UK taxpayer on hook for billions lost on Covid business loans

More than £1bn of taxpayer-funded loans made under the UK government’s Covid “bounce back” scheme have been identified as potentially fraudulent, according to official data published on Monday.

UK banks have also claimed or received £3.8bn in government money to cover defaults under the scheme — a sign of the vast amounts that will be needed to cover the emergency loans made to small businesses in the first months of the pandemic.

The data, part of a new dashboard of bank performance on bounceback loans, for the first time revealed which banks have the largest exposure to default and fraud under the scheme. It will raise fresh questions about whether they should have done more to weed out fraudsters before giving out state-backed loans.

As incoming prime minister Liz Truss prepares a massive financial support package to help struggling households cope with soaring energy bills, the scale of the losses is also a reminder that the government is still covering the costs of the pandemic.

Under the bounceback scheme, government-backed loans worth more than £46bn were given to companies with only light checks on eligibility to encourage banks to lend quickly.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

However, billions of pounds are now feared lost to fraudsters, with official estimates as high as almost £5bn.

Banks have been criticised by ministers for not doing more to stop fraud in the scheme and, more recently, for not pursuing companies to recover taxpayers’ cash.

Bank executives reject the accusations, arguing that they were simply following rules set out by the Treasury to lend to struggling companies as quickly as possible.

Of the £3.8bn to cover loan defaults, £1.2bn has already been paid to the banks by the Treasury, with about £263mn of this covering suspected fraudulent loans.

Lenders have reported that loans worth a further £3.2bn are in arrears, and a further £1.4bn worth have now defaulted.

The government data also showed that £28.3bn of loans were being repaid on schedule, while a further £4.7bn had been fully repaid.

Government efficiency minister Jacob Rees-Mogg at the weekend wrote to Starling Bank asking how it would recover cash lost under the scheme. Starling’s total value drawn under the scheme was £1.6bn, of which more than £600mn is either in arrears, default or has been claimed against and settled. It has identified £92mn in suspected fraud.

Starling said that it “took a strong and proactive stance to protect taxpayers’ money, as well as to support our customers and help them repay their loans”. It described “direct comparisons between Starling Bank and other lenders” as “difficult, given limitations of the data and the different characteristics of each lender’s customer base”.

Almost a third of the loans made by Tide, another online bank, have also been paid out under the guarantee, while about half of the loan book of New Wave Capital has been settled.

More than £450mn of the £1.4bn lent by Metro Bank is also in arrears, default or has been claimed against and settled.

Metro said that “although it is too soon to draw concrete conclusions we can see data beginning to normalise and expect to see Metro Bank’s position align to our overall contribution to the BBLS scheme over time”.

It added that it “understood [its] responsibilities under the programme and at all times complied with the spirit and rules of the scheme [taking] a rigorous approach to detecting fraudulent BBLS loan applications.”

The largest amounts of suspected fraud were flagged by Lloyds and Barclays, at £304mn and £259mn, respectively, but these banks also have two of the largest bounce back loan books at £8.5bn and £10.7bn. Barclays, the largest lender under the scheme, has also claimed or had its claims settled on more than £1bn of loans.

“We continue to proactively tackle BBLS fraud, and we are committed to the identification, escalation and recovery of fraud within the schemes — compliant with the requirements of the Government Lending Schemes,” said Barclays.

Tide, Lloyds and New Wave Capital did not immediately respond to a request for comment.