An estimate of £31bn of government loans handed out during the pandemic will have to be written off, according to the UK’s spending watchdog.
In its latest Covid-19 Cost Tracker, the National Audit Office (NAO) forecast that the total cost of the pandemic for Britain will balloon to £271bn, of which £116bn has been spent to date.
It said the government has issued more than £89bn of loans during the pandemic, through various financial support programmes including the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBLS).
However, an estimated £31bn of those loans will have to be written off, according to the NAO.
BBLS, which provides loans to businesses of up to £50,000 interest-free for the first 12 months, is by far the biggest loan scheme established during the pandemic. It has approved £44.7bn in loans so far.
The government has estimated it will have to write off more than £5bn worth of loans for BBLS, CBLS and the Coronavirus Large Business Interruption Loan Scheme over their lifetime.
It is thought a large portion of loans have been issued fraudulently after the government came under intense pressure to roll out loan schemes as quickly as possible in the outbreak of the pandemic.
City A.M. reported last week that high street banks are scrambling to claw back emergency coronavirus loans linked to suspected fraud, with banks including HSBC, Barclays, Natwest and Lloyds among those that have started to freeze accounts.
The National Crime Agency announced it had arrested three men working for a London financial institution as part of an investigation into £6m of cash handed out fraudulently via the BBLS.
It comes after chancellor Rishi Sunak in November said the UK faced an “economic emergency”, with government borrowing set to rocket to £400bn this year as the country grapples with a third wave of coronavirus.
Read more: Banks claw back fraudulent bounce back loans
The Bank of England estimates Britain’s economy shrank by just over 1 per cent over the final three months of 2020, meaning the country is likely to have fallen into a double-dip recession.
Setting out the government’s spending plans for 2021-22 Sunak said the government’s one-year spending review would “deliver stronger public services and a once-in-a-generation investment in infrastructure”.