Economists, investors and businesses talk of “black swan” events: those unexpected, once in a lifetime crises which are massive in scale, unpredictable in nature, and with their full effect on world affairs usually only apparent after they have happened.
The Covid pandemic is a black swan event. Like every other sector, FLA members were significantly affected.
With many of their business customers unable to trade due to lockdown restrictions, and consumers facing reduced incomes via furlough, funders quickly offered unprecedented levels of forbearance.
Outdated legislation and other headwinds got in the way of doing this efficiently, but they persevered.
Smaller, non-bank lenders faced a liquidity squeeze at the height of the pandemic endangering their ability to do this. All eventually found solutions to this, by securing liquidity from the British Business Bank or other sources, and none failed.
Not all Government measures worked as well as they could have done. The government identified a need for measures to encourage business investment, but the “super deduction” didn’t include leasing and so FLA members were unable to pass this benefit on to businesses. The Bank of England’s support scheme to provide liquidity for lending to SMEs was not made available to non-bank lenders despite their significant role in supporting small business. Both omissions need to be corrected for the future.
The next threat has appeared more quickly than anyone anticipated. The rising energy costs precipitated by Russia’s war in Ukraine mean we are now heading for another recession and an unprecedented cost of living crisis. The Government needs to put in place urgent measures to support businesses and individuals in the short term, and in the medium term to nurture economic growth and recovery.
The lessons learned from Covid have helped us prepare for the cost-of-living shock. FLA members have plans in hand to help businesses and consumers who are struggling. To do that it is imperative that customers who are facing financial difficulty speak to their lender as soon as possible and work with them to develop a plan to get the customer through the problem.
We have also developed proposals for Government action. These include major reforms of the tax system which ensure leasing is not disincentivised, measures to support net zero, reform of the regulatory regime, and initiatives to ensure a liquid credit market. Together, these proposals provide a solid foundation on which to protect the economy and ensure businesses and consumers can survive and thrive the coming storm.
Some experts say that a black swan is simply a crisis that we should have seen coming and for which we failed to prepare. There is certainly scope for us all to be more far-sighted and not to forget the experience of the past. We were not prepared for Covid despite all the focus on bird flu a decade before. We were not prepared for the invasion of the Ukraine despite a decade of Russian sabre rattling in many parts of the former Soviet Union. Regulators have pushed firms in many sectors to foresee and manage risk. It is time for Government to take its own medicine.
This blog was written by Stephen Haddrill, Director General of the FLA. If you’re currently facing financial business challenges , the Forum can help. Call our helpline on 10565 626001 or email membership@fpb.org.
