, but I also think that it should have a social purpose—through both our commercial banks and another form of banking. A mutual, not-for-profit approach to banking is a key feature of the banking systems in many other countries, including Germany, the US and Japan. I will talk more about that in a second.

Let me first discuss the main topic of the debate, which is CBILS. Although there have been some gaps, to which the hon. Member for Midlothian was quite right to draw attention, there is no doubt that there have also been huge successes. Some 73,000 businesses have been supported by the scheme, with around £17 billion. I do not think that anybody ever expected that there would be a demand for £300 billion of loans. There have been £40 billion of bounce back loans; there is no cap on that, and the application process is very easy. There is probably a finite market for these loans, because most businesses will try to get through without taking a loan, but they have been a tremendous success.

My business has taken one of these loans. We will never touch it and we will pay it back. But if a message was sent out to businesses, saying, “You don’t need to pay this money back. Don’t worry, we’re going to write it off”, or if the repayment were subject to certain criteria, businesses would find a way of adjusting their business cases to meet those criteria. It is moral hazard to say to companies, “You’re just going to get this money and you don’t have to pay it back.” To my mind, that would not be fair to businesses that did not take a loan, or to businesses that can and do repay their loan.

It was Government intervention, of course, that made this scheme a success. There is no way on earth that our commercial banks would have made it a success without the intervention of the Government, so I applaud the efforts of the Minister and his colleagues on the Treasury Bench. Credit should also go to the British Business Bank, UK Finance and the banks themselves, which rolled out these schemes at a tremendous pace, particularly the bounce back loans. We should recognise the successes.

Inevitably in such debates we need to talk about the flaws and the gaps in the measures, and there have been some in this scheme because it was rolled out at pace. The flaws are particularly sector-based, and this strikes at the heart of the problem with UK banking. Our commercial banks look at lots of these sectors, and are attracted to some and not very attracted to others. That has been a feature of the CBILS. The performing arts sector found it very difficult to get loans. Football clubs found it impossible to get them; they will not be supported. Despite the Government guaranteeing 80% of these loans, they were still inaccessible to some sectors.

Many SME housebuilders also found it difficult to get loans. As we know, the house building sector in the UK is increasingly dominated by large business. I come from very much a small business background so I always favour SMEs in my speeches in this place, and I think we should always try with our policies to look after small businesses. Many banks simply will not provide finance to SME house builders. It is a key issue, it was an issue with CBILS loans, and I really hope that the Minister will look at it and try to address it.

The hon. Member for Midlothian is absolutely right that there have been some pricing issues. In the first year, of course, the taxpayer has to pay for that—it is a feature of the loans that the Government in effect fund the first year’s interest, so the taxpayer picked up the 12% interest that the hon. Gentleman was talking about. A company called SWIG Finance used really quite exploitative pricing. The Government have done this to some extent, but we do need to look at top-ups for people who have taken a certain size of loan and will need more. We have done that for bounce back loans but we have not yet done it for CBILS, for which the exact same dynamic could apply. Bounce back loans have been a tremendous success, but we still need to work on the basis of the fact that lots of people bank with companies that do not have access to the term funding scheme for SMEs from the Bank of England and therefore do not have the liquidity to lend their customers bounce back loans. Tide is the most obvious example: those who bank with Tide cannot access a loan, because there is no funding for Tide’s customers because the bounce back loans are so cheap, at 2.5%, and if they try to go to another bank, all the doors are closed. Those doors are closed even in respect of opening a bank account. We really need to find a solution for non-bank lenders..

I agree with the hon. Member for Midlothian entirely about forbearance: we need a standardised process for it. As I have said a few times previously, I am the co-chair of the all-party group on fair business banking. We would love to be part of the conversation, because we can inform the debate that the Treasury is having with the banks about how we standardise forbearance.

In my final minute, I wish to talk about banks having a social purpose. Banking in the UK is massively dominated by our big commercial banks: 80% of SME finance is with the big four banks. It works completely differently in different countries. Germany is a classic example, where there are 1,500 not-for-profit mutual banks. That is so important. In the UK, between 2008 and 2013, the amount of finance extended to SMEs dropped by 25% because the banks drew in their horns and thought, “It’s all too risky, thanks very much. The shareholders come first.” That was understandable, but hardly good for UK plc. In the same five-year period, lending to SMEs in Germany went up by 20%. We need to make sure that that happens here. There are lots of examples of fledgling organisations that want to provide regional mutual banking, including South West Mutual and Avon Mutual. They need funding from the Government to do it.

