The UK government has banned large corporations that access its revamped Covid-19 bailout loan scheme from paying shareholder dividends after it raised the borrowing limit from £50m to £200m.
Ministers said investors should not benefit directly from dividend payouts when firms borrow from the more generous coronavirus large business interruption loan scheme, to be launched next week.
Companies that use the extended scheme will also face restrictions on the bonus payments to board directors and the level of share buybacks during the period of the loan.
The move comes after the Treasury faced criticism for allowing Tesco to pay a £635m dividend while accepting a similar-sized tax break through the business rates holiday which forms part of the taxpayer-funded emergency coronavirus support package.
Business groups welcomed the higher £200m borrowing limit for the so-called Coronavirus large business interruption loan scheme (CLBILS) – which had attracted criticism after only 100 firms successfully accessed loans – saying it filled a gap in the range of rescue measures put in place by the government over the last two months.
The Treasury said the extension would ensure organisations that failed to qualify for the Covid corporate financing facility (CCFF) loan scheme managed by the Bank of England would have access to enough finance to meet cashflow needs during the outbreak.
But the Treasury’s refusal to ban bonuses outright as a condition of a loan was condemned as “paying lip service” to concerns that company boardrooms continue to receive large pay awards while millions of workers face pay cuts or redundancy following the lockdown and mothballing of much of the economy.
The rules of the revamped scheme allow executives to receive bonus rewards if they are agreed ahead of applying for a loan or if payments are the same level as in previous years. Firms can also continue to maintain share buyback schemes, in effect increasing the value of shares held by investors, after an agreement with the Treasury.
Luke Hildyard, the executive director of the anti-poverty campaign group, the High Pay Centre, accused “supine” Treasury ministers of succumbing to business lobbying to protect bonus payments.
“By allowing so many loopholes, the government risks doing little more than paying lip service to entirely understandable concerns about money intended to support jobs and businesses being used to maintain executive bonus payments.
“Allowing pay awards to be maintained at historic levels is particularly supine.”
The scheme allows company boards to borrow up to 25% of turnover, up to a maximum of £200m. Banks underwrite 20% of the loan while the government provides the remaining 80%.
Rain Newton-Smith, the chief economist at the the Confederation of British Industry, said: “Some mid-cap businesses urgently need access to larger loans to tide them over at this critical juncture for the economy.
“Many of them are important regional employers, so the Treasury’s extension of maximum loans shows just how much they are listening to the concerns of business right now.”
Figures last week showed British businesses have so far received almost £15bn of emergency financial aid through government-backed rescue loans with successful applications from more than 304,000 companies.
The largest slice of loan funding has been disbursed in the last fortnight under a new “bounce-back loan” scheme that targets small businesses with 100% government-backed loans. Almost £8.4bn was borrowed by about 268,000 small firms during the first week of the government scheme.
This left 36,000 companies to borrow £6bn-worth of funds through the CBILS scheme and only £359m of loans to be agreed through the coronavirus large business interruption loan scheme. A further £18.7bn was borrowed through the CCFF loan scheme.
