A new report suggests that up to 60% of emergency pandemic loans made under the Bounce Back scheme may never be repaid.
The National Audit Office (NAO), the government’s spending watchdog, claimed that taxpayers could lose up to £26b thanks to fraud, organised crime or default.
The Bounce Back loans scheme was aimed at small businesses who were unable to access other coronavirus funding support and the scheme carried out considerably lighter checks than other lending options.
A recent investigation from the BBC highlighted how fraudsters were using the bounce back system thanks to the lighter checks.
The investigation revealed that many of those impacted by the fraud would have no idea that their names had been used by fraudsters to receive the loans until they started receiving repayment letters through the post.
The BBC report claimed that the government was warned back in May that the system could easily be open to fraud from organised crime but they claimed they had done their best to limit this through background checks.
The Bounce Back loans scheme provided firms with 100% government-backed finance worth up to £50,000. The loans don’t have to be paid off within 10 years and offer a range of flexible payment options.
Demand for the loans was considerably greater than expected with the total of the loans expected to hit between £38b-£48b, much higher than the initial estimate of £18b-£26b.
The loan scheme was an extension after some businesses complained that they could not access the original funding options supplied by the government.
The NAO report warned that the speed in which the scheme was rolled out in order to offer small businesses financial support during the pandemic helped to heighten the risk of fraud. The Public Accounts Committee also issued a warning over the scheme, saying it was the government’s largest and most risky business support scheme.
The NAO report also suggested that the UK’s five biggest banks are likely to make almost £1b between them from the scheme.
The government estimates that up to 60% of the loans could turn bad, which commentators claim would be an ‘eye-watering’ loss of public money.