Community development finance institutions can also play a part. They need funding from the Government to do it. All we need to do is tell the banks, as they do in the US, to lend money to these organisations, which can lend money profitably and with sensible lending conditions, but with a social purpose. They can provide more patient capital and more financial inclusion. It is a huge opportunity. Before I sit down, let me give a last example. The state of Wisconsin in the US is the size of Yorkshire—around 5 million people live there—and there are 139 mutual banks with, collectively, around £100 billion-worth of assets. They are there for that financial inclusion and making sure that lending goes to the productive economy. I urge the Minister, who is a great businessman himself, to be part of building banking back better.

I congratulate my hon. Friend the Member for Midlothian (Owen Thompson) on securing this debate. I was extremely interested to hear some of the contribution of the hon. Member for Thirsk and Malton (Kevin Hollinrake), particularly the idea of increasing the local stake and interest of banks in communities. It would be really useful to take that forward.

Covid-19 continues to cast a dark shadow over all four nations of the UK, blighting lives and businesses. This debate is an important moment to consider the ramifications, legacy and lessons from one of the key economic measures that have been our response to the virus. Nearly 1,700 coronavirus business interruption loans have been provided to businesses in Wales, totalling approximately £374 million in much-needed support to our economy. This represents one aspect of a broader intervention by not only the UK Government but the Welsh Government and local authorities, who have directed more than £1.6 billion of public support in the form of grants and reliefs to Welsh businesses. Indeed, the resilience and effectiveness of the devolved Governments can perhaps be compared with the Westminster record, which has shown itself on occasion to be prioritising headlines over competency. Westminster has exacerbated rather than eased confusion among businesses, and I refer to the furlough scheme and the lack of transparency in Government contracts as stand-out examples.

I want to make a point about the furlough scheme. I have spoken to businesses in the community that are carrying hundreds of thousands of pounds of debt, which is relevant to what we are discussing today. Because they were unsure what was going to happen with the furlough scheme, they took the necessary steps to start making staff redundant, and those processes have started. So there is an effect when these decisions are made late in the day.

It is increasingly clear that covid-19 is no equaliser, either as a deadly disease or in its wider socioeconomic ramifications. This has created a potent economic legacy, in which the CBIL scheme plays a part. A concern throughout the programme has been accessibility. Unlike in later schemes, CBILS applicants had to certify that they had been adversely affected and, more importantly, were still required to present a borrowing proposal to lenders. That posed a significant challenge for many businesses in Wales, particularly in rural areas such as my constituency of Dwyfor Meirionnydd and in post-industrial communities, particularly across Wales, a country that last year topped the UK table for bank closures.

After 43% of Welsh bank branches were closed between 2015 and 2019, businesses faced an uphill challenge, even before covid restrictions, simply to find a financial adviser to inform them on loan applications. The banks’ local knowledge, as well as their stake in local communities, has been eroded, even as they reach out with their digital capacities. Banks had that local interest and local stake in our communities, and we should be looking at the way in which they now operate in the United Kingdom. We have welcomed the improvements in the later schemes, but the Government need to go further and work with lenders to continue to improve accessibility to all covid-19 support schemes for households and businesses in rural and poor communities.

Westminster presumes that the UK is a healthy, mixed economy, but the reality is that in many areas, single industries dominate the local economy. This is particularly true in north and west Wales, where the strongly seasonal tourism, hospitality and leisure sectors dominate. This is the reality of where we are now, and I am not criticising it. I accept it, but if we want to make a difference to those communities in future, we have to realise the implications of covid and how the support measures will work their way through. We had a harsh winter last winter, and we are going into winter now. In the meantime, many businesses in the sector had no choice but to pursue UK and Welsh Government support schemes. They banked on a strong summer season’s earnings that never materialised sufficiently for them to pay off their debts. That was their usual business model. They are usually viable businesses, but this summer they did not have time to make that up. These businesses, and now the whole communities in which they operate, face a bleak future.

It is therefore vital that CBILS should be part of our effort to rebuild, rather than being employed as a stopgap in the immediate crisis. That is why I urge the UK Government to work with lenders and the Welsh Government to lighten the mounting debt burden facing UK businesses. This should include measures such as debt relief for viable Welsh businesses, particularly in badly affected industries such as hospitality. The effect of such an action would be immediate and direct. It would immediately improve businesses’ balance sheets and outlook, give certainty on employment and free up capital that could be set aside to ultimately fund our economic recovery. Although bold, such an intervention on the back of historically low interest rates for Government borrowing would recognise that debt is an economic and political problem, not a health one.

Time is ticking. TheCityUK’s recapitalisation report estimates that, without action now, UK businesses will have £100 billion-worth of toxic debt by March next year, leading to further unemployment and ending in permanent economic scarring in areas that can least afford it. We have a golden opportunity to turn this debt crisis into a vote of confidence in our economy, freeing businesses from an avoidable debt crisis to reinvest in their livelihoods and workers. I urge the Chancellor to seize this opportunity.

