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Covid loans could cost government up to £ 27bn

The government expects to lose up to £ 27bn on three coronavirus loan programs it has put in place to bail out UK businesses at the height of the lockdown.

The Department for Business, Energy and Industrial Strategy (Beis) said the Bounce Back loan scheme could cost it at least £ 13.3bn, but possibly as much as £ 22.8bn of pounds sterling.

The loans went to small businesses that needed a boost earlier in the year as the economy stalled. They are provided by large-scale lenders, but the government has promised to reimburse the banks if a business cannot.

Beis also said the Coronavirus Business Interruption Loan Scheme (CBILS) could cost him between £ 1.5 billion and £ 3.9 billion, or between 10% and 25%.

CBILS offer larger loans, but are only 80% backed by the government and have much more rigorous application processes.

Meanwhile, CLBILS, a version of the loan scheme designed for large companies, could cost the government between £ 192 million and £ 768million, Beis estimates.

The estimates are based on historic losses for programs similar to Covid-19 interventions, Beis said.

But as a note of caution, he added: “No two programs (or two economic downturns) are completely identical and the estimate will be revised as more data becomes available.”

Banks would be worried about the tactics they might be forced to adopt to get the money back.

Under the bounce 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 the companies.

They fear that sending debt collectors to drive out struggling family businesses could hurt relationships with local communities.

Others said they were concerned about fraud in the system. In May, the head of the British Business Bank, which administers the three loan programs, warned Business Secretary Alok Sharma that the loans could be accessible to criminals.

“The program is vulnerable to abuse from individuals and organized crime participants,” said Keith Morgan.

On Thursday, Darren Jones, chairman of the Beis MP select committee asked Sharma what steps the department has taken to address Morgan’s concerns.

He said: ‘Every £ borrowed needs to be spent wisely and it is crucial that ministers come forward and outline the steps they have taken to address serious concerns about fraud, value for money and impact of BBLS on competition in small business loans. market. “