Covid loan bill hits £7.39bn 

18th September 2023

The Government has paid out £7.39bn to settle bad Covid-era loans, with £2.23bn more in arrears and £750m in default. With data showing that the Government paid out £1.2bn to settle pandemic emergency loans that had gone bad in Q2, Department of Business, Energy and Industrial Strategy figures suggest taxpayers could ending up paying £11.5bn to cover pandemic-related loans.

Around £77 billion was lent under three separate Covid-loan schemes. Of this, £46.6bn was through the Bounce Back Loan Scheme, which handed up to £50,000 to SMEs and saw a 100% guarantee from the Government. Almost 15% of these loans have been settled by the Government. While 11.5% of borrowers have fully repaid their bounce back loans, 64.8% are on schedule to do so.

The value of suspected fraud on government-backed Covid-19 emergency loans has increased by 43 per cent to £1.69 billion pounds, while £17 billion pounds has been fully repaid by borrowers.

The majority of the loans flagged for fraud are from the Bounce Back Loan scheme. The government said that lenders were continually adapting their processes for identifying and combating fraud. It noted that “since fraudulent loans are likely to be among the first to default, it is assumed that the proportion of guarantee claims linked to loans with a suspected fraud flag should decline as the scheme matures.

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%) that is a reduction from 77.6% in March.

Benjamin Wiles, Managing Director at insolvency firm Kroll, has voiced concern over an uncomfortable level of suspected fraud relating to the pandemic support initiatives. Across the bounce-back loans, £1.7bn has been flagged as potential fraud by lenders.