As all our speakers are now here, I remind Members that I would like to start the winding-up speeches at about 3.25 pm, and speeches of between six and seven minutes should make that possible. I call Virginia Crosbie.

I thank the hon. Member for Midlothian (Owen Thompson) for securing the debate, and I say to the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) that it is always a pleasure to follow a Welsh neighbour.

For many people across the United Kingdom, this year has brought great hardship and significant challenges, and whatever our individual circumstances, each one of us will have had times in the past nine months when it has felt so hard to be optimistic about a brighter future. Despite the challenges the nation has faced, this Government have not given up. They have continued to deliver on their election promises and to invest in the future. I am particularly talking about the levelling-up agenda and building back better, which my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) alluded to.

So far, businesses in my constituency have received over £5.5 million in coronavirus business interruption loans. That is a monumental sum for an area with the lowest gross value added of any area in Wales and where investment is so desperately needed. I have seen businesses take advantage of the scheme and put the money to good use, generating jobs and optimism for the future of our island’s economy.

I would like to highlight what this scheme means to my constituents and the people of Ynys Môn and mention one business that is waiting to hear about its application. I have a fantastic, ingenious technology company called Orthios Eco Park, which generates electricity from imported plant waste. It intends to use this loan to develop a new mechanical recycling facility that will not only significantly increase its recycling capacity but create more than 100 jobs on the island next year, in Holyhead—a part of Anglesey that desperately needs investment and employment.

That company’s expansion will enhance Anglesey’s reputation as the energy island. Members have heard me wax lyrical about how important energy is to the island and to the whole of Wales. That is a reputation gained from the large number of green energy producers working locally to harness our natural resources. The work of Orthios and the support it has had will mean that those other innovative development companies will also benefit, such as the Morlais tidal energy project and Minesto at Holyhead Deep. That is part of the jigsaw that will help to deliver our Government’s net zero carbon target. All these companies are intertwined in helping us to deliver that target.

I agree with what my hon. Friend the Member for Thirsk and Malton said about the social purpose. I spoke to the CEO of Orthios, Sean McCormick. He said that it has been such a challenge for businesses like Orthios on Anglesey, but the support the company has had from the UK Government will help it to retain jobs and provide a springboard, helping it to invest in and deliver the future of the island. Entrepreneurs like Sean are critical if we are to grow our economy. Ynys Môn has an abundance of entrepreneurs, and I have been pleased to support them through a Make It Your Business event that I launched. There is so much more we can do to support entrepreneurs, who are the backbone and the lifeblood of our communities.

I have seen the Government support businesses during this crisis. They have come up with a toolbox, from the self-employment income support scheme to the coronavirus business interruption loan scheme. The Chancellor’s announcement today that he will provide additional support and extend the furlough scheme to March will come as a relief to many across the country, particularly in constituencies such as Ynys Môn, which is dependent on the tourism and hospitality sector.

I thank the hon. Member for Midlothian (Owen Thompson) for introducing the debate and all those who have contributed so far. I look forward to the Minister’s response—there is no pressure on him, but we need a lot of answers, and I am sure he will be able to come up with the answers we want.

During these challenging times, we must ensure that we do the right thing by our constituents, many of whom are facing the most difficult financial circumstances in their lives. Those I have spoken to have told me clearly that the Government’s support has been incredibly helpful to them, meaning that their businesses can continue. I want to put that on record, because if it had not been for that, many businesses would not be here today—that is a fact, and I thank the Government for that. Other Members have mentioned this, but I am going to give the bankers a bit of a spanking in this speech, so I am, because that is one group who have not been as good as they could have been. I will come to that in a wee minute.

I want to mark up the effect of SMEs and how much they mean in my constituency, because they are the backbone of the economy. They account for three fifths of employment and about half of turnover in the UK private sector. That, I believe, is why the Chancellor designed this scheme in itself, and why it needs to be right for the future of our nation. I loved what the Chancellor said today—it was music to my ears, but I suspect perhaps not to my nationalist colleagues—when he said, referring to the United Kingdom of Great Britain and Northern Ireland that, wherever it was, the money was available from Edinburgh to Cardiff and from London to Belfast. I loved that because that is just me: a person who believes that the Union is really important.

Right across all business sectors large and small, the effects of the pandemic have been fast changing, and the sudden economic impact has required an immediate response not only from business owners, but from banks and other financial institutions. The coronavirus business interruption loan scheme was established between March and May in response to the pandemic, with loans of which 80% would be backed by the Government. While the scheme was offered with attractive terms, those with high hopes of securing the funding did feel that it fell far short of expectations, with many business owners giving up during the application process when they discovered how the scheme works.

