The UK government has reportedly removed state guarantees from almost £1bn in Covid-19 emergency loans, pushing potential losses on to banks if borrowers fail to repay them.
The taxpayer-owned British Business Bank (BBB), which runs the loan schemes, removed state guarantees from 10,786 loans worth a combined £979m up to 11 October, according to data obtained under freedom of information laws by Reuters.
The guarantees were removed for a variety of reasons, the BBB said, including because of data corrections, application errors resulting in “duplicate” funds being sent to companies, as well as infringements of scheme rules.
Rishi Sunak announced a series of loan schemes at the start of the coronavirus pandemic when he was chancellor to try to support the economy as the government imposed strict lockdowns. The schemes were run by private banks but the government said it would cover some of the banks’ losses to enable them to lend to more businesses.
However, the schemes have been dogged by concerns over widespread fraud and errors on lending that reached £77bn, after the government focused on getting the money to borrowers more quickly.
In September the government said that £7.4bn of taxpayers’ money had been paid to British banks to cover defaults, as well as fraud, while £17bn had been fully repaid by borrowers. The government in September increased its estimate of total fraud by 43% to £1.7bn.
The largest of the schemes, the £47bn bounce back loan scheme, has been the subject of particular scrutiny over fraud but other business interruption loan schemes were also dogged by problems, amid complaints of poor oversight. Theodore Agnew resigned in the House of Lords as a junior minister over what he called the “arrogance, indolence and ignorance” of government in its attitude to pursuing loan fraud.
A government spokesperson said: “In unprecedented times, we stepped up to support the country. If the government and lenders didn’t move as quickly, more businesses would have failed, and many more jobs would have been lost.”
UK Finance, the banks’ lobby group, said: “Lenders acted swiftly to deliver the government’s Covid-19 loan guarantee schemes, which supported millions of businesses at the height of the pandemic. The most recent data shows that the majority of businesses are on track with repayment and many have fully repaid their loans.”
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The lobby group added that some lenders have removed loans from the guarantee “at their discretion” even where the guarantee may be valid.
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Government ‘removes state guarantees from almost £1bn in Covid loans’