The Finance & Leasing Association’s “plan for meeting the UK’s future challenges”, published this month, has been designed to help steer the economy through uncharted waters amid the Covid-19 pandemic, and let’s face it, the Government needs all the help it can get.
Its release comes hot on the heels of the Chancellor’s Economic Statement on 8 July which focused significantly on short-term measures and which lacked plans for legislative reforms or measures to unclutter the SME financing experience.
Rishi Sunak’s mini budget-focused significantly on jobs and housing, announcing new schemes designed to try and stop unemployment spiralling in the coming months for example, but lacked longer-term planning.
Stephen Haddrill, director-general of the FLA, says: “The Chancellor’s Economic Statement set out a range of short-term stimuli, but these measures need to be consolidated with substantive plans for long-term growth – and all of this must start with ensuring that the UK’s providers of business and consumer finance are in a position to lend.
“This is not the case at the moment and without their input, the recovery on high streets and industrial estates will stall.”
If carried to fruition, Shaping the UK’s Prosperity, Recognising the Opportunities for Recovery involves legislative reform, funding scheme realignment, changes to business taxation and putting into productive use the thousands of funders (and their staff) who make up the FLA’s membership across the consumer credit, motor finance and asset finance sectors.
What’s prompted the FLA prosperity agenda is the real prospect of a lack of prosperity for the bulk of its members if nothing is done.
The FLA says in a statement: “Over the last three months, so much assistance has been provided to customers in the form of payment deferrals that the availability of new lending to help fund the recovery will be severely curtailed – especially in the case of non-bank lenders which have been supporting customers from their own reserves.”
In the 12 weeks to the end of May, FLA asset finance division members received an estimated 287,000 requests for forbearance and had, by mid-June, granted 83%. FLA motor finance division members received an estimated 613,000 requests and had granted 90%, by the same date.
To prevent a good number of its members falling into a liquidity trap, the plan recommends HM Treasury introduce “forbearance liquidity support” to provide lenders with funding so that they may “deliver the liquidity they need to help to their customers.”
The plan also proposes an extension of the existing government guarantees for business and consumer lending until Spring 2021.
The third short-term measure seeks reform of the British Business Investment (BBI) Direct Lending Scheme “so that it works for a wider range of specialist funders of SMEs” who do not have access to Bank of England support.
Simon Goldie, the FLA’s head of asset finance, says “an expanded remit to cover consumers” and “greater firepower” will be needed to make the BBI fit for purpose.
The FLA’s longer-term thinking involves reintroducing the previous £1m limit to the Annual Investment Allowance “with no taper to support businesses acquiring plant and machinery.”
Also, over the longer term, the plan foresees an overhaul of the Consumer Credit Act, “so that consumers can more easily access finance and are not hamstrung by legislation meant to protect them, while also enabling lenders to develop better products.”
Haddrill says: “This is the point when businesses will be planning their next move in terms of investing in new equipment to make them more agile – the Government needs to ensure that funders are in a position to support these ambitions.”
Conspicuous by its absence in this plan, however, is the FLA’s ‘term funding pipeline’ for non-bank funders, a necessary and urgent, if ill-fated, earlier proposal.
Despite forbearance falling heavily on the shoulders of non-bank lenders, persistent calls by the FLA since March to address their urgent need for funding seems to have fallen on deaf ears at HM Treasury, if recent press reports are correct.
Sources told the Times and the Sunday Times recently that an internal inquiry by HM Treasury to consider the merits of “opening the Bank of England’s balance sheet” to non-banks led to these BoE funding proposals being blocked by the large banks.
The source said HM Treasury rejected the plans due to the “commercial challenges” that such a proposal raised.
In a statement, HM Treasury says: “We will continue to work with non-bank lenders to support their participation in our loan schemes.”