Bounce Back Loan Scheme could lose taxpayers £26b

Bounce Back Loan Scheme could lose taxpayers £26b

The government faces a potential loss of £15 billion to £26 billion through businesses not being able to repay the loans made through the Bounce Back Loan Scheme and fraud.

That’s the conclusion of a National Audit Office (NAO) report into the Bounce Back Loan Scheme, launched in April to provide loans of up to £50,000 to small businesses to support their financial health during the Covid-19 pandemic.

The Department for Business, Energy & Industrial Strategy (BEIS) and the British Business Bank (BBB) expect the scheme to lend £38 billion to £48 billion by 4 November 2020, substantially exceeding the assumed £18 billion to £26 billion when it launched.

As of 6 September, HM Treasury data shows that the scheme has delivered more than 1.2 million loans to businesses, totaling £36.9 billion. Around 90% of the loans have gone to micro businesses with a turnover below £632,000.

The loans were delivered through commercial lenders such as banks and building societies, with the government providing lenders a 100% guarantee against the loans. Businesses are expected to repay the debt in full.

As a result of credit and fraud risks, BEIS and the BBB have made a preliminary estimate that 35% to 60% of borrowers may default on the loans, based on losses observed in previous programmes similar to the scheme.

This has led the NAO to call for the government to implement a thorough debt-recovery process with lenders and consider how it might better prevent fraud in any future schemes.

Gareth Davies, head of the NAO, said: “With concerns that many small businesses might run out of money as a result of the Covid-19 pandemic, government acted decisively to get cash into their hands as quickly as possible.

“Unfortunately, the cost to the taxpayer has the potential to be very high, if the estimated losses turn out to be correct. Government will need to ensure that robust debt collection and fraud investigation arrangements are in place to minimise the impact of these potential losses to the public purse. It should also take this opportunity to consider now the controls it would put in place to protect against the abuse of any future such schemes.”

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