UK taxpayers face losses of nearly £ 5 billion due to fraudsters who exploited minimal checks around the government’s Covid-19 rebound loan program for small businesses, according to the first official estimate.
Overall losses on all state-backed Covid-19 loans – due to the fact that businesses cannot afford to repay, plus fraud and errors – are expected to rise to nearly £ 20 billion sterling, according to the business department’s annual report.
These losses are expected to “crystallize as lenders turn to plan guarantees to compensate them for loans that were not likely to be repaid.”
The extent of the losses is still lower than originally expected, with an official estimate from last year suggesting that government business loan programs during the coronavirus crisis could cost taxpayers between £ 18bn and £ 26bn sterling.
Even so, the large numbers, especially for fraud, raise new questions about the design and implementation of schemes. They were put in place quickly to funnel funds to businesses facing collapse at the start of the Covid-19 pandemic.
The majority of the losses will come from the rebound loan program, which was intended to support struggling small businesses.
Loans of up to £ 50,000 were on offer, following minimal checks by banks on borrowers, raising concerns about how easily fraudsters could access the program. Over £ 46bn has been loaned by banks, with loans fully guaranteed by the government.
For the first time, officials have used the report to provide an estimate of rebound loan fraud.
They calculate that between £ 3.6bn and £ 6.3bn could be lost in the event of fraud and error. The central estimate is £ 4.9 billion in fraud.
However, the final cost will not be known until the UK authorities attempt to recover the money, including from the criminal gangs who have targeted the rebound program.
The government has hedged first year interest payments for borrowers with bounce loans, which on a combined basis cost £ 832million last year. Of that amount, the report estimated that £ 92.8million in payments was linked to suspected fraudulent loans.
The report also showed that rebound loans worth £ 1.3bn, or 2% of the program, have already been turned down by borrowers unable to repay interest or principal and unwilling to take advantage of the holiday periods offered.
Another 7 percent of the rebound loan portfolio is in arrears. However, around £ 2 billion has been paid in prepayments to banks under this scheme.
The report also revealed that Chancellor Rishi Sunak’s Future Fund, a program that offered convertible loans to support promising start-ups during the pandemic, was hit by the fraud.
Up to £ 29million was recognized in the report for alleged fraudulent payments involving the program, which have loaned more than £ 1 billion to more than 1,100 start-ups.
Efforts to tackle fraud on the government’s Covid-19 programs to support businesses have so far led to more than 60 arrests and the recovery of more than £ 3.5million.
Lenders have also told the government they have prevented fraud of more than £ 2 billion, according to the report.
In total, as of September 30, companies had drawn down 1.6 million facilities worth £ 77 billion through the government’s three main Covid-19 loan programs for businesses that covered small, medium and large companies.
The losses under the plans for medium and large companies are much lower than under the rebound program, as they tended to be subject to tighter controls by the banks.
The Business Department said: “Government support programs have provided a lifeline for millions of businesses across the UK – helping them survive the pandemic and protect millions of jobs.
“We continue to fight Covid-19 fraud and will not tolerate those who seek to defraud the UK taxpayer. “