The Government could lose up to £26billion through fraud and businesses being unable to repay taxpayers’ cash provided by the Bounce Back Loan Scheme, a Whitehall spending watchdog has warned.
Chancellor Rishi Sunak unveiled the scheme in April to provide quick loans of up to £50,000, or a maximum of 25% of annual turnover, to small businesses during the pandemic.
Officials expect to lend between £38bn and £48bn by November 4 – far higher than the £18bn to £26bn planned when it launched, according to the National Audit Office.
But the watchdog said conditions for using the scheme were far less strict than for other loan options.
It added: “As a result of credit and fraud risks, (the Business Department and British Business Bank) have made a preliminary estimate that 35% to 60% of borrowers may default on the loans, based on losses observed in previous programmes which are most similar to the scheme.
“Assuming the scheme lends £43bn, this would imply a potential cost to government of £15bn to £26bn, but these estimates are highly uncertain.”
NAO boss Gareth Davies 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.”
Labour had repeatedly warned not all firms would be able to pay back the money.
UKHospitality chief executive Kate Nicholls warned pubs, clubs and restaurants will lose “far” more than half a million jobs by Christmas unless Mr Sunak announces a new support scheme.
She told MPs the 10pm curfew, local lockdown restrictions and inadequate government support will tip stricken venues over the edge.
Meanwhile, Shadow Chancellor Anneliese Dodds has urged ministers to pump extra cash into local coronavirus lockdown areas at the same time as beefed-up curbs come into force.
Ms Dodds criticised the Government for providing funds affected long after communities were slapped with new restrictions.
“Support for local areas has only ever come after restrictions have been imposed, for example a month later in Leicester’s case,” she told the Commons.
“When will this Government finally be in a position to deliver support hand-in-hand with the imposition of restrictions, not trailing them?”
Blasting the “inconsistent” funding, she said Leicester received £3million, the Liverpool City region got £7million, there was an undefined amount for the North East, and nothing for Greater Manchester or the West Midlands.
Treasury Minister Steve Barclay said the Government would “keep listening, keep striving to be creative in response to the challenges we face” and act where it could.
Mr Barclay was hauled to the Commons to face an urgent question as businesses in communities hit by tighter curbs feared for their futures.
But Chancellor Rishi Sunak insisted local lockdowns were working – and the alternative was national restrictions.
He told the BBC that “clearly wouldn’t be appropriate and we should try and avoid that if we can given that there are areas of the country which aren’t seeing either this level of growth or absolute level of transmission and therefore in those areas we can afford to take a slightly different approach.
“That is a better way to go – this more targeted, localised approach.”
Boris Johnson’s spokesman said: “We keep all of the measures we have under review.
“But we have recently set out a package of measures with the specific intention of reducing the R rate and limiting the spread of the virus.”