Source · Select Committees · Public Accounts Committee
Fiftieth Report - Bounce Back Loans Scheme: Follow-up
Public Accounts Committee
HC 951
Published 27 April 2022
Recommendations
7
The Department has not yet identified how it will share the lessons from the Scheme.
Recommendation
The Department has not yet identified how it will share the lessons from the Scheme. The Department asserts that it has applied some of the lessons it has learned from this Scheme in the subsequent Recovery Loan Scheme, such as …
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HM Treasury
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Conclusions (25)
2
Conclusion
The potential Scheme losses are eye-watering, and we are not convinced the Department has the data it needs to manage the risks to the taxpayer. The Department estimated in its 2020–21 Annual Report and Accounts that it would lose £17 billion as a result of the Scheme, of which £4.9 …
3
Conclusion
The Department has been complacent in preventing Scheme fraud and its prioritisation of ‘top tier’ fraudsters puts other government Schemes at risk. The risks that we identified at the outset of the Scheme have now materialised. The Department requested, and received, a ministerial direction at the start of the Scheme …
4
Conclusion
We are concerned that the Department is placing too much reliance on lenders to minimise taxpayer losses without incentivising them to do so. When the Scheme launched the Department relied solely on lenders to prevent taxpayer losses by requiring them to do ‘know your customer’, and ‘anti-money laundering’ and some …
5
Conclusion
It is unacceptable that the Department has no plans to recover outstanding debt after lenders have pursued borrowers for up to 12 months. There is no minimum term that lenders are required to pursue borrowers for payments. Lenders are not expected to continue to pursue borrowers after 12 months. Lenders …
6
Conclusion
The Scheme has distorted the Small and Medium Enterprise (SME) lending market in favour of the largest UK banks, which goes against the Bank’s objective of creating a diverse finance market for SMEs. The Scheme’s low interest rate made it uneconomical for smaller or alternative lenders to participate to the …
1
Conclusion
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Business, Energy & Industrial Strategy (the Department) and the British Business Bank (the Bank) about the Bounce Back Loan Scheme. We also took evidence from HM Treasury and the Financial Conduct …
8
Conclusion
The Department’s estimate of the credit loss within the Scheme is also uncertain, as there is no credit score data for borrowers because this was not a scheme requirement. Repayments will also be affected by future macroeconomic conditions which are themselves uncertain. In addition, because loans did not begin repayment …
9
Conclusion
The Bank began collecting Scheme loan data from the 24 Scheme lenders in July 2021, where lenders provide data to the Bank via a collections system. The Bank said that it holds loan data from lenders across 70 different datapoints, including the name and address of the borrower, term of …
10
Conclusion
The Scheme rules required commercial lenders to deliver loans and pursue recovery processes in line with their existing business-as-usual standards. The Department and HM Treasury stated that the majority of recoveries and counter-fraud efforts comes from lenders. The Department told us that the commercial banking sector was the “best of …
11
Conclusion
Although the Department referred to lenders as the “arms and legs” of the Scheme, none of the witnesses could tell us how much lenders are spending on counter-fraud activities. The FCA said, for example, that lenders had “scaled up quite significantly”, but it could not tell us when they had …
12
Conclusion
The Scheme requires lenders to pursue borrowers for missed repayments for up to 12 months after the issue of a formal demand. The Department initially told us that lenders had to wait until after the 12 month period to make a claim on the guarantee.25 However, it wrote to us …
13
Conclusion
The NAO reported that the arrangements for pursuing borrowers offered limited commercial incentive for lenders to maximise recovery of overdue loans.28 In contrast, the Bank told us that it believed that lenders have strong legal, contractual and regulatory obligations to recover loans. This included oversight by the FCA and lender …
14
Conclusion
Almost 86,000 borrowers have been in arrears for more than 90 days as of 10 January 2022.34 We asked the Department what steps it was taking to ensure that its approach to recovering loans was as effective as possible and made best use of the data available to it. We …
15
Conclusion
The Department and the Bank recognised that there was a trade-off between getting loans to businesses quickly by removing lender checks and slowing down the delivery of the loans by putting in place more counter-fraud measures. The Bank said that this would have had consequences for the economy, but argued …
16
Conclusion
The Scheme has also made trade-offs in its response to countering fraud and the associated deterrent effects. The Department based its counter-fraud response on the 31 Qq 15, 16 32 Qq 74–75 33 Qq 74–75, 83 34 Correspondence from Catherine Lewis La Torre, Chief Executive, British Business Bank, Re Bounce …
17
Conclusion
We asked the Department if it was confident that enough was being done to tackle medium and bottom-tier fraud, to ensure there is a sufficient deterrent for smaller-scale fraud. It recognised that deterrence is “important” and was “on their minds”. In such cases, the Department said that although criminal prosecution …
18
Conclusion
We reported previously that the Department had no apparent plans to measure the Scheme’s long-term impact, and no agreed performance measures.44 In its Treasury Minute response to our report, the Department gave a high-level summary of the Scheme’s evaluation plans which aimed for an initial assessment by Autumn 2021. However, …
19
Conclusion
We asked the Department whether it currently had the information that it needed to determine whether the Scheme had been a success. The Department told us that it considered that the quality of information that it had about what was currently happening with the Scheme was “very good”, but there …
20
Conclusion
Business survival rates are a key metric for measuring the Scheme’s impact. The Bank has commissioned an external evaluation study, which will report in stages over the next three years.50 We therefore asked the Department when we could expect to see the results from the first stage of its evaluation. …
21
Conclusion
Lenders used their own funds to make Scheme loans, with government guaranteeing to reimburse lenders if borrowers do not repay. How lenders raise funds differs according to size and type of lender; the more cheaply they can raise funds the more profitable the loans might be. While many large lenders …
22
Conclusion
The NAO reported that there were seven accredited lenders when the Scheme launched in May 2020, consisting of five main UK banks and two other banks.55 The Bank acknowledged that it took several months to accredit the additional 21 of 28 lenders in total to the Scheme, by which time …
23
Conclusion
The Bank recognised that it was “absolutely true that [the Scheme] had a distortive effect” but suggested that this was “diluting over time”.59 It confirmed that it still had an objective of encouraging diversity in lending markets. It explained that it reports on market shares of lenders in its annual …
24
Conclusion
We highlighted previously that government needed to use the lessons learned from this Scheme to inform future schemes.62 We therefore asked the Department about examples of where it had identified and responded to lessons from the Scheme. The Department said that it had implemented learnings in the new Recovery Loan …
25
Conclusion
We were concerned that the Department should have identified these lessons when it supported businesses in the 2008 Financial Crisis. In 2010, the NAO’s report on the Department’s support to business during a recession concluded that the “impact [of the Department’s response to the financial crisis] could have been improved …
26
Conclusion
We asked whether, with hindsight and more time, it would have been possible to design a scheme that would have had significantly less exposure to fraud and error than 61 Q104; Public Accounts Committee, Covid-19: Bounce Back Loan Scheme, Thirty-Third Report of Session 2019–21, HC 687, 16 December 2020, para …