Recommendations & Conclusions
10 items
2
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
The Scheme was implemented with impressive speed but does not strike the right balance between supporting business and protecting the taxpayer. Thanks to the hard work and effort of civil servants, the Scheme was launched within two weeks of the Chancellor of the Exchequer proposing it to the Department and …
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The Scheme was implemented with impressive speed but does not strike the right balance between supporting business and protecting the taxpayer. Thanks to the hard work and effort of civil servants, the Scheme was launched within two weeks of the Chancellor of the Exchequer proposing it to the Department and the Bank. Re- tasking one of the Bank’s existing business support schemes enabled Government to get things up and running quickly. But Government’s desire to move quickly was based on anecdotal evidence, and a survey in mid-April that concluded one- third of businesses would probably not be able to access enough cash to last more than two weeks of lockdown. Beyond this, no clear estimates were drawn up to consider the cost of not delivering cash to the businesses within this 2-week period. The Scheme had no business case which means we heard limited evidence of a consideration of how many businesses might be unviable irrespective of the impacts of the pandemic, which business sectors needed support and how much, or the level of losses Government might be prepared to bear on the Scheme. Recommendation: The Department should use all available data when implementing new business support schemes. It should use this to develop scenario- based analysis of most likely outcomes and use this to minimise taxpayer risk. It should be clear where data is insufficient to form evidence-based judgements.
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Government response AI summary
The government agreed and stated it implemented the recommendation by actively using all available data in scheme design, undertaking analytical work with dashboards and data comparisons, and developing a comprehensive monitoring and evaluation plan for all three loan schemes, including tendering for an external evaluation …
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HM Treasury
5
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
HM Treasury has not yet finalised the rules lenders need to follow to ensure overdue loans are repaid. If a borrower does not repay the loan HM Treasury expects lenders to try to recover the money owed. But there is no requirement to complete this recovery process before the lender …
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HM Treasury has not yet finalised the rules lenders need to follow to ensure overdue loans are repaid. If a borrower does not repay the loan HM Treasury expects lenders to try to recover the money owed. But there is no requirement to complete this recovery process before the lender can claim the Government guarantee. HM Treasury is yet to outline the specific rules around the recovery process but plans to complete the work in relation to the loan recovery process by winter 2020–21, in advance of the first repayments which are due in May 2021. At present, lenders are expected to pursue unpaid loans using their own businesses processes and there is a lack of clarity about when lenders can claim the guarantee. The recovery process is unique for each lender, and without detailed rules from HM Treasury risks borrowers being treated differently depending on their lender, and a Covid-19: Bounce Back Loan Scheme 7 potentially inconsistent use of the Government guarantee. Recommendation: HM Treasury should ensure that the recovery rules are confirmed prior to repayment, and that they are uniform in their fair and thorough recovery of loans.
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Government response AI summary
The government agreed and stated it has already implemented the recommendation by working with UK Finance and lenders to develop and share consistent recovery guidance, aligning it with regulatory bodies. They opted not to publish the guidance publicly to avoid compromising recovery processes.
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HM Treasury
10
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
The government’s view that businesses were unable to survive more than a two- week lockdown period was based on anecdotal evidence, and a survey conducted by the Association of Chartered Certified Accountants in mid-April.23 The Department told us that its prime role when gathering data to inform decisions on support …
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The government’s view that businesses were unable to survive more than a two- week lockdown period was based on anecdotal evidence, and a survey conducted by the Association of Chartered Certified Accountants in mid-April.23 The Department told us that its prime role when gathering data to inform decisions on support schemes is to consider the economic impact, however it did not prepare a business case for the Scheme.24 Furthermore, the Department was not aware of any estimates made of the anticipated loss to the economy if the Scheme had been designed differently.25 Nor did Government have any information on which types of business were most in need of support, and which would be unsustainable even in the absence of a pandemic.26 Shortcomings in the Scheme’s design
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Government response AI summary
The government agreed and stated it has implemented the recommendation by actively seeking to use all available data in scheme design, developing analytical models, and commissioning a comprehensive monitoring and evaluation plan for all three loan guarantee schemes.
