The British Business Bank has pledged to “call out” banks that took taxpayer cash to cover losses on fraudulent Covid loans, but failed to apply the minimal checks.
Patrick Magee, the state-owned business bank’s chief commercial officer, told MPs on the Treasury Committee on Wednesday that nearly £63m had been paid out on potentially fraudulent coronavirus business loans to UK banks so far.
He said that sum could be clawed back if banks are found not to have applied the most minimal checks, even where they relied heavily on self-certification by borrowers.
“That’s because we believe that they didn’t apply the checks, and we’re continuing to challenge them,” Magee said.
Banks that lose that challenge will have the government guarantee removed, meaning lenders will have to shoulder the losses, including on bounce back loans which were 100% backed by taxpayer cash.
“We have many incentives to make sure banks do the right thing, and if they don’t, we’ll call them out,” Magee explained.
He added that some lenders had already recognised their own errors, meaning they had dropped claims to £240m worth of government cash to cover losses on fraudulent Covid loans.
It is believed that about £4.9bn was lost to fraud through the bounce back loan scheme, which was administered through the BBB and distributed through commercial banks including NatWest, HSBC, Lloyds, and Barclays.
A further £5.7bn is estimated to have been lost from fraud and error within the furlough and self-employment programmes.
The comments came as the Treasury announced plans for a £25m “fraud squad” after MPs criticised the government’s failure to crack down on criminals who stole billions of pounds of taxpayers’ cash through the Covid support schemes.
Announcing the creation of the Public Sector Fraud Authority on Wednesday, the Treasury said it would double the government’s counter-fraud efforts, adding to the work of the £100m taxpayer protection taskforce launched more than a year ago.
The PSFA, which is to start operating by July, will be run through the Cabinet Office and given the £25m budget to “crack down on criminal gangs who rip off the taxpayer”.
The Treasury could not immediately confirm how many people would be recruited to the PSFA but said it would be staffed by an “elite team” of data experts and economic crime investigators tasked with recovering public funds.
They will also be in charge of spotting “suspicious companies and people” trying to gain access to government contracts, and review existing Whitehall programmes to try to detect any vulnerabilities to fraud.
The announcement came hours after parliament’s public accounts committee called for more resources to counter fraud, after criticising the government for its “unacceptable” failure to recover taxpayer cash.
The chancellor, Rishi Sunak, said on Wednesday: “People are rightly furious that fraudsters took advantage of our vital Covid support schemes, and we are acting to make sure they pay the price.”
The shadow chancellor, Rachel Reeves, said the need for a new authority was a consequence of the chancellor “repeatedly ignoring warnings about a lack of anti-fraud measures in his support schemes”.
She said: “It is unforgivable that £11.8bn of taxpayer money has been handed to fraudsters and criminals, and particularly painful when the government is piling new taxes on working people and businesses.”
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‘Challenge’ for banks that used taxpayer cash to cover fraudulent Covid loan losses