Britain's state-owned development bank, British Business Bank, has delivered £4 billion in loan guarantees to small and medium-sized enterprises (SMEs) over the past four years through its flagship Growth Guarantee Scheme (GGS). Latest figures show a rise in default rates under the initiative, while significant increases in executive pay at the bank have drawn scrutiny over regulatory oversight and the efficient use of public funds.
The scheme, launched in July 2022, was originally introduced by the Conservative government to spur economic growth, then expanded after being rebranded in 2024. Rather than lending directly to businesses, the bank works through 69 accredited commercial lenders—including major banks like HSBC and digital lenders such as Atom Bank—to provide SMEs with loans of up to £2 million. British Business Bank offers a 70% government guarantee on losses that lenders cannot recover.
As of June 30, the scheme had supported nearly 23,000 loans, with an average loan size of £172,700. Default rates have ticked upward, with the ratio of settled claims to total loan value rising from 0.54% in December 2024 to 2.26%. The bank charges participating lenders an annual guarantee fee of 1.5% of outstanding loan balances, which has so far covered default costs.
Meanwhile, executive compensation at British Business Bank has climbed markedly. Annual reports show outgoing chief executive Louis Taylor received total pay including bonuses of £629,000, up by a third year-on-year and more than three times the salary of Prime Minister Andy Burnham. Chief financial officer David Horiken, who takes over as interim CEO in September, saw his compensation rise 40% from £373,000 to £523,000. Both received long-term incentive plan payments of £149,000 and £125,000 respectively. The bank distributed £9.7 million in total bonuses to staff over the year.
Lord Prem Sikka, emeritus professor of accounting at the University of Sheffield, voiced concern over the Treasury bearing loan losses at a time when commercial banks are posting record profits. He noted that SMEs need support, but oversight is essential to ensure public money delivers value, adding that the ultimate benefits of the scheme as a form of corporate welfare are difficult to assess.
Labour MP Noah Law said the key question is whether the programme supports business activity that would not have otherwise occurred, or merely expands the existing market while allowing commercial banks to free-ride. He argued that banks should support strategic growth sectors that genuinely drive the economy, yet whether the guarantee scheme achieves this remains unresolved.
British Business Bank is one of the government's publicly owned financial institutions, using public funds to provide loans, equity investments, and guarantees to the private sector. Established a decade ago, it was created to fill the SME financing gap and prevent growing UK firms from relocating overseas. In June, then-Chancellor Rachel Reeves raised the bank's annual investment capacity by two-thirds and placed it at the core of the industrial strategy, targeting £2.5 billion in annual deployment and cumulative financing support of £25.6 billion by 2030.
The bank's profits have surged recently, reaching £426 million in the fiscal year ending March, up from £144 million the prior year, following two consecutive years of losses. British Business Bank stated that its activities support economic growth and employment, and that a competitive pay framework is necessary to attract and retain key talent in a competitive job market.
Matthew Rees, partner at Domius Capital Advisers, said it is too early to judge the scheme's overall risk profile and ultimate cost to the government, though the fact that guarantee fees paid by lenders broadly cover the bank's payouts is a positive sign.