Britain’s £38bn Covid loans TIME BOMB: Government’s rescue schemes leave taxpayer facing huge bill
Struggling firms have received more than £38billion in emergency money – fuelling fears that taxpayers will foot the bill for huge losses if the loans turn sour.
The Treasury yesterday revealed the extraordinary take-up of various state-backed loan schemes set up to help businesses survive the coronavirus crisis.
More than 913,000 companies – many of which have seen their cash flow dry up since the lockdown began on March 23 – have scrambled for support.
More than 913,000 companies- many of which have seen their cash flow dry up since the lockdown began – have scrambled to take up Chancellor Rishi Sunak’s offer of support
By far the most popular have been the Bounce Back loans of up to £50,000, which are 100 per cent-backed by taxpayers and were launched by Chancellor Rishi Sunak just six weeks ago.
A staggering £26.3billion has been lent to 863,584 firms, with more than 140,000 approvals a week.
The take-up has not relented as the crisis has unfolded, with £2.6billion lent in the past week.
The vast sums being handed out prompted one business leader to warn the loans are being ‘handed out like Smarties’.
The scheme has eclipsed the flagship Coronavirus Business Interruption Loan Scheme which was launched when the lockdown was introduced – where loans are 80 per cent guaranteed by the state.
Still, some £10.1billion in loans have been approved to more than 49,000 small and medium sized firms. And £1.8billion has been lent to 279 larger firms via a sister version of the scheme.
As official figures confirmed the jobs market is beginning to unravel, Sunak said these emergency loans, alongside grants from councils and the Government furlough scheme, had provided ‘lifelines to thousands of businesses and millions of jobs’.
But lobby group The City UK warned that taxpayers will be saddled with up to £36billion in ‘unsustainable debt’ as a result of emergency loans that turn sour.
Its chief executive Miles Celic said: ‘The Government lending schemes have provided an essential lifeline. However, the resulting debt burden is likely to be a huge drag on a future economic recovery.
By the end of March 2021 we estimate that between £32billion-£36billion of unsustainable debt will stem from the schemes, roughly a third of the total projected lending.’
Even those most critical of banks for failing to lend under the original Coronavirus Business Interruption Loan Scheme have become alarmed.
Ian Cass, managing director of the Forum of Private Business said: ‘These loans are being handed out like Smarties.’
The latest warning came after a leading think-tank predicted Bounce Back will result in ‘absolutely massive bad debts’.
Giving evidence to MPs on the commons Treasury committee last week, Giles Wilkes, at the Institute for Government, said the vast sums being dished out ‘raises an incredible red flag’.
He fears loans will simply keep many inviable firms afloat, and that many will not be repaid.