The UK's removal of guarantees on £1 billion worth of COVID-19 loans: The significance explained

03 Nov, 2023

The UK's removal of guarantees on £1 billion worth of COVID-19 loans: The significance explained

The United Kingdom has made a significant move by withdrawing guarantees on £979 million ($1.2 billion) worth of loans that were extended to businesses during the COVID-19 pandemic, as reported by Reuters on Wednesday. While this government decision only affects a relatively small portion of all the loans, it has the potential to pose losses for lenders if the loans are not repaid. Additionally, there is mounting pressure on the Conservative administration to minimize losses stemming from COVID loans. Critics argue that borrower checks were insufficient, and anti-fraud procedures were implemented too late.

According to the Reuters report, the British Business Bank had already removed state guarantees from 10,786 loans as of October 11, based on information obtained through a Freedom of Information request. A spokesperson from the UK's business department mentioned that discussions are ongoing between lenders and the British Business Bank regarding whether it is appropriate to remove guarantees from any loans.

UK Finance, a lobbying group representing the industry, pointed out that, in some cases, lenders have voluntarily removed loans from the guarantee, even when the guarantees might have been valid.

This action shifts the potential losses entirely onto the lenders, ensuring that taxpayers are not further exposed to financial risks. However, the Reuters report did not disclose a breakdown of the removal of state guarantee loans by lender.

In response to the economic challenges brought about by the pandemic, the UK government introduced three government-guaranteed loan programs in the first half of 2020, with the aim of providing support to businesses affected by the COVID-19 crisis.