The head of an influential group of MPs has accused the Government of using the speed of its response to the pandemic to excuse a “disregard” to how much it will cost the taxpayer.
Meg Hillier said her fellow members on the Public Accounts Committee were “unpleasantly surprised” to learn the Government had learned “little” from the 2008 banking crisis.
The committee, which Dame Meg chairs, said the Department for Business Energy & Industrial Strategy (Beis) was “complacent” in preventing fraud in the Bounce Bank Loan Scheme, which funnelled billions to small companies.
“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,” Dame Meg said.
“More than two years on, Beis 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.
“The Committee was unpleasantly surprised to find how little Government learned from the 2008 banking crisis and even now are not at all confident that these hard lessons will be embedded for future emergencies.
“Beis must commit now to identifying what anti-fraud measures are needed at the start of any new emergency scheme so the taxpayer is better protected in future. It also needs to set out the trade-offs and what level of fraud it will tolerate at the outset.”
The Committee said the Government is relying too heavily on banks who lent the money to small firms to get it back from them.
Yet it is not incentivising the lenders to do much to go after potentially fraudulent loan takers, or even those who are not paying back for other reasons.
Around £47 billion was paid out in loans to 1.5 million businesses in the Bounce Back Loan Scheme. The money came from banks but, if companies were unable to pay back, the Government promised it would fully reimburse the lenders.
It will be unclear for a long time how much this will end up costing the taxpayer, but one highly uncertain estimate from Beis is that £17 billion might never be paid back.
“Evidence on the effectiveness of the lenders’ operations is slim, but there are some worrying indicators,” the PAC report reads.
While banks have to try to chase down loans as part of their contract with Government, there is little financial incentive for them to do more than the bare minimum.
“None of the witnesses could tell us how much lenders are spending on this,” the report said.
“The department now plans to create a simple dashboard of management information to improve its ability to hold lenders to account.
“Together this gives an unconvincing picture of how lenders are bearing down on large amounts of outstanding debt and we are not convinced that lender audits are a replacement for commercial incentives.”
The committee said officials should set out how they plan to collect overdue payments after the banks have had their turn.
A British Business Bank spokesperson said: “We acknowledge the Public Accounts Committee’s recommendations.
“The Bank will publish an early evaluation and impact assessment of the Covid-19 emergency loan schemes, including Bounce Back Loans this summer, with further assessments to follow in 2023 and 2024.”
“Our reservation notice of May 2020 set out our concerns regarding potential market distortion. Despite these concerns, our recent Small Business Finance Markets report highlighted a rebound in activity
“Challenger and specialist banks accounted for just over half of bank lending in 2021, a record share. In addition, private debt, asset finance, invoice finance & asset-based lending, and alternative finance all experienced rebounding levels of activity after a difficult 2020.”
A Government spokesperson said: “We’re continuing to crack down on Covid support scheme fraud and will not tolerate those who seek to defraud consumers and taxpayers.
“These schemes were implemented at unprecedented speed to protect millions of jobs and businesses. If the government didn’t move quickly, more businesses would have failed and many more jobs lost.”