Source · Select Committees · Public Accounts Committee
Recommendation 3
3
Shortcomings in the Scheme’s design have exposed the taxpayer to potentially significant losses.
Conclusion
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.
Government Response
Not Addressed
HM Government
Not Addressed
3: PAC conclusion: Shortcomings in the Scheme’s design have exposed the taxpayer to potentially significant losses. 3a: PAC 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. 3.1 The government disagrees with the Committee’s recommendation. 3.2 Throughout the pandemic, the government’s priority has been to act quickly to protect businesses and jobs, whilst using public funds responsibly. As previously set out to the Committee, businesses were in urgent need of rapid financial support and the Scheme was designed to address this need. Ahead of the Scheme’s launch, the department looked at a range of data and conducted analysis in an attempt to estimate value for money. However, the degree of uncertainty across a number of parameters was such that it was not possible to make an explicit statement on the relative balance of likely costs and benefits. Given this uncertainty, a direction was sought and provided from the then Secretary of State, who subsequently confirmed an initial contingent liability of £27 billion, as set in a departmental minute laid before Parliament. 3.3 The range of potential losses from the Scheme remains highly uncertain, particularly in the absence of any repayment data (which will not become available until June 2021). The BEIS Annual Report and Accounts 2019-20, published in September 2020, cited estimated losses of 35-60%. This initial indicative range is based on historic losses observed in prior programmes overlaid with a range of assumptions relating to macroeconomic scenarios. Actual losses could be significantly different to estimated losses. More generally, the extent of overall losses will depend to a significant extent on the performance of the UK economy over the next decade. 3.4 The department is working to refine these estimates and will update Parliament as part of its 2020- 21 Annual Report and Accounts. In the longer-term, the department is committed to undertaking a full impact assessment as part of its Monitoring and Evaluation Plan which will examine whether or not the Scheme demonstrates value for money.