5 bn Covid Loan fraud

Efforts to counter fraud on the government’s Covid-19 programmes to support companies have so far led to more than 60 arrests and the recovery of more than £3.5m. Lenders also told the government they had prevented fraud of more than £2bn, the report says.

The extent of the losses are still lower than initially expected, with an official estimate last year suggesting the government’s loan schemes for companies during the coronavirus crisis could cost taxpayers between £18bn and £26bn.

Overall losses on all state-backed Covid-19 loans — due to companies being unable to afford to repay, plus fraud and error — are likely to amount to almost £20bn, said the annual report by the business department.

Taxpayers face losses of almost £5bn from fraudsters who exploited minimal checks around the government’s Covid-19 bounce back loan scheme for small companies, according to the first official estimate. As much as £29m was recognised in the report for suspected fraudulent payments involving the scheme, which lent in excess of £1bn to more than 1,100 start-ups. The report also showed that bounce back loans worth £1.3bn, or 2 per cent of the scheme, have already been defaulted on by borrowers unable to repay their interest or capital, and unwilling to take advantage of holiday periods on offer. The government covered the first year’s interest payments for borrowers with bounce back loans, which on a combined basis cost £832m last year. They calculate between £3.6bn and £6.3bn could be lost in fraud and error. A business department spokesperson said the schemes provided “a lifeline to millions of businesses”, adding: “We are continuing to crack down on Covid-19 fraud and will not tolerate those that seek to defraud the British taxpayer.” Loans of up to £50,000 were on offer, with minimal checks on borrowers, which sparked concern about fraud. The report also revealed that chancellor Rishi Sunak’s Future Fund, a scheme that offered convertible loans to prop up promising start-ups during the pandemic, has been hit by fraud.

The majority of losses will involve the “bounce back” loan scheme for struggling small businesses. Of this, the report estimated that £92.8m of the payments related to suspected fraudulent loans.

These losses are expected to “crystallise as lenders call on the scheme guarantees to compensate them for loans that were not likely to be repaid”.

For the first time, officials have used the report to give an estimate of fraud on bounce back loans. More than £46bn was lent by banks, with loans fully guaranteed by the government. The central estimate is for £4.9bn of fraud.

Summarised www.sba.tax

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