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Supply chains secured by the government

4th June 2020

UPDATED FOLLOWING HM TREASURY ANNOUNCEMENTS ON 4 JUNE 2020

The Government has confirmed that it is providing guarantees of up to £10 billion to Trade Credit Insurance schemes for business-to-business transactions between 1 April 2020 and 31 December 2020.

This follows an earlier announcement on 13 May that the Government was stepping in to help secure supply chains through guarantees to trade credit insurers in order to maintain cover for suppliers against non-payment of debts.

Trade Credit Insurance (TCI) provides cover for business transactions, particularly in non-service sectors, such as manufacturing and construction. It insures suppliers selling goods against the company they are selling to defaulting on payment, giving businesses the confidence to trade with one another.

However, the Coronavirus lockdown led to some insurers removing cover, or increasing premiums, prompting concerns that supply chains would freeze as companies stop providing goods.

The government guarantees will cover domestic and overseas trading and take effect retrospectively from 1 April 2020 until the end of 2020, though it may be extended if necessary. 

It will be followed by a review of the TCI market to ensure it can continue to support businesses in future. 

John Glen, economic secretary to the Treasury, explained: "By guaranteeing transactions currently supported by trade credit insurance, we will help to maintain a vital cog in our economy."

  • in whole of 2018 £450 million was paid in TCI premiums to cover over £350 billion in business activity
  • as of April 2020 there was over £171 billion business activity insured, covering transactions between around 13,000 suppliers and 650,000 buyers

Further details

  • the scheme will be delivered through a reinsurance agreement that is open to all insurers currently operating in the UK market, covering both domestic and overseas trade with payment terms of up to 2 years
  • the scheme rules will also require participating insurers to comply with certain undertakings regarding the conduct of their business during the period of the scheme. This includes conditions that insurers will forgo profits and will not pay dividends or bonuses for senior staff for their guaranteed Trade Credit Insurance business
  • to protect businesses that the private credit market cannot insure, export credit insurance is also available from UK Export Finance to cover UK exports to 180 countries. Government-backed export insurance from UKEF can protect the 230,000 businesses that export from the UK against the risk of not getting paid when selling internationally
  • implementation of the scheme is subject to state aid approval, agreement of full form documentation with insurers and acceptance of applications from insurers for participation

Critical freight routes protected

In a further move to protect supply chains, the government has signed agreements with 6 operators help ensure there is enough freight capacity to prevent disruption to the flow of goods.

This will protect 16 of the most important routes covering the Channel, the Short Strait, the North Sea and routes between Great Britain and Northern Ireland which were previously at risk of closure due to a drop in demand as a result of coronavirus (COVID-19). They will now be designated as Public Service Obligation routes for a period of up to 9 weeks.

For more information about government support for businesses and how the country can get back to work following the lockdown, check our our Business after COVID-19: Transition Knowledge Hub.

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