Sunak eyes Covid-19 emergency loan scheme extension at budget

Chancellor Rishi Sunak is eyeing extending the emerging Covid-19 loan scheme at the budget next week.

The Recovery Loan Scheme was scheduled to finish on December 31, but Sunak is reportedly planning on backtracking on the plans.

The news was first reported by Bloomberg. Sources told the news organisation discussions on the matter are ongoing.

The news comes as the UK’s recovery from the Covid-19 crisis is stalling, with the economy growing less than expected in August.

Firms are struggling with swelling costs triggered by supply chain breakdowns pushing up prices for key inputs used in the production process. Looming tax hikes are also set to increase businesses’ costs.

Covid-19 loan schemes helped businesses stay afloat during the pandemic by improving access to credit.

Mike Cherry, national chairman of the Federation of Small Businesses, which had called for Sunak to extend the loans plan, told Bloomberg keeping the scheme would “help firms access finance as they try and manage inflation, staff shortages, spiraling energy costs and supply problems.” 

Soaring input prices have fuelled inflationary pressures in the economy, prompting the Bank of England to adopt a more hawkish position on monetary policy. Governor Andrew Bailey said recently the Bank may have to act if medium term inflation expectations strengthen.

Higher interest rates would put further pressure on the public finances, which are already reeling from the enormous stimulus the government launched to stem the impact of the pandemic. The Treasury estimates each additional percentage point increase in interest rates would top up the government’s debt servicing bill by around £25bn.

Latest data released by the Office for National Statistics released today shows inflation edged back to 3.1 per cent in September, down from 3.2 per cent in August.

The Recovery Loan Scheme backs 80 per cent of the value of a loan extended to businesses struggling with the impact of the pandemic.

Sunak will deliver his next budget and spending review a week today.