Rishi Sunak has defended the Government's Covid-era Bounce Back Loan (BBL) scheme against claims it was rife with fraud, telling the Covid-19 inquiry the need to act quickly outweighs the risks.
The former chancellor said he was fully aware of the weaknesses of the scheme when it was launched in May 2020, but insisted that delaying the introduction of additional checks would have risked the collapse of hundreds of thousands of small businesses.
Giving evidence at the inquiry, Sunak said, “I continue to listen as if no investigation was carried out, or we had no idea what we were doing.” “Both of those narratives are completely wrong. Of course we knew the risks we were taking.”
The Bounce Back loan allowed small businesses to borrow up to £50,000 with a 100 per cent government guarantee, meaning taxpayers would cover losses if companies defaulted. Around 1.5 million loans worth around £46 billion were issued, making it the largest of the government's pandemic support schemes.
A report published last week by Tom Hayhoe, the Covid counter-fraud commissioner, estimated that fraud and error in the scheme could total up to £2.8 billion, with £1.9 billion already flagged as fraudulent by lenders. The Public Sector Fraud Authority believes the final figure may be higher, as some types of fraud are not fully caught by current reporting methods.
The Hayhoe report found that the scheme was launched in less than two weeks and relied largely on standard banking fraud controls. Although loans were capped at 25 percent of turnover, lenders had to accept applicants' declarations without independent verification. There was also no investigation into whether businesses were actually affected by the pandemic or how the funds were used.
Sunak acknowledged those weaknesses but said the speed of delivery was important. He told the inquiry that about 40 per cent of all bounce back loans were issued in the first four weeks and even the slightest delay could have led to massive business failures.
“You could have reduced the ultimate level of fraud by waiting and making some of these checks,” he said. “But then you have to be confident that you are going to accept the loss of business that may result from this.”
There was no pressure to slow down the plan at that time, he said. “No one was waving hands saying, 'Slow it down, more testing, more form filling,'” he said.
Sunak also argued that the fraud rate of around 4 per cent was broadly in line with other large government programmes, such as universal credit, working tax credits and housing benefit.
Following the launch of the scheme, the government introduced additional safeguards, including a system to prevent companies from taking out multiple loans through different banks, which was against the rules.
Looking ahead, Sunak said that if a similar emergency plan were needed again, better data on companies and better systems would make the tradeoff between speed and fraud prevention “less acute”. However, he warned that such agreements would never be fully implemented.
“But we should never think that such an agreement is not going to happen,” he said. “there is.”
