UPDATED: Chancellor Alistair Darling has confirmed plans to support suppliers struggling with a reduction in credit insurance but key trade bodies have criticised the scheme for not going far enough.
The government will introduce a top up scheme to add match cover from insurers, to help businesses that have been impacted by cuts in insurance cover.
The scheme will provide up to £5 billion of extra insurance as port of the Working Capital Scheme to help mitigate cash flow problems.
“We welcome the fact that the government has taken the issue seriously, however from what we have heard, it is too little.”
BCIA chief executive John Wilson
From May 1 until December 31 this year, business will be able to buy six months of “top up” insurance from the government. The scheme only applies to credit reductions suffered from April 1 this year, and businesses which have had credit cover withdrawn completely will not be eligible.
Business secretary Peter Mandelson said: “This scheme will provide a much needed breathing space for businesses suffering as a result of the reduction in trade credit insurance.”
Mandelson added: “We will not prop up bad businesses or take unacceptably high risks, but will provide targeted support to address specific challenges that businesses are facing and helping maintain supply chains.”
He added that the scheme was a “transistional measure” to help businesses facing short term problems.
The scheme follows lobbying by retailers and retail bodies, including the British Clothing Industry Association (BCIA), supported by a Drapers campaign, who have been severely impacted by the reduction in cover.
However, British Clothing Industry Association [BCIA] director John Wilson said that the measures did not go far enough. He said: “We welcome the fact that the government has taken the issue seriously, however from what we have heard, it is too little. But we will need to see the detail.”
Jane Milne, British Retail Consortium (BRC) business director, added: “A ‘top-up’ scheme is much needed but this is too little too late. Matching the trade credit insurance that private insurers are willing to provide is vital to helping fundamentally sound businesses weather the recession. But the unannounced detail confirms this safety net will be denied to companies whose cover was cut before April 1 meaning the plight of many [retailers] is being ignored.”
She added: “For retailers to survive and keep people in work they need to keep shelves stocked with the goods customers want. Insurers began removing cover as the downturn started to bite this time last year. The government’s scheme should apply from then.”
British Shops and Stores Assocation chief executive John Dean added: “At first glance there is nothing in the budget for the high street or anything that is going to benefit retailers at all.”
The Chancellor also announced other measures to help businesses. He said that loss-making companies would be able to reclaim tax on the last three years.
He also confirmed the reduction in VAT, from 17.5% to 15%, will run to December. He gave not detail on what will happen to the rate of VAT beyond Christmas.
Separately Darling said that he expected in economy to return to growth by the end of the year. He predicted that the economy would grow by 1.25% in 2010.
Darling also predicted that the Retail Price Index would be -3% by next September.