A target to recover just £6m of taxpayer money lost to Covid fraud is “inadequate” and investigators have been woefully underfunded, the public spending watchdog has said.

The National Audit Office (NAO) attacked ministers’ plans to claw back just 0.1pc of the £5bn thought to have been lost to fraudulent applications for emergency Bounce Back loans during lockdown.

It said that ministers failed to provide enough protection against fraud as they rushed out almost £50bn of government-backed loans to businesses battling for survival during the pandemic.

The lending was provided to small business owners by banks with minimal checks and a taxpayer guarantee to cover any losses, under rules drawn up by the Treasury. At the time officials acknowledged that fraud would take place but said their priority was to protect the economy.

The watchdog warned in a report that both the extra £32m provided for counter-fraud operations and the Government’s recovery target are insufficient given the billions of pounds lost.

The NAO said just £3m has been recovered so far and that counter-fraud operations are stretched.

It means the Government faces the real risk of spending more on fighting loan fraud than it actually claws back.

Gareth Davies, head of the NAO, said the Government had failed to put adequate fraud prevention measures in place and added: “The true level of fraud will become clearer over time, but it is clear Government needs to improve on its identification, quantification and recovery of fraudulent loans within the scheme.”

A number of the Government’s Covid schemes have been targeted by fraudsters, including the furlough programme and its loan support.