Former chancellor of the exchequer George Osborne has called on the government to consider writing off business loans for the smallest firms to help kickstart the economy following the coronavirus pandemic.
Speaking at a Treasury committee hearing on the economic impact of coronavirus yesterday (June 3), Mr Osborne, who was chancellor from 2010 to 2016, said the government should look at some form of debt forgiveness.
This was so businesses could continue to hire more staff and recover from the crisis without the worry of paying back thousands of pounds in debt they had accumulated through various Covid-19 support schemes, he said.
Referring to debt incurred by the smallest firms, Mr Osborne said: “Even if in a couple years’ time when the corporate sector owes a lot of money – particularly the micro businesses, small businesses who are engines of growth and can be completely held back by large credit burden – I think then the government should look at some sort of debt forgiveness.
“At some point in the next couple of years if there are loans that are just not going to be paid back you either write them off or, what I expect will happen, is every six months or year the chancellor at the time announces that the lending terms are pushed out, the rates are kept very low and so on.
“But they still sit on the company balance sheet and it would be better as a big act of debt forgiveness. After all we lent to keep these companies going while we deliberately shut down the economy."
He added: “There comes a point where it’s for the overall good of the country that you write off some of those debts even if they score as a loss on the government’s balance sheet.”
This week (June 2), the Treasury revealed it had paid out more than £21bn on 699,000 claims which had been approved by its Bounce Back Loan Scheme, which is designed to offer funds of up to £50,000 to the smallest businesses.
This was in addition to the Coronavirus Business Interruption Loan Scheme, which provides lenders with a guarantee of 80 per cent on losses that may arise on loans, which has approved almost £9bn worth of claims since it went live in March.
Mr Osborne said the job market and economy would be able to recover more quickly if some of these loans were wiped to help stop more businesses from going under.
Mr Osborne said: “There will be loads of people in businesses that have gone bust that aren’t going to return, and people who are coming off furloughs into unemployment.
“That is going to be a big social challenge, and of course economic challenge, for this government.”
Other former chancellors Lord Alistair Darling, who was in the role during the 2008 financial crisis, and Philip Hammond, who also appeared before the committee, agreed the government urgently needed to announce new measures to stop the level of unemployment soaring.
Lord Darling said until the government gets control of the virus it is hard to see how it will get the economy going again as people were too afraid to go out and spend money.
He said: “The government needs to introduce measures to deal with the wave of unemployment after the furlough schemes have been wound up.”
Lord Darling also pointed out that the situation today was “much more serious” than the banking crisis 10 years ago.
He said: “The key difference between then and now is that in the banking crisis, from day one the government wanted to get the economy going again and introduced a range of measures which enabled it to do this.
“The situation today is different as current government policy is to suppress economic activities through lockdown so it is not in the position to pull out all the stops and get the economy going again.”
Meanwhile, Mr Hammond said it was too early to tell whether parts of the economy would suffer long term damage.
He said: “A lot will depend on whether the government makes it clear we are moving towards a treatment for the virus and the economy will return to normal or if we are not heading this way and will have to plan to restart the economy while still living with Covid.
“It is premature to say which will lead to greater total loss of output.”
amy.austin@ft.com
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