Treasury Facing Huge Losses on Bounce Back Loans, Says Audit Office

Written by: Keith Tully

Businessman facing financial lossesThe Treasury and, by extension, taxpayers are facing huge losses in relation to the ‘Bounce Back’ loans given out to more than a million businesses in recent months.

In fact, according to the assessments of the National Audit Office (NAO), it could be that a majority of the £36.9 billion so far distributed by the Bounce Back Loan (BBL) scheme never gets repaid.

Loans worth a maximum of £50,000 were given out by banks and other lenders on the basis of their being backed 100 per cent by the government in the context of the coronavirus crisis which massively impacted the finances of millions of small businesses.

The loans were designed to enable small firms nationwide to cope with the cash flow pressures they came under during the pandemic but there are now serious concerns about how much of the money that was borrowed might never be repaid.

For many businesses, the issue will be an inability to afford the loan repayments that will at some point be due in full.

But from the perspective of the Treasury, another major problem is the scale of fraud and abuse of the system that is likely to have taken place while the emphasis within government was primarily on getting money out to businesses that urgently needed it.

“Once government decided to support small businesses facing cash flow problems owing to the pandemic, it moved very quickly to set up a scheme,” the NAO said in a set of concluding remarks attached to its report on the Bounce Back system.

“It prioritised one aspect of value for money – payment speed – over almost all others and has been prepared to tolerate a potentially very high level of losses as a result,” it said.  

The BBL scheme is understood to have been considerably more popular than was initially anticipated, with early estimates suggesting in the region of £18 billion to £26 billion might be lent to companies in obvious difficulty.

In the event, with the scheme still taking applications until the end of November, close to £37 billion has already been loaned.

“Unfortunately, the cost to the taxpayer has the potential to be very high,” said Gareth Davies from the NAO.

“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.”

Keith Tully

Keith Tully

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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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