UK government failed to prevent Covid loan fraud, says watchdog

The government failed to guard properly against fraud in its £47bn Covid emergency lending programme for small businesses, opening itself up to billions of pounds of losses, a watchdog has said.

The bounce-back loan scheme launched in May 2020 and did not include credit checks or fully verify the identity of small businesses applying for loans, the National Audit Office, which scrutinises public-sector spending, said.

“Government prioritised getting bounce-back loans to small businesses quickly but failed to put adequate fraud prevention measures in place,” said Gareth Davies, the NAO’s comptroller and auditor general. “One impact of these decisions is apparent in the high levels of estimated fraud.”

The government launched the scheme at the start of the pandemic to stop the collapse of small businesses.

Firms could borrow up to £50,000 or 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.

In March, Britain’s business ministry, which ran the programme via the British Business Bank, a state lender, estimated that 37% of the loans would not be repaid and that 11% came from fraudulent applications.

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 estimate itself.

Other countries are also investigating the misuse of emergency loans issued during the pandemic.

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.

The business ministry said loans and other support had helped millions of firms avoid laying off staff. “We are working closely with lenders and enforcement authorities to minimise fraud and ensure those that have committed fraud face consequences,” a spokesperson said.

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