Rishi Sunak’s approach to coronavirus debt has returned politics to traditional party lines Britain’s low number of business loans is down to the scheme’s very Conservative approach

There’s a hole in Rishi Sunak’s bucket: he has unveiled measures to protect the incomes of salaried workers and most of the self-employed. But the measures unveiled to support businesses themselves – the coronavirus business interruption loans, or as civil servants have started calling them, Sybils (Cbils) – are falling short.

The scheme is, at once, wildly successful and woefully inadequate. British banks are lending at a rate and speed that is unparalleled in any new financial product; 16,000 businesses have had their loans approved and a little over £2bn has been lent. But the uptake and rate of acceptance is far behind that of many equivalent schemes in Europe – and there is no compelling reason to believe that British businesses are any less likely to require financial support during the shutdown than their equivalents on the Continent.

The superficially attractive explanation is that Britain’s banks are being greedy: they aren’t willing to lend a hand to support struggling businesses through the crisis. But imagine for a moment that you are in charge of approving loans at your local branch. The local hairdresser is always popular, and thanks to Sunak’s income-protection scheme, the only costs it needs to cover are the costs of renting the premises itself.

i's opinion newsletter: talking points from today Email address is invalid Email address is invalid Thank you for subscribing! Sorry, there was a problem with your subscription.

Simple enough decision to give it a loan, right? Well, the problem is that you don’t know when the local hairdresser will reopen: so you don’t know how many months of rent it will need to borrow. You don’t know, when it reopens, if it will be allowed to serve as many people at the same time. It might go from being able to see six people at the same time to just two.

So its profits will be down and at the same time it will need to be earning enough not only to continue making a profit but to keep up with the repayments on the money you have loaned it.

Added to that, you don’t know what the Government’s response will be after the crisis ends. Sunak has hinted that the self-employed will have to lose some of the privileges they enjoy compared with salaried workers in the tax system, while other ministers have heavily implied that the additional debts brought on by the Government will have to be paid for by further cuts to public spending and or heavy increases in taxation.



So it may well be that, if there is a general round of belt-tightening, people will cut down on luxuries: they will continue to get their hair cut at home or wait longer between visits. The local hairdresser may no longer be quite so full, let alone be able to increase prices to cover the costs of its loan.

And you, the bank, aren’t only on the hook for a fifth of the loan the local hairdresser has taken out to pay the rent. You have a large and existing package of loans that you are worried you won’t get back – and unlike the Sybils, you aren’t on the hook for just 20 per cent, but 100 per cent of the cost in the event of a default. If the hairdresser goes bust, the shop’s owner can’t pay the mortgage on her home anymore: and the landlord who owns the shopfront can’t pay his mortgage, either. To make matters worse, the landlord took out another loan from you to renovate some of his other properties and now he can’t make those payments either.

The big difference in countries that are lending more is that those governments have taken on more of the risk – guaranteeing 90 or 100 per cent of the loans. The bank’s only involvement is as an intermediary.

So why hasn’t Sunak done the same? His fear is that if you have such easy lending requirements, banks will lend irresponsibly and recklessly, leaving the Government with a big bill to pay.

Labour thinks differently. It believes that, in a crisis, the only entity big enough to take on the required debt is the Government, which should borrow more until the crisis ends – a date which is defined not as the end of lockdown but the return of economic growth to its pre-lockdown level of output and growth.

Government debt matters only when it drives inflation or fuels fears among businesses that it is irresponsible or unreliable, or encourages them to believe they will be rewarded for being irresponsible and unreliable themselves. But businesses struggling due to the lockdown have not behaved unreliably – they’ve just been unlucky. If that argument sounds familiar, it’s because it is similar to the one that Labour tried to make during the last financial crisis.

Voters found David Cameron’s argument – that government budgets were like households, and in a crisis you need to cut spending – more persuasive than Gordon Brown’s counter-argument.

Covid-19 is changing the world, but here in the United Kingdom, in this sense at least, it is making British politics normal again: with a traditional argument between the Conservatives and Labour on spending. The big question is: will it have the usual traditional ending of a Conservative victory?

Stephen Bush is political editor at ‘New Statesman’ magazine