The government could lose £27bn on bad Bounce Back Loans and other support measures it put in place at the height of the lockdown.
The Department for Business, Energy & Industrial Strategy (BEIS) said that the Bounce Back Loan Scheme could cost it at least £13.3bn, but possibly as much as £22.8bn.
The loans were handed out to small businesses – and extensively taken out by car dealers – many of whom needed a boost earlier in the year as the economy closed down.
The cash was provided by high street banks, but the government promised to pay the banks back if a business cannot. Nearly a million were handed out.
Car dealers saw a spike in sales of luxury cars as directors took the money out of their companies and used it to pay for new cars.
While fraudsters also used them as an attempt to scam car dealers – sneakily applying for a loan on the car dealer’s behalf and pretending the money was coming from them when it arrived in their accounts.
The government could end up picking up HALF the tab for the Bounce Back Loan scheme as the loss rate could reach as much as 60 per cent, according to estimates.
BEIS also said that the Coronavirus Business Interruption Loan Scheme (CBILS) could cost it anywhere between £1.5bn and £3.9bn.
The CBILS provided bigger loans, but are only 80 per cent backed by the government and have much more rigorous application processes.
Meanwhile, CLBILS, a version of the loan scheme designed for larger businesses, could cost between £192m and £768m, Beis estimates.
BEIS said: ‘No two programmes (or two economic downturns) are completely alike and the estimate will be revised as more data becomes available.’
Banks are reportedly worried over the tactics they could be forced to take to recoup the money.
Under the terms of the bounce back loans, the banks are guaranteed to get all their money back, but they will also be forced to try to get the money back from businesses.
They worry that sending debt collectors to chase down struggling family businesses could damage relationships with local communities.
Others have said they are concerned about fraud in the system.
In May, the head of the British Business Bank, which administers the three loan schemes, warned Business Secretary Alok Sharma that the loans could be accessed by criminals.