Taxpayers could be left with a £29.5bn bill from bad debts caused by defaults in the government’s emergency lending schemes, the Office for Budget Responsibility (OBR) has warned.
The OBR has revised its expectations for losses from the coronavirus business interruption loan scheme (CBILS), the coronavirus large business interruption loan scheme and the bounce back loan (BBL) scheme, since the application deadline for all three schemes was extended to the end of January 2021.
It expects lending under these schemes to grow from the £65bn recorded as of 15 November to £87bn by the time they close, which would also mean an increase in anticipated defaults.
The OBR previously forecasted that £16.9bn of the government guarantees for the lending would be called on due to defaults, but has increased this to £29.5bn to account for the extra two months.
However, it also noted that government financial support has helped to reduce the number of insolvencies so far this year by almost a third compared with 2019.
The revision formed part of the OBR’s economic and fiscal outlook that was released to coincide with chancellor Rishi Sunak’s spending review today (25 November).
These loans were described by Sunak with other support such as the furlough scheme, tax cuts and grants as evidence of how the government is “providing £280bn to get our country through coronavirus.”
The spending review document also confirmed £519m of funding in 2021/2022 to support the continued delivery of Covid-19 loans, including paying for the 12-month interest free period on BBLS and CBILS.
Funding Circle, the first peer-to-peer lender to be accredited for CBILS lending, revealed this week that it has originated around £1.35bn of CBILS loans as at 15 November 2020, representing 24 per cent of the overall market.