Scrap Finance Bill HMRC insolvency proposals or damage businesses, R3 warns
21 April 2020
Ahead of the second reading of the Finance Bill on 27 April, Duncan Swift, President of insolvency and restructuring trade body R3, has called on the Government to scrap proposals to make HMRC a preferential creditor in insolvencies.
There has been widespread concern that the proposals will have a significant negative impact on access to finance for UK businesses. Financial services trade body UK Finance has estimated the policy could hit lending by at least £1bn per year.
Duncan Swift says: “At a time when the UK’s business community is reeling from the COVID-19 pandemic and the subsequent lockdown, this policy risks undermining the work the Government has done to protect businesses and preserve jobs through the support measures it has announced over the last few weeks.
“If this policy goes ahead, asset-based lenders will be far less likely to provide the finance needed for businesses because there will be a greater risk of losses in insolvencies. This will be particularly acute where new funding is needed to support business rescue.”
Duncan Swift adds: “If a rescue attempt doesn’t succeed or can’t start because the business can’t access the finance it needs, everyone loses out. The business fails, jobs are lost, and the Treasury misses out on tax receipts.”
Research R3 carried out last year showed that nearly four-in-five (78%) members of the insolvency and restructuring profession feared the proposals would make it harder to rescue businesses. Eighty-three percent thought the plans would make it harder for firms to access the funding they need, while 85% felt that any negative impact the proposals may have outweighed the Government’s justification for introducing the change.
Duncan Swift continues: “The Government’s policy will hurt asset-based lending, in particular. This type of lending is really important for retailers and small businesses – exactly the type of businesses most in need of help at the moment.
“This is not the way to go about increasing tax revenue from insolvencies. It makes no sense for these proposals to go ahead – not now, not even when the economy has recovered.”
R3, along with a number of UK business bodies, has been campaigning against these proposals for some time. Ahead of the Budget in March, this group called on the Chancellor to think again about the proposals.
As well as R3, this group included:
- UK Finance
- The Alternative Credit Council (ACC)
- The British Property Federation (BPF)
- The British Private Equity & Venture Capital Association (BVCA)
- The City of London Law Society (CLLS)
- The Chartered Institute of Credit Management (CICM)
- The Insolvency Practitioners Association (IPA)
- The Institute of Chartered Accountants in England and Wales (ICAEW)
- The Institute of Chartered Accountants Scotland (ICAS)
At the time they warned that: “The policy may increase the knock-on effects of insolvencies on supply chains, customers, consumers, and pensions. Ultimately, the policy could lead to a small, short-term gain for HMRC at the expense of long-term damage to the economy. The Government must change course.”
This group had previously warned the Government’s plans would be: “Likely to undermine confidence in trading, lending, and investing in the UK economy. [The plans] will also not help make the UK a good place to do business. And, with the UK preparing to leave the EU [as it was in September 2019], and with businesses already facing a number of economic challenges, the timing of this move is particularly unhelpful.”
Duncan Swift says: “Our opposition to this policy isn’t new, and we aren’t the only ones who are against its introduction. At a time when the business community is in crisis, the Government needs to listen to the concerns of experts and explore other options for increasing tax revenue from insolvencies – ones that don’t damage other creditors, make it harder to rescue businesses and put businesses and jobs at risk.”
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