Skip to content
Search
AI Powered
Latest Stories

Government scraps state guarantees on nearly £1 billion of Covid loans

Government scraps state guarantees on nearly £1 billion of Covid loans
Photo: iStock

The UK government has scrapped guarantees on nearly £1 billion of bank loans handed out to ailing businesses during the Covid-19 pandemic, leaving lenders on the hook for some of the borrowings that will not be repaid.

Previously unreported figures obtained by Reuters under a Freedom of Information (FOI) request show that the state-owned British Business Bank (BBB) - which administers the loan schemes - has removed state guarantees from 10,786 loans worth a combined £979 million as of Oct. 11, shielding taxpayers from some losses.


While the amount is only a fraction so far of the £77bn of loans issued, the move follows pressure from lawmakers and Britain's public spending watchdog who criticised the programmes for being too lax. The figures could rise further - latest figures show just £17bn have been fully repaid by borrowers as of June 30.

Dozens of lenders took part in the government-backed schemes, including Britain's ‘Big Four’ banks: Barclays, NatWest, Lloyds and HSBC. Barclays and HSBC declined to comment, while the other two were not immediately available.

Britain's emergency lending schemes echoed government finance initiatives deployed worldwide to prop up companies during lengthy lockdowns, but the full costs and who will ultimately foot the various bills is only now becoming clearer.

Public officials have ratcheted up their scrutiny of the schemes to try to ensure better value for money, three sources familiar with the matter told Reuters, just as ministers review strained state finances ahead of a key budget update later this month.

"In unprecedented times, we stepped up to support the country," a spokesperson for the UK's business department said of the loan schemes, adding that where necessary it was working with lenders to remove guarantees to protect taxpayer money.

Bank lobby group UK Finance said lenders were in regular discussions with the BBB, with some removing loans from the guarantee at their own discretion.

Lenders who answered government calls to keep credit flowing to Britain's shell-shocked economy from 2020 did so via three main schemes. The largest and most controversial, the Bounce Back Loan (BBL) scheme, delivered £47bn and was specially designed to help Britain's smallest firms stay afloat.

Participants were requested to streamline their typical credit checks in order to lend up to £50,000 within hours of an application. Under BBL terms, the government assumed 100 per cent of the credit risk.

However, some lenders are finding they cannot claim on that guarantee, the FOI response shows. Following the removal, any financial loss is borne in full by the lender, BBB said.

The guarantees have been removed for a variety of reasons, the BBB said, including due to data corrections, application errors resulting in "duplicate" funds being sent to companies, as well as infringements of scheme rules.

Potential infringements could include evidence of poor treatment of borrowers, one of the sources said. The BBB has the power to offset a proportion of a lender's future claims for repeat infringements, but had not yet done so, the source added.

Mistakes had been identified voluntarily by the lenders themselves, or following discussions with the BBB, according to the FOI response.

All the lenders that participated in the emergency loan schemes have been subject to at least one audit, the BBB said.

The lending schemes have been mired in controversy, as evidence mounts of widespread fraud. A junior government minister, Theodore Agnew, resigned last year in protest, saying efforts to stop fraudulent abuse were "woeful."

The latest overall scheme data, published in September, showed the value of suspected fraud across all the schemes had hit £1.7bn as of June 30, up 43 per cent on the previous estimate in March.

The figures also showed the government had paid out £7.4bn to lenders under the state guarantees.

"Lenders are doing all they can to ensure loans are repaid as well as taking action to tackle fraud," a UK Finance spokesperson said.

Suspected fraud is not necessarily a reason for removing a guarantee, provided the lender is otherwise compliant with scheme rules, another source said.

A second source, who assisted in the design of the scheme and declined to be named, said it should not come as a surprise that loans that banks would ordinarily not consider were hitting problems, adding that lenders voiced reservations at the time.

The BBB had also raised concerns prior to the launch of the BBL scheme. In a letter to the government in May 2020, the BBB warned the scheme was "vulnerable to abuse by individuals and by participants in organised crime."

In a response that month, the government said it had assessed the risks but decided to proceed with its launch, citing "the unprecedented situation facing the country."

(Reuters)

More for you

Trade union calls for 'respect, decent break' for retail staff

iStock image

Trade union calls for 'respect, decent break' for retail staff

Retail trade union Usdaw today (23) called on the shopping public to show respect for shop workers, stating that the busy pre-Christmas shopping period leaves retail workers exhausted and in need of a proper break.

Paddy Lillis – Usdaw General Secretary says, “By the time retail workers get to Christmas Eve, they will have been through a very busy run-up to Christmas. Our members tell us that incidents of verbal abuse are much worse in December and through to the New Year, when shops are busy, customers are stressed and things can boil over.

Keep ReadingShow less
iStock 1458055720
iStock image
iStock image

'Retailers must focus on prices as convenience channel poised to expand'

Grocers must focus on their price positioning to remain competitive as food and grocery spending in UK convenience stores is projected to outpace the hypermarkets, supermarkets, and discounters channel.

According to GlobalData, food and grocery spending in convenience stores is projected to reach £43.2 billion by 2028, growing at a compound annual growth rate (CAGR) of 2.0 per cent between 2024 and 2028.

Keep ReadingShow less
iStock 1137402716
iStock image
iStock image

‘Grocery tax’ to add £56 to food bills

The upcoming “grocery tax” could hit hard-pressed Britons in the pocket, adding up to £56 annually to household shopping bills and costing families as much as £1.4 billion a year, state reports on Sunday (22) citing a recent analysis.

The scheme, known as Extended Producer Responsibility (EPR), imposes a levy on retailers and manufacturers for the cost of collecting and disposing of packaging waste, currently funded via council tax.

Keep ReadingShow less
SPAR teams up with Preston primary school to spread festive cheer

SPAR teams up with Preston primary school to spread festive cheer

Ashton Primary School in Preston has teamed up with SPAR during the season of goodwill to donate delicious food to the city’s Foxton Centre.

The school’s Year 3 class enjoyed a cookery session baking pear and chocolate crumbles to take down to the Foxton Homeless Day Centre as a pre-Christmas treat for people who access its services.

Keep ReadingShow less
Cadbury removed from royal warrant list after 170 years

(Photo credit should read Leon Neal/AFP via Getty Images)

Cadbury removed from royal warrant list after 170 years

Cadbury’s has not been granted a royal warrant for the first time in 170 years after it got dropped from King Charles’s list of warrants.

Queen Victoria first awarded Cadbury with the title in 1854 which was then repeated by the late Queen Elizabeth II in 1955 who was a huge lover of the chocolate.

Keep ReadingShow less