Covid loan fraud and mistake will cost UK taxpayers tens of billions, MEPs say

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Taxpayers will lose tens of billions of pounds to Covid-19 support programs because the government abandoned basic fraud controls and hastily rolled out the programs, according to a parliamentary report.

The report, released by the Public Accounts Committee (PAC), recognizes that the government acted quickly to provide vital support to vulnerable businesses at the onset of the pandemic. However, the decision to prioritize speed and financial aid has meant that taxpayers’ exposure to fraud and error has been “dramatically increased.”

The PAC blames the two government decisions to relax the usual fraud controls in programs such as the popular rebound loan program (BBLS) – which has allowed businesses to self-report information such as income in as part of their demands – and to support companies and individuals with whom he had no previous relationship.

According to figures released by the Trade Department, the combined impact of fraud and defaults will mean nearly half of the £ 46.5bn rebound loans distributed during the pandemic will never be repaid.

PAC said departments did not make enough use of anti-fraud expertise when designing new programs, to ensure they minimize losses.

Fraud and errors already cost the public treasury £ 51.8 billion each year, according to Cabinet Office estimates. This is before any Covid-19 loan program, including BBLS and leave, is considered.

But that number could rise, according to figures released by the Department for Business, Energy and Industrial Strategy (BEIS), which previously estimated that fraud and loan losses due to defaults could cost the taxpayer around £ 26 billion. .

Bounce loans have been the most popular among Covid-19 loan programs, with more than £ 46.5 billion disbursed to more than 1.5 million businesses saying their operations are at risk due to the Covid-19 lockdown measures.

The program – which ran from May 2020 to March 2021 – offered businesses loans worth up to £ 50,000, capped at 25% of turnover, at an interest rate of 2.5 %. The first 12 months were without payment or interest for borrowers.

These loans were distributed by dozens of commercial banks, including major lenders such as HSBC, Lloyds and Barclays. Although it is up to these banks to hunt customers for repayments, any loss will be borne by the taxpayer, as the loans come with a 100% government guarantee.

The report said the arrangement had left BEIS “dependent on banks which it said lack incentives since their money is not at stake.”

PAC chairwoman Labor MP Meg Hillier said there was a worrying lack of urgency among ministries, including BEIS, regarding the financial risks associated with Covid support programs. “The Covid emergency masks a more worrying underlying approach to managing risk and taxpayer dollars,” she said.

The PAC is now issuing a series of recommendations, which include calls for the Treasury and the Cabinet Office to publish an annual report identifying the risks that fraud and errors pose to the public purse, strengthen fraud reporting requirements on Covid-19 support programs and reveal any plans to recover taxpayer money.

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It also calls on ministries to put in place more robust anti-fraud measures and address inconsistencies in the way penalties and sanctions are applied.

A government spokesperson said their priority had been to act quickly to protect workers and businesses. They said the loans, leaves and grants programs were providing a “lifeline for millions of people across the UK – helping them survive the pandemic and protect jobs”.

“These schemes were designed to minimize fraud from the start and we have rejected or blocked thousands of fraudulent claims. We will not tolerate those who seek to defraud taxpayers and will take action against the perpetrators, including through criminal prosecution, ”the spokesperson added.


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