TLE predictions that Rishi Sunak’s stimulus is nothing more than a debt-con that will profit big banks proved accurate today after in-depth analysis found five of Britain’s biggest lenders will pocket nearly £1 billion in taxpayer funds for supporting small businesses during the Covid-19 pandemic.
Earlier this year when the plans were first announced there was widespread support for the chancellor’s actions, with the BBC assuring us that the measures were a “lifeline for the economy” and the Guardian running with “Whatever it takes”.
But there were big questions at the time over the role of the private sector in the bail out – particularly given that they themselves had been bailed out by the state less than ten years prior.
As T.J. Coles wrote, the government was effectively acting as a payday lender under Sunak’s plans.
“As with the Financial Crisis and Great Recession, the highly financialised nature of the UK economy, promoted by the likes of Sunak when he was a hedge funder, means that financial institutions, including banks and liquidity firms, see the government’s response to the coronavirus crisis as a way of profiting from government-back insurance: in this case, taxpayer-guaranteed Bank of England loans issued at record-low interest rates.
“Beneath the “smoke and mirrors” of the government’s approach, lies old-school profiteering little different from predatory payday loan companies”, he said.
And today it proved to be true.
An in-depth analysis of the government’s £38 billion loan scheme found the big banks could pocket billions for supporting small business, with a significant amount more (circa £2 billion) going to fraudsters.
A report by the National Audit Office warned the fraud risk was high because of the speed at which the bounce back loan scheme was implemented earlier this year.
For instance, it took a month for bankers and officials to implement a system to ensure a business could not get more than one loan. This meant that up to 16,000 approved loans could have been duplicates, the report showed.
More than £38 billion bounce back loans of up to £50,000 each have been lent to close to 1.3 million companies. The Government guaranteed the loans and promised to cover the first year’s interest payments.
The British Business Bank (BBB), which was tasked with running the scheme, believes it will pay out £1.068 billion to the high street lenders that provided the cash. Around nine-tenths of this will go to the five banks that provided the lion’s share of the funding.
Barclays, HSBC, Lloyds/Bank of Scotland, NatWest/RBS and Santander paid out £31.3 billion of loans between them while 18 lenders others were responsible for £3.9 billion.
They will get all their money back, with interest, because the Government has promised to pay out if businesses default. However, some could lose money due to the low-interest nature of the loans.