During the government’s first Covid-19 lock-down in 2020, Rishi Sunak with great flourish set up a huge £47 billion Covid-19 bounce-back loan scheme to help businesses to stay alive. This scheme offered government-backed loans of £2000 to £50,000 with a low interest rate to small businesses.

Although welcomed by some, by doing this in haste, he threw cheap taxpayers’ money at smallbusinesses and encouraged them to take on debt regardless of their means or their ability to repay.

We now learn that a huge number of small businesses have fallen into arrears on their bounce-back loan repayments. According to The Times, a Freedom of Information request reveals that 193,000 firms have failed to meet their repayments as at the end of June and 151,000 are behind by more than 90 days. This means that either about 12.5% of the 1.5 million small businesses the Tory government encouraged to take out bounce-back loans during Covid-19 are now struggling to repay or, alternatively, that the long-suffering taxpayer has fallen victim to a large-scale fraud.

If Covid loans turn into bad debts, the commercial banks safely get their money back from the UK taxpayer. Although the banks make the actual loans, they take no commercial risk themselves. They can carry out sloppy credit checks and do not need to take much trouble to recover their lost funds. They simply draw on the 100% government guarantee, which shifts responsibility to the taxpayer.

Inflation now places small businesses under intense pressure post- Covid and the arrears in loan repayments suggest that many small businesses encouraged to take-out these Covid loans are now in serious financial difficulty. In total, they owe £4.5 billion. 

Under the Covid loan scheme, if a company fails to repay, the Insolvency Service may investigate it, even if dissolved. This puts undue pressure on small business owners who might have simply accepted a cheap loan, in haste, because they were encouraged to do so by the government.

The UK Independence Party stands with small businesses, and we call on lenders to treat all genuine cases sympathetically, and to work cooperatively with vulnerable small business owners to support the many struggling with repayments.

Many loans went to genuine and deserving cases, but many did not. Far too many applications were not genuine at all. There have been reports of loans used to pay for luxury watches, living costs, Range Rovers, jet-skis, buy-to-let properties, flying lessons, pornographic websites, gambling and to send cash to other people. In one case, a former pub landlord appeared in court accused of sending thousands of pounds in bounce back loans to fund the Islamic State in Syria.

The UK Independence Party says it is unacceptable to let fraudsters off the hook. We call on the Tory government to tighten its controls on potential commercial fraud, and to stop handing out taxpayers’ money negligently to line the pockets of fraudsters. We urge the acting or replacement Chancellor (whoever than might now be) to actively pursue and prosecute fraudsters and to recover all lost money.

Not only will strong action deter future commercial fraud, but also it will reduce the amount of lost money and lead to a welcome reduction in taxes for the rest of us. The abuse of bounce-back loans comes alongside an estimated £5.5bn of Covid supported taxpayer’s money lost to scams or errors, involving furlough, the self-employment income support scheme and Sunak’s “eat out to help-out” scheme for hospitality.

The UK Independence Party now awaits with interest, disclosure of final bad debt and fraud statistics arising from the Covid-19 loan scheme.

Steve Grimes

UK Independence Party – Spokesman for Business, Trade & Foreign Affairs