Billions of taxpayers’ money will be lost to Covid loan fraud due to the government’s failure to act, MPs have warned.
The public accounts committee of MPs noted the department for business, energy and industrial strategy’s (BEIS) latest estimate of £4.9bn of losses, but said the true extent will only be gradually revealed “as assessments catch up with payments made”.
MPs found that BEIS was aware of heightened fraud risks within its Covid-19 business support schemes from the start but did not make full use of all its available tools to prevent and detect fraud.
The department expected that some borrowers would attempt fraud, so sought direction from ministers highlighting some of the risks posed by fraud, but this did not identify or reflect the potential risks from organised economic crime, the report showed. BEIS also did not try to quantify the potential fraud exposure.
The number of new companies being registered in 2020 to 2021 rose by over 20 per cent compared to any of the previous five years, and each could potentially apply for Covid-19 business support.
The public accounts committee said the fact that 170,000 new companies were set up at the start of the national lockdown appeared to be a “warning sign warranting closer scrutiny”. The MPs also cited Lord Agnew who suggested over 1,000 firms received emergency business support despite not trading at the start of the pandemic and called this a “schoolboy error”.
The committee said it is concerned that identifying fraud and error so late will hinder both recovery efforts and the deterrent effect in future crises.
The MPs said the department has yet to set out how it is learning lessons from managing its pandemic support schemes to better protect taxpayers’ money in future.
The report called for BEIS to clearly explain how it is planning to recover funds it identifies as claimed fraudulently or paid out in error, continue to refine its estimates of the level of fraud and error in its Covid loans and apply any lessons learned from these to future support schemes.
It also called for the department to ensure the expected scale and sources of fraud risk should be clearly communicated to ministers when ministerial directions are sought.
“BEIS says it saw this risk coming but it’s really not clear where government was looking when it set up its initial Covid response,” said Dame Meg Hillier MP, chair of the public accounts committee.
“It offered an open goal to fraudsters and embezzlers and they have cashed in, adding billions and billions to taxpayer woes.
“These lessons should have been learned from the banking crisis a decade ago, and could have been prepared in the government’s pandemic exercises.
“These mistakes must be written out of future crisis responses, now, and government would do well to apply the learnings to the mounting, interrelated crises it now faces in climate change, energy supply and the cost of living.”
The committee has previously attacked the government for being complacent in recovering funds and missing opportunities to prevent fraud from the bounce back loan scheme.