One in five businesses in Britain is a ‘zombie business’ struggling to stay afloat after a boom in corporate debt levels during the coronavirus pandemic, a leading Tory think tank has warned.
Calling the chancellor, Rishi sunak, to use the autumn budget to launch a corporate debt relief program, think tank Onward said crippling debt levels accumulated during the crisis will hamper the UK’s economic recovery.
Onward, led by a former senior adviser to Therese May – and with close ties to the Treasury and an advisory board filled with big Tories – debt accumulated during the lockdown could push 4.3% of UK businesses – employing 1.8 million people – to technical insolvency.
He said a debt relief program should be used to allow companies to gradually repay state-guaranteed loans taken out during the crisis, via a surtax on profits and shareholder payments. It would depend on the income level of a business, similar to the student loan system for tuition.
After the lockdown ended economic and social life this spring, plunging the UK economy into its deepest recession on record, more than £ 52 billion was borrowed by UK businesses, thanks to loans from emergency guaranteed by the State.
Onward said rising debt levels meant up to 20% of UK businesses were now ‘zombies’ – meaning their profits only cover the ongoing cost of their debt interest payments . He said companies burdened with debt would be less likely to invest to boost Britain’s economic rebound after the pandemic.
The intervention comes as banks bolster their teams of debt advisers to deal with a flood of corporate insolvencies triggered by the pandemic. HSBC UK plans to almost triple the size of its debt management team by year-end increase in defects.
The bank’s financial distress team, which deals with businesses and individual customers overdue on loans, credit cards or mortgages, has already doubled its workforce to 800 employees since the Kingdom’s shutdown United in March.
“We will probably pass 1,000 before the end of the year,” Stuart Haire, head of retail banking and wealth management at HSBC, told The Guardian.
Staff will undergo mandatory training on how to deal with vulnerable borrowers and some of them will be trained on how to approve a wider range of forbearance options for clients who might otherwise have difficulty repaying. their debts. Several “specialists” will also be present to treat more complex cases.
Lloyds is moving up to 600 employees who previously handled Payment Protection Insurance (PPI) abuse claims to a team in financial difficulty.
NatWest has grown its debt management team from 1,000 to 1,650 since March, while Santander has added dozens of employees to its personal and business debt management units.
The UK’s top four lenders have so far this year set aside a collective £ 15.6bn in provisions for Covid-linked loans – money to cover a potential default. HSBC has set aside $ 3.8 billion (£ 2.9 billion) in the second quarter alone, including $ 1.5 billion related to its UK operations. Lloyds has set aside £ 2.4 billion to cover bad debts in the second quarter.