I am very fortunate to have an extremely good office. I am surrounded by good staff, and the fact is that they are five ladies. Behind every man there is a woman, and behind this man there are six women keeping him right, and I want to thank them for that. The manageress of my office was almost like a Jack Russell with a bone, because when she got that bone in her teeth, she kept on and on, and we were probably able to help many businesses because of her dogged determination. Even when the Government came back to say, “No, you can’t have that”, or “This doesn’t work because”, we would appeal against everything. We appealed and appealed, and I have to say that, by and large, those appeals were successful. I think 99.9% of them were successful, but that is just by the way.

The 1,470 loans for my constituency were worth £50 million. That gives hon. Members an idea of what this meant. Those businesses needed this effective and efficient help not because they were not viable. Those businesses were viable, but they just needed that wee bit of time to get them over the line, and the Government did that because they are absolutely viable in normal times, as they would be.

I know of well-established local businesses that have struggled and fought to hold on to be able to continue trading. I have spoken to so many business owners who are frustrated by the process of being subjected to standard commercial lending practices while in the middle of a public emergency. Because we are in these circumstances, the banks must fall more into line —this is the banks again—with the people who are depending on them to get them through the crisis. At a time when business owners are being asked to be resilient, it would do well for the lenders—the banks—to realise that attitudes and behaviours towards banking have changed, probably forever. I suspect that some people will probably never get over how they were treated. People are in crisis, and now require services in a matter of days or even hours. We are not out of the woods yet—I understand that—and a new normal means that lenders must adapt to these rapidly changing times, but the old rigid approach is now counterproductive.

I have to say that the Chancellor’s decision to extend CBILS to the end of January will be welcomed as England enters another phase of national restrictions. We do not know what lies ahead. It is my fervent desire that we do not enter another lockdown, but who knows what the future holds. However, we do need to be prepared. More than this, the banks must be prepared to put the good of this nation—the whole nation of the United Kingdom of Great Britain and Northern Ireland—against their quarterly reserve and implement the scheme envisioned by this House and the Chancellor. I do not want to have to fight for more of my businesses to have what the Chancellor has said is readily available. That is why the banks have to step up to their responsibilities, and they cannot deny that. Some Members have said it, and others probably will.

This is my last paragraph, Madam Deputy Speaker. The fight for survival for countless businesses is not over, and it is vital, as we enter 2021, that CBILS continues to meet the needs of those who will turn to it and that lenders adopt a more flexible and co-operative approach so that no businesses anywhere in the United Kingdom of Great Britain and Northern Ireland are left behind. I ask for a resounding message from the Minister to be sent to the banking industry that the availability of these loans is not a request. If they wish to operate in this nation, the banks should do the honourable thing and in a mutually beneficial way.

I draw the attention of the House to my entry in the Register of Members’ Financial Interests—in particular, my significant shareholding in a business that has received a CBIL.

We have heard about the Government’s actions. We have heard about the enormous numbers that are involved, which were referred to directly by the hon. Member for Midlothian (Owen Thompson), and about how they are just fantasy numbers because they are outside the essence of our individual experience. It is just for the same for me. Big numbers mean little to most people, because we do not really understand them in our normal lives.

However, I have a very real experience of the transformative effect of the CBIL system. Before to entering this place, I was the managing director of, and a significant shareholder in, a seasonal tourism-based leisure business of just the kind that we have heard so much about over the past six to nine months. It operates in 34 locations across the United Kingdom, employing people in Scotland and Wales as well as England. In March this year, we had weathered our planned seasonal losses over the winter. The business had been invested in and had recruited a large number of staff, looking forward to Easter trading. It was an irony not lost on me and everyone else who was employed in the business that the lockdown was announced in the very week of our minimum cash flow in the entire year, by which I mean that we had the least amount of money to respond to an economic shock. As a result, the lockdown was an immediate existential crisis for that business, which employs up to 1,000 people in this country and 250 to 350 people in the United States of America.

Without doubt, the CBIL that we were able to obtain within a matter of weeks saved the business from the risk of collapse. It bought time. It cushioned the cash-flow blow—this crisis is primarily about cash flow—and allowed space for the business to adapt, survive, and then, I am very pleased to say, absolutely to thrive now, although I recognise that that is not the experience of an awful lot of other businesses in the sector. The Chancellor’s intervention directly saved hundreds of jobs and careers. Let us not forget now how fast the Government acted—and thank goodness they did, because without that, the economic damage to this country would have been so much greater.

