Treasury permanent secretary Tom Scholar has rejected claims from former minister Theodore Agnew that his department was complacent in handing out Covid loans.
Lord Agnew, who quit the government in January citing officials’ “woeful” handling of fraud and error in pandemic support packages, called the Treasury’s fraud management of the Bounce Back Loan scheme a “Dad’s Army operation” at a Treasury Committee meeting in March.
Defending the scheme in front of the same committee on Wednesday, Scholar said: “I don’t accept that.”
The Bounce Back Loan scheme was set up in May 2020 at the height of the Covid pandemic. It was administered by the Department for Business, Energy and Industrial Strategy via the British Business Bank but developed in conjunction with the Treasury and also monitored by it.
Between £3.6bn and £6.4bn of the £49bn handed out to businesses through loans worth up to £50,000 is now believed to have been lost to fraud and error, British Business Bank has estimated. The National Audit Office has meanwhile cautioned that some £17bn of the loans issued under the scheme may not be repaid.
Scholar said the high amount of fraud was due to the suspension of some of the normal checks due to the exceptional circumstances of the Covid pandemic and was a considered calculation made by the government.
He said the government had to balance the urgent need to support the economy against the need for controls and had to make quick decisions.
If the BBL scheme had contained full credit checks, it would have “left businesses waiting several weeks and in many cases completely legitimate businesses getting no finance at all”, Scholar said.
The Institute of Chartered Accountants had warned at the time that a third of businesses would “go to the wall within days” if they did not get the funding quickly, Scholar added.
The British Business Bank had previously set up a Covid Business Interruption Loan scheme in April 2020 which required all of the standard lending checks, and which meant most businesses waited two to three weeks to get loans.
The Treasury, BEIS and British Business Bank were tasked with creating a simpler scheme that businesses could apply for quickly, and where loans could be handed out to companies within 24-48 hours of applying, whilst retaining as many checks as possible, Scholar said.
“There was a clear consensus across the political spectrum that there was a requirement for a 100% guarantee to be dispersed very rapidly and that’s what the government decided to do,” Scholar said.
British Business Bank leaders, who appeared at the session alongside Scholar, rejected Agnew’s assertion that the bank’s oversight of the BBL scheme – and that of BEIS – was “nothing less than woeful”.
“I think it’s an unfair characterisation of what the British Business Bank delivered through the Covid crisis, particularly in regard to the Bounce Back Loan schemes. We delivered that in 11 days,” chief executive Catherine Lewis La Torre said.
La Torre said the bank had suggested amending the CBIL scheme or spending longer on implementing the BBL scheme to “work through some of the issues”, but ministers took the decision to move ahead as “more businesses and jobs were at risk every day that passed”.
“I do think the bank was far from woeful on this,” BBB commercial officer Patrick Magee added.
“We moved very quickly. We’ve helped to save probably hundreds of thousands of businesses. From the very outset we were extremely concerned about the residual fraud risk, we raised our concerns and… we did everything we could to mitigate those risks by working with lenders.”
Magee said the BBB worked tirelessly over 11 days with lenders to put in checks which helped banks to prevent £2.2bn worth of fraud.
Asked by the committee what he would have done differently in hindsight, Scholar said further checks were added along the way which helped to counter fraud and “if we knew everything that we know now, we would have incorporated those things from the beginning “.
But he added: “It was a scheme that was put together in about 10 days so we did what we could as quickly as we could.”
Scholar said the government has not discovered anything else which could have been included in the scheme.
He also rejected an accusation from Labour MP Angela Eagle during the committee session that the only criteria for the BBL scheme was speed.
“The NAO looked at this twice and have said that there was a very strong discussion at the time... of the risks of fraud and error,” he said.
Magee said he could not remember any “obvious” mistakes made in putting the scheme together, but said “we could have done more with more time”.
Agnew had also criticised the Treasury for hiring consultancy firm PwC to give counter fraud advice rather than from the Cabinet Office-based counter-fraud function.
Magee said the BBB initially worked with PwC because it had worked with the consultancy before on several bank loan schemes.
He said the Cabinet Office counter fraud function was brought in to work on the scheme from 6 May 2020 and attended every counter-fraud strategy forum from then on.
“I’m still surprised by Lord Agnew’s reaction,“ Magee said.
“We’ve had thousands of hours of interaction with the Cabinet Office. There’s been a huge amount of collaboration. It would have been great if I could have spent more than half an hours with him during his tenure because he would have been more assured.”
Recovering fraud cash
Banks who leant the BBLs to businesses are responsible for recovering any money lost to fraud.
While Agnew said there is little to incentivise lenders to pursue outstanding loans given the government's 100% guarantee on the BBLs, Scholar countered: "There is a contractual requirement for them to do so. If they don’t take those steps, then the guarantee is not valid and they won’t get the payout."
“We have many incentives to make sure banks do the right thing, and if they don’t, we’ll call them out,” Magee added.
Scholar told the Treasury Committee that HMRC expects to recover around £1bn of fraud from Covid schemes this year.
To help tackle fraud, the Treasury on Wednesday unveiled plans for a new Public Sector Fraud Authority to be launched in July, which will have a £25m budget to help recover money stolen from Covid support schemes.
Meanwhile, the government's new Efficiencies and Value for Money Committee, which met for the first time on Wednesday, will look to tackle wider issues including fraud.