The UK Government has thrown UK businesses a £10 billion lifeline as it launched a trade credit reinsurer of last resort.
Under the plans unveiled by City Minister John Glen and Business Secretary of State Alok Sharma the government will guarantee trade credit coverage in an effort to offer businesses greater security over customer defaults of payment delays.
However, when the scheme comes to an end the Government said it will launch an enquiry into whether the trade credit sector is meeting the needs of its clients.
The scheme will be available for nine months and has been backdated for claims from 1 April 2020. It will run until 31 December 2020, with the potential for extension if required.
The Government said the scheme will be delivered through a reinsurance agreement that is open to all insurers currently operating in the UK market, covering both domestic and overseas trade with payment terms of up to 2 years
The scheme rules will also require participating insurers to comply with certain undertakings regarding the conduct of their business during the period of the scheme. This includes conditions that insurers will forgo profits and will not pay dividends or bonuses for senior staff for their guaranteed trade credit Insurance business
The scheme will be followed by a joint BEIS/HMT-led review of the trade credit Insurance market to ensure it can continue to support businesses in future.
The Trade Credit Reinsurance scheme, which has been agreed following extensive discussions with the insurance sector, will see the vast majority of Trade Credit Insurance coverage maintained across the UK.
The guarantees will support supply chains and help businesses during the coronavirus pandemic to trade with confidence, safe in the knowledge that they will be protected if a customer defaults or delays on payment.
Mr Sharma said: “Trade Credit Insurance is a daily necessity for hundreds of thousands of businesses across the UK – particularly those in non-service sectors such as the manufacturing and construction sectors.
“Our £10 billion guarantee gives peace of mind to businesses, allowing them to continue to trade and maintaining liquidity in supply chains. This reinsurance scheme is an important step as we carefully set about firing up our economy as we emerge from the pandemic.”
His views were backed by Economic Secretary to the Treasury, John Glen. (pic below)
“Billions of pounds of business turnover is supported by Trade Credit Insurance each year,” he added. “This reinsurance scheme will see the government and insurers working closely together to ensure that the vast majority of this cover remains in place. This means that businesses and supply chains can continue to be protected at this pivotal time as we begin to kick start the economy.”
British Chamber of Commerce Director General Adam Marshall said: “The government has demonstrated once again that it is listening to the concerns of our business communities.
“The launch of a government-backed guarantee to support the provision of trade credit insurance will help ensure that this vital lifeline remains available to businesses during and after this crisis, helping to maintain supply chains and trade.”
IoD Head of Europe and Trade Policy Allie Renison said: “These measures are a lifeline for many businesses with nowhere else to turn. To help the economy get up and running again, maintaining confidence in supply chains is crucial, and we are encouraged to see this come as the product of collaboration between government and industry.”