Taxpayers will lose tens of billions of pounds to Covid-19 support schemes because the government dropped basic fraud checks and rolled out the programmes in haste, a parliamentary report has claimed.
The report, published by the public accounts committee (PAC), acknowledged that the government acted quickly to provide vital support to vulnerable businesses at the start of the pandemic. However, the decision to prioritise speed and financial aid meant taxpayer exposure to fraud and error was “significantly increased”.
The PAC blames the government’s twin decisions to relax the usual fraud controls in programmes such as the popular bounce-back loan scheme (BBLS) – which allowed companies to self-declare information such as earnings as part of their applications – and to support businesses and individuals it had no previous relationship with.
According to figures released by the business department, the combined impact of fraud and defaults will mean that nearly half of the £46.5bn bounce-back loans distributed during the pandemic will never be repaid.
The PAC said government departments had not been making enough use of counter-fraud expertise when they designed new programmes, to make sure they minimised losses.
Fraud and error already cost the public purse £51.8bn annually, according to the Cabinet Office estimates. That is before any Covid-19 loan schemes, including BBLS and furlough, are taken into account.
But that number could surge, according to figures released by the Department for Business, Energy and Industrial Strategy (BEIS), which previously estimated that fraud, and loan losses due to defaults, could cost the taxpayer about £26bn.
Bounce-back loans have been the most popular among the Covid-19 loan schemes, with more than £46.5bn released to more than 1.5m businesses who said their operations were at risk due to Covid-19 lockdown measures.
The scheme – which ran from May 2020 to March 2021 – offered businesses loans worth up to £50,000, capped at 25% of turnover, at an interest rate of 2.5%. The first 12 months were payment- and interest-free for borrowers.
Those loans were distributed by dozens of commercial banks, including major high street lenders such as HSBC, Lloyds and Barclays. While it is up to those banks to chase customers for repayments, any losses will be footed by the taxpayer, as the loans come with a 100% government guarantee.
The report said the arrangement had left BEIS “reliant on banks that it admits lack incentives given it is not their money on the line”.
The PAC chair, the Labour MP Meg Hillier, said there was a concerning lack of urgency among government departments, including BEIS, about the financial risks linked to Covid support programmes. “The Covid emergency masks a more worrying underlying approach to managing risk and taxpayers’ money,” she said.
The PAC is now issuing a raft of recommendations, which include calls for the Treasury and Cabinet Office to annually publish a report identifying the risks that fraud and error pose to public money, strengthen fraud reporting requirements on Covid-19 support schemes and reveal any plans to recover taxpayer money.
It is also calling on government departments to introduce more robust counter-fraud measures, and address inconsistencies on how penalties and sanctions are applied.
A government spokesperson said their priority had been to act quickly to protect workers and businesses. They said the loan, furlough and grant schemes provided a “lifeline to millions across the UK – helping them to survive the pandemic and protecting jobs”.
“These schemes were designed to minimise fraud from the outset and we have rejected or blocked thousands of fraudulent claims. We won’t tolerate those who seek to defraud taxpayers and will take action against perpetrators, including through criminal prosecution,” the spokesperson added.
