UK taxpayers face billions of pounds of losses after the government failed to implement anti-fraud measures on its £47bn small business Covid emergency loan programme, a watchdog said on Friday.
The bounce-back loan scheme, launched in May 2020 to stop firms collapsing during enforced lockdowns, did not include credit checks or fully verify the identity of small businesses applying for loans, according to the National Audit Office.
Britain’s Department for Business estimated fraudulent loans were worth £4.9bn, 11% of the total, as of March 2021, adding that 37% of the loans would not be repaid and that 11% came from fraudulent applications.
As of September 30, figures from the state-owned British Business Bank, which supervises the scheme, showed £2bn worth of loans had been repaid and £1.3bn had been defaulted on. The bank said about 7% of all loans were at least one month in arrears.
“Government prioritised getting bounce-back loans to small businesses quickly but failed to put adequate fraud prevention measures in place,” said NAO comptroller and auditor general Gareth Davies. “One impact of these decisions is apparent in the high levels of estimated fraud.”
The NAO said the scheme had “limited verification, and no credit checks on borrowers, which made it vulnerable to fraud and losses”.
Companies were permitted to borrow up to £50,000 or a maximum of 25% of annual turnover from accredited banks. About a quarter of UK businesses applied to the scheme, and 1.5m bounce-back loans – which were 100% guaranteed by the government – worth £47bn were made.
A subsequent investigation by the accountancy firm PwC in October revised the fraud rate down to 7.5%, although the NAO said it had not had time to check this figure.
Meg Hillier, the Labour chair of the cross-party public accounts committee, said the government had done too little to reduce “colossal risks of fraud and error”.
“It’s now focusing on recovering money from organised crime, yet many of the smaller-scale fraudsters will have slipped through its fingers,” she added.
