Taxpayers suffer losses of up to £ 26bn on loan scheme, watchdog says

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Taxpayer faces losses of up to £ 26bn due to fraud and company defaults on the government’s coronavirus lending program for small businesses, a watchdog report says expenditure of Parliament which revealed that loopholes had been exploited by criminals.

The National Audit Office said on Wednesday the government was prioritizing the need for prompt payments to businesses through its rebound lending program and was prepared to tolerate a potentially very high level of losses as a result.

More than £ 38 billion in rebound loans have been issued by banks, which have 100% state guarantees.

The program is a key part of the government’s efforts to help businesses weather the coronavirus crisis, and has provided loans worth up to £ 50,000 each to around 1.1 million businesses.

But the government has asked banks to perform only light checks on borrowers to enable them to lend quickly.

Meg Hillier, chair of the House of Commons public accounts committee, said the “rushed launch” of the rebound loan program may have helped criminals take billions off the taxpayer.

She added that the program could turn out to be a “mind-boggling loss of public money,” given estimates that up to 60% of loans could go wrong.

“Unfortunately, many businesses will not be able to repay their loans and the banks will be quick to wash their hands of the problem,” Ms. Hillier said.

The annual report of the Department of Business, Energy and Industrial Strategy last week indicated that the probable total credit and fraud losses on the rebound loan program would be between 35% and 60% of the value. money loaned.

“Assuming the program lends £ 43bn this would imply a potential cost to the government of £ 15-26bn,” the NAO said.

The NAO report also found that the control systems for bounce loan applications were not in place as of May when the program was launched, which meant that fraudsters could file duplicate loan applications for a period of time. month.

He said those fraudulent claims could account for 2.3% of claims approved in May, when around £ 18bn was loaned by banks, according to government figures.

The NAO said the rebound loan program carries a much higher risk of fraud than normal for the public sector.

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“The Cabinet Office. . . estimates that losses due to fraud are likely to be significantly higher than general estimates of levels of fraud in the public sector of 0.5 to 5 cents, ”he added.

The NAO report revealed some of the costs of running the program, so far the government is expected to need around £ 1billion to pay borrowers’ interest in the first year of their loans from banks. Borrowers don’t start paying interest until the second year.

The three main state-backed loan programs for businesses in the coronavirus crisis could also cost around £ 75million in administrative expenses, the NAO said.

He said the rebound loan program had achieved its original goal of quickly supporting small businesses, but “a lot of hard work remains,” including a debt collection plan with lenders and investigative mechanisms. the frauds.

The British Business Bank, the public entity that administers the program, will provide a monthly fraud report from this month.

The BBB said it is committed to ensuring that value-for-money risks are minimized, “in close liaison with government, lenders and other stakeholders.”

The NAO said the Treasury has not yet finalized how lenders should collect overdue loan repayments, but principles for a collection process have been agreed with the banks.

The Financial Times reported in July that the government and lenders were in talks to create a standardized approach, and this could include creating a body that would oversee loan collections.

The NAO has found that some lenders have been slow to approve bounce loan applications, especially for new business customers.

He said most banks approved loans for existing business customers within 24 to 72 hours of submitting applications, but “approval times for new customers are considerably longer.”

The NAO highlighted comments from two major lenders that new customer requests can take between four and 12 weeks to process.

The Commercial Department said, “We have sought to minimize fraud, with lenders implementing a range of protections, including anti-money laundering and customer checks, as well as transaction monitoring checks.

“Any fraudulent claim may be subject to criminal prosecution for which penalties include imprisonment or a fine or both. “

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