In a previous debate, I highlighted what I considered to be one of the key weaknesses of the CBIL scheme. As we plan to grow out of the crisis phase and into the economic growth phase, we need our recovery to be led by businesses that have cash to invest, creating new products, investing in growth, increasing efficiencies, exploring new markets and, importantly, creating employment. To do this, they need access to cash, as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) has identified, at a time when the unwinding of the CBIL loans, with their straight line capital repayment scheme after the first 12 months, means that cash will actively be withdrawn—at that stage, in a one sixth per annum phase, but most likely, in reality, between two and five years. That would be taking money out of the productive economy just at the time when we want these businesses to be investing in growth. I was therefore delighted—and impressed, frankly—when the Chancellor announced recently the increased flexibility in interest and capital repayment requirements and increased the maximum period of capital repayment from six to 10 years. At a stroke, that almost halves the capital repayment requirements for businesses, it frees up a really significant sum of money to be reinvested in growth, and it focuses exactly on the businesses that are able to do it.

However, there is one further point that I hope the Treasury will look into. Lending banks currently have their covid loans sitting on their balance sheets, albeit supported by the Government’s partial guarantee. This reduces their capacity, and their appetite, to lend further to support the business-led recovery. I ask the Minister whether the Government could develop a scheme to allow these covid loan books to be sold to institutional investors via a special purpose vehicle, because this would provide long-term, very low-risk, fixed-income investments that are sought by pension funds, for example, particularly if the resulting coupon was tax-free. I know that is an ask of the Treasury, but it would ensure the success of the scheme.

My hon. Friend makes an interesting point, but one of the mistakes we have made in past years is allowing the sale of loan books to very aggressive companies that pursue those loans and repayments in the most inappropriate way for SMEs. Does he propose any restrictions on who those can be sold to?

It would be an unwise legislator who had not learned from the financial crisis of 2008-09. It would require regulation and careful oversight by the Bank of England, I suggest, but we should not throw the policy baby out with the execution bathwater. This suggestion is something the Treasury should look into, and I encourage it to do so, because in return the lending banks would have their balance sheets reflated and their risk removed from the sector, encouraging them to support business investment and recovery further. When Government finances are stretched as never before, the suggestion has the merit of allowing the market to provide much needed capital for growth and not the Treasury.

There is no doubt that the Government have invested massively and effectively in supporting our business community and the jobs, importantly, that they support, through the swathe of schemes that have been discussed today, most recently with the Chancellor’s announcement this afternoon of the extension of the furlough scheme. It gives me great confidence that the Government remain committed to the business sector and supporting them to lead the future economic recovery.

Much of what I was going to say has already been said, so I shall be as succinct as any lawyer can be in these circumstances. I too pay tribute to the effectiveness of the loan scheme. It has certainly saved many firms and many jobs in my constituency of Bromley and Chislehurst. One forgets that London suburbs, although in the prosperous south-east, have many small firms among their number—many family firms and many SMEs—and they have struggled just as much as any other part of the country during this time, particularly as there has always been a problem for many of them with access to capital. I hope we can learn long-term lessons from this.

I congratulate the hon. Member for Midlothian (Owen Thompson) on securing the debate, because it is on an important issue. There are some things I hope we can embed in the system, and my hon. Friend the Member for Broadland (Jerome Mayhew) made a number of important points in relation to that. His father, as a distinguished former Member of this House and distinguished lawyer, would, dare I say it, be very proud of him.

It is fair to say that the key thing going forward is perhaps to ensure that the business loan scheme works effectively with the other measures we are putting in place, and that is where the changes that have just been referred to—the greater flexibility around repayments and moving away from the straight line capital—will be important.

I hope, too, that we can see how that scheme links with some of the other assistance that is being given. For example, an issue that has been raised with me by firms in my constituency is that they have been able to defer tax payments in relation to corporation tax, national insurance contributions and others, but there is still some lack of certainty as to whether there will be any interest charged or any penalty charges in some types of tax deferment. There have been mixed messages on that, and it would be bizarre if we were supporting businesses through the business loan and then some of that was going back to pay the same public purse, in effect, through penalties and interest charges on things we have given them the opportunity to take up. That might in some marginal cases make a difference to firms. Can we therefore ensure that is fully aligned so we are not robbing Peter to pay Paul, in a sense?

The other area, which I think we have now resolved, but must be careful about going forward—the hon. Member for Strangford (Jim Shannon) referred to this—is that some of the banks were at one time charging commercial rates of interest based on their own underwriting criteria, which is wholly unacceptable, given that there is 80% underwriting by the Government in these matters. I hope that the Treasury, the Bank and the Department will be absolutely rigorous in policing this and saying that it is not acceptable behaviour.

