Great post generally but this is a brilliant point and one that hadn't really occurred to me before.
If a loan was made to an employee, the difference between the interest rate applied to the loan and what was considered to be a market interest rate would be treated as a benefit in kind, with the employee paying tax on that at the relevant rate.
I agree that FFP should have treated it as a disguised expense, and disallowed it from the FFP calculation. Applying a notional 5% to that £1.6bn gives an additional "expense" of £80m a year.