Over £240m pulled from UK Covid loan guarantees

0

More than £240million in collateral has been withdrawn from UK banks due to mistakes that allowed fraud and error to occur under a state-backed Covid-19 loan scheme, according to official data shared with the FT.

Fraud Minister Lord Theodore Agnew resigned on Monday, frustrated by the lack of oversight and mistakes that led to large-scale fraud in the government’s kickback scheme, which lent £47billion sterling to over 1.1 million businesses during the pandemic.

Other MPs have called for fresh efforts to recover fraudsters’ money that has been illegally extracted from the system, which offered loans of up to £50,000 with only light checks applied and a full government guarantee that would recover the money for the lender if it was not repaid.

Agnew warned of a ‘dangerous’ new phase as banks seek to recover money under the guarantee without ‘a standard bar of quality assurance on what we expect as basic measures against fraud “.

The FT has heard that banks have found errors in their own verification systems, leading to the government withdrawing collateral from more than 7,400 bounce-back loans worth more than £240million.

Lenders discovered, through their own investigations, errors in the way they processed loans, or businesses that were not eligible but still received the money. For example, when companies were created after March 2020, which was against the terms of the regime, and indicating that fraud may have taken place.

Officials expect further moves given continued work with lenders and government agencies.

The British Business Bank, which administers the scheme, confirmed that “in many cases where lenders have encountered problems with their own processes, they have proactively come to us to request that the collateral be removed from the affected loans”.

Pat McFadden, shadow chief secretary to the Treasury, said: ‘It shows the government has failed to respect UK taxpayers enough to take warnings about the risk of fraud seriously.

“The Chancellor’s defense has always been that there was pressure to get help for businesses. This is no excuse for not having even minimal controls in place. And now the taxpayer is being asked to foot the bill.

The government has estimated that up to £4.9billion is at risk of being defrauded under the scheme, although this is likely to be revised downwards, officials say, given new modeling work performed by PwC advisors.

Early analysis by the Bounce Loan Scheme Accounting Group resulted in a probable fraud estimate of 11.1 per cent – or around £4.9bn, which was used in year-end accounts of the Department of Business, Energy and Industrial Strategy.

However, the sample used by PwC was small, covering only 1,067 loans out of a total of 1.5 million, or less than a tenth of 1%. The accounting group later revised its estimate of likely fraud to 7.5%, although the calculations still need to be refined and audited. This will likely reduce taxpayers’ money at risk to around £3.5billion.

PwC also told the National Audit Office, the government’s spending watchdog, and senior bankers that the estimate is likely to drop further as analysis continues.

The amount of money that has been withdrawn from government loan guarantees is several times greater than that which has been paid to banks by the Treasury under the flagship Covid support programme.

The value of claims settled with banks up to the end of December is around £70m, although a wave of future payments is expected as the value of claims made against the guarantee was close to £1bn. pounds sterling at the end of December 2021.

These claims are not just aimed at covering fraud, with over £17billion in total estimated to be at risk due to a combination of default, fraud and error. Agnew said around a quarter of the £1 billion in collateral claimed was linked to the fraud.

Share.

About Author

Comments are closed.