Taxpayer faces £1.7bn bill for Covid fraud

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Taxpayer faces £1.7bn bill for Covid fraud

The UK taxpayer has been forced to pay a larger bill for Covid support to companies than expected, as new government data showed the amount of pandemic business loans flagged for fraud had surged by 43%.

According to data released by the Department for Business and Trade, high street banks and other private lenders - which were responsible for distributing government-backed loans during the Covid crisis - had flagged nearly£1.7bn worth of loans for potential fraud at the end of June. That marks a 43% rise from the 1.1bn flagged three months ago.

The allegations of fraud are also higher than the last set of government estimates, leaving the public paying a larger bill than expected for loans that have gone sour.

The vast majority of the loans flagged for fraud are from the £47bn bounce back loan scheme, which enabled small businesses to borrow up to£50,000 apiece during the Covid crisis to keep them afloat despite rolling lockdowns.

The loans were distributed by everyday lenders but were 100% guaranteed by the government, meaning that losses - including those caused by defaults or fraud - would be covered by the taxpayer.

The move allowed commercial banks to conduct fewer checks on small businesses to ensure that money was distributed quickly to businesses. It left it more susceptible to scammers, who are reported to have spent tens of thousands pounds of government-backed loans on anything from Range Rovers to pornographic websites.

At the end of June, around £1.65bn worth of bounce back loans had been flagged for fraud, Covid said. The government has so far paid out 1.3bn of that amount to banks to cover the lenders' losses.

The report said fraud and error would result in a loss of more than the £1.1bn the business department estimated would be lost through the scheme. The government originally predicted that almost £5bn could be at risk, but now revised down their estimates.

While the government credits the programme with having saved 500,000 businesses and 2.9 million jobs through the Covid crisis, former Cabinet Office minister Theodore Agnew resigned in protest in January last year, citing the government's 'woeful' efforts to control potential fraud.

Banks have been able to understand the real cost of loans, as loans fall due for repayment. But the business department is hoping the amount of money banks claim for related losses will start to decrease over time.

The government said lenders were constantly adapting their processes for identifying and combating fraud, and that figures would'Vary from quarter to quarter, both for individual lenders and the overall scheme'.