The UK's COVID lending programs are vulnerable to widening regional disparities

© Reuters. A handout picture shows the Elgin Hotel in Blackpool


With Sinead Cruise and Iain Withers

LONDON (Reuters) – In the northern English seaside resort of Blackpool, the family-run Elgin Hotel is preparing to reopen in August after four months of closure.

The Elgin had a profitable year in 2019, but previous bookings suggest that the 89-room hotel courtyards from the sea will be less than half full this summer, as coronavirus concerns scare away older vacationers and social detachment reduces capacity.

To help cover lost earnings, the hotel attempted to get a £ 800,000 ($ 1.02 million) loan under the taxpayer-backed Coronavirus Business Interruption Loan Scheme (CBILS).

Owner Nigel Seddon said he applied to five different banks that offer loans under the government plan, but he is still waiting to secure the money he needs after some lenders said they couldn't win new customers or specify costly terms that he can hardly afford.

Seddon fears that disadvantaged cities like Blackpool could fall further behind London and the comparatively rich south-east of England if companies like him cannot get enough support.

"People feel that all the money is spent in London," he said.

Blackpool has had problems since its pre-war heyday when families gathered to watch the glittering night light show "Illuminations" and relax on its long sandy beach.

Several disadvantaged areas of England, some of which voted for Brexit and switched from Prime Minister Boris Johnson's Labor Party support to Prime Minister Boris Johnson's conservatives in the December elections, are now disproportionately affected by the corona virus.

Johnson has promised to "level" regional cities. However, a report released this month by The CityUK, a lobby group, predicted that 30% of total UK bank lending would be in the capital by next March, followed by 15% in the southeast and 10% in the east of England. with all other regions under 10%.

Industry groups say Seddon's experience is widespread in some less wealthy regions of the UK.

CBILS, launched in March, and its sister initiative Bounce-Back Loan Scheme (BBLS), which followed in May, provided over £ 1 billion in small and micro businesses £ 45 billion to survive the pandemic.

Unlike the United States, which announced the target of around three-quarters of the $ 521 billion it received under the paycheck protection program, neither the UK government nor the financial industry has released exactly where the money was awarded.

"We're kind of blind at the moment … we're concerned about regions that may fall," said Chris Wilford, head of the Confederation of British Industry Financial Services Policy, pointing out that some regions are highly dependent on ailing sectors such as hospitality and manufacturing .

"If a large company reduces its footprint or goes under in some of these cities, it's devastating," he said.

Lack of transparency

The UK Treasury, which collects relief credit data, refused a freedom of information request from Reuters for a regional breakdown of credit under the CBIL and BBL systems.

It recognized the need for transparency in the use of public funds, but the regional data was "confidential" provided by the banks and the disclosure of information "that could harm the commercial interests of lenders would not be public Interest".

The UK Finance trade organization also declined to breakdown.

Only a large lender, the NatWest Group, shared a regional picture of lending and defined the regions in general.

NatWest data from early June showed 27% of loans in the north, 24% in the Midlands & Eastern regions and 22% in London & South East. The South West and Wales region and Scotland secured 18% and 8%, respectively.

HSBC (L :), Lloyds Banking Group (L 🙂 and Barclays (L 🙂 said regional data was either unavailable or problematic because each lender defined each region differently.

CBI's Wilford said the group has started its own research into how the regions have been through the COVID crisis to investigate possible regional or sectoral differences in lending and major cash flow problems.

Groups of businesses from the Northeast, Southwest, and Northwest told Reuters that they felt that banks would no longer lend in their areas, where economists predict that the pandemic would result in far deeper economic slumps.

Forecasts published by Oxford Economics show that economic performance in the West Midlands, Yorkshire and Humber, the Northeast and Wales in 2020 will range between -6.6% and -5.7% compared to the forecasts for 2019 on farthest decrease.

London production fell by 4.1%.

Before the crisis, lending to small businesses in the northwest where the Elgin Hotel is located fell 11% in the three years to December compared to a 3% decrease in London according to the latest data available from UK Finance.

Economic growth in the region was three to one (10% to 3%) ahead of London in the three years to September, according to the latest data from the Office for National Statistics.

Britain has fought for decades to boost regional growth outside of London. According to a Reuters analysis of public spending data, the government is already spending more than it generates on taxes in all parts of the UK except London, the South East and the East.

Can't be bored, won't be bored

Naresh Aggarwal, deputy director of politics and technology at the Association of British Treasurers, said it was unlikely that lending was regional, but a result of banks' reluctance to lend to certain companies, possibly due to excessive exposure , which in turn could have caused geographic targeting.

Others pointed to poorer banking relationships and poor borrowers' confidence in banks, particularly because lenders had cut regional branch networks as part of cost-cutting measures since the 2008/09 financial crisis.

"There still seems to be an institutional tendency towards places like Cornwall when it comes to CBILS," said Kim Conchie, director of the Chamber of Commerce in Cornwall, one of the poorest districts in England.

Given the struggle of many companies to secure relief loans over £ 50,000, many companies with a shortage of money would have chosen to request more humble BBL support instead, he said.

BBL losses are 100% covered by taxpayers, and applications include fewer affordability checks than CBILS loans, where banks are 20% defaulted.

However, some of these borrowers would likely need new help soon, as other government aid measures, such as the “vacation” job retention program, are declining and deferred rents and other taxes are due this fall.

A survey by the Northeast Chamber of Commerce (NECC) found that 65% of its members had access to the government's vacation program, but more than two-thirds had not applied for government-funded credit.

"It seems to banks that they want companies – many of which are in a short-term crisis – to prove their viability over the next five years before they help," said Jonathan Walker, deputy director of politics at NECC.

"Of course that's impossible."

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