Bounce Back Loan fraud to cost taxpayers billions

Payments made from the government’s Covid emergency lending programme to fraudulent companies will cost taxpayers £4.9 billion. The funding was essential to safeguard millions of jobs and keep businesses afloat but in the rush to make the credit available it appears that fraud prevention measures were not implemented in time.

Concerns were raised before launch

The government’s own development bank raised concerns about the UK’s biggest ever state credit programme for small businesses. Keith Morgan was the chief executive of the British Business Bank in May 2020, when he wrote to Alok Sharma, the business secretary, raising his concerns that bounce back loans risked placing vast sums of taxpayers’ money at risk. This is the bank responsible for administering many of the government’s economic interventions including the emergency pandemic credit programme. The government was also warned about the risk posed by another key emergency funding scheme.

The British Business Bank issued formal “reservation notices” outlining the serious concerns it held about both the Bounce Back Loan Scheme (BBLS) and Future Fund. By the time the government took heed and put in place basic anti-fraud checks more than £28 billion had already been paid out. Another check to ensure that a company was not applying for more than one bounce back loan wasn’t implemented until June 2020, a month after the scheme was launched.

The government was in a difficult position because its main priority was to make the credit available to as many businesses as quickly as possible. This meant that other counter-fraud protection measures did not begin until September 2020.

Government to blame

The National Audit Office (NAO), which scrutinises public-sector spending, has laid the blame firmly on the government because of its failure to implement any preventative fraud measures to protect its £47 billion funding schemes. When the Bounce Back Loan Scheme was launched in May 2021 applicants were not fully verified and there were no credit checks made.

Gareth Davies, comptroller and auditor general for the NAO, said:

“Government prioritised getting bounce-back loans to small businesses quickly but failed to put adequate fraud prevention measures in place. One impact of these decisions is apparent in the high levels of estimated fraud.”

Under the scheme the loans were 100% guaranteed by the government and businesses could borrow between £2,000 and £50,000 from an accredited bank or a maximum of 25% of annual turnover. Approximately 25% of UK businesses applied and 1.5 million were successful. This amounted to a total of £47 billion in loans made.

One third of loans may never be repaid

In its report, the NAO said the government estimated more than a third of loans, worth £17billion, may never be repaid due to both fraudulent activity and legitimate borrowers defaulting. - a staggering 11% were from fraudulent applications. Auditing giant PwC were hired by the government to investigate the matter in October and estimated the fraud rate to be lower at 7.5%, although the NAO hasn’t had time to check this figure.

According to Meg Hillier, the Labour chair of the cross-party public accounts committee, the government hadn’t done enough to reduce “colossal risks of fraud and error” and said:

“It’s now focusing on recovering money from organised crime, yet many of the smaller-scale fraudsters will have slipped through its fingers.”

The business ministry are keen to emphasise that the scheme helped protect the jobs of millions of employees and a spokesperson added:

 “We are working closely with lenders and enforcement authorities to minimise fraud and ensure those that have committed fraud face consequences.”

The government is pursuing fraudsters through the National Investigation Service and although they have received more than 2,000 intelligence reports, they only have resources to tackle 50 cases per year.

The priority was always to make the loans available as quickly as possible to save millions of livelihoods and avert an economic disaster. But it will be interesting to see how much of the missing billions the government will be able to recover.

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