The leader of an influential group of MPs has accused the government of using the speed of its response to the pandemic to excuse a “contempt” for what it will cost the taxpayer.
Meg Hillier said fellow members of the Public Accounts Committee were “unpleasantly surprised” to learn that the government had learned “little” from the 2008 banking crisis.
The committee, chaired by Dame Meg, said the Department for Business Energy & Industrial Strategy (Beis) was ‘complacent’ in preventing fraud under the Bounce Bank Loan Scheme, which funneled billions to small businesses .
The Committee was unpleasantly surprised at how little the government learned from the 2008 banking crisis and, even now, it is not at all convinced that these hard lessons will be incorporated for future emergencies.
“With weary inevitability, we see a government department using the speed and scale of its response to the pandemic as an excuse for a complacent disregard for the cost to the taxpayer,” Dame Meg said.
“More than two years later, Beis has no long-term plan to chase down overdue debt and isn’t focusing on lower-level fraudsters who may well walk away with billions in taxpayer dollars.
“The Committee was unpleasantly surprised at how little the government learned from the 2008 banking crisis and, even now, it is not at all convinced that these hard lessons will be incorporated for future emergencies.
“Beis must commit now to identifying the anti-fraud measures needed at the start of any new emergency regime so that the taxpayer is better protected in the future. He must also define the trade-offs and the level of fraud he initially tolerate.
The Committee said the government relied too heavily on the banks that lent money to small businesses to get it back.
Yet this gives lenders little incentive to do much to prosecute potentially fraudulent loan takers, or even those who fail to repay for other reasons.
Around £47bn has been disbursed in loans to 1.5m businesses under the Bounce Back loan scheme. The money came from the banks but, if the companies were unable to repay, the government promised to repay the lenders in full.
It won’t be known for long how much this will end up costing the taxpayer, but a highly uncertain estimate from Beis is that £17billion may never be repaid.
“The evidence for the effectiveness of lender operations is thin, but there are worrying indicators,” reads the PAC report.
While banks must try to seek loans as part of their contract with the government, there is little financial incentive for them to do more than the bare minimum.
“None of the witnesses could tell us how much the lenders spend on this,” the report said.
“The department now plans to create a simple dashboard of management information to improve its ability to hold lenders to account.
“Together this paints an unconvincing picture of how lenders are burdening large amounts of unpaid debt and we are not convinced that lender audits replace business incentives.”
The committee said officials should explain how they plan to collect overdue payments once the banks get their turn.
A British Business Bank spokesperson said: “We recognize the recommendations of the Public Accounts Committee.
“The Bank will publish this summer an initial assessment and impact assessment of the Covid-19 emergency lending programs, including rebound loans, with further assessments to follow in 2023 and 2024.”
“Our May 2020 booking notice outlined our concerns about possible market distortion. Despite these concerns, our recent Small Business Finance Markets report highlighted a rebound in activity
“Challenger and specialist banks accounted for just over half of bank loans in 2021, a record share. In addition, private debt, asset finance, invoice finance and asset-based lending, and alternative finance all saw a rebound in activity after a difficult 2020.
A government spokesperson said: “We continue to crack down on Covid support scheme fraud and will not tolerate those who seek to defraud consumers and taxpayers.
“These programs have been implemented with unprecedented speed to protect millions of jobs and businesses. If the government did not act quickly, more businesses would have failed and many more jobs would have been lost.