Companies which receive state-backed loans of up to £200m face being banned from paying dividends or buying back shares under plans being considered this weekend by the government.
Daily Week News has learnt that ministers are finalising changes to the Coronavirus Large Business Interruption Loan Scheme (CLBILS) that would include prohibiting the distribution of capital to investors in companies which take on the loans.
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The government is also planning to encourage corporate users of CLBILS to demonstrate restraint when they make decisions about executive pay and bonuses, bankers said on Sunday.
If implemented, the conditions will be the most far-reaching intervention to date into corporate governance and boardroom decision-making by Boris Johnson’s administration since the COVID-19 crisis began.
Such changes would reflect a profound anxiety in Downing Street about bosses using cheap public money to line the pockets of their shareholders and senior managers.
This weekend’s Sunday Times Rich List revealed that at least 63 of the UK’s wealthiest people have utilised the government’s emergency wage subsidy scheme to pay their staff during the pandemic.
One banker said it was likely that there would have been more stringent curbs on bonuses and other forms of remuneration if Whitehall had deemed them to be easily enforceable.
Gordon Brown’s government faced acute embarrassment after the bailouts of Britain’s banks during the 2008 financial crisis, with lenders including Royal Bank of Scotland continuing to pay out large sums in bonuses.
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The British Business Bank (BBB), which administers the various lending schemes introduced by the Treasury since March, is understood to have been briefed on the potential changes.
Many of the companies seeking money using CLBILS are privately owned businesses, although some are also listed on the London Stock Exchange.
Data published last week showed that only 59 companies had so far been lent money – a total of £359m – under the scheme.
It is understood that if they go ahead, the CLBILS restrictions on dividends and share buybacks will apply only to loans made above the previous ceiling of £50m, although details were still being ironed out on Sunday.
Hundreds of major employers are expected to apply for CLBILS loans once the cap is lifted to £200m, although the restrictions on payouts could yet provide a deterrent.
Under the scheme, banks are accredited by the BBB to issue loans, with the government providing an 80pc guarantee.
Any changes to CLBILS could be unveiled alongside a widening of the eligibility criteria for the Covid Corporate Financing Facility (CCFF), which allows investment grade-rated companies to issue short-term debt that is then bought by the Bank of England, bankers said.
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It is conceivable that the dividend and share buyback restrictions being considered for CLBILS loan recipients could also be applied to companies using the CCFF, although it was unclear on Sunday whether that was being planned by ministers.
If the curbs were applied to investment-grade companies, it would deepen the dividend drought spreading across corporate Britain, potentially for several years.
Companies which have gained access to the CCF to date include easyJet, Greggs, Intercontinental Hotels Group and British Airways’ parent, International Airlines Group.
The Chancellor, Rishi Sunak, may announce the revised details to the Treasury’s emergency schemes during the early part of this week, and possibly as soon as Monday.
CLBILS has already been the subject of several revisions, including lifting the maximum size of the loans and the turnover eligibility threshold for companies.
There have also been dividend restrictions built into the scheme since it launched, meaning that loan recipients would only be permitted to pay them if they were confident of repaying the loan.
However, the new conditions would go much further.
Previous changes to CLBILS were introduced amid concerns about a corporate ‘squeezed middle’, referring to businesses which fall between SMEs – which have access to the Coronavirus Business Interruption Loan Scheme, through which they can borrow up to £5m – and users of the CCFF.
Lenders accredited to issue loans under CLBILS include Barclays, HSBC, Lloyds Banking Group and NatWest Holdings – the taxpayer-backed bank which until recently was known as RBS.
The loans are repayable over a maximum of three years.
Ironically, many of the banks which will now be issuing government-backed loans have themselves found themselves at the centre of a storm over dividends during the pandemic.
Fraught talks between the major high street lenders and banking regulators in February resulted in them abandoning their previously-announced 2019 payouts, and suspending dividends and share buybacks until the end of this year.
Dozens of FTSE-100 companies have already axed or cut dividends during the crisis, starving income investors of capital from reliable stocks such as BT Group and Royal Dutch Shell.
The Treasury and BBB declined to comment on Sunday.