Just trawled through the latest Annual Report of the Chair of the Committee of Public Accounts that has just been published today, and below you will find the bits relating to Bounce Back Loans.
As Dame Meg Hillier MP (the Chair of the Committee of Public Accounts) states, BBL Lenders have no incentive to pursue defaulters of Bounce Back Loans, which does explain why many of them are not even attempting to do so. But you will already know that if you are one of the 10,000s who have already defaulted.
Key Challenges and Issues
Many of the key issues and challenges for government are long term and span many years but do not always reach the top of the priority list for the government of the day. Covid and Brexit are two “once-in-a-generation” events which have knock-on effects across a range of issues and have skewed Whitehall’s priorities.
The capacity of Whitehall and government is not limitless, and the impact and long tail of such events will have an impact for some time to come. Here I highlight some of the areas the committee is most focused on.
At the time of my last report it was clear that there was going to be a long-term impact of the pandemic on the business as usual for government.
The PAC continued to examine covid-specific schemes in detail. In the second year of the pandemic we have been able to look at some schemes that came to an end—such as furlough and bounce back loans—and start pressing government on how it will manage the fallout of these programmes.
Government should work to learn lessons from these schemes. If it becomes defensive its ability to manage risks in the future will be reduced.
Fraud and error
Fraud and error were a significant concern even before the pandemic, with the Cabinet Office estimating during our 2021 fraud and error inquiry that the annual level of undetected fraud and error was £25 billion.4 Covid-19 support schemes have exacerbated this issue further. For example, out of the £47 billion issued under the bounce back loan scheme it is estimated that claims totalling £4.9 billion were fraudulent and £17 billion will never be recovered.
Permanent secretaries rightly sought ministerial letters of direction6 for a number of schemes because the pressure to act swiftly and decisively required a loosening of the usual levels of assurance, leading to a significant increase in the risk of fraud.
In addition, by March 2020 it was too late in the financial year to seek authorisation for the significant additional expenditure.
Government ministers cite speed over considerations of fraud. While the PAC recognises there was an urgency to many of the actions, setting up schemes at speed necessarily meant reducing scrutiny in the short run.
It was clear that money would be given out with less scrutiny which was in effect advertising opportunity to fraudsters. We are now seeing the impact of this judgement on the balance of risks.
In the case of bounce back loans, additional checks, which may have delayed funding by up to a few days, would have been an important check on fraudulent claims.
The committee recognised that some short-term increases in fraud were inevitable, but months later still lacking proper checks was at best irresponsible.
The financial crash of 2008 revealed the slackness of banking regulation, which led to much tougher regimes. Having insisted that banks get their act in order it is very worrying that government failed to draw the obvious conclusion about its own lending regimes.
The lending banks negotiated a strong taxpayer-backed guarantee for bounce back loans which provides little incentive for lenders to pursue defaulters.
With the pressure on the economy of inflation, energy prices, sanctions, and other cost pressures as a result of the war in Ukraine these sums of money would be helpful to the exchequer and the citizen in tackling the growing cost of living concerns.
As we enter a third “unanticipated event” (war in Ukraine) government needs to remember that as citizens we effectively recognise government as our collective insurance policy. Our reports for the last year show how poorly government performed.
It is vital that lessons are learnt ahead of any future pandemics. Firstly, as the PAC has highlighted, in planning for the economic impact of a crisis that is not itself economic, and secondly in planning clearer anti-fraud measures.
With Bounce Back Loans it took over a month, until 26 June 2020, before there was an automatic check that prevented businesses applying twice for a loan. At this point over 60% of loans had already been issued.
The PAC will keep challenging Whitehall to do better on recouping taxpayer money lost through fraud. The quicker it can do this the easier it will be to secure the money, and there is precedent if we consider HMRC’s approach to debt recovery.
For example, in 2019–20, for every £1 spent on debt management £205 was collected for the exchequer and by 2026 the Department expects to recover £6.7 billion of additional tax debt.
There will be a long tail to covid. The bounce back loans are for up to 10 years and the culture recovery fund for 20 years, let alone any fraud and error recovery. The legal disputes over contracts (we have particularly examined PPE contracts) could take many years.
This means the PAC and Parliament has an important role to continue to pursue the performance of Whitehall in managing these liabilities to the taxpayer.
The NAO has compiled a covid-19 cost tracker which has been an aid to transparency of government spending during the pandemic.
Its last iteration is due in summer 2022 with ongoing tracking being carried out by the Treasury and through individual departmental accounts. This model has been an important public spending monitoring tool.