On 4 May 2020, the day the Bounce Back Loan Scheme launched, the government was already aware that fraud would be rampant. And so it proved: within weeks, luxury car dealers reported a surge in interest from company directors with money to burn. Loans were so easy to get, one brazen fraudster even tried to fund the purchase of a Porsche by taking out a loan under a car dealer’s name, and pretending the deposit that hit his bank account a day later was payment for the car. Banks watched as customers made multiple applications for the same loan, or borrowed and immediately moved the proceeds to a personal – or foreign – bank account. They blocked as many attempts as they could.
Ahead of the launch of the scheme, one of the most senior bankers in charge of it saw the writing on the wall. Under the Bounce Back Loan Scheme’s rules, small firms were able to self-certify for loans of up to £50,000 at a bargain basement interest rate of 2.5 per cent; all the borrowing was government-guaranteed. It was, by any standards, a recipe for disaster.
“We are all doing the best we can in an unprecedented situation,” Keith Morgan, the chief executive of the British Business Bank wrote to the then-business secretary, Alok Sharma, on 2 May 2020, two days before the scheme was announced. His organisation was in charge of administering the scheme. In the letter, he drew the minister’s attention to its “very significant fraud and credit risks” and its vulnerability to abuse “by participants in organised crime”. Most of the lenders handing out Bounce Back loans followed suit, writing their own, similar, letters. The Treasury pressed ahead regardless. By the time the scheme was closed in March 2021, banks had leant out £47bn of government-guaranteed money, with more than 1.5 million loans. Just 150,000 “ineligible claims” had been blocked.
Almost two years later, at the end of January 2022, Theodore Agnew, a Treasury minister, resigned dramatically during a speech in the House of Lords, referring to figures from the National Audit Office (NAO) that estimated fraudsters had swindled banks to the tune of £4.9bn under the scheme. “The Treasury… appears to have no knowledge of, or little interest in, the consequences of fraud to our economy or society,” he said. He listed “schoolboy errors”, including “allowing more than 1,000 companies to receive Bounce Back loans which were not even trading when Covid struck”.
The main problem was the government’s focus on speed. It’s easy to understand why Sharma and his colleagues wanted businesses to have their money as quickly as possible: as the economy teetered on the brink of shutting down, the smallest businesses were suffering the most. Their solution was to pressure lenders to get the loans into borrowers’ accounts within 24 hours.
But there is a reason that borrowing money usually takes a long time: banks need to perform checks on borrowers to ensure they are legitimate. The government’s solution was to simply ditch credit checks, a crucial tool that banks use to weed out potential criminals. “A lot of that credit analysis… gives you fraud protection as well,” said one banker.
The criminal activity began to build up. Two gangsters with dozens of criminal offences to their names, who stole and exported luxury cars to the Middle East, successfully borrowed £145,000. A drug dealer, whose waste disposal firm had never shown any business activity, had precisely one transaction to its name: a £25,000 Bounce Back loan. A pair of money launderers who were on bail after being accused of laundering £36m borrowed a total of £10m because of the scheme, including £3.2m from a single lender.
The activity was so brazen that when sentencing Asif Hussain and Ibraaz Shafique, the luxury car exporters, Judge Anthony Cross demanded an explanation. “The most basic of checks would have revealed the fraud,” he said. “The public are entitled to an explanation as to how these loans were obtained.”
The explanation, according to Bill (who spoke to the New Statesman under condition of anonymity), the owner of a waste management company in the north-west of England, is that it was simply very, very easy. Bill said he looked into Bounce Back loans after friends of his “applied and just got accepted”. “On my banking app, it was as easy as clicking ‘apply for the BB’, and it gave you options of how much you earn, how much you want to borrow, and a click of the button.” At first he took out a £50,000 Bounce Back loan for his legitimate business (although he points out that even then, he was hardly struggling: “the main company I’ve got did absolutely brilliantly from Covid”).
Once he realised how easily he could get hold of money, Bill experimented using a shell company he owned to apply for a second loan of £25,000, lying on the app about the company’s revenues. When that came through, he went in for a third, using another shell company. “That one didn’t have a chance [of being approved],” he said. Nevertheless, £50,000 landed in his bank account 24 hours later.
