£1bn of fraudulent Covid scheme loans for businesses blocked

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Banks have prevented more than £1bn worth of fraudulent business loans being paid out from one of the government’s emergency Covid schemes.

In a letter to the public accounts committee, the British Business Bank, which administers the government-backed loan programme, said 20 lenders had blocked a total 26,933 fraudulent applications to the bounce-back loan scheme (BBLS) between May and October.

Those fraudulent applications could have cost the taxpayer £1.1bn, as the scheme uses public funds to repay any losses that lenders cannot recover.

The programme has distributed 1.3m loans worth £40.2bn so far, but the National Audit Office (NAO) said last month that taxpayers stood to lose billions of pounds from BBLS fraud. The National Crime Agency (NCA) and the British Business Bank have also warned about fraud linked to the scheme, which was designed to distribute cheap loans worth up to £50,000 to small businesses.

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The government has been criticised for failing to act on those warnings, and has since launched a £100,000 Covid fraud hotline to try to catch scammers. The hotline, run by Crimestoppers, allows people to leave anonymous tips about suspected fraud, including any unusual purchases by companies or individuals, or about cold callers asking for bank details that could lead to identity theft.

A NAO report released in October said the scale of BBLS fraud would not be clear for months. However, the Cabinet Office’s government fraud function estimates that losses will be significantly above the usual level of fraud linked to public sector schemes, which is usually between 0.5% and 5%.

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Three people were arrested over alleged BBLS fraud in Birmingham last week after obtaining £145,000 in government-backed loans. All three suspects were questioned and have since been released under investigation, according to the NCA. It marked the first arrests linked to the scheme.

Most accredited lenders have confined applications to their customers, in part to prevent against fraud. However, the move has also blocked up to 250,000 small businesses from accessing emergency funding, as they do not bank with any of the accredited lenders, according to the all-party parliamentary group on fair business banking.

BBLS is scheduled to run until 31 January, after an extension was announced this week. Businesses will also be able to apply for top-ups if they failed to request the maximum amount available in their initial application.