AUS
NZ
UK
CA
USA
FRA
GER
ESP
ITA
NLD
PRT
SWE
GRC
IND
POL
BRA
ZAF
RUS
CHN
UAE
Summary
- There were several small businesses who could not avail of the CBILS facility, due to the Brexit transition period regulation in force in the UK till 31 December 2020. Now that the EU has relaxed its laws, the government plans to expand the scope of CBILS.
- The withdrawal of the employee furlough scheme is scheduled for the end of October 2020. With several industries and businesses in the nascent stages of their recovery, any help from the government side will help bring many furloughed employees back to active work.
- There are several businesses in the country who have accumulated large amounts of debts and losses in the past few months, which will now be able to access loans up to £5 million.
Starting 30 July 2020, small businesses with less than 50 employees and less that a turnover of 9 million pounds, are eligible to apply for the Coronavirus Business Interruption Loan Scheme (CBILS). It was announced in the month of March 2020 by the government. At that time, it had announced that it would try to expand the scope of the scheme to include more businesses. Due to the constrains of continuing with the EU regulations (to which the country is subject to till 31 December 2020), the benefit of the scheme could not be passed over to businesses listed in the “undertakings in difficulty” category.
There are few, however, who believe that this initiative is a measure that has taken too long to come by. This casts doubt if it will make any difference at all, since there is already a large backlog of pending CBILS applications. Despite the shortcomings, however, the government is trying its best to provide support to as many businesses in the country as possible, before the 31 December 2020 deadline, as the business environment in the country could change after that.
The CBILS loan scheme
The CBILS scheme was announced by the government in the month of March 2020 after it became clear that coronavirus pandemic would deal a heavy blow to the British economy. Soon after that, the country was put under a lockdown, and almost all the activities came to a standstill. The government came out with this scheme to ensure that the businesses could pay for their essential expenditures and staff salaries.
Under this scheme, eligible businesses can take loans worth £5 million from banks and financial institutions. They are guaranteed by the bank of England for up to 80 per cent of the loan value and the rest is to be borne by the lenders. The critical element of this loan facility that made it distinct was that insufficient security was not a constraint for accessing loans. Over a period of four months (till the end of June 2020), nearly £11 billion has been lent out to about 50,000 businesses, thereby protecting millions of jobs and livelihoods. On the other hand, however, there are critics of this scheme who believe that expanding it will only raise the bad loans across the already sluggish British economy. The office of budget responsibility (OBR) has estimated that 10 per cent of the loans lent under the CBILS scheme and 40 per cent of the loans granted under the government’s bounce back loan scheme will turn bad.
Despite the shortcomings, the government's intention to extend it goes on to prove the its efficacy in protecting ailing businesses from going bust.
The EU State aid rules
The European Union has very strict rules regarding the provision of state aid to companies in the form of subsidies, bailouts etc. In order to provide a fair playing field for businesses across the economic bloc, such a move has been deemed necessary. It is being followed by EU member countries for a long time now. When the COVID- 19 pandemics broke out in the country, the UK found itself in a catch 22 situation. The continuation of the EU regulations in the country till the end of 31 December 2020 was important as the pending work related to a smooth Brexit transition had to be completed. The most important of these were the negotiations relating to the continuation of tariff-free access to businesses from both sides as, they enjoyed before. While on the other hand, these same EU regulations were coming in the way of the government in fully rolling out its stimulus measures under various schemes. Due to this, many eligible who badly needed help could not be reached out to. During the month of June 2020, after intense negotiations, however, the EU side had shown a softening of it stand. It relaxed the EU state aid rules, which are a part of the British domestic legislation under the ongoing Brexit- deal negotiations. Therefore, the UK government would be expanding the scope of CBILS scheme.
The importance of furloughed employees being brought back to work
The UK economy faces a threat of rise in unemployment rate in the coming few months. More and more companies are facing a liquidity crunch, with low demand in place. If more companies close down, the job losses will rise and employment levels would go down. With more than 9 million people under the government furlough scheme, there is a rising concern on their fate as well, since the scheme comes to an end in October 2020.
In the month of May when the government had announced that the furloughing scheme would be extended till the end of October, it had already anticipated what problems might arise if the scheme is withdrawn suddenly. It is anticipated that this scheme will be withdrawn in phases (industry by industry) depending on the state of recovery each one of them has achieved by October end.
As a summary, it is a welcome move by the British government to include small businesses in the purview of the CBILS scheme, which were earlier not eligible to take an unsecured business loan under it. This will help support these struggling firms in these crucial coronavirus pandemic times, and hopefully they will be able to retain back their employees on their payrolls too.
