Originally written by Timothy Adler about small business
Writing off £ 42 billion worth of bounce-back loans given to small businesses is more effective in the long run than chasing down debt that will never be paid back.
This is how the accounting association AAT responds to the faded assessment of MPs investigating the Bounce-Back-Loan Program (BBLS).
Almost two-thirds of bounce-back loans meant to help small businesses survive Covid-19 may never be paid back, according to government figures. That would leave the taxpayer staring at a loss of £ 26 billion.
> See also: Europe's small businesses are calling for a transition period of three months after Brexit
By writing off all of the £ 42 billion bounce-back loans, the government would save £ 1 billion in interest payments made to banks alone while tracking bad debts, relieving banks of wasting time on costly debt collection agencies to waste.
Ex-Chancellor George Osborne had already declared in June that all financial emergencies should be written off from Covid-19 – an assessment that the AAT agrees with.
Taxpayers face a blow of up to £ 26 billion as the government failed to strike the "right balance" between bailing out businesses and protecting the public sector with an emergency loan program, MEPs warned.
> See also: The government is planning an ongoing state-sponsored small business loan program
The Public Finance Committee said the BBLS was set up without a "business case", skewed the small business credit market in favor of large banks and that debt recovery plans remained "completely underdeveloped".
The program was launched in May and offers private lenders a 100% government guarantee on loans to qualified small businesses of up to £ 50,000 at an interest rate of 2.5 percent.
As of November 15, 1.4 million businesses had been given £ 42.2 billion.
Companies certify their application documents themselves so that loans can be granted quickly. Lenders are not required to conduct credit or affordability checks.
Meg Hillier, Chair of the Commons Committee, said: "Omitting the most basic of checks has been a huge problem that puts billions of dollars at risk for taxpayers."
The MPs criticized in particular that the lenders are likely to follow the collection process and how lenders can use the 100 percent state guarantee remains to be decided.
The Audit Committee expressed concern that the system had reduced competition in the business sector as the largest lenders granted the most credit and increased their market share in an already extremely tight market for small businesses.
Ms. Hillier said, "The rush to get money out the door after the fact did not allow analysis of how many companies needed, benefited from, or repaid the help."
The British Business Bank, which manages the program, opposed the BBLS prior to its introduction out of fear of loss and crime, as did high-ranking officials in the business department.
Treasury Department to discuss COVID-19 grant for business leaders
Writing off bounce back loans would be effective, say accountants