Covid loans could cost Government up to £27 billion

The Government expects to lose up to £27 billion on three coronavirus loan schemes that it set up to bail out British companies during the height of lockdown.

The Department for Business, Energy & Industrial Strategy (Beis) said that the Bounce Back Loan Scheme could cost it at least £13.3 billion, but possibly as much as £22.8 billion.

The loans were handed out to small businesses that needed a boost earlier in the year as the economy closed down. They are provided by high street lenders, but the Government has promised to pay the banks back if a business cannot.

It could leave the Government picking up more than half of the tab for the bounce back loans, as the loss rate reaches between 35% and 60%, according to the estimates.

Beis also said that the Coronavirus Business Interruption Loan Scheme (CBILS) could cost it anywhere between £1.5 billion and £3.9 billion, or between 10% and 25%.

The CBILS provide bigger loans, but are only 80% backed by the Government and have much more rigorous application processes.

Meanwhile, CLBILS, a version of the loan scheme designed for larger businesses, could cost the Government between £192 million and £768 million, Beis estimates.

The estimates are built on historic losses for similar programmes to the Covid-19 interventions, Beis said.

But as a note of caution, it added: “No two programmes (or two economic downturns) are completely alike and the estimate will be revised as more data becomes available.”

Banks are reportedly worried over the tactics they could be forced to take to recoup the money.

Under the terms of the bounce back loans, the banks are guaranteed to get all their money back, but they will also be forced to try to get the money back from businesses.

They worry that sending debt collectors to chase down struggling family businesses could damage relationships with local communities.

Others have said they are concerned about fraud in the system. In May, the head of the British Business Bank, which administers the three loan schemes, warned Business Secretary Alok Sharma that the loans could be accessed by criminals.

“The scheme is vulnerable to abuse by individuals and by participants in organised crime,” Keith Morgan said.

On Thursday, Darren Jones, the chair of the Beis select committee of MPs asked Mr Sharma what action the department had taken to address Mr Morgan’s concerns.

He said: “Every £1 of borrowing must be spent wisely and it’s crucial ministers come forward and outline what steps they have taken to address the serious concerns about fraud, value for money, and the impact of BBLS on competition in the small business lending market.”