London Daily

Focus on the big picture.
Friday, Aug 01, 2025

Only state investment can revive Britain's zombie economy

Only state investment can revive Britain's zombie economy

Small firms are borrowing big sums to survive. They must be given the option of a debt-for-equity swap with the Treasury
Britain is sleepwalking into a debt crisis that will undermine its prospects of a sustainable recovery.

It’s not the debts of the government that are at issue; it is the monumental amount of borrowing by the private sector, much of it from the Treasury, that will hang like a dead weight on the shoulders of thousands of businesses, possibly for a decade.

Last week, Rishi Sunak tore up his much-criticised winter jobs protection plan and took the humiliating decision to breathe more life into his existing furlough scheme. The cheap and not-so-cheerful job support scheme (JSS) was revamped to the point where it looks almost exactly like its predecessor, the job retention scheme (JRS), which was due to end on 30 October, but now lives on in an old/new guise.

This support for staff and about 2.5 million self-employed workers, welcome though it is, distracted attention from the huge and growing number of lifeboat loans taken out by businesses across the country in a desperate bid to stay afloat.

The most recent figures show that while 623 large businesses have borrowed the relatively small total of £4.6bn via the coronavirus large business interruption loan scheme (CLBILS), 1.2 million smaller employers have accessed £47.3bn from the other two buckets of cash on offer from the Treasury – the bounce-back loan scheme and the coronavirus business interruption loans scheme (CBILS).

Setting aside the National Audit Office’s concerns that up to 10% of the loans were obtained fraudulently and that many employers forced staff to remain working when the scheme demanded they stop, amassing more debt for no other end than simply to survive is not a great business strategy.

When a company can say that the rebound in sales following the easing of a lockdown will allow it to claw back lost ground and more, it makes sense to borrow to ride out the bad times. But if the business remains vulnerable to the shifting sands of government health policy, its capacity to invest over the next few years is likely to be severely limited – not just by debt interest payments, but by an inability to take on further loans. No wonder recent reports have suggested that as much as 40% of these loans will go sour and never be paid back.

The firms that fail to repay them will have gone bust. The rest may find the cash to pay them off, only to become the next generation of “zombie companies” – locked in a cycle of generating cash to pay debt.

In April, the chancellor was arguing that he had no choice but to spray these loans across the UK without asking too many questions to prevent a damaging panic and a mountain of job losses.

Some free-market economists responded in their usual cold-hearted manner. They warned that the only way to limit the losses was to pull the scheme’s shutters down, turn away further applications and watch as the dead wood of British business came crashing down. Only then could a thousand fresh entrepreneurial flowers bloom.

More sensible voices implored Sunak to set up a system that would allow business owners to opt for a debt-for-equity swap. This would allow the government to exchange its loans for a share in the business.

It would be the decision of each business owner to give the state a stake, but as the BBC programme Dragons’ Den demonstrates, there are plenty of entrepreneurs who are prepared to give away a proportion of their beloved company if it means they can afford to make crucial investments.

Lord O’Neill, the former Treasury minister, former Goldman Sachs economist and current chair of Chatham House, has put forward such a scheme. The “dragons” in this case would work for an arm’s-length agency that would take on firms that it believes are viable over the longer term and which agree to meet strict targets – for instance on the number of apprentices they take on and the level of skills training.

Of course this agency would be in the game of “picking winners” – and that is something the Treasury has always rejected. Back in 2012, the former Bank of England policymaker Adam Posen, an American who now runs the prestigious Peterson Institute in Washington, proposed the creation of two state agencies to offer loans, sidelining the high street banks. This received short shrift from the Bank of England and the Treasury.

But when 40% of loans are already expected to go awry, why not take the plunge now – especially when the banks are not only as conservative as ever, but zombies themselves, weighed down by ever-larger bad loans of their own?

Sunak is in such a hole that he must investigate the creation of both an investment agency and a lending body. Without them, the UK economy risks becoming a member of the walking dead.
Newsletter

Related Articles

0:00
0:00
Close
Trump Administration Finalizes Broad Tariff Increases on Global Trade Partners
J.K. Rowling Limits Public Engagements Citing Safety Fears
JD.com Launches €2.2 Billion Bid for German Electronics Retailer Ceconomy
Azerbaijan Proceeds with Plan to Legalise Casinos on Artificial Islands
Former Judge Charged After Drunk Driving Crash Kills Comedian in Brazil
Jeff Bezos hasn’t paid a dollar in taxes for decades. He makes billions and pays $0 in taxes, LEGALLY
China Increases Use of Exit Bans Amid Rising U.S. Tensions
IMF Upgrades Global Growth Forecast as Weaker Dollar Supports Outlook
Procter & Gamble to Raise U.S. Prices to Offset One‑Billion‑Dollar Tariff Cost
House Republicans Move to Defund OECD Over Global Tax Dispute
Botswana Seeks Controlling Stake in De Beers as Anglo American Prepares Exit
Trump Administration Proposes Repeal of Obama‑Era Endangerment Finding, Dismantling Regulatory Basis for CO₂ Emissions Limits
France Opens Criminal Investigation into X Over Algorithm Manipulation Allegations
A family has been arrested in the UK for displaying the British flag
Mel Gibson refuses to work with Robert De Niro, saying, "Keep that woke clown away from me."
Trump Steamrolls EU in Landmark Trade Win: US–EU Trade Deal Imposes 15% Tariff on European Imports
ChatGPT CEO Sam Altman says people share personal info with ChatGPT but don’t know chats can be used as court evidence in legal cases.
The British propaganda channel BBC News lies again.
Deputy attorney general's second day of meeting with Ghislaine Maxwell has concluded
Controversial March in Switzerland Features Men Dressed in Nazi Uniforms
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
Thai Civilian Death Toll Rises to 12 in Cambodian Cross-Border Attacks
TSUNAMI: Trump Just Crossed the Rubicon—And There’s No Turning Back
Over 120 Criminal Cases Dismissed in Boston Amid Public Defender Shortage
UN's Top Court Declares Environmental Protection a Legal Obligation Under International Law
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
The Podcaster Who Accidentally Revealed He Earns Over $10 Million a Year
Trump Announces $550 Billion Japanese Investment and New Trade Agreements with Indonesia and the Philippines
US Treasury Secretary Calls for Institutional Review of Federal Reserve Amid AI‑Driven Growth Expectations
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Severe Flooding in South Korea Claims Lives Amid Ongoing Rescue Operations
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
CEO Resigns Amid Controversy Over Relationship with HR Executive
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
US Revokes Visas of Brazilian Corrupted Judges Amid Fake Bolsonaro Investigation
U.S. Congress Approves Rescissions Act Cutting Federal Funding for NPR and PBS
North Korea Restricts Foreign Tourist Access to New Seaside Resort
Brazil's Supreme Court Imposes Radical Restrictions on Former President Bolsonaro
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Judge Criticizes DOJ Over Secrecy in Dropping Charges Against Gang Leader
Apple Closes $16.5 Billion Tax Dispute With Ireland
Von der Leyen Faces Setback Over €2 Trillion EU Budget Proposal
UK and Germany Collaborate on Global Military Equipment Sales
Trump Plans Over 10% Tariffs on African and Caribbean Nations
Flying Taxi CEO Reclaims Billionaire Status After Stock Surge
×