The UK Treasury expects to write off about £4bn of COVID loans that ended up in the hands of fraudsters, with MPs saying that the "ignorance" displayed by HMRC makes it “look soft”.

The Public Accounts Committee criticised HMRC’s “unambitious plans” for recovering a total of £6bn it estimates was paid incorrectly in COVID support loans. According to the committee’s report, chancellor Rishi Sunak risks “writing off at least £4bn” of taxpayers’ money.

Losses are likely to surpass the £2bn reported as HMRC is yet to publish its estimates of error and fraud in 2021-22. The current figures only account for 2020-21.

Meg Hillier, chair of the Public Accounts Committee, said: “The level of fraud and error in furlough that employers will get away with is a real concern. What signal does it send when HMRC rolls over on billions of pounds of fraud and error directly related to COVID support packages? With the current parlous state of the public finances we can ill-afford to be so cavalier over so much of taxpayers’ money.”

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The Bounce Back Loan scheme was set up in April 2020 with the aim of keeping small businesses afloat during the coronavirus pandemic. A total of 1.5 million loans worth £47bn were issued through the initiative.

To streamline the process, paperwork for the scheme was minimal, with self-certified applications and no credit checks.

Now, HMRC says 8.7% of furlough payments were made either to fraudsters or by mistake.

In 8.5% of payments to the Eat Out to Help Out scheme, which was set up to help reopened restaurants in the summer of 2020, and 2.5% of cash handed to freelancers and entrepreneurs as part of its self-employed income support payments, the money was stolen by workers or businesses claiming money they were not entitled to.

The ringleader of an organised crime gang, with 48 convictions to his name, managed to secure £50,000 from the scheme.

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A Conservative minister in the House of Lords has already resigned attacking the government's handling of fraudulent COVID business loans.

Lord Agnew accused the Treasury of having "little interest in the consequences of fraud to our society".

“Every taxpayers’ pound lost to a fraudster will lead to honest ordinary people feeling the post-pandemic pinch harder and harder,” Hillier said.

The committee said that the HMRC’s failure to fulfil its basic remit of collecting tax owed “risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud”.

MPs are recommending that HMRC takes a number of actions to reassure parliament and the public that it is serious about tackling error and fraud from the COVID support schemes and “is taking all recovery action where it is cost effective to do so.”

Watch: What is the Bounce Back Loan scheme?