A recent report from the National Audit Office suggests that as much as 60% of the emergency loans made to businesses under the Bounce Bank Scheme may never be repaid.
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The scheme, introduced after COVID-19 hit the UK, was intended to support small businesses at the peak of the crisis. Tens of thousands of companies faced bankruptcy if not provided with an instant lifeline. However, the speed at which the scheme rolled out exposed it to a greater risk of fraud, which is now becoming more evident after in-depth analysis.
Under the scheme, eligible businesses could claim up to £50,000 of 100% government-backed finance, which would be interest-free for 12 months. In addition to this, the loans do not require repayment for six years, making them an attractive option for businesses who did not qualify for the stringent criteria of traditional lenders.
While the scheme was well-intentioned, the urgency of getting the money to businesses meant that the government had to compromise on the usual due diligence processes and fraud assessments. The lighter checks allowed several companies to take advantage of the scheme. As per the latest Treasury figures, there were over 1.55 million applications for the loans, with around 1.26 million approvals. However, it also made the scheme vulnerable to fraud.
Organised criminals and fraudsters have taken advantage of the scheme, many using stolen identities or creating fake businesses to apply for the maximum under the scheme. With the reduced checks, many were successful in their applications. Additionally, flaws in executing payouts further exposed the cracks in the scheme. For example, it took almost a month to ensure that businesses could not receive multiple loan payments.
The exact level of fraud will not be known until much later – repayments are only required to be made after May 2021. However, the NAO estimates that losses from the scheme are likely to be significantly greater than standard estimates for public sector fraud, which are usually between 0.5 – 5%. Given that the value of the loans paid out under the Bounce Back scheme totalled £38 – 48 billion, this could mean up to £1.9 billion has been lost to fraudsters. The burden of repayment of this amount will, unfortunately, fall onto taxpayers.
Chair of the Public Accounts Committee, Meg Hillier, said, "The government estimates that up to 60% of the loans could turn bad - this would be a truly eye-watering loss of public money".
A representative from the government has stated support under the scheme was targeted towards the most vulnerable businesses in their time of need. While the government implemented a range of protections, including customer checks and transaction monitoring, it may still be possible for career criminals to circumvent these checks. However, any fraudulent applications that are identified may be liable for imprisonment or a hefty fine.