Fraudsters Could Have Claimed ‘Billions’ FromSunak Loan Scheme
A new report has crystallised concerns that Chancellor Rishi Sunak’s Coronavirus loan scheme left the taxpayer exposed to fraud
Chancellor Rishi Sunak’s loan scheme to help small businesses ride out the COVID-19 pandemic is likely to have experienced widespread fraudulent claims – while it is expected that many businesses will be unable to pay the money back – the National Audit Office has revealed today.
The small business “bounce back” scheme launched by the Chancellor in a hurry at the end of April this year followed complaints from many businesses that banks were taking weeks to hand over loans, meaning that companies were in danger of going bust.
The Government consequently launched a scheme promising loans of up to £50,000 within 24 to 72 hours, self-certified by the applicant, involving no credit checks. The loans have been mainly paid out by the big banks, indemnified by the Government if the money was not paid back.
The Government pays the interest on the loan for the first 12 months and, according to the NAO report, Sunak insisted that if the borrower does not pay it back, he or she should only be pursued for a year.
The scheme has been very popular. It was estimated that £18 billion to £26 billion would be paid out when it was launched. But HM Treasury data shows that the scheme has delivered more than 1.2 million loans to businesses, totalling £36.9 billion. Around 90% of the loans have gone to micro-businesses with turnover below £632,000.
The NAO reveals that by November, when the scheme ends, the cost could top £48 billion – nearly double the upper estimate made by the Treasury.
The Department for Business, Energy & Industrial Strategy (BEIS) and the British Business Bank, owned by the BEIS, were sceptical from the start.
“The 100% guarantee and lack of a viability test beyond self-certification will undoubtedly result in lending to businesses that were already unviable pre-COVID-19, which raises concerns around value for money,” Sam Beckett, acting permanent secretary at BEIS, wrote to Business Secretary Alok Sharma at the time.
A survey from accountants PricewaterhouseCoopers, commissioned by the British Business Bank, reveals while some risks can be mitigated, there remains a “very high” level of fraud risk, caused by self-certification, multiple applications, lack of legitimate business, impersonation and organised crime.
“The bounce back loan scheme got money into the hands of small businesses quickly, and will have stopped some from going under,” says Meg Hillier, Labour chair of the House of Commons Public Accounts Committee.
“But the scheme’s hasty launch means criminals may have helped themselves to billions of pounds at the taxpayer’s expense.”
During the first month of the scheme, duplicate loans amounted to 2.3% of the £21.3 billion lent – suggesting either fraud or error.
As a result, the NAO is calling for tougher action to deal with the estimated huge loss of public money.
“The cost to the taxpayer has the potential to be very high, if the estimated losses turn out to be correct,” says Gareth Davies, head of the NAO.
“Government will need to ensure that robust debt collection and fraud investigation arrangements are in place to minimise the impact of these potential losses to the public purse.”