Plans to recoup huge taxpayer losses on Covid-19 loans are “woefully underdeveloped” and the UK government has yet to assess the sheer scale of the fraud, according to an influential Commons committee.
The all-party Public Accounts Committee (PAC) said the government has no adequate plans to manage the taxpayer risks from the bounce-back loan program, either from fraud or from borrowers failing to repay.
The National Audit Office (NAO) warned earlier this year that taxpayers could lose up to £26 billion.
However, in its latest report, the PAC said the UK government still does not have the data to assess the level of fraud within the system – meaning the cost to taxpayers could be even higher.
It added that the Treasury Department has yet to agree on the process and protocols for lenders to follow when collecting delinquent loans.
The committee said: “The government’s plans to deal with risks to the taxpayer – both from fraud and from borrowers defaulting on loans – are woefully underdeveloped.
“The government has no anti-fraud strategy for the system and has not specified what types of fraud it will prosecute.”
The report comes after top bankers warned on Monday that the level of fraud from taxpayer-backed Covid-19 loans is about five times higher than typical figures.
Bosses at Lloyds and Santander told Treasury Select Committee MPs about 1 percent of bounce-back loans were taken fraudulently.
Chancellor Rishi Sunak launched the bounce-back loan program at the height of the pandemic, covering 100 percent of loans and urging banks to ensure lending can be done quickly.
But the lending programs had to be rushed to market to keep businesses afloat during the spring’s initial coronavirus lockdown, which meant businesses could self-certify and lenders didn’t have to conduct credit or affordability checks.
The PAC reiterated the findings of its earlier report, which criticized the government for making the economy vulnerable to a pandemic despite a known risk.
Meg Hillier, Chair of the PAC, said: “Although the Government knew the issue was ‘when’ rather than ‘if’ a severe pandemic would hit the country, the Government did not develop any plans to support the economy.
“The rush to get cash out the door after the fact did not allow for analysis of how many companies needed, benefited from, or were able to repay this aid.
“Abolishing the simplest of checks was a huge problem, putting billions of dollars at risk for the taxpayer.”
The PAC is asking the government to provide updates on how it intends to deal with fraud in the systems, while the British Business Bank should report within two weeks with the latest estimates of fraud.
It also recommends that the Treasury evaluate whether it is right to continue to rely on companies’ self-certification and establish recovery rules before repayments are due in May 2021 to ensure “fair and thorough loan recovery”. .
“For the remainder of this program and future programmes, HM Treasury must better align taxpayer interests with corporate interests,” the report said.
The PAC also emphasized that the programs likely reduced competition in the small business lending market, as the top five lenders provided the most loans.
A government spokesman said: “We have targeted this support to help those who need it most and we will not apologize for that.
“We are acting to tackle Covid fraud, with lenders implementing a range of safeguards including anti-money laundering, customer screening and transaction monitoring controls.”