The bounce-back loans (BBL) scheme announced when the UK was in lockdown in April 2020 offers loans of up to £50,000 per business, or a maximum of 25% of annual turnover.
Figures from the Treasury up to 18 October 2020 showed more than 1.33 million loans worth in excess of £40 billion had been advanced so far.
The deadline for applications was due to be 30 September 2020, but this was pushed back until 30 November 2020 in Chancellor Rishi Sunak’s winter economic plan.
At the same time, Sunak increased the repayment terms of BBLs from six to ten years, sharply reducing monthly instalments for around 1.55m UK businesses.
However, figures from Companies House indicate a spike in registrations of new companies after the BBL scheme was announced last spring.
In March 2020, the equivalent of 15,602 new companies registered each week and that figure halved to 7,571 a week after the UK went into lockdown on 23 March 2020.
After the BBL scheme was announced on 27 April 2020, new company registrations hit a weekly record high of 21,616 by 30 June 2020 prompting fraud fears.
Over the coming months, the extent of losses due to fraud will become clearer, but the full extent of losses, both credit and fraud, will not emerge until the loans are due to start being repaid from 4 May 2021.
Gareth Davies, head of the NAO, said: “With concerns that many small businesses might run out of money as a result of the pandemic, the Government acted decisively to get cash into their hands as quickly as possible.
“Unfortunately, the cost to the taxpayer has the potential to be very high, if the estimated losses turn out to be correct.
“Government will need to ensure robust debt collection and fraud investigation arrangements are in place to minimise the impact of these potential losses.”