The UK government faces a potential loss between £15-26bn thanks to the Bounce Back Loan Scheme, according to the National Audit Office (NAO).
The scheme was created to provide loans of up to £50,000, or a maximum of 25% of turnover, to small businesses during lockdown.
The Department for Business, Energy & Industrial Strategy (BEIS) and the British Business Bank expect the scheme to have loaned between £38-48bn by 4 November.
The NAO reports many businesses will be unable to pay back the loan and that the scheme has been misused due to fraud.
The body is calling on the government to implement a ‘‘thorough debt-recovery process’’ with lenders and consider how it might better prevent fraud in any future schemes.
Gareth Davies, head of the NAO, said: ‘‘With concerns that many small businesses might run out of money as a result of the COVID-19 pandemic, 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.’’
He added: ‘‘Government will need to ensure that robust debt collection and fraud investigation arrangements are in place to minimise the impact of these potential losses to the public purse.
‘‘It should also take this opportunity to consider now the controls it would put in place to protect against the abuse of any future such schemes.’’