Former chancellor George Osborne has called for all coronavirus emergency debt taken out by small and micro businesses to be forgiven.

Speaking to the Treasury select committee on Wednesday, June 3 alongside two other former chancellors, Mr Osborne said the Government should eventually write off billions of pounds worth of loans to small and micro businesses “who are engines of growth”.

Treasury officials would “hate” the idea, said Mr Osborne, but any recovery will be stymied if small businesses face years strangled by coronavirus debt.

“Even if in a couple years’ time when the corporate sector owes a lot of money – particularly the micro businesses, small businesses who are engines of growth and can be completely held back by large credit burden – I think then the government should look at some sort of debt forgiveness,” he said.

“At some point in the next couple of years you either write them off or, what I expect will happen, is every six months or year the chancellor at the time announces that the lending terms are pushed out, the rates are kept very low and so on.

“But it would be better as a big act of debt forgiveness.”

To date, £31.3bn has been lent to UK businesses through the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS).

About two-thirds of money lent has gone out through the BBLS, whereby small businesses can borrow up to £50,000 from banks, with the Government standing by to 100-per-cent make up any shortfall if the loan goes bad.

However, nearly half of small businesses which have borrowed money through the government schemes say they do not intend to repay the loans, while banks themselves are braced for half of all Bounce Back Loans to default.

RBS chairman Sir Howard Davies has called for the creation of a vehicle to clean up bad debts left by businesses unable to repay all coronavirus emergency loans.