The majority of the British banking sector is responsible, but there have been a number of instances where it has not been, and it cannot be right to charge those rates of interest. Initially, for example, we had instances of banks declining to give a business loan, but then offering a commercial loan at about 5%. When I raised it with the banks, they said it was a misunderstanding and backed off, but we should not be getting into that situation to start with. Ensuring that there is rigorous policing and the full co-operation of the banking sector in the spirit, as well as in the letter of the law, will be very important.

There is a final matter that we could look at, and this is a rather sad story of a business that had been going for some 21 years in my constituency and which was not able to survive. It was in the travel sector and it perhaps had particular problems, but the issue that put it under was the requirement that its paid-up share capital, less the accumulated losses, should be 50%. In this case, although the business was clearly viable and had a good book of orders, its accumulated share capital, less the losses, was 43.3%. It was a family firm, and to make that difference the directors would have had to, and were prepared to try to, raise the better part of £58,000 to get themselves to 50%, but that cannot be done quickly. They would have had to raise equity—in their homes was the most likely route in this example; other people might have had to issue shares—and they ran out of time by the deadline. I hope that we could have some flexibility in that regard. There might be some means of bridging that, where a business can demonstrate and rigorously prove that it is still viable so that it does not fail for want of being able to access a scheme that otherwise it would have been entitled to. There may have been perfectly good reasons why the share capital was under 50% at the time.

Those were the points that I wanted to make, in addition to those that have already been made. All in all, it is great credit to the Government that we have done this. It has made a real difference to people, businesses and livelihoods and to the communities that those businesses serve. We should not forget that either. It is just about saying gently: can we keep an eye on some of those things and continue to refine, tweak and improve the system as we go forward?

It is always a great pleasure to follow the hon. Member for Bromley and Chislehurst (Sir Robert Neill) and to hear his pearls of wisdom on this particular subject. It is very difficult to disagree with anything that he said, and I hope that those on the Treasury Bench are listening. I congratulate my hon. Friend the Member for Midlothian (Owen Thompson) and my right hon. Friend the Member for Dwyfor Meirionnydd (Liz Saville Roberts) on securing this debate. It is really important that we get to this issue. It is really important that we discuss this issue. For many members of the public, business support is one of the drier subjects, but the CBIL scheme is crucial to many businesses, so it is important to speak about it.

Businesses across Scotland and their employees are working heroically at the moment to keep going through the pandemic. Typically, many are innovating, adapting and defying the odds to do that in the current circumstances, but others simply cannot adapt so quickly, not because they are not viable, but because this has hit them at the worst possible time—particularly, as we heard from various Members, those in the hospitality and tourism trade and the businesses associated with that. This has made it really difficult for them.

I am pleased that today the Chancellor has extended the 80% furlough scheme—after six months of asking, I have to say. Scottish National party Members have been asking for the Chancellor to do that time and again. Eventually this—I think it is the fourth iteration—has been put in place, and that does help, but many jobs have already been lost and businesses have already felt the pain in the meantime. It is crucial as decisions are made in the future that there is clear direction, clear rules and support around them so that businesses can survive. Of course, many are still excluded from any support, and I want to speak about them briefly later.

A lot of businesses have found themselves simply locked out of these loans, unable to access them because the banks are not allowing customers, even those with really good credit ratings previously, to open new accounts in order to access them. Of course, the Chancellor has form on ignoring people who have been excluded support from, and this is no different. Seven months into the pandemic, and as a result of the Government’s failure to listen and to act, many small businesses remain empty-handed. As we heard, the all-party group on fair business banking estimates that 250,000—a quarter of a million—small businesses are locked out of support simply because they were with the wrong bank, as it were. Of the 20 accredited lenders, almost all are not processing applications from non-customers, so extending the scheme without widening access to other lenders is wrong-headed, and the Government need to make it conditional that banks offer loans to non-customers. Failure to act just exacerbates the lockdown lock-out.

It is also unhelpful that non-bank lenders are blocked from accessing funding from the Bank of England and therefore cannot offer that to their customers. I have had call after call, email after email from constituents—I know I am not alone among MPs—who are absolutely desperate and increasingly bitter about being locked out of help. They can see that they are not being listened to, and they must be listened to.

There are then those who did qualify. Their reward is that they can top up their loans and borrowing as part of the new rules meant to keep businesses afloat during England’s second lockdown. It is absolutely understandable that many of these bruised and battered business owners are nervous about taking on new debt at this time of great uncertainty. They have great justification for those feelings at the moment. They need a better safety net. They deserve to be able to protect their businesses that in any other time would not only be viable, but thriving.

