UK taxpayers face bigger bill for Covid loans

UK taxpayers face bigger bill for Covid loans

UK taxpayers are being asked to pay a larger bill for Covid funding to firms than expected, after fresh government data showed the amount of pandemic business loans flagged for fraud had surged by 43%.

The Department for Business and Trade released figures showing that low 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 public will also be paying a larger bill than anticipated for loans that have gone sour, according to a government estimate.

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

The loans were distributed by everyday lenders, but were 100% guaranteed by the government, which means that losses - including any losses due to defaults or fraud - would be covered by the taxpayer.

Commercial banks were able 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 of pounds of government-backed loans on everything from Range Rovers to pornographic websites.

In total, about £1.65bn of bounce back loans had been flagged as fraud at the end of June, according to Covid's latest figures. The government has so far paid out 1.3bn of that amount to banks to cover the lenders' losses.

The figure is already higher than the £1.1bn lost in the business department due to fraud and error during the scheme. The government originally calculated that nearly £5bn could be at risk, but they have since revised down their estimates.

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

Banks have been able to understand real losses when loans fall due for repayment. The business department is hoping that the amount of money banks claim for related losses will begin to decrease over time.

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