Taxpayers have had to foot a £421million bill to cover embittered Covid debts, after one in 12 businesses defaulted on state-backed emergency loans handed out at the height of the pandemic, reveal official figures.
In the first set of figures detailing the performance of government-backed loans offered to struggling businesses during the outbreak, the Department for Business, Energy and Industrial Strategy said about 8% of 1.6 million borrowers – around 130,000 – had defaulted on their debts as of March this year.
The bulk of the claims – around £352million – were for rebound loans, the popular scheme which accounted for £47billion of the £77billion lent to businesses under the scheme.
Big banks and online lenders, who handed out the loans on behalf of the government, later demanded £421m of taxpayers’ money to cover the defaults.
Around 18,000 of the 1.5 million repayable loans claimed were flagged for suspected fraud by the lenders, although no updated estimate was provided on the potential cost to the government. It has previously been estimated that fraud losses could top £4.9billion, although more recent estimates from PwC, the government-hired accounting firm, have reduced that figure to £3.5billion. sterling.
“We are still early in the life of programs and the lending cycle, so it is too early to accurately assess levels of fraud and credit loss,” the commercial department said.
Default and fraud estimates, which are collected by the British Business Bank, are set to change as more debt becomes due, with many businesses taking advantage of a scheme allowing them to extend their loans for 10 years.
The rebound loans, which were 100% government backed, were distributed by 28 high street banks and other lenders, with applicants able to borrow up to £50,000 each.
Launched in May 2020, the scheme was one of former Chancellor, and now Conservative leadership candidate, Rishi Sunak’s biggest interventions in the early months of the pandemic as he tried to save the economy.
However, critics claimed that insufficient attention was paid to potential fraud, as customers were allowed to certify themselves that they met certain criteria in an attempt to get more money.
Those concerns eventually led to the resignation of anti-fraud minister Theodore Agnew in January, who cited the government’s ‘dismal’ efforts to control fraud, and he has since warned banks to be ‘very careful’ before claiming government guarantee.
Lord Agnew then got into a battle with Digital Starling Bank, after raising questions about its fraud checks, claims the bank denied. Starling asked Agnew to retract his statement.
Metro Bank, Barclays and Starling Bank have claimed the most money to date from bounce-back loans, with the government paying £122m, £88m and £61m respectively.
However, the proportion of claims to their total loans varied, with Metro claiming around 8.5% of the total, while the amount claimed by Barclays and Starling totaled around 0.8% and 3.8%, respectively.
All three lenders said they were devoting significant resources to trying to recover the funds before claiming the state guarantee.
Two lenders – Tide and Capital on Tap – claimed around a quarter of the total money they each lent to businesses under the repayment scheme.
Tide said it did all the proper checks and was quicker to file claims than some of its peers. He also said some of his clients were “younger” and therefore more at risk of failure. Tide added that the next 12 months would provide a “brighter picture” of defaults for all lenders.
The government has also warned against reading too much of the data lender by lender, saying some ‘may be further along than others’ in submitting applications, ‘which could lead to distorted figures’.
Capital on Tap did not immediately respond to requests for comment.