The service has been criticised for a complaints backlogs building up. But its outgoing chief executive, Caroline Wayman, said the service is likely to receive thousands more complaints from borrowers who cannot afford to repay money they owe – some of whom should never have been loaned the cash.

Customers turn to the service to resolve disputes when they have already made a complaint to their financial firm but are unhappy with the outcome.

It has been dealing with issues such as the huge PPI (payment protection insurance) mis-selling scandal, which was just tailing off as coronavirus-related gripes about firms started to be logged.

Many borrowers have been taking coronavirus-related payment holidays on products such as mortgages, personal loans and credit cards, and the deadline for applying for a deferral was March 31.

The service said its plans for the year ahead include a focus on cutting customer waiting times and investing in its complaints handling capacity. It expects to receive 170,000 complaints and resolve 220,000. Ms Wayman made the comments in the service’s plans and budget for 2021/22.

She is due to leave on April 16, after 22 years at the Financial Ombudsman Service (FOS).

Ms Wayman said: “It’s clear from what our stakeholders have told us, as well as from our own insight, that we’ll continue to see disputes rooted in the pressures of the pandemic on consumers and small businesses across the UK.

“And we’re also likely to see thousands more complaints from people who can’t afford to repay money they’ve borrowed – some of which, based on our experience, it’s likely shouldn’t have been lent at all.

“Across these areas, there’s clear potential for consumer detriment. The Financial Conduct Authority’s most recent research suggests the proportion of adults with characteristics of vulnerability rose to 53 per cent in the six months to October 2020.”

The service said challenges for 2021/22 include the likelihood of high volumes of complaints linked to changes in Covid‑19 related support for consumers; complaints linked to restrictions more generally, such as from consumers unable to travel; and the ongoing evolution of fraud and scams.

It said it will ensure it is equipped to respond to an increasing complexity in complaints, including those arising from coronavirus.

In the year to the end of March 2021, the service said it expects to have resolved more than 95 per cent of the volume of cases it had originally planned to in its general casework. But it added that the pandemic had contributed to a substantial increase in the number of new complaints it received in 2020/21 – forecast to be at least 45 per cent higher than expected at the start of the 2020/21 financial year.

Its report said: “While we’ve been preparing for the end of our mass PPI casework for some time, we didn’t expect it to take place in the context of the Covid‑19 pandemic.”

Baroness Zahida Manzoor, chairwoman of the service, said: “I am confident that our sector will emerge with a renewed focus on fairness and a collective commitment to making a positive difference to people’s lives and livelihoods.”

The Institute of Economic Affairs said that the FOS is not fit for purpose and PPI cases had strained the ombudsman’s duty to provide fair resolutions at speed.

It said a reliance by the service on standard forms and case management systems may indicate that speed and an absence of formalities have been prioritised over fairness.

Commons Treasury Committee chairman, Mel Stride, has previously said: “This is an organisation that needs to sharpen up.”