Lord questions government’s lending relief strategy

Lord questions government’s lending relief strategy

Lord Leigh believes PAYE and NI relief would be a more efficient measure as coronavirus continues to hit SMEs with low cash

Lord questions government’s lending relief strategy

Lord Leigh of Hurley suggests the government should have opted for PAYE and NI relief – claiming Bank of England’s lending programme is “fraught with problems.”

“The new lending programme is fraught with problems, it’s dependent upon the banks taking a risk for 20 percent of the loan, and the banks won’t do them. In fact, they’re not allowed to do that under the rules for responsible management, they’re not allowed to lend money to companies where they think the loan might not be repaid, and it might not be repaid in the current circumstances, so the banks hate this sort of scenario. They didn’t like Funding for Lending. They won’t like this. And they will not despite assurances, I don’t believe they’ll be rushing to make these loans,” says Lord Leigh, senior partner for Cavendish Corporate Finance LLP.

“The loans themselves will take time to come through the system, because they’ll have to go through loan officers and so on. The much better way of getting money in the system – because the loans won’t lead to employment – is to have immediate relief on PAYE and NI, possibly offering negative NI. The proposal to underwrite wages at the median salary base is a good step but might not be enough as there are many higher paid people who will now be let go, waving PAYE/NI would have encouraged employers to keep people on.”

Lord Leigh has called for the government to re-assess its decision to support SMEs throughout these difficult times, demanding support through the PAYE and VAT systems, along with the relaxation of insolvency laws and creditors’ moratorium.

“The problem is that now, company directors are pretty much forced to appoint administrators, if they don’t believe that they can honour their creditors, liabilities to creditors. If they don’t appoint an administrator, there’s a risk that they’ll be personally liable. So they’re really under pressure to appoint administrator. The problem with that is that there are literally not enough qualified administrators in the UK to service the requirement should they all do what they technically ought to do.

“Additionally, it is a shame to burden a company with the significant costs of administration, when it is just suffering a very temporary cash flow problem due to the current circumstances. So I am calling for the government to relax the requirement for companies to call directors – to call in administrators in the current circumstances if they genuinely believe that their short term liquidity problem could be resolved by possible government intervention,” he says.

The member of the House of Lords advises SMEs to reach out to debt advisors and encourages employers to retain staff.

“What SMEs need to do immediately is to consider raising equity capital and talking to advisors – talking to debt providers – about fresh debt for their business, to have the reserves and capacity to see through a short-term liquidity crisis. So immediately they need to talk to people in the market about the availability of equity to invest in their business. They might be surprised that there is quite a lot of equity out there for the right business.

“Rather than redundancies, they should try and persuade employees to go part time, to go down to four days, three days a week, for a month or so, so you can don’t have to go through the pain of redundancy. They may find that their mortgage payments and their rent payments are relieved, so they may be able to cope with a lower salary.”

Lord Leigh has also suggests re-assessing the £1m cap on entrepreneur’s relief.

“It is misguided to put a cap of a million pounds on entrepreneur’s relief. This encourages reinvestment in businesses, and entrepreneurs who sell out who want to start a new business will have used up their cap and will be discouraged from starting up again. By this cap, I think that the cap should be put back towards £10m,” he says.

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