My Lords, clearly we are at a critical time for UK businesses. It is widely recognised that businesses face enormous liquidity issues when an economy comes out of a downturn as much as when the downturn starts. I draw noble Lords’ attention to my interests as set out in the register, which include investments in all sorts of companies—I think they are all solvent, but one never knows.
As of now, as my noble friend eloquently explained, the effects of the downturn have been cushioned by the somewhat heroic efforts of the Chancellor, and the teams at the Treasury and BEIS, in providing a cushion for so many businesses in different ways, from loans to grants, rates relief and furlough, and, as my noble friend explained just now, measures that were set out in the Corporate Insolvency and Governance Act, which we debated in this House a short while ago. It was a great achievement and showed the Government being fleet of foot at their best.
There is no question that we are coming through the difficult times to some sort of normality, and even possibly a mini boom, so the question is whether we need all the measures in the Act to be extended. I plan to ask my noble friend broadly the same question as my noble friend Lord Bourne of Aberystwyth asked: why are the measures not coterminous? Perhaps he can explain what has happened in the interregnum for those measures which expired on 31 March.
I have been studying some commentary and research from the turnaround specialist group R3. When the previous extension was under consideration it said:
“The Chancellor’s decision to temporarily extend his COVID insolvency measures, coupled with the other aspects of the support package announced today, will be welcome news to many businesses across the country … The insolvency and restructuring profession will also welcome the extension of the temporary relaxation of entry requirements for the new moratorium procedure. This measure could enable more businesses to access this important tool over the coming months, and help to facilitate the rescue of otherwise-viable businesses.”
It added:
“However, while the Chancellor’s announcement will make a real difference in the coming months, these measures can’t be prolonged indefinitely, and the Government will face a number of questions when this extension ends.”
It is important to avoid a cliff edge, but the longer temporary measures are in place, the harder the recovery will be. On early intervention, a smart and staged plan is needed for businesses to be in turnaround, ideally, rather than insolvency.
The main issue that businesses will face will be working capital and skills shortages. On the former, the reintroduction of Crown preference has reduced the amount of headroom in inventory finance to the point where there may not be any facility on which to draw. As a key creditor in most corporate insolvencies, along with landlords and banks, the Government have a direct role to play in supporting viable restructuring and business rescue proposals. HMRC, in particular, has not always taken a constructive approach to these proposals although, I understand from briefings, it is being as lenient as it possibly can be to companies that have been sensible taxpayers. However, every step should be taken to encourage HMRC to be as helpful as possible.
This is now very important because, as I have noted, HMRC has Crown preference, which is a huge change from the former arrangements. Perhaps the Minister will advise us of whether the Government have any plans to review this preference.
As part of the excellent build back better policy, there is an inevitable need to reallocate resources, improve productivity and, therefore, grow sustainable jobs for businesses that can truly thrive in post-pandemic global Britain—as in post-Brexit Britain, my noble friend will note. There will be a painful but necessary process to get Britain back to fighting fit. There will be casualties; we have to accept that. The enormous challenge we have is to devise ways for fundamentally sound businesses to get through the next year or so, but not to prolong the agony for those that will just use up more and more resource before, sadly, they reach their inevitable end. I understand that the current rate of insolvencies is, roughly, one-third below the normal level, so there is a build-up of companies and businesses facing insolvency.
I will use this debate to make some related points to this SI. First, what will the Government’s approach be to the mounting level of corporate debt in the economy? What further flexibility will HMRC provide to Covid-hit businesses that need extra time to pay their debts? The Government need to make the most of the time they have bought for businesses, industry and the economy, not least by the Act, to consider how they will answer these questions. In particular, are there any further plans for some sort of equity fund, which was being discussed about a year ago, possibly through the British Business Bank or the Business Growth Fund, which celebrated its 10th anniversary last week? This needs to be reconsidered, as so many businesses just need a modest injection of equity—say £2 million or £3 million. I say “modest” in the nature of the world because £2 million or £3 million is below the amount that traditional private equity arranges and is not necessarily within the scope of EIS or SEIS. Of course, this is an opportunity for us to look again at the EIS rules, now that we are out of the EU. This is the famous equity gap that was first raised by Harold Wilson, when he was Prime Minister.
I turn to a subject that my noble friend and I have discussed at length, the moratorium. In answer to the question from my noble friend Lord Bourne, I think that there have been only four moratoria between June and December. There is an argument that initial take-up was low because of other reliefs, such as statutory demands, winding-up petitions, furlough payments, et cetera, which are protecting companies that might otherwise need the procedure. The extension is to the relaxation of the eligibility criteria for a moratorium to make it more accessible. I understand that the moratorium is intended to be a permanently available procedure and that permanent rules will be introduced in due course. Can the Minister comment on that and on whether the changes to the moratorium that we debated are under review?
By taking a more active and engaged stance as a creditor and legislator, I am sure that the Government could help to save more potentially viable businesses, thereby safeguarding thousands of jobs, securing future
tax income and giving companies a chance to deal with the liabilities resulting from this pandemic. However, there must soon be a time when we allow businesses to find out if they are viable without further support, and thereby protect creditors from prolonging and deepening the problem.
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