THE UK Government faces a potential loss of £15 billion to £26 billion from the Bounce Back Loan Scheme (BBLS) as a result of company failure and fraud, a new audit investigation has concluded.
The scheme, which opened in early May, has allowed small firms to borrow up to £50,000 over ten years at preferential rates, with the UK Government providing a 100 per cent guarantee.
It’s a part of the number of central government schemes launched in response to the Coronavirus pandemic.
It was initially thought that it could lend £18bn to £26bn to businesses. But by September 6, £36.9bn had been loaned to 1.2 million applicants.
The Department for Business, Energy and Industrial Strategy (BEIS) in London and the British Business Bank (BBB), which oversees the scheme, said it could reach £48bn by November 4.
The last regional breakdown of the scheme on August 7 revealed that £809 million had been loaned to 25,491 businesses in Northern Ireland.
The north’s four main banks are all accredited BBLS lenders.
A new report from the National Audit Office (NAO) has warned that a high level of company failure and fraud will likely cost the UK Government billions.
Based on credit and fraud risks, BEIS and the BBB’s preliminary estimate is that 35 per cent to 60 per cent of borrowers may default on the loans.
Around 90 per cent of loans have gone to micro businesses with a turnover below £632,000.
The NAO found the limited verification for the scheme with existing business customers securing loan approval within 24 to 72 hours.
Businesses are expected to repay in full, with failure likely to impact credit scores. But in the case of default, the UK Government will step in.
The NAO said the UK Government had accepted the decision to provide cash to businesses quickly had exposed the scheme to fraud.
The level of fraud is expected to be significantly above the 0.5 per cent to 5 per cent which is generally estimated for public sector schemes.
Based on the scheme lending £43bn, the anticipated level of borrowers defaulting could cost the government £15bn to £26bn.
The NAO said the full extent of losses, both credit and fraud, will not emerge until the loans are due to start being repaid from May 4 2021.
Gareth Davies, who heads 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."
