LONDON (Reuters) - Britain said on Wednesday it would temporarily guarantee business-to-business transactions until December for companies struggling to pay trade credit insurance during the coronavirus pandemic.
The insurance ensures continuation of business by providing cover against default on payments to hundreds of thousands of business-to-business transactions, especially in manufacturing and construction, the finance ministry said in a statement.
Britain is beginning this week to ease restrictions on a lockdown imposed in March to fight the pandemic, with manufacturing and construction among the first sectors set to restart.
The pandemic has made it tough for businesses to pay bills and has put them at risk of having their credit insurance withdrawn or their premiums raised to unaffordable levels.
“To prevent this from happening, the government will temporarily guarantee business-to-business transactions currently supported by Trade Credit Insurance, ensuring the majority of insurance coverage will be maintained across the market,” the ministry said.
The guarantee will be delivered through a temporary reinsurance agreement to be agreed with insurers currently operating in the market, it said.
The Association of British Insurers (ABI) said it would continue to work with the government to develop the scheme, which follows similar action being taken in Europe and Canada.
France, Germany and the Netherlands have introduced similar schemes.
“The priority now is to urgently work through with the Government how this scheme will operate in practice so that it can support businesses through the difficult trading environment, now and in the months ahead,” said James Dalton, director of general insurance policy at the ABI.
The scheme will cover trading by domestic firms and exporting firms and the aim is for agreements to be in place with insurers by the end of this month, the ministry said.
In April, there were more than 171 billion pounds of business activity insured, covering transactions between 13,000 suppliers and 650,000 buyers, the ministry said.
In the whole of 2018, 450 million pounds was paid in trade credit insurance premiums to cover more than 350 billion pounds in business activity.
“This guarantee will be essential as we seek to reopen new sectors of the economy and get the UK back to work in a way that is safe for everyone,” business minister Paul Scully said.
The finance ministry said the guarantee will be temporary and targeted to cover COVID-19 economic challenges, and will provisionally last until the end of the year.
“It will be followed by a review of the TCI market to ensure it can continue to support businesses in future,” it said.
Reporting by Huw Jones; editing by Jason Neely, Jane Merriman, William Maclean