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Fraud, Covid and Taxpayers’ Money

The Public Accounts Committee (PAC) have issued a report saying that the Department of Business Energy and Industrial Strategy (BEIS) has left an “open goal” for unscrupulous fraudsters through its policy and implementation of the various loan schemes and furlough payments.

The government guaranteed nearly £80 billion of loans in the first year of the lockdown, and various experts have reported that it is expected that nearly £5 billion will be written off due to errors and fraud.

Add to this the estimated £5 billion lost through the furlough and self-employment support schemes and we’re looking at a total loss in excess of £10 billion!

The PAC’s look at the BEIS annual report roundly criticised the department’s efforts to identify fraud, stating that it was a case of too little too late. In a statement issued earlier this month it noted that the “trails will have long ago gone cold.”

Dame Meg Hillier, the chair of PAC, said: “BEIS says it saw this risk coming but it’s not really clear where government was looking when it set up its initial Covid response.” She went on: “It offered an open goal to fraudsters and embezzlers and they have cashed in, adding billions and billions to taxpayers’ woes. These lessons should have been learned from the banking crisis a decade ago, and could have been prepared in the government’s pandemic exercises.”

There is potentially a conflict between the banks and government over whether the government will honour its guarantee in all cases, especially where the lender bank has been shown to not have taken adequate due diligence before loaning the money, particularly in the case of the Bounce Back Loan Scheme, where newly incorporated businesses were lent money despite not being able to prove their turnover. In addition, there are cases where the maximum £50,000 was borrowed by companies where their accounts showed that their annual turnover was well below the £200,000 needed to qualify for a loan of that size.

The BEIS report also highlights other losses amounting to some additional £7 billion which could arise from the insolvency of the borrowers, or at the very least an inability to repay the loans within the designated timescale. In recent months we are seeing a higher number of liquidations where there is both a BBL and an element of debt due to HMRC too.

So in total an eyewatering £17 billion!

The report also pointed out that the Financial Conduct Authority (FCA) had written to the 24 commercial lenders who participated in the various schemes, highlighting their obligations and asking them to ensure that they had “appropriate levels of resources in relation to fraud control”.

A slightly more worrying quote from the report said that “More than two years on, [the BEIS] has no long-term plans to chase overdue debt and is not focused on lower-level fraudsters who may well just walk away with billions of taxpayers’ money.”

It’s clear that there’s a disconnect between the banks and the BEIS, and that something needs to be done very quickly to prevent billions being lost. The problem is so severe that Lord Agnew resigned over the matter. He stated from the dispatch box that the government had left a “Dad’s Army Operation” in charge, and that it was a “disgrace that only 49 arrests had been made up to March across an estimated 100,000 fraud cases.”

Whilst the report was quite damning in its conclusions – and it’s always easy to criticise with the benefit of hindsight – we believe it’s fair to question whether it was as straightforward as this. There was huge pressure at the time for the government to get help to businesses quickly with other European jurisdictions rolling out similar support schemes. One thing is certain, however, and that is that the question surrounding who is liable for this debt, especially if the government are going to try to resist their guarantees and make the lenders absorb some of the pain, is going to trundle on as a very emotive issue for some years to come.