There is a sensible move the Government could make, given that it is clear that many firms will be unable to repay: convert the loans to equity, or, even better, as we heard from my hon. Friend the Member for Midlothian, to grants. As he said, in May the OBR forecast a likely 10% default rate on those loans. By July, that had risen to 40%. Earlier, a report published in May by the British Bankers’ Association, the body responsible for debt collection, was, as we have heard, predicting a 40% to 50% default. In September, the Department for Business, Energy and Industrial Strategy annual report went even further, revealing likely losses estimated at September 2020 to be in the range of 35% to 60%. Let us never forget that this is against the background of 3 million freelancers, newly self-employed people, contractors on PAYE and company directors who have been abandoned, given no help whatever since the pandemic began. They continue to be ignored by this Government.

The Association of Accounting Technicians is calling for bounce back loans to be written off for SMEs, who took two thirds—that is, £40 billion—of all bounce back loans. In addition to writing off SME debt, the Government should listen to TheCityUK on coronavirus business interruption loans. Its recapitalisation report suggests converting the debt to equity or contingent tax liability options for firms, so they can avoid being held back and adding to the UK debt crisis. In its report, TheCityUK estimates that UK businesses will have £100 billion of toxic debt—this is why writing off and doing something about this debt is so important—by March 2021, with £35 billion of that related to Government schemes. It makes absolutely no sense. It is dead-weight. Writing off the debt could provide a much needed boost for the economies of all four nations. As the Tories’ own former Chancellor, George Osborne, agreed in evidence to the Treasury Committee, it would be an overall benefit to the taxpayer. With banks now actively working with debt collectors, the UK Government must provide urgent clarity that collections will not be necessary. Specialist debt collectors have no place in this system. It is akin to placing a noose around the necks of employers and wealth creators.

Urgency can be found in this Tory Government for business. They can do it when they want to. For example, they bypassed tendering processes to rush out contracts for over £1 billion to certain businesses, such as PA Consulting Services, Meller Designs, Hanbury Strategy, Public First, PPE Medpro and others. We have all seen this Government moving at pace. Of course, the common factor there is that they are all major donors to the Tory party.

The continued failure of the Government to listen to those affected is leading to job losses, frustration and squandered opportunity. While this affects businesses and jobs across the nations of the UK, the failure to empathise and to act is driving citizens of those nations to look to their future options. In Scotland, the path is clear. We need a different path to be a normal independent country that makes choices that are right and suitable for our people and businesses.

I thank the hon. Member for Midlothian (Owen Thompson) and the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) for initiating this important debate. We have had some very thoughtful contributions from many colleagues, not least my hon. Friends the Members for Thirsk and Malton (Kevin Hollinrake) and for Ynys Môn (Virginia Crosbie) and, of course, the hon. Member for Strangford (Jim Shannon), as well as my hon. Friend the Member for Broadland (Jerome Mayhew), who gave a detailed and forensic explanation of why CBILS was so important to the business that he was involved in, my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill), the Scottish National party spokesman on business and the shadow Minister.

We  know how worried people are about their health, the health of their loved ones, their jobs, their businesses and their financial security. That is why the Government’s economic priority remains the same—to protect jobs. To support this, we have announced the following: an extension to the furlough scheme until March; more generous support to the self-employed and paying that support more quickly to them; cash grants of up to £3,000 per month for businesses that are closed—90% of small and medium-sized businesses’ premises in the closed retail, hospitality and leisure sectors, which have been mentioned several times today, should broadly have their monthly rent covered by these grants—plans to extend existing loan guarantee schemes and the future fund to the end of January next year and an ability to top up the bounce back loans as well; and, although we are debating CBILS, there is an extension to the mortgage payment holiday for home owners. These announcements will give businesses—whether they are open or required to close—the flexibility to adjust and plan over the coming months. That comes on top of what I think is an unprecedented £200 billion package of support that we have committed to since the beginning of the pandemic.

Let me turn to the specific subject of this debate. The coronavirus business interruption loan scheme has delivered finance to a wide range of businesses. As of 18 October, more than 73,000 loans, worth £17 billion, have been approved. The benefits of the scheme have been seen across the nations and regions of the United Kingdom. In Scotland, more than 3,300 coronavirus business interruption loans, worth £759 million, have been offered. In Wales, more than 1,600 loans, worth more than £374 million, have been offered. In addition, businesses in Scotland have been offered more than 76,000 bounce back loans worth £2 billion, and those in Wales 48,000 loans at £1.3 billion.

Since the start of the coronavirus business interruption loan scheme in March, we have responded to feedback from businesses—I have to say that today’s feedback is equally important—and made changes where we needed to. This includes prohibiting lenders from requesting personal guarantees on loans under £250,000. That has reduced the risk to small businesses taking out loans under the scheme and opened access to those who could not afford to offer personal assets as security.

