24 November 2008 | Jake Kanter
The government should consider taking urgent action to insure small suppliers against the risk of their larger customers going bust, according to the Confederation of British Industry (CBI).
In a letter to the Prime Minister ahead of today's pre-Budget report, the director-general of the CBI, Richard Lambert, set out ten recommendations for a government package to support the economy and protect jobs.
He said some vendors are having their trade credit insurance "suddenly withdrawn" as insurance firms are less prepared to cover small suppliers if buying organisations become insolvent and cannot pay for goods and services. In his recommendations, Lambert argues the government or the Bank of England, or both, should consider whether to act as an "insurer of the last resort" on a temporary basis.
"Over the past month another worrying trend has emerged, with trade credit insurance cover being withdrawn from some businesses," he said in the letter. "SMEs in particular are especially vulnerable. The reported view of insurers is that 'the risk profile of even the largest businesses has changed dramatically', and as a consequence they are less prepared to insure small suppliers against the risk of larger customers going out of business."
He added that larger vendors may also be affected because of the scale of the problem and if allowed to continue the impact on the economy would be "dire".
The CBI chief also argued that the government should cut national insurance contributions for SMEs and "unblock" financial markets to improve the flow of funds to businesses. He also encouraged the public sector to accelerate capital spending projects where appropriate.
* Visit supplymanagement.com for coverage of this afternoon's pre-budget report