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Delinquent business | New Economics Foundation

Despite the initial success of the vaccine, the Covid-19 public health crisis is far from over; after the restrictions are lifted, the economic impact may last for a long time. The government has taken action to help mitigate the impact. For example, vacation programs, grants, loans, and eviction bans have prevented many businesses from closing down. However, survey data shows that one in nine companies has little confidence that they can spend the next three months, and one in seven small and medium enterprises (SMEs) are expected to have to lay off employees. Bank loans for SMEs in 2020 are 80% higher than in 2019, and it is estimated that about one-third of companies with Covid Business Interruption Loan Scheme and Bounce Back Loan Scheme loans may have difficulty repaying. As the ban on business evictions expires at the end of June, many companies may soon be in trouble.

This report reviews the different experiences of the British economic sector during the crisis so far, the support provided by the government, and why the financial viability of many companies still looks precarious. Then, we outlined and proved the six criteria for assessing the success of the government in dealing with commercial rent arrears. Three of the criteria are the principle of results, which describe the goals that an effective policy response should achieve. The remaining three are design principles that the policy should implement in order to be feasible. An effective policy should protect production capacity, minimize regressive wealth transfers (and prioritize British citizens), and minimize the future debt burden of SMEs. Its design should give priority to helping those in need, and then ensure that only those who are most worthy of support can get support, maximize the enforceability of the law, and minimize administrative work.

We use a multi-criteria analysis to compare the current UK government policy with five alternative policies: partial rent cancellation, subsidized rent reduction, public sector payments, rent extensions, and Bank of England’s land investment. The first four policies are inspired by international examples.

According to this analysis, all five alternative policies are superior to the current stance of the British government. The partial abolition of rents becomes the most favorable policy, and rent deferral and public sector payment options rank second.

The report recommends that the government implement a policy of partially abolishing rents, canceling up to 100% of rents for companies that are forced to close, and canceling a large percentage of rents for companies that can continue to operate but belong to certain industries. The turnover has decreased significantly. These reductions and exemptions should also apply to rent arrears accumulated during this period. Turnover will be evaluated at the industry level; there will be no company-level evaluation. This sectoral approach strikes a balance between quickly gaining support for troubled companies, while at the same time not wanting landlords to rent to tenants in relatively unaffected sectors, thereby giving up rent. Centralized support for SMEs will help target the most vulnerable companies. Most employment is also provided by SMEs. During the period of national and local restrictions, the policy will apply to unpaid historical rents and future rents, and compensation can be paid to landlords who are in serious financial difficulties.

Picture: Unsplash

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