MPs have urged ministers to use legal, regulatory and contractual means to ensure banks do their utmost to minimise taxpayer losses under one of the government’s flagship Covid-19 loan schemes for small companies.
In a report published on Wednesday, the House of Commons public accounts committee also accused the Department for Business Energy and Industrial Strategy (BEIS) of being “complacent in preventing fraud” on the state-backed bounce back loan scheme.
MPs said the BEIS was “placing too much reliance on lenders to minimise taxpayer losses” but found the scheme’s design does not incentivise banks to do this.
“The department should . . . set out how it will use legal, regulatory and contractual incentives to improve the lenders’ performance in managing the loans and the risks to the taxpayer,” they added.
Banks were encouraged by the government to provide debt at speed under the bounce back loan scheme to small companies facing collapse when the UK went into Covid lockdown in May 2020, with few checks on borrowers so as to allow easy access to up to £50,000 of credit.
The government fully guaranteed the debt, which means that the taxpayer is on the hook for losses rather than the banks.
The MPs said that the focus on delivery of the loans “at breakneck speed” meant business survival had come at a “staggering” cost to the taxpayer.
The committee highlighted estimates by the department showing that of £47bn paid out in bounce back loans, £17bn is expected to be lost, including £4.9bn to fraud.
The MPs found government officials had no plans in place to recover debt after lenders have pursued borrowers for up to a year for outstanding loans, and called for a strategy for collecting overdue payments.
The committee also found the business department and the British Business Bank, the state-owned bank that administered the bounce back loan scheme, missed opportunities to prevent fraud.
It added that a subsequent government focus on “top-tier” fraudsters, rather than people engaged in smaller-scale abuse, put other state support schemes at risk “due to the lack of a deterrent effect”.
Meg Hillier, Labour chair of the public accounts committee, criticised the business department, saying: “With weary inevitability we see a government department using the speed and scale of its response to the pandemic as an excuse for complacent disregard for the cost to the taxpayer.
“More than two years on [the department] has no long-term plans to chase overdue debt and is not focused on lower-level fraudsters who may well just walk away with billions of taxpayers’ money.”
She added the committee “was unpleasantly surprised to find how little government learned from the 2008 banking crisis”.
MPs said officials should increase resources to reduce fraud levels “to a tolerable level and to maximise recoveries”.
The business department said: “We’re continuing to crack down on Covid support scheme fraud and will not tolerate those who seek to defraud consumers and taxpayers. If the government didn’t move quickly, more businesses would have failed and many more jobs lost.”