We extended the scheme to all viable small businesses, not just those unable to access commercial finance. Various technical changes were also made to the application process to speed it up for businesses, and we removed the forward-facing viability test to support firms that faced uncertainty regarding their income.

We also recognised that the scheme could not be the answer for all businesses seeking finance and in April we introduced the large business interruption loan scheme, which provides loans of £200 million, with an 80% guarantee from Government. As of 4 May, recognising that some of our smallest firms were finding it difficult to access CBILS or CLBILS, we introduced the bounce back loans. As of 18 October, we have supported 1 million businesses with £40 billion of bounce back loans. These schemes are not without cost. I know that the SNP are advocating the writing off of the loans. There is no Government money; it is taxpayers’ money, which is why we need to be prudent. We cannot save every business and, inevitably, some of these loans will sadly not be repaid, but, as the OBR has said, the cost of inaction would almost certainly have been much higher.

My colleagues in the Department for Business, Energy and Industrial Strategy and I, as well as ministerial colleagues in the Treasury, continue to engage with businesses and representative bodies on a regular basis. We also engage, of course, with the devolved Administrations and I pay tribute to Fiona Hyslop, Ken Skates and Diane Dodds for the deep engagement that we have had since March.

As the Prime Minister announced on Monday, we will adjust the bounce back loan scheme rules to allow those businesses that have borrowed less than 25% of their turnover to top up their existing loans. Businesses will be able to take up this option from next week. They can make use of this option once.  To help businesses to repay loans that they have taken out during this intensely difficult period, we have also introduced the pay-as-you-grow measures. Under these measures, businesses will be offered more time and greater flexibility to make repayments on their bounce back loans. Loans can be extended for up to 10 years, as my hon. Friend the Member for Broadland quite rightly shared with us. That would almost halve the rate of payback that a business would have to deliver.

The Government acknowledge that access to debt finance is important, but it can only form part of our approach to supporting businesses through this period. We have already provided the devolved Administrations with unprecedented up-front funding guarantees, so that they have the certainty they need to decide how and when to provide support. The funding guarantees to the Scottish Government are worth £7.2 billion, to the Welsh Government £4.4 billion, and to Northern Ireland £2.4 billion.[Official Report, 10 November 2020, Vol. 683, c. 10MC.]

My hon. Friend the Member for Bromley and Chislehurst made an important point, which was also mentioned by the hon. Member for Midlothian, and that was the question of the bad behaviour of banks. If it is determined that a lender is not passing on the economic benefits of the CBILS guarantee to borrowers, the lender will be required to take such action as is required by the British Business Bank to rectify the situation. That could include compensating the borrower and/or remediating their existing book. Ultimately, the British Business Bank could suspend the lender from new lending or remove its accreditation. Any action will take into account the impact on the underlying SME. I wanted to ensure that we put that point about businesses’ relationships with their banks on record for any businesses that may be listening to the debate today.

The Government fully recognise the tremendous impact that the pandemic has had on businesses across the four nations of our country. The response from the four nations is always much better and greater than that of any individual part of our family. The Government have been there to support them and to protect, create and support jobs via the largest package of emergency support in post-war history, of which the loan guarantee schemes are an important and successful part.

The hon. Member for Manchester Central (Lucy Powell) asked how we will repay this debt. We are focusing support on families and businesses through this difficult period. Although both borrowing and debt will rise this year, the cost of servicing that debt is affordable and sustainable because of the dynamic and resilient size of our economy. We will set out further details of our fiscal policy at the next Budget, when the economic and fiscal outlook becomes much clearer.

Madam Deputy Speaker, thank you for your indulgence. We have had a great debate.

We have seen a great degree of consensus this afternoon around the important part that the loan schemes have played. There has been recognition of the absolute need for the schemes, but it is almost as important—if not more important—that we take the opportunity to highlight any shortcomings and the challenges ahead. As we look forward, I certainly want there to be as many opportunities as possible to ensure that the debt burden on so many small businesses across our nations does not become the next crisis that ends up tearing the heart out of communities the length and breadth of the country. There also remain countless businesses that are not able to trade in any shape or form in many different industries and sectors. That needs to be addressed.

I thank all Members for their participation in the debate. I suspect that it is an issue that we will return to in the months ahead.

Question put and agreed to.

Resolved,

That this House believes the Coronavirus Business Interruption Loan Scheme is not adequately fulfilling its role for SMEs across the UK; and urges Government intervention to ensure that all businesses are provided with the financial support they need.

In order to allow the safe exit of hon. Members participating in this item of business and the safe arrival of those participating in the next time, I am suspending the House for three minutes.