Fears that Budget credit cover may be too little, too late
Chancellor Alistair Darling will announce a state credit insurance scheme in next week's Budget, The FT reports.
The government will target medium-risk businesses. It is expected to offer guarantees for companies that have seen cover reduced but not withdrawn. The scale of the scheme is still to be finalised by the Treasury but government insiders suggested it may fall short of the £5bn cap the industry hopes for.
The FT said the Treasury was responding to business secretary Lord Mandelson.
A French state guarantee scheme, covering companies unable to get cover elsewhere, was published last year. But the government struggled to reach agreement with insurers about the cost of the state guarantee or the proportion of risk each side should bear.
The FT said an industry insider had denied responsibility for the delay in agreeing the scheme, saying it was "less about what the industry wants and more about the government deciding if a scheme like this would be a good use of taxpayers' money".
An insider said ministers had "in the end taken the same mental journey as the French government did".
The Guardian
The Guardian reports that Lord Mandelson was warned of a "domino effect" of bankruptcies among car parts suppliers due to the withdrawal of credit insurance that protects businesses from the collapse of automotive groups.
The alarm came as shares in car dealers surged amid speculation that the government is close to approving a car scrappage scheme that would see motorists given cash towards new cars in exchange for older models. However, Lord Mandelson was approached by another distressed sector of the automotive industry yesterday and told that the loss of credit insurance could have "disastrous" consequences for the economy.
In a letter to the business secretary, the directors of a car parts supplier said the government had not realised the implications of the insurance crisis.
West Midlands-based Steel & Alloy Holdings said insurers were withdrawing policies that protect suppliers if a customer goes into administration. Without insurance cover, the market becomes paralysed as companies fear that they will not receive payment. "The impact of credit insurance withdrawal could cause the termination of even the strongest manufacturing businesses in this area [the west Midlands] and throughout the UK," the directors of Steel & Alloy Holdings said.
In a briefing note to Lord Mandelson, the company added: "Without credit insurance, any business downstream in the supply chain can easily cause a domino effect, taking down all of the businesses further up the supply chain and multiplying the negative effects on the economy many times over, with catastrophic results."
