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10-02-2023, 01:30 PM
Why is the UK using taxpayers’ money to reimburse COVID loans?
#Econgram_UK
Facts:
1) During the COVID pandemic, UK businesses received £77bn of state-guaranteed loans*.
2) The British government has already reimbursed the banks £4.4bn of bad debt*. Moreover, the banks have flagged another £6.2bn of problematic loans that might need to be compensated by the state.
Analysis:
1) To support businesses during the pandemic, the UK government guaranteed the banks that it would reimburse the loans if the firms fail to repay them. This way, companies obtained credit without significant checks from the banks. That helped businesses survive and continue paying salaries to their workers during the pandemic.
2) However, the absence of checks increased default* and fraud risks for the provided loans. Today, the state must compensate bad debt to the banks. That puts a significant burden on the government budget.
3) Another factor increasing the default risk on the loans is the rising interest rate in the UK. Many loans granted during the pandemic had a floating interest rate*. Therefore, when the central bank conducts contractionary monetary policy*, borrowers face higher costs and are less likely to repay the debt.
Inspired by FT
The Econgram
https://www.ft.com/content/377826aa-ed9c...5e793d7009
#Econgram_UK
Facts:
1) During the COVID pandemic, UK businesses received £77bn of state-guaranteed loans*.
2) The British government has already reimbursed the banks £4.4bn of bad debt*. Moreover, the banks have flagged another £6.2bn of problematic loans that might need to be compensated by the state.
Analysis:
1) To support businesses during the pandemic, the UK government guaranteed the banks that it would reimburse the loans if the firms fail to repay them. This way, companies obtained credit without significant checks from the banks. That helped businesses survive and continue paying salaries to their workers during the pandemic.
2) However, the absence of checks increased default* and fraud risks for the provided loans. Today, the state must compensate bad debt to the banks. That puts a significant burden on the government budget.
3) Another factor increasing the default risk on the loans is the rising interest rate in the UK. Many loans granted during the pandemic had a floating interest rate*. Therefore, when the central bank conducts contractionary monetary policy*, borrowers face higher costs and are less likely to repay the debt.
Inspired by FT
The Econgram
https://www.ft.com/content/377826aa-ed9c...5e793d7009
