Taxpayers are facing losses of up to £26m on coronavirus Bounce Back Loans (BBL) as a result of fraud and businesses being unable to pay back what they owe, according to a report by the National Audit Office (NAO).
The BBLS was announced on 27 April 2020 to quickly provide loans of up to £50,000 to registered and unregistered small businesses to support their financial health during the Covid-19 pandemic.
The report has found the scheme to be “hugely popular” with the expected value of loans to be £38-£48bn, up from the original estimate of £18bn-£26bn.
The NAO also revealed that the government imposed less strict eligibility criteria for the BBLS than other COVID-19 related business loan scheme. A move that allowed for quick access to finance for smaller businesses.
It stated that the BBL relies on businesses’ self-certifying application details with limited verification and no credit checks performed by lenders for existing customers.
This lower level of checks presents credit risks as it increases the likelihood that loans are made to businesses which will not be able to repay them, leading to losses of taxpayers money.
The report also said that the decision by the government to provide funds quickly, leaves public money exposed to the risk of fraud.
A third-party review commissioned by the British Business Bank found that, while some risks can be mitigated, there remains a “very high” level of fraud risk, caused by self-certification, multiple applications, lack of legitimate business, impersonation and organised crime.
Gareth Davies, head of the NAO said : “With concerns that many small businesses might run out of money as a result of the COVID-19 pandemic, the government acted decisively to get cash into their hands as quickly as possible.
“Unfortunately, the cost to the taxpayer has the potential to be very high, if the estimated losses turn out to be correct. Government will need to ensure that robust debt collection and fraud investigation arrangements are in place to minimise the impact of these potential losses to the public purse”.
He added: “It should also take this opportunity to consider now the controls it would put in place to protect against the abuse of any future such schemes.”