More than £1.1bn of suspected fraud has been prevented so far in the UK government’s flagship “bounce back” loans in an indication of how criminals have aggressively targeted the scheme.
In a letter published by the British Business Bank on Thursday to the House of Commons’ public accounts committee (PAC), chief executive Catherine Lewis La Torre said that 26,933 loans had been rejected by banks as fraudulent since its launch in May.
Based on bank data, the British Business Bank calculated the fraudulent loans would have been worth £1.1bn — had they not been stopped.
Earlier this week, the government extended its Covid-19 loan schemes from November until the end of January to help UK companies with their cash flow during the second lockdown in England, which came into force on Thursday. Since the schemes opened in May, more than £60bn has been lent by banks to about 1.4m companies, the majority through the bounceback loan scheme (BBLS).
The scheme — which only lightly vets borrowers before allowing them to access £50,000 in state-guaranteed loans — has sparked worries over the huge cost to the taxpayer. The National Audit Office, parliament’s spending watchdog, has already warned that taxpayers could lose as much as £26bn in fraud and default, which will be separate to the rejected applications.
The letter — published ahead of a PAC hearing into the scheme — came as business groups and MPs warned that plans to extend the government’s bounceback loan scheme to help firms survive the second lockdown will be undermined unless lenders open accounts for struggling first-time borrowers.
Senior bankers have also flagged the risk of an “operational nightmare” when the extension begins on Monday as they work out the details of how existing bounceback borrowers can top up loans to the full £50,000 before the programme reopens.
The big five high street lenders — Barclays, HSBC, Lloyds, NatWest and Santander — have accounted for about 90 per cent of the bounceback scheme so far but are not taking on new customers. They complain of being inundated by demand from struggling small businesses for the loans of up to £50,000, which are interest free for a year and are fully guaranteed by the government.
Almost all of the so-called “non-bank lenders” that are accredited under the BBLS are also restricting access to new applications.
Kevin Hollinrake, Conservative MP and co-chair of the all-party parliamentary committee on fair business, said it was unacceptable that “so many firms — we think about 250,000 — are completely locked out of the scheme”.
He said this was because non-bank lenders do not have access to funds to offer loans, while the bigger banks, which do have the funds, were unwilling to open new business accounts. Mr Hollinrake is in talks with the chancellor, Rishi Sunak, and City minister John Glen to try to find a solution.
Government officials have privately made clear to lenders that they should open to new customers as soon as it is operationally possible for them to do so, according to one person familiar with the Treasury’s position.
Bankers on Wednesday said they were in talks with Treasury officials and the British Business Bank, which administers the scheme, on what the extension will mean for customers and new applicants.
The Treasury said: “We are working closely with banks to ensure that borrowers who need them can access loans under the scheme.”
The extension of the loan schemes until the end of January was a component of the latest round of support to help businesses which have been forced to close during the new lockdown.
Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said: “We are looking for banks to step up and allow new customers to apply who didn’t know they needed the money in the first wave. Clear, positive policy direction from the chancellor needs to be matched in delivery from the banks.”
The British Chambers of Commerce also wrote to UK banks last week calling for support for small businesses.
But banks are wary that businesses that have not taken loans so far could be the most risky.
The extension until the end of January has also raised concerns over the distortion of the small business lending market, which is now almost fully covered by government-backed loan schemes.