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Covid loan repayments could weigh on investment, Labour’s Dodds warns

Labour’s shadow chancellor Anneliese Dodds will warn that companies will be forced to pay back the money they borrowed to survive during Covid-19, which may put investment under pressure as the UK tries to recover to recover from the pandemic.

In a speech on Tuesday night, Ms Dodds is expected to say businesses will struggle to repay some of the £73billion they have borrowed in government-backed loans since the pandemic began.

Labor said its analysis shows around 750,000 businesses in the UK, employing 2.1 million people, have little or no confidence they could survive three months.

“Forcing companies to start paying off debt before they get back on their feet will weigh on the amount they have to invest to grow and hire new employees. It could mean hitting a wall for some,” Ms Dodds will say.

“Hundreds of thousands of companies across the country are on the razor’s edge. If they falter or fail, it’s not only a tragedy for owners who lose their livelihoods and employees who lose their jobs – it will hurt the recovery and hold us all back.

“It is a completely false economy that the chancellor is leaving these deals on dry land.”

The Labor Party has previously called for a system of loan repayments modeled on student loans.

That would mean that a company doesn’t have to repay its loans until it’s profitable again.

Around 1.5 million businesses have taken out a bounce-back loan of up to £50,000 each, with around one in four saying they have already spent the money.

The loans were provided by high-street banks like Lloyds and NatWest, but the government guaranteed that the Treasury would step in to cover the banks’ losses if borrowers couldn’t pay.

The companies are scheduled to start making the first repayments in May.

As the pandemic dragged on longer than expected, Chancellor Rishi Sunak gave businesses more options to repay their loans.

The initial repayment period of six years can now be extended to 10 years, and companies can defer repayments and interest payments for a period of six months at any time during this period. They can also choose three semi-annual periods in which they only pay interest on the loans.

The Chancellor billed his new options as ‘pay as you grow’, but Labor said the scheme was simply a way of delaying payments rather than just paying when a profit is made.

“The chancellor slept at the wheel. His so-called “Pay As You Grow” scheme might make for a good soundbite, but it’s misleading: there’s no connection to growth at all. He just pushed the deadlines back a few months,” Ms Dodds will say.

“While that could help some companies, the fact is we are still on the path to billions of public funds being written off in unpaid loans because of the Chancellor’s refusal to act.”