MPs reveal scale of fraud in UK Covid bounce back loan scheme

Tens of thousands of loans were given to potential fraudsters applying to multiple banks under the government-backed Covid bounce back loan scheme, according to banking executives speaking in front of an influential committee of MPs.

Thousands more were handed out by banks to companies that were created after the pandemic had started, or to companies that had already been dissolved, revealing the high levels of fraud in relation to the scheme.

More than £46bn was lent by banks under the bounce back loan programme, fully guaranteed by the government, with only minimal checks made on borrowers of bank loans of up to £50,000.

Official estimates suggest that anywhere between £3.3bn and £5bn could be lost in fraud.

Bankers and officials were called before the business, energy and industrial strategy committee on Tuesday to explain what had gone wrong to allow this criminal behaviour, and asked how funds could be recovered.

Patrick Magee, chief commercial officer at the British Business Bank, which oversaw the scheme for the government, said that it was carrying out detailed work on levels of fraud across the 1.6mn loans handed out by banks.

The bank has identified more than 22,000 loans so far that appeared to be duplicates, but he said that this “number will probably go up”. 

More than 1,000 loans were given to companies that had already been dissolved — in part owing to the suspension of procedures at Companies House at the time, he said — while more than 1,500 loans were made to businesses had been incorporated after the pandemic began.

The government was under pressure to roll out the bounce back loan scheme as quickly as possible given the difficulties facing small businesses during the first Covid-19 lockdown. As a result, the scheme came with few checks on borrowers, while the systems to vet loan applications for fraud were also only slowly implemented.

A duplicate application check was only installed in June 2020, a month into the scheme and after most loans were made.

The lack of checks by the British Business Bank was criticised by former government efficiency minister Lord Theodore Agnew, who said that it had “presided over one of the most colossal cock-ups in recent government management and taxpayers are paying for this”.

He said that the board of the state-owned group should be sacked. “They’ve got to go. Sooner is better.”

Magee defended the bank, saying that it was “asked to set up the scheme with 11 days’ notice [and] we discussed all those policy aspects with the Treasury . . . We shared those concerns with ministers and received a ministerial direction to go ahead. We did everything in our power to mitigate those risks.”

Agnew also said that banks had a moral obligation to chase down fraudsters to recover lost cash. He said that some banks “just piled the money out of the door”.

Executives from five high street banks were called in front of the committee: HSBC, Santander, Barclays, NatWest and Lloyds.

The five executives said that, so far, fraud rates were roughly between 1-2.5 per cent of their books, lower than the estimates carried out by the government, but admitted finding “small numbers” of duplicate loans and loans paid to companies that had been dissolved.

Of the five banks, Barclays lent the most — £10.8bn in bounce back loans — with about 1,500 loans that were found to be duplicates. Lloyds lent about £9.7bn under the scheme, HSBC lent £7.2bn, including to a “very small number” of dissolved companies, Santander £3.9bn and NatWest £9bn.

The banks said that they were employing hundreds of additional staff members to help identify and recover the loans.