£5bn government trade credit scheme is branded a failure

Only £18m has been claimed from a government-backed £5bn trade insurance
fund, sparking claims the emergency scheme has failed and is in urgent need of
reform.

The scheme has less than a month left to run, leading to calls for an
extension.

After major retail collapses including Woolworths and Land of Leather, The
Trade Credit Top-up scheme was billed in this year’s Budget as a vital lifeline
in protecting businesses from client defaults.

However, the terms of the scheme have been panned for being too narrow and
the disappointing take-up has seen industry figures brand the initiative a
failure.

Edward Rimmer, chief executive at Bibby Financial Services – the UK’s largest
company providing advances to businesses waiting on invoices, said: “The figures
speak for themselves.

“This is a huge waste of funding. Furthermore, the scheme’s eligibility
criteria contains a glaring omission – it doesn’t support businesses that have
lost all of their insurance cover.

“Policies have been pulled en masse by insurers, and in some industries we
have seen an unprecedented number of uninsured businesses who are now being
forced to risk everything.”

Martin Williams, of credit ratings agency Graydon, said: “Credit insiders
thought the top up scheme was ‘too little too late’ and was known to be too
expensive for companies from its start.”

In August, the government reduced the premium cost of receiving the top-up
from 2% to 1% of the cover value after an outcry from businesses.

But despite the changes, industry leaders still urge the government to
prolong the initiative. “Unless the government extends the scheme until the end
of the first half of 2010, at the very least, then these small businesses will
have completely missed the boat through no fault of their own,” Rimmer said.

Fabrice Desnos, chief executive of Hermes UK, said:

“We believe the scheme could have been broader but its parameters were set by
government based on its appetite for trade credit risks.

“The government in particular did not want to substitute itself to the
private market by accepting risks the private market was not prepared to cover
which we always thought to be a sensible and rational decision.”

During 2009, two out of three Euler Hermes UK clients have submitted a claim,
Desnos said, “A fact that clearly demonstrates how much risks have sky rocketed
in the period and how supportive Euler Hermes has been.”

“Euler Hermes UK’s objective is to protect clients against these risks by
promoting prudent and selective risk management policies. We are committed to
continue to offer the best support and trade credit protection product to our
clients as the recovery gathers pace,” Desnos added.

The business department responded that the scheme was put in place to provide
targeted, transitional support to businesses whose cover had been reduced and
who needed support while they adjusted to new conditions.

“To date, 104 policies have been accepted for 72 suppliers and cover to the
value of £18m has been issued. Many businesses have found other ways to adapt
and thus have not needed to take up the government offer.”

IN OUR VIEW

The reaction from trade credit insurers to the financial crisis saw
wholesale withdrawal or reduction of cover across entire sectors and the
repercussions have been felt far and wide. They will argue that they are the
alarm-ringers on company troubles, not the cause of it. They also predicted
there would not be much take-up of the scheme and they have been proved
right.