A new industry taskforce has published its early-stage thinking on how the private sector can support UK SMEs to manage “unsustainable debt” built up during the Covid-19 pandemic.
The interim update from TheCityUK Recapitalisation Group (RCG), chaired by TheCityUK Leadership Council chairman Sir Adrian Montague and supported by EY, sets out the scale of the challenge, considers the sectors most likely to need support, explores how private sector capital could be mobilised and what gaps could remain for the public sector.
The RCG said that at this stage, it has not settled on any specific solutions, but it has set out potential options, alongside the critical policy and regulatory questions which need to be considered to make these viable.
Miles Celic, chief executive officer, TheCityUK, said: “It has been inspiring to see the industry come together to devise new ways of supporting businesses across the country in these unprecedented times.
“We are still some way from making our final recommendations, but our intention is to find solutions that will ultimately leave a legacy that drives economic growth in every part of the UK and long into the future.”
He added: “There is real determination that the industry plays its part, working alongside government, to overcome the economic challenges brought about by this pandemic.”
The RCG projects that by March 2021, UK businesses are likely to face between £97bn to £107bn of unsustainable debt. Of this amount, around half will sit with SMEs, with between £35bn-£40bn of the unsustainable debt burden on small businesses, and between £16bn-£17bn on medium-sized businesses.
By the end of March 2021, while the majority of unsustainable debt will stem from existing debt, the RCG estimates that between £32bn-£36bn of the total unsustainable debt will stem from the Government’s Covid-19 lending schemes; this is broadly a third of total projected lending resulting from the schemes.
The RCG’s analysis suggests that the sectors most exposed to unsustainable debt by March 2021 are likely to be property (representing 24% of the total estimated unsustainable debt), accommodation and food services (16%) and construction (11%).
On top of the unsustainable debt, some sectors may be less able to weather short-term revenue shocks and will need support sooner than others. The RCG’s analysis suggested accommodation and food services, transport and storage, construction and business admin and support service sectors could be among those.
Celic concluded: “SMEs are the engine of the UK economy. Lifting the debt burden from the shoulders of otherwise viable businesses will be essential to supporting a robust and sustainable economic recovery. However, this is a huge and complicated challenge. It is already clear that there won’t be a one-size-fits-all solution.
“We need a range of viable options, which, between them, can help to support the unique needs of those SMEs, and the many different types of investor who could form part of the solution.”