Bill has used the money to expand his business, as deposits for mortgages on new premises, so it could be argued that this money has been used as intended. Friends of his weren’t so conscientious: they bought cars or went on holiday, he said. One bought a house, with cash.
However, Bill said he will pay back “maybe two” of the loans. For the third, he plans to put the company into administration. Because it’s a limited company, the liabilities won’t be against him: he will avoid repaying the loan, and his bank will be forced to collect the debt from the government, which guaranteed the loan, instead. Does he feel bad? “I have got a heart,” he said. “It’s the banks’ fault to be so stupid to even let people apply.”
The evidence, however, suggests bankers worked hard to prevent fraud. A senior banker at one major lender said it has spent “millions” on the scheme, hiring “hundreds” of extra people to work in its fraud department. But weeding out fraudsters takes time, and doing so from millions of small businesses is a huge endeavour. “You have to remember that a lot of these businesses were very small. Many of them… might only have had Facebook Marketplace sites or something like that. There’s a lot of work which goes into building a fact base to say… [whether] this individual is fraudulent or not.”
Many who worked on the scheme believe the £4.9bn figure mooted by the NAO vastly overestimates the amount of fraud that went on. In his resignation speech, Agnew suggested 26 per cent of defaults on Bounce Back loans will be due to fraud. Two senior bankers I spoke to said it was “not anywhere near that” at their organisations. “It was a totally new experience for everyone, including all the officials. People were working round the clock.”
Meanwhile, the British Business Bank has sought to clarify that the £1bn Agnew said had been paid to banks for the scheme was actually the amount claimed, rather than paid out. So far, actual payments have only amounted to £70m, it told the Sunday Times. One banker told me that because businesses were required to start repaying their loans by the middle of last year, most of the fraudulent defaults should already have taken place.
But there may be borrowers who, like Bill, repay the loan in part before folding their company. “I think there might be only 25 per cent of people who have done it the right way,” he said. “The rest, it wouldn’t surprise me if they just closed down [their companies].” Banks submit claims for loans that have defaulted once every three months – the next figures will be available in March.
For campaigners, though, it doesn’t matter precisely how much was written off: scrutiny is needed. During a session on coronavirus grant schemes in parliament on 18 January this year, the shadow chief secretary to the Treasury, Pat McFadden, said the government had confirmed that it expected to write off “around £4.3bn of the funds allocated to coronavirus help schemes” (although the Chancellor, Rishi Sunak, has since disputed this).
“£4.3bn is a huge sum of money,” McFadden said. “It is enough to take hundreds of pounds off energy bills this year for every household in the country. It is about the same annual amount as the Chancellor took off people on Universal Credit in the Budget in November. It is roughly the same as half the annual policing bill for the whole country. This write-off of £4.3bn comes as households face a cost-of-living triple whammy of rocketing energy bills, the Chancellor’s tax increases and a decline in real wages.”
Susan Hawley, the executive director of the campaign group Spotlight on Corruption, added that quibbling over sums is irrelevant.
“If the fraud is even half as bad as the NAO and Agnew have suggested, several billion pounds worth of public money have been effectively thrown away, and at the end of the day we need accountability for why and how that happened,” she said.
She said any investigation must take into account banks’ behaviour, too. This wasn’t, after all, their money to lose.
“There is no doubt that the government failed dismally to protect the public purse properly, but where individual banks have failed in their responsibility to prevent fraud on taxpayer-backed loan schemes, they should be required to pick up some of the bill for that failure.”
For the bankers involved in the scheme, that sort of comment will sting. Banks weren’t coerced into joining the scheme, but many felt a responsibility to do so. One lender said the pervading attitude in their team was that they were “determined to save our customers’ businesses”. “We felt we were doing a public good,” they added. They thought the government saw that too. But following Agnew’s resignation, the fear is that they will become the fall guys for the government’s bad planning.
“I don’t think we are being criticised at this point in time,” said one banker. “But it’s important that… context isn’t lost, as some of the politics starts to increase around it.”
[See also: Could the furlough scheme be reintroduced?]
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