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HM Treasury
11
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
The Department informed us that the speed at which finance could be provided was a key design and operational requirement. We were told that the Department placed no budgetary cap on the Scheme and that demand was far greater than the Department anticipated. Government does not know how much of …
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The Department informed us that the speed at which finance could be provided was a key design and operational requirement. We were told that the Department placed no budgetary cap on the Scheme and that demand was far greater than the Department anticipated. Government does not know how much of this demand resulted from businesses needing the cash or just taking advantage of cheap and readily available finance as there are no credit and affordability checks under the Scheme, and the Department and the Bank are not collecting relevant data.27 International schemes required more detailed application checks and are more restrictive in the use of proceeds.28
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Government response AI summary
The government agreed and stated it has implemented the recommendation by actively seeking to use all available data in scheme design, developing analytical models, and commissioning a comprehensive monitoring and evaluation plan for all three loan guarantee schemes.
Read full response →
HM Treasury
15
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
The Bank does not collect information on how businesses have used the loans.36 The NAO report outlined that there is some evidence that businesses are using the money to pay back existing debt, which the Bank describes as a ‘economically rational’ for businesses to do.37 But this would reduce the …
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The Bank does not collect information on how businesses have used the loans.36 The NAO report outlined that there is some evidence that businesses are using the money to pay back existing debt, which the Bank describes as a ‘economically rational’ for businesses to do.37 But this would reduce the benefit of the Scheme as it would only make a small difference to a businesses’ available cash; it would, however, help lenders reduce their exposure to bad debts as the Scheme loans are subject to a government guarantee. The Bank said it will investigate how businesses have used the loans during 2021, which may be after the Scheme closes.38 This lack of data undermines the Bank’s ability to understand the impact of the Scheme, to monitor and report levels of fraud, and to use information to better inform future schemes. The Department told us that any initial evaluation of the Scheme will not start until 2021, with further reviews over time, across the six to ten year pay-back period.39 Rules for lenders to follow to debt recovery
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Government response AI summary
The government agreed and is implementing a Monitoring and Evaluation plan for the schemes, with an independent evaluator contracted to publish an initial assessment by Autumn 2021, and will develop SMART objectives for future schemes.
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HM Treasury
17
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
HM Treasury and the Bank told us they are continuing to work with lenders on debt recovery protocols and processes that are fair to businesses, lenders and taxpayers. HM Treasury expects lenders to try to recover the money owed but there is no requirement to complete this recovery process before …
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HM Treasury and the Bank told us they are continuing to work with lenders on debt recovery protocols and processes that are fair to businesses, lenders and taxpayers. HM Treasury expects lenders to try to recover the money owed but there is no requirement to complete this recovery process before the lender can claim the government guarantee.43 HM Treasury is yet to outline the specific rules around the recovery process but plans, alongside the Bank, to complete the work in relation to the loan recovery process by winter 2020–21, in advance of the first loan repayments which are due in May 2021.44 The Department and the Bank are in the process of “codifying expectations for recoveries”. At present, lenders are expected to pursue unpaid loans using their own businesses processes, and there is a lack of clarity about when lenders can claim the guarantee.45 Currently, the recovery process is unique for each lender. Thus, without detailed rules, HM Treasury risks borrowers being treated differently depending on their lender, and a potentially inconsistent use of the Government guarantee.46
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Government response AI summary
The government agreed and stated it has already implemented the recommendation by working with lenders to develop consistent recovery guidance, which has been shared with accredited lenders.
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HM Treasury
18
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
HM Treasury explained to us that, at present, recoveries for the smaller loans are captured and overseen by the FCA and, for larger loans, by the Lending Standards Board. Thus, although the details have not been clarified, there is already an existing structure regarding recoveries. In turn, it is the …
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HM Treasury explained to us that, at present, recoveries for the smaller loans are captured and overseen by the FCA and, for larger loans, by the Lending Standards Board. Thus, although the details have not been clarified, there is already an existing structure regarding recoveries. In turn, it is the case that, if lenders do not pursue recoveries as expected, they will not be able to collect the guarantee.47 Measuring the Scheme’s impact
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Government response AI summary
The government agreed and stated it has already implemented the recommendation by working with lenders to develop consistent recovery guidance, which has been shared with accredited lenders.
