UK Edition
Rishi Sunak's flagship coronavirus rescue loan scheme could cost taxpayers £26bn after being exploited by fraudsters and companies on the brink of going bust, the National Audit Office (NAO) has warned.
The hugely popular Bounce Back loans programme has so far doled out £38bn to 1.2m small businesses, much more than originally anticipated - but there are rising concerns it is being targeted by criminals and unsustainable companies in a massive debt binge.
In a report published on Wednesday, the NAO said up to 60pc of borrowers may fail to pay back what they owe. This could equal taxpayer losses of between £15bn and £26bn, enough to run the Department for Transport for more than a year.
Bounce Back loans are issued by banks such as Lloyds and Natwest to help small firms get through the Covid crisis, but are subject to a guarantee which means the taxpayer will cover all of a lender's losses if the borrower defaults.
Labour MP Meg Hillier, chairman of the Public Accounts Committee, said: “The scheme’s hasty launch means criminals may have helped themselves to billions of pounds at the taxpayer’s expense.
“Sadly, many firms won’t be able to repay their loans and the banks will be quick to wash their hands of the problem. The Government estimates that up to 60pc of the loans could turn bad – this would be a truly eye-watering loss of public money.”
The programme, which launched in May and is designed to help small businesses struggling because of the pandemic, doles out up to £50,000 at a time.
Critics warned when the programme was introduced that it would be a magnet for fraudsters. Banks privately feared they could face a massive reputational blow if later accused of recklessly doling out money, despite huge political pressure to increase support.
The NAO said: “Much hard work remains over the coming months and years to ensure that the risks to value for money are minimised."
It added that the Government must work with lenders to ensure that aggressive efforts are made to recover unpaid debts and protect the public purse.
Small and medium firms have scrambled to secure Bounce Back loans since the scheme opened after criticism over lending rates on the larger Coronavirus Business Interruption Loan Scheme (CBILS), where banks conduct more stringent checks and only 80pc of the funds lent are guaranteed.
Bankers brace for reputational blow
Banking chiefs are concerned about how they will be seen in public if forced to demand money from entrepreneurs whose companies were destroyed by coronavirus restrictions.
One senior banker said he fears a new backlash when the scale of fraud becomes clear, in a major blow for an industry still struggling to restore its image after the 2008 financial crisis.
Bank bosses had originally warned ministers that the fast application process for the loans - which Rishi Sunak said can be done “in the time it takes to have lunch” - puts the scheme at high risk of fraud.
And the Cabinet Office has said it believes fraud losses are likely to be significantly above the 0.5pc to 5pc range that is generally estimated for public sector schemes.
Rules governing the loan scheme were not agreed until 9pm the night before it launched as banks wanted to ensure they could not be accused of breaching strict lending rules in future.
The National Crime Agency (NCA) said on Friday that it had received intelligence suggesting criminals are targeting the scheme.
The agency’s warning came shortly after HSBC, which said it was approving a loan every 20 seconds, pulled up the drawbridge on pandemic lending to new business customers as it struggled to meet demand.
The deadline for businesses to apply for Bounce Back loans is Nov 30. The Government has repeatedly said that any fraudulent applications will be criminally prosecuted with penalties including imprisonment, a fine or both.