Tuesday, 21 April 2009

Will Darling Bring Relief?

Fashionista keenly awaits this week's Budget amid reports that Alistair Darling will unveil details of a government scheme to underpin vital supply-chain credit insurance.

The Financial Times reports that the scheme will target medium-risk businesses and is expected to offer guarantees for companies that have seen cover reduced but not withdrawn. Many retail businesses have been affected by the gradual withdrawal of credit insurance and/or increase in the cost of insurance as the recession has deepened. Indeed, in a recent survey by the British Retail Consortium half of large retailers and over 40% of small and medium sized retailers said the reduction or withdrawal of trade credit insurance had undermined their ability to trade.

Drapers, which joined forces with the British Clothing Industry Association (BCIA) to lobby the government over the issue of credit insurance, has reported that suppliers are furious that credit insurers such as Euler Hermes and Atradius, to which they have paid premiums for several years, have slashed cover available to the sector, which has left them fighting to survive or with massively depleted order books. Quoted in Drapers, Michael Wolff (managing director of high street supplier, Fielding Group) summed up the situation saying "If retailers can't get supply, they go bust, which leaves the high street with empty shops, and suppliers go bust, which leads to job losses. The government must do something to keep money moving around".

It is clear to Fashionista that something needs to be done to break this worrying cycle. However, amid reports that the government scheme may fall short of the £5 billion cap the industry hopes for, it seems likely that lobbying will continue for sometime to come.