Read full response →
HM Treasury
19
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
The Government indicated that its overarching objective was speed.48 No written objectives were outlined at the inception of the Scheme and no business case was put forward. The Bank, HM Treasury and the Department, did not agree the Scheme objectives until 15 July and there are no plans in place …
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The Government indicated that its overarching objective was speed.48 No written objectives were outlined at the inception of the Scheme and no business case was put forward. The Bank, HM Treasury and the Department, did not agree the Scheme objectives until 15 July and there are no plans in place to measure the Scheme’s impact.49 Performance measures, such as the number of insolvencies prevented, have not been decided. The Department believes the Scheme was a success as it reached micro- businesses across regions and sectors.50 However, neither the Department nor the Bank know which businesses would not have survived with or without a pandemic. The Bank informed us that it would seek to identify those businesses during its Scheme monitoring and evaluation.51
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Government response AI summary
The government agreed and committed to implementing a Monitoring and Evaluation plan for the current schemes by Autumn 2021, including an independent evaluation contractor for process, impact, and economic assessments. It also committed to analysing the wider lending market and ensuring SMART objectives and performance …
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HM Treasury
20
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
The National Audit Office has previously recommended that the Bank focus more 41 UK Finance Written Evidence, para 27 42 Q 49 43 Q 70; C&AG’s Report, para 3.8 44 Q 72 45 Q 64 46 Qq 70, 71 47 Qq 48, 71 48 Qq 19, 26, 27 49 C&AG’s …
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The National Audit Office has previously recommended that the Bank focus more 41 UK Finance Written Evidence, para 27 42 Q 49 43 Q 70; C&AG’s Report, para 3.8 44 Q 72 45 Q 64 46 Qq 70, 71 47 Qq 48, 71 48 Qq 19, 26, 27 49 C&AG’s Report, paras 14, 1.11 50 Q 19 51 Qq 37, 44 Covid-19: Bounce Back Loan Scheme 13 closely on the cost effectiveness of its support schemes. During its audit the NAO found that the bank did not bring together information on costs, activity, and outcomes to be able to effectively measure impact and evaluate success.52 HM Treasury confirmed to us that, in preparation for future schemes, they will look at the lessons to be learned from this Scheme.53
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Government response AI summary
The government agreed and stated it has implemented the recommendation by using all available data in scheme design, undertaking analytical work, and developing a comprehensive monitoring and evaluation plan for all three loan guarantee schemes, including tendering for an external evaluation contractor.
Read full response →
HM Treasury
21
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Accepted
As HM Treasury informed us, during the 24 September Winter Economy Plan Statement, the Chancellor indicated there would be a further loan scheme, which is currently in development and will be announced early 2021.54 It is important that any replacement guarantee scheme also enables all lenders to compete effectively in …
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As HM Treasury informed us, during the 24 September Winter Economy Plan Statement, the Chancellor indicated there would be a further loan scheme, which is currently in development and will be announced early 2021.54 It is important that any replacement guarantee scheme also enables all lenders to compete effectively in the market. The Bank’s Reservation Notice at the start of the Scheme highlighted concerns about the impact on competition in the market. This is in direct relation to the Bank’s objective of creating “a more diverse finance market for smaller businesses, with a greater choice of options and providers”.55 The five largest lenders provided 89% of loans under the Scheme, compared to 65% of total SME debt, increasing their share of the SME lending market.56 52 C&AG’s Report, British Business Bank, Session 2019–20, HC 21, 10 January 2020 53 Q 83 54 Q 34 55 https://www.british-business-bank.co.uk/what-the-british-business-bank-does/ 56 C&AG’s Report, para 24 14 Covid-19: Bounce Back Loan Scheme
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Government response AI summary
The government agrees with the recommendation for future schemes to enable effective lender competition. It is implementing a Monitoring and Evaluation plan, tendering for an independent evaluator, and will publish an initial assessment by Autumn 2021, ensuring SMART objectives for future schemes.
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HM Treasury