Sunak rejects claims Covid loan scheme open to excessive fraud

The former chancellor Rishi Sunak has defended his pandemic-era Bounce Back Loan scheme against accusations that it was subject to excessive levels of fraud.

He said he was aware of the risks, but given the need for speed, he would do the same again.

Bounce back loans (BBLs) offered small businesses up to £50,000 with a 100% government guarantee, meaning taxpayers cash was used to pay back banks if the companies failed. The programme had “specific vulnerabilities to fraud and error,” according to a government anti-fraud report.

However, delaying the launch of the scheme even for a few weeks to introduce more controls would have put hundreds of thousands of businesses at risk, Mr Sunak said.

Close to 1.5m BBLs worth a total of £46bn were issued, making it the biggest of the government’s pandemic-era loan schemes. Around £1.9bn have been flagged by lenders as fraudulent.

A report from the Covid Counter-fraud commissioner, Tom Hayhoe, published last week, said total fraud and error was estimated at up to £2.8bn.

The Public Sector Fraud Authority believes the true total could be even higher, given that some fraud types are not picked up by current reporting methods.

Mr Hayhoe wrote that the scheme was launched in less than two weeks, in May 2020, and applicants were subjected to “limited checks beyond standard banking fraud controls.”

Loans were limited to 25% of turnover, but lenders had to rely on what businesses told them. No checks were made on whether businesses had really been affected by the pandemic, or what they used the money for, his report said.

Giving evidence for a second day at the Covid-19 Inquiry, Mr Sunak hit back at claims that inadequate checks were done.

“I keep hearing as if there were no checks done whatsoever. Or that we didn’t know what we were getting ourselves into. Both of those narratives are completely wrong. Of course we knew the risks we were taking on.”

However, he “made the judgement that the risks were outweighed by the need.”

After the scheme launched, more checks were added, such as a system to prevent one company applying for multiple loans through different banks, which was against scheme rules.

Mr Sunak said: “You could have lowered the ultimate fraud levels by waiting and building some of these checks. But you have to then be confident that you were going to accept the loss of business that would result from that.”

He said that 40% of all BBLs were issued in the first four weeks of the scheme, and a month’s delay would have increased the risk that many of those early applicants would have gone bust.

“At the time, nobody was waving their hands saying, ‘No, no! Slow it down! More checks! More form filling!'” he said.

“I would have done exactly the same thing in the same situation,” Mr Sunak added.

He said that a fraud rate for BBLs at around 4% was in line with other large government schemes such as universal credit, working tax credit or housing benefit.

He argued that if a similar scheme was ever needed again, improvements to data about companies and other measures meant the trade-off between launching quickly and minimising fraud would be “less acute.”

“But we shouldn’t ever think that there is not going to be that trade-off. There is,” he warned.