Rishi Sunak turned the Government’s spending taps on again today to help more firms struggling to withstand the onslaught of coronavirus.
The Chancellor unveiled an expansion of his multi billion-pound scheme to keep businesses afloat and ensure millions of workers stay in their jobs.
The move will enable larger firms with turnovers as high as £500 million to access support, while opening up the availability of state-backed cash to smaller companies.
It came as new figures revealed today that the UK’s service sector has seen its largest collapse on record as the economy ground to a standstill to contain the spread of the pandemic.
Data from the IHS Markit/CIPS service purchasing managers’ index (PMI) gave the UK a score of 34.5 in March, down from 53.2 in February. Anything below 50 is considered a contraction in the economy.
It is the worst decline recorded since it began in 1996.
The Treasury also moved to impose new rules on lenders after claims they were exploiting businesses by turning down applications for the Government’s cash support scheme.
Some banks have been telling company bosses they can get one of their own loans instead.
But these are typically more expensive than the Government-backed Coronavirus Business Interruption Loan Scheme, which is free of interest for the first year.
Rishi Sunak is stepping in after lenders were said to be exploiting businesses by turning down applications for the Government’s cash support scheme
Mr Sunak is now overhauling the programme and is expected to scrap the need for banks to assess whether a firm is eligible for one of its own loans first.
Lenders will also be told to drop demands for personal guarantees when borrowing less than £250,000.
he acted against a backdrop of a service sector in freefall, weeks after Boris Johnson ordered Britain to stay at home – potentially for months.
Tim Moore, economics director at IHS Markit which compiled today’s survey, said: ‘A record slump in UK service sector activity reported in March adds to the increasingly bleak economic statistics seen recently across the developed world.’
He added: ‘The severe impact on service sector activity in March was by no means limited to consumer-facing businesses or those directly hit by international travel restrictions.
‘Technology services were the only area to signal a rise in business activity, but even this pocket of growth looks fragile as new workloads dropped more quickly in this category than at any time since 2011.
‘There were numerous reports from survey respondents that placing staff on furlough had helped to mitigate more widespread job losses in March.
‘However, employment levels across the service sector still dropped at the fastest pace for more than a decade, reflecting some forced redundancies and the non-replacement of departing staff amid widespread hiring freezes.’
Last night the Chancellor also launched a new version of the business interruption loan scheme so larger firms with a turnover of between £45million and £500million can apply for this support from their banks.
A third scheme supporting the largest UK companies has already provided them with £1.9billion and another £1.6billion will be granted on Monday, the Treasury said.
Mr Sunak (pictured working from home) is now overhauling the programme and is expected to scrap the need for banks to assess whether a firm is eligible for one of its own loans first
In total, the government is offering £330billion of support. Mr Sunak said: ‘We are making great progress on getting much-needed support out to businesses to help manage their cashflows during this difficult time.’
The action came after warnings that up to one million small and medium-sized firms could go bust without emergency help.
There have been 130,000 inquiries from firms about the business interruption loan scheme since it launched less than two weeks ago. So far, loans have only been approved for nearly 1,000 small and medium-sized firms. Dame Carolyn Fairbairn, director general of the CBI, said: ‘The Chancellor’s measures are a big step forward.’
Banks are said to be furious they have been blamed for simply following rules set by the Treasury.
But business bodies, including the British Chambers of Commerce, the Confederation of British Industry (CBI) and the Federation of Small Businesses (FSB), said the measures would assist those impacted by the downturn brought about by Covid-19.
CBI director general Dame Carolyn Fairbairn said: ‘The Chancellor’s measures are a big step forward.
‘They will help deliver cash faster to firms battling for survival in the headwinds of the pandemic.’
Mike Cherry, the FSB’s national chair said: ‘Removing personal guarantees for all commercial loans below £250K is very welcome.
‘Taking on debt at the current time is a daunting prospect for many small businesses and the self-employed.’
Shadow chancellor John McDonnell warned the chancellor he need to fill ‘huge gaps’ in his job retention scheme
But shadow chancellor John McDonnell warned the chancellor he need to fill ‘huge gaps’ in his job retention scheme.
‘For example for those people who were on short-time work, they are not covered, new starters who started … after February 28 before the announcement of the scheme,’ he told Sky News this morning.
‘A lot of people in terms of small self-employed businesses who pay themselves through their companies rather than PAYE are being hit as well and in addition to that we are finding large numbers of freelancers and others are not covered.
He accepted that the Government could not help everyone, but added: ‘The IFS (Institute for Fiscal Studies) pointed out to the government exactly what we have been saying for the past fortnight, two million self-employed have fallen through the gap, that is a sizable number.
‘We are finding, for example, on the business loan scheme, (there were) 130,000 applications (but) only 900 actually processes.
‘We have got to speed up, the government has to listen not only to what we are saying, (but to) a whole range of organisations, saying the existing schemes have huge gaps in them, let’s tackle those quickly and let’s make sure people are financially supported and not facing hardship in the way they are at the moment.’