Taxpayer faces £34bn coronavirus loans bill
THE taxpayer could be saddled with a £34bn bill as thousands of loans handed out under emergency Covid schemes turn sour.
Treasury figures show £46.3bn has now been lent to 1.1m firms, including £31.7bn lent to 1m of the UK’s smallest companies through the Bounce Back scheme.
But the UK’s budget watchdog has said losses under these taxpayer-backed schemes could hit £33.7bn in the worstcase scenario, as the economic downturn caused by the pandemic bites.
It added that an eye-watering 40pc of Bounce Back borrowers are expected to default. Experts fear that the debt pile will become a millstone, and hold back a UK economic recovery as firms try to rebuild.
The new head of the Office for Budget Responsibility (OBR), Richard Hughes, said: ‘The longer the crisis goes on, the more likely it becomes that Government-guaranteed loans become less of a facilitator of the recovery and more of a burden, because firms have built up large stocks of debt which they will struggle to write off. The more that debt is a burden on companies, the less they will invest.’
Speaking to MPs on the Treasury Committee, he said a massive write-off of the toxic debt might be the only way to save the economy from stagnation.
The OBR thinks that by the end of September, six months from when Chancellor Rishi Sunak (pictured) began to launch emergency loans, banks will have lent £76bn across the various programmes.
Of that, £53bn will have been handed to small firms in Bounce Back loans, while the rest to slightly bigger firms under the
Coronavirus Business Interruption Loan Scheme (CBILS) and very large companies under the scaled-up CLBILS.
As companies struggle to pay off debt, in the best-case scenario the OBR thinks the taxpayer will be left to foot an £8.6bn bill.
Under its central or most-likely scenario, this rises to £16.9bn.
But the losses spiral to £33.7bn in the worst-case scenario in its fiscal sustainability report.
Most will flow from the Bounce Back scheme, since this is the largest and carries few conditions regarding the viability of the business borrowing the money. The Government has also agreed to bear 100pc of any losses which banks suffer under the Bounce Back scheme when borrowers fail to repay the loans, compared to 80pc under CBILS and CLBILS.
Lobby groups and economists want the Government to adapt the way emergency loans are repaid, to take the pressure off firms and allow them to thrive.
Tej Parikh, chief economist at the Institute of Directors, said: ‘Unless we restructure repayments, directors may find it difficult to invest, and this will hold back the economy as a whole. One way the Treasury could ease the load would be by converting loans to a student loan-style system, where firms pay back based on the profits they make.’
Hughes suggested a similar approach. He said repayments could be linked to revenue, and any amount left after a certain period would be written off.
Britain’s banks are preparing for up to 50pc of Bounce Back loans to turn sour. Many fear their reputation could be battered if they take a heavy-handed approach to pursuing the loans.