The government has been branded “dangerously flat-footed” in its efforts to recover nearly £2 billion in estimated taxpayer losses from the Covid-19 bounce back loan scheme, a cross-party committee of MPs has warned.
The Public Accounts Committee (PAC) criticised the lack of incentive for lenders to pursue the recovery of these funds, highlighting a significant gap in the scheme’s oversight.
Introduced in the early days of the pandemic, the bounce back loan scheme was designed to provide rapid financial support to businesses grappling with forced closures and plummeting demand.
It offered loans of up to £50,000 per business, made available swiftly to most UK firms by waiving standard credit and affordability checks.
However, the Department for Business and Trade (DBT) now estimates that total losses due to fraud within the scheme will reach at least £1.9 billion, a figure acknowledged to likely be higher as not all fraudulent cases have yet been identified.
While approximately £130 million has been recovered so far, the DBT admits it cannot determine how much of this relates to loans taken out fraudulently.
The PAC’s stark warning underscores ongoing concerns about the vast sums of public money lost to fraud and the government’s perceived slow response in holding those responsible to account.
The Government guaranteed to cover any losses incurred by lenders on loans that could not be repaid when the scheme began.
It has nonetheless withdrawn its backing on £367 million worth of loans where it felt lenders have not done all it should have done – meaning banks foot the bill, rather than taxpayers.
Earlier this month, Starling Bank said it had agreed to remove the Government guarantee on a group of loans that had potential issues – leading it to put aside some £28 million.
But the PAC said the broader guarantee meant there was a lack of incentive for banks to recover taxpayers’ money.
Sir Geoffrey Clifton-Brown, chairman of the committee, criticised “passivity” in the Government’s approach.
“DBT were unable to tell us if even the tiny fraction of that sum recovered was in fact even related to fraud,” he said.
“Indeed, relying on government-backed lenders to recover losses, who thus lack any incentive to pursue lost funds, has been a dangerously flat-footed approach.
“Now that the Insolvency Service has taken over responsibility for viable cases, we look forward to hearing how it fares where others have failed.”
The DBT has been approached for comment.
