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Hazel Blears: Less debt, more publicly owned business

Tuesday 6 April 2021

Even if they’ve managed to survive the pandemic, many businesses now face crippling loan repayments. There is a way to help


We may be approaching the end of lockdown, but we are only just beginning to feel the effects of the pandemic on the livelihoods of our communities.

One third of small businesses have increased their levels of debt. They are carrying an additional £170,000 of debt to service annually. Four in ten of them say this is unmanageable.

Most will struggle, many will fail: some estimates suggest 250,000 businesses will fold, taking as many as 3.2 million jobs with them. Those that do will be in regions outside London and the South East, in areas that have been hit hardest and aren’t benefiting from new infrastructure spending, as our latest Coronashock tracker, published today, demonstrates only too clearly.

Just as the impact of the pandemic was unevenly distributed across the country, the pace of recovery will be equally patchy – mapping onto existing inequalities. More affluent places will bounce back quickly, while those places that were already economically vulnerable will struggle to heal.

The government loan schemes have been a lifeline. At the Social Investment Business, we know just how important a lifeline, having run the only dedicated Coronavirus Business Interruption Loan Scheme (CBILS) fund for social purpose businesses, which closed this week. More debt finance guaranteed by government will be needed, and we hope to open again soon with a follow-on fund that can keep meeting immediate needs and sustain social enterprises and charities here and now.

However, we also know that more debt is not a long-term solution for businesses that are already overburdened. A fair recovery that benefits those who are most in need requires patient and flexible finance for the next decade – at least. 

Take Croeso Pubs as an example. It owns several establishments throughout Cardiff and applied for a CBILS loan to keep employees, creditors and suppliers paid. The loan enabled them to protect 120 jobs within the local community and gave the business working capital during a difficult time.

But the pandemic has continued to disrupt trading well beyond initial projections and there will be serious pressures on its balance sheet – in part due to government-backed loans. There is only so much debt that businesses can carry. Remember, too, the substantial unsettled rent debt from the crisis period (estimated to be at £1.6bn for the hospitality sector).

That is why crisis finance must now include debt-for-equity swaps on a sufficient scale to protect jobs and save British businesses, most particularly in those areas that, our research shows, are struggling disproportionately. What does that mean? Instead of giving more debt to companies, we should be seeking to put money in – in exchange for shares in the business. The public should take a stake in the businesses it is supporting. 

Debt-for-equity buy-outs would have long-term consequences – taking the pressure off balance sheets and ensuring businesses can focus on productive investment and growth during the recovery. More equity in our businesses and less debt would also make for less fragile high streets: in downturns, it is easier to cut dividends than bank repayments.

But they also present a rare opportunity to develop a more social economy by transitioning some at-risk businesses to employee ownership, empowering the workforce and delivering good jobs.

This is why we are launching a campaign to bring together communities, practitioners, investors and policymakers to explore solutions to the Covid SME debt burden while creating that more inclusive and social economy.

The scale of the challenge must be met with the right level of ambition. This is the time to be thinking about transformative interventions – ensuring we come out of this crisis with an economy that is stronger, fairer and more resilient.

Hazel Blears is the former secretary of state for communities and local government, and is chair of the Social Investment Business, a charity focussed on regeneration