Labour’s shadow chancellor Anneliese Dodds will warn that forcing businesses to pay back the money they have borrowed to survive during Covid-19 risks squeezing investment as the UK looks to recover from the pandemic.
In a speech on Tuesday evening, Ms Dodds is expected to say businesses will struggle to repay some of the £73 billion they have taken out in Government-backed loans since the pandemic began.
Labour said that its analysis shows that around 750,000 businesses in the UK, employing 2.1 million people, have low or no confidence that they might survive three months.
“Forcing businesses to start making debt repayments before they are back on their feet will squeeze the amount they have to invest, to grow and take on new staff. For some, it could mean going to the wall,” Ms Dodds will say.
“Hundreds of thousands of businesses across the country are on a knife-edge. If they falter or fail, it’s not just a tragedy for the owners who lose their livelihoods and the staff who lose their jobs – it will damage the recovery and hold us all back.
“It’s a completely false economy for the Chancellor to leave these businesses high and dry.”
The Labour Party has previously called for a system of loan repayments that mirror student loans.
This would mean that a company is only asked to repay its loans when it starts to make a profit again.
Around 1.5 million businesses have taken out a bounce-back loan of up to £50,000 each, with around one in four saying they have spent the money already.
The loans were provided by high street banks such as Lloyds and NatWest, but the Government guaranteed that if borrowers were unable to pay the Treasury would step in to cover the banks’ losses.
Companies are due to start making their first repayments in May.
As the pandemic dragged on for longer than expected, Chancellor Rishi Sunak gave the companies more options on how to repay their loans.
The initial six-year repayment term can now be extended to 10 years, and companies can choose to delay repayments and interest payments for one six-month period at any point during that time. They can also choose three six-month periods where they only pay interest on the loans.
The Chancellor billed his new options as “Pay As You Grow”, however Labour said that the scheme is merely a way of delaying payments, rather than paying only when making a profit.
“The Chancellor has been asleep at the wheel. His so-called ‘Pay As You Grow’ scheme might make for a good soundbite but it’s misleading: there is no link to growth at all. He has simply shifted deadlines back by a few months,” Ms Dodds will say.
“While that might help some businesses, the fact is that we are still on course to see billions of public money written off in unpaid loans because the Chancellor is refusing to act.”