Writing off the £42bn worth of Bounce Back Loans that have been issued to small businesses is going more effective in the long-run than chasing debts which will never be repaid.
So says accountancy association the AAT, responding to the withering assessment of MPs investigating the Bounce Back Loan Scheme (BBLS).
Nearly two thirds of Bounce Back Loans, designed to help small businesses survive Covid-19, may never be repaid, according to the government’s own figures. That would leave the taxpayer staring at a loss of £26bn.
>See also: Europe’s small businesses call for three-month post-Brexit transition period
Writing off the entire £42bn worth of Bounce Back Loans would save the government £1bn in interest payments alone paid to banks while they chase bad debtors, and free up banks not to waste time working with costly debt recovery agencies.
Back in June, ex-chancellor George Osborne said that all emergency Covid-19 financial support should be written off – an assessment the AAT agrees with.
Taxpayers are facing a hit of up to £26bn because the government failed to “strike the right balance” between rescuing companies and protecting the public purse with an emergency loan scheme, MPs have warned.
>See also: Government plans permanent state-backed small business loan scheme
The public accounts committee said that the BBLS had been set up with “no business case”, had distorted the small business lending market in favour of big banks, and that debt recovery plans remained “woefully underdeveloped”.
The scheme was launched in May and provides private sector lenders with a 100 per cent state guarantee on loans to qualifying small companies of up to £50,000, at an interest rate of 2.5 per cent.
As of November 15, £42.2 billion had been provided to 1.4m companies.
Businesses self-certify their application documents so that loans can be provided quickly. Lenders are not required to perform any credit or affordability checks.
Meg Hillier, chairwoman of the Commons committee, said: “Dropping the most basic checks was a huge issue that puts the taxpayer at risk to the tune of billions.”
MPs particularly criticised the collection process lenders will be expected to follow, and how lenders can call on the 100-per-cent state guarantee, have yet to be decided.
The public accounts committee expressed concern that the scheme had reduced competition in business banking because the largest lenders provided most loans, increasing their market share in an already extremely narrow small business market.
Ms Hillier said: “Rushing to get money out of the door after the fact didn’t allow for analysis of how many businesses needed this help, could benefit from it, or could repay it.”
The British Business Bank, which administers the scheme, objected to the BBLS before its launch amid fears about losses and crime, as did senior business department officials.
Further reading
