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29 July 2021updated 06 Sep 2021 1:55pm

“We are at a tipping point”: the £1.7bn debt mountain facing high street retailers

A report warns around a third of independent high street businesses will eventually default on the government’s Bounce Back loan scheme.

By Glenn Armstrong

Having run her business on the historic St Peter’s Street in Ipswich for 14 years, Cathy Frost has always had to adapt to survive. Originally an interior design shop, becoming a gift shop after the 2008 crash and then shifting, with the demands of the high street and the pandemic, to homeware and house plants, Frost’s LoveOne shop is precisely the kind of long-standing, independent business that the veteran retailer Bill Grimsey says makes up the “social fabric of our towns”.  

However, Grimsey’s most recent report shows that independent high street businesses now face a debt pile of £1.7bn having been “pushed into a corner”, as Frost says, at the start of the pandemic and taking out Bounce Back loans to stay afloat.  

Debt is not a common feature of independent businesses and Grimsey is warning that, if the government does not intervene, the long climb up the mountain of repayment may be too much for some. Around a third of these businesses will eventually default on these loans, his report warns, creating a potential “tsunami” of closures.  

Small independent retailers, Grimsey told the New Statesman, do not like to take out loans and would not usually qualify for them as ‘‘their balance sheets just wouldn’t stand up to scrutiny’’.

When the government introduced its Bounce Back scheme in May 2020, Frost described the experience of having to take out a loan as a ‘‘morale-sapping moment’’. Grimsey, meanwhile, is furious at the levels of debt facing hundreds of thousands of small businesses, asking the government: “Why involve [these businesses] in debt? The heartache, the mental anguish and then the devastation of closing the business is coming at them because of this lending and you did it, you facilitated it.” 

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[see also: Beyond “Zoomshock”: The death and life of the British high street]

Andrew Goodacre, CEO of the British Independent Retailers Association, said that, 18 months into the pandemic, the time has long since passed for the Chancellor Rishi Sunak to be taking a broad-brushed approach to business lending. ‘‘What is needed now are very specific policies targeted at areas that need help,’’ he told the New Statesman.

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The repayment of previously written-off business rates by large, essential retailers such as Tesco has raised nearly £2bn – money that could potentially be a source of relief for debt-ridden independent businesses. Goodacre believes these funds should be used ‘‘to offset some of [the Bounce Back loan] debt’’ and Grimsey has called for debt forgiveness, saying this £2bn means ‘‘it is not difficult to forgive [the debt] in cash terms.”

The Treasury has been clear that “the Bounce Back loans are to be repaid”. “Our unprecedented £350bn Covid support package has provided a lifeline to hundreds of thousands of businesses,” a spokesperson said. These loans were a lifeline, but the image that Sunak has cultivated for himself, as a generous Chancellor, may fade as the public begins to see local high streets struck by further closures: a recent poll shows Sunak’s approval rating dropped by 16 points in the month of July.

A potential “tsunami” of store closures poses a huge problem for the government, which has put local high streets at the centre of its “levelling up” agenda. While Goodacre recognises some of the government’s high street proposals have potential, he believes “retail doesn’t actually get mentioned too often” and “you get the impression that [the government] is writing the high street off”.

Grimsey is clear about the scale of the crisis facing these businesses, which is “coming at them at 100 miles an hour”. Frost is determined to “keep [her] head down” and get through the autumn, but she adds: “We are at a bit of a tipping point”. 

[see also: Why Boris Johnson’s “levelling up” agenda remains an empty slogan]