Ministers are demanding answers after councils across Britain failed to hand out more than £1.6bn of emergency Covid grants to struggling businesses.

There is growing fury in Whitehall over failure to dish out money that is meant to keep small firms afloat - with almost 90pc of funds from one scheme meant to be shared out over Christmas still not yet delivered.

Just £143m, or 13pc, of the £1.1bn earmarked for the Additional Restrictions Support Grant (ARG) has been sent to firms even though it was first unveiled in October, according to new figures from the Department for Business. The cash comes from central government and is given to councils for them to share with firms crippled by restrictions.

Councils are also still sitting on half of a further £1.1bn of grants for businesses required to shut, along with tens of millions of pounds more for "wet-led" pubs - which do not have a strong focus on food sales - and firms affected but not closed by the tiering system.

A senior government source said ministers are concerned by local authorities' slow delivery of the grants after giving councils clear guidance.

Officials are understood to have approached councils to find out why the funding is not being sent out at speed after cash-starved firms were dealt another blow by winter Covid restrictions.

It comes as the Treasury prepares to announce a new Covid loan scheme in next week’s Budget. Three existing schemes will be replaced by a single new programme in a bid to keep firms afloat, the Financial Times reported.

Commenting on the delay to grants, a Department for Business spokesman said some local authorities are "taking far too long" sending money out to businesses.

He said: "We continue to urge them to ensure funds are paid out as quickly as possible to those that need it and individual councils will be closely monitored for progress."

Analysis by The Telegraph reveals that as of mid-January, £1.6bn of financial aid had still not been given to companies - out of £2.4bn of allocated funding.

Businesses face a postcode lottery to get funding with some areas only distributing a tiny fraction of their allocation.

Councils in Bracknell Forest, Bromsgrove, Haringey, Islington, Medway and Southampton were among the worst offenders, handing out less than 1pc of their ARG allocation as of Jan 18.

Craig Beaumont, of the Federation of Small Businesses, said: “We should be seeing local authorities in a big race to stop supply chain businesses going bust, yet most are still at the start line and have not got discretionary grants out the door.

“Full discretion has made councils afraid of making mistakes and wanting more guidance from government, while government insists all instruction has been given.”

Mr Beaumont urged officials to step in to ensure councils hand out desperately needed cash.

Kate Nicholls, chief executive of UKHospitality, said: “There can be no justification for the delay in getting grants through to businesses – councils have had this cash for more than six weeks.

“Many more jobs might be saved if we can get this grant money to where it is urgently needed … we need all the support we can get to guide businesses through the next few months.”

Councils are tasked with deciding which businesses to target with help and the amount of money they get under certain schemes, such as the Local Authority Discretionary Grant Fund and the ARG.

The grants were announced to combat economic fallout from the second wave of Covid as areas were put under stricter tiers and national restrictions. Under earlier schemes delivered by councils, unused funding was clawed back by the Government.

Government officials insisted that the delivery of grants will pick up after a slow start. In comments released alongside the figures, they blamed the delays on complications caused by many areas moving rapidly between tiers and into national restrictions.

They added: “During the current period of national restrictions (January 2021 onwards), we expect performance to have increased due to the time length of the restrictions and the range of grants available.”

More government help for firms is expected to arrive at the Budget next week as cash-starved businesses battle for survival. Reports have suggested that the business rates holiday for some sectors and the furlough scheme will be extended.