3
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Rejected
Shortcomings in the Scheme’s design have exposed the taxpayer to potentially significant losses. Government achieved its very narrow objective of distributing cash quickly and to a very large number of small businesses across the UK. It delivered £8.4 billion in the first week and £21.3 billion in the first month, …
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Shortcomings in the Scheme’s design have exposed the taxpayer to potentially significant losses. Government achieved its very narrow objective of distributing cash quickly and to a very large number of small businesses across the UK. It delivered £8.4 billion in the first week and £21.3 billion in the first month, and as of 6 September, 90% of loans went to micro-businesses across the UK. This was achieved by removing the checks that extended the delivery period beyond 48 hours; increasing the level of risk through the lack of credit, application and affordability checks. Applicants need only to self-certify the data provided in their loan 6 Covid-19: Bounce Back Loan Scheme application. In the first year, Government is paying interest on the loans on behalf of borrowers, costing approximately £1 billion. In addition, taxpayers are exposed to both avoidable and unavoidable risks: fraud, viability of the underlying business, and unaffordability respectively. The Department estimates potential losses from both fraud and credit risk as somewhere between £15 billion to £26 billion, with the credit losses being the largest part. This estimate is highly uncertain and could be even higher. It indicates that Government was prepared to accept a higher level of risk to ensure that loans were available to SMEs as quickly as possible. Recommendation: Before launching or renewing a Scheme, HM Treasury should be explicit on the level of losses it is likely to entail and the evidence that this analysis is based on. For the remainder of this Scheme, and future schemes, HM Treasury must better balance the interests of the taxpayer with the interests of businesses. It should demonstrate that its controls are cost effective and associated judgements reflect the appropriate balance between achieving immediate policy aims and protecting taxpayers’ money. It should start by assessing whether full reliance on self-certification is still appropriate.
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Government response AI summary
The government explicitly disagrees with the recommendation to be explicit about likely losses before launching schemes, citing the need for rapid action during the pandemic and the high uncertainty of early estimates. It confirms the department is refining loss estimates for future updates to Parliament …
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HM Treasury
12
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Rejected
Under the Scheme, the Government pays a borrower’s first 12 months of interest directly to the lender. At the end of September, when some 1.2 million loans were issued, the Department and the Bank forecast this to cost £1,068 million (£847 million in 2020–21 and £221 million in 2021–22); this …
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Under the Scheme, the Government pays a borrower’s first 12 months of interest directly to the lender. At the end of September, when some 1.2 million loans were issued, the Department and the Bank forecast this to cost £1,068 million (£847 million in 2020–21 and £221 million in 2021–22); this will rise as more loans have been issued. The Taxpayer, because of the Government guarantee, will also bear other costs: fraud and credit losses. A credit loss is where an eligible borrower does not repay a loan. Fraud results from dishonesty which can be a false representation or a failure to disclose information with the intention to cause financial gain or loss such as applications by ineligible businesses.29 The Department estimates that these losses could be anywhere between 35% and 60% of the value of the loans made: in the region of £15 billion to £26 billion, with the credit losses being the majority.30 This estimate is highly uncertain and could be even higher.31 21 C&AG’s Report, paras 13, 14 22 Q 31 23 Q 81 24 Q 3; C&AG’s Report, para 14 25 Qq 75–79 26 Q 44 27 Qq 17–19, 38 28 Q 24 29 C&AG’s Report, paras 20–21, 2.15 30 Qq 18, 27 31 C&AG’s Report, para 3.7 Covid-19: Bounce Back Loan Scheme 11 2 Scheme risks and impacts Managing the risk of fraud and non-repayment
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Government response AI summary
The government rejected the recommendation, stating that due to urgency and uncertainty, it was not possible to make explicit statements on likely losses before the scheme's launch, but it will refine estimates and update Parliament, and commit to a full impact assessment later.
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HM Treasury
14
Recommendation
Thirty-third Report: Covid-19: Bounce B…
Rejected
The Department has not identified what types of fraud it will prosecute, with the Department suggesting there is a range of criminality in fraud; it has euphemistically referred to ‘hard’ and ‘soft’ fraud.34 Hard fraud refers to a type of fraud committed by criminal organizations with the intention to defraud …
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The Department has not identified what types of fraud it will prosecute, with the Department suggesting there is a range of criminality in fraud; it has euphemistically referred to ‘hard’ and ‘soft’ fraud.34 Hard fraud refers to a type of fraud committed by criminal organizations with the intention to defraud an organization. Soft fraud consists of borrowers exaggerating otherwise-legitimate claims, such as overstating turnover in order to receive a larger loan. We are is not convinced that this definition sufficiently answered the question regarding the counter-fraud protocols and the need for additional legislation to tackle fraud.35
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Government response AI summary
The government rejected the recommendation, stating it does not intend to make public the details of its counter-fraud approach to avoid compromising its effectiveness, and that prosecution decisions are independent.
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HM Treasury