Government pays banks £1.2bn more to cover Covid loans that went sour

The Government paid out another £1.2 billion to settle pandemic emergency loans that had gone bad between April and June, new figures suggest.

The Department for Business and Trade said that the Government had now paid out on 14.5% of the bounce back loans that they guaranteed during the early lockdowns in 2020.

It added another £1.1 billion to the total amount that has been settled under the scheme, bringing it to a little under £6.9 billion.

Approximately £100 million was also paid out during the period to banks under the other Government-backed loan schemes, taking the total paid out to date to £7.4 billion, the data show.

The loan schemes were set up in the early days of the Covid-19 lockdowns when businesses across the country were forced to close.

The bounce back loans provided the smallest loans, of up to £50,000 per business, but they were available to most of the UK’s companies without any real checks on whether the borrowers would be able to pay the money back.

That was the trade-off that the Government accepted to ensure that the money reached businesses in need fast enough. Any delays could have led to large numbers of failed businesses, ministers feared.

It also opened the scheme to abuse and risk. By June somewhat less than £1.7 billion out of the £46.6 billion that was borrowed under the scheme had been flagged by lenders as suspected fraud.

That is an increase from a little over £1.1 billion in March, the Government said.

The data showed that 76.3% of bounce back borrowers have either fully repaid their loans (11.5%) or are on schedule to do so (64.8%), the Government said.

That is a reduction from 77.6% in March.