The minister responsible for Whitehall efficiency quit on Monday after strongly criticising the UK government’s “lamentable track record” in tackling fraud in a flagship state-backed coronavirus business loan scheme.
Lord Theodore Agnew, who has served as minister for efficiency and transformation in the Treasury and Cabinet Office since February 2020, and was responsible for efforts to counter fraud, resigned in the House of Lords.
In response to an urgent question from Labour about Covid loan fraud, he told peers he was unable to defend the government’s record.
More than £47bn was awarded to more than 1.1m small businesses under the government’s bounce back loan scheme (BBLS), which was meant to save small businesses at risk during the pandemic. The scheme was the largest component of the England’s £77bn state-backed Covid-19 loans programme.
Agnew claimed that the government, which had agreed to fully guarantee loans in the BBLS, