Taxpayer Losses Could Hit $30 Billion on U.K.’s Covid Loans
The U.K. government estimates it could lose as much as 23 billion pounds on loans.
(Bloomberg) -- The U.K. government estimates it could lose as much as 23 billion pounds ($30 billion) on loans it guaranteed to help prop up businesses during the pandemic.
The estimates by the Department for Business, Energy & Industrial Strategy are the first look at how much taxpayers could be on the hook for on the unprecedented lending given to small- and medium-size firms now facing a potential second blow from a resurgence in the virus.
The worst-case calculation was disclosed in the department’s latest annual report published Wednesday. The projected best-case scenario reckons on losses of about 13 billion pounds. The estimated ranges are based on historic losses from similar prior programs and combine credit and fraud losses.
Britain’s Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme and the Bounce Back program have distributed about 50 billion pounds ($65 billion) of loans. The U.K. government guaranteed 80% of the CBILS and CLBILS loans and all the Bounce Back lending.
| Covid loan program | Loans (£b) | Loss range | Max Loss Estimate (£b) |
|---|---|---|---|
| Bounce Back | 34.2 | 35-60% | 20.5 |
| CBILS | 10.5 | 10-25% | 2.6 |
| CLBILS | 1.4 | 5-20% | 0.3 |
Now with new Covid-19 restrictions on firms and the government urging people to work from home for possibly six months, the U.K. has decided to backstop more loan applications and give borrowers more time to repay. Chancellor of the Exchequer Rishi Sunak said last month that more than 1 million borrowers would be aided by the new policies.
Letters sent by the British Business Bank to ministers in May, and published this week, raised concerns about the “very significant fraud and credit risks” associated with the Bounce Back program ahead of its launch.
“Given the concerns of the board, and under our established constitution, in order to ensure the scheme can be launched as planned it will be necessary for you to respond to this letter by instructing the bank directly,” Keith Morgan, chief executive officer of the BBB, wrote on May 2. “The board have requested that this wording be unambiguous, and that it should acknowledge the limitations on the bank’s ability to mitigate and control risks which are inherent in the design of the scheme.”
It was revealed in August that the U.K. government has started an audit of the loan programs.
The potential losses were reported earlier by the Financial Times.
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