The Treasury is reviewing a “radical” proposal for a new state-owned body that would manage £35bn of toxic coronavirus debt and help save up to 780,000 British businesses. A City taskforce, the Recapitalisation Group, led by EY and the lobby group TheCityUK, is recommending that a government-owned UK Recovery Corporation be established to handle a growing pile of unsustainable government-backed debt that could otherwise wipe out thousands of businesses and lead to 3 million job losses. Businesses that took on debt through the government-backed coronavirus business interruption loan scheme (CBILS) or bounce back loan scheme (BBLS) would be able to apply for special measures through the corporation if they were at risk of default. The UK Recovery Corporation would be able to convert their government-backed debt into special financial instruments such as preference shares or an earnings-based profit tax, giving businesses breathing space to repay and recover from the coronavirus crisis. This would help avoid using taxpayer money to cover unpaid debts if firms otherwise defaulted on their government-backed loans. It is understood that the final report by the Recapitalisation Group, publicly released on 16 May, is being reviewed by the Treasury. Adrian Montague, the former chairman of Aviva and chairman of TheCityUK’s leadership council, said: “It’s clear that the Treasury are grappling with the problem of how they get these loans repaid without impairing the recovery. I think that some of our solutions are quite radical, so I think it’s obviously going to be for the Treasury to decide on how they want to take these ideas forward.” So far, more than 1m businesses have taken on debt of £31.7bn through the BBLS scheme, which is aimed at the UK’s smallest businesses and is 100% government-backed. A further 54,538 loans worth £11.85bn have been granted to small and medium-sized businesses through the CBILS scheme, which comes with an 80% government guarantee. The report estimates that 2.3m businesses will have a CBILS or BBLS loan by the end of March 2021. While BBLS loans, which are interest and payment-free for 12 months, will come up for repayment from March 2021, the City taskforce warned that a solution needed to be in place by the end of October 2020. That is when companies will come under greater financial pressure with the winding down of state measures including the furlough job retention scheme. Montague said: “We had originally thought this would be a problem for March next year, but actually it’s going to hit in Q4 this year when the rent relief starts to end, when the furlough scheme starts to unwind, and when VAT payment deferrals need to be made. So it’s not far away. “We are urging the government to take immediate action to address these issues.” While the government would fully own the UK Recovery Corporation from its launch, it was hoped that private investors would invest in the corporation once the body was established. A HM Treasury spokesperson said: “The work undertaken by TheCityUK is a useful contribution to discussions on how businesses can be best supported through this difficult time, and we will continue to work closely with industry both on the delivery of the government-backed loan schemes, and on supporting businesses.”