Source · Select Committees · Public Accounts Committee
Recommendation 12
12
Under the Scheme, the Government pays a borrower’s first 12 months of interest directly to...
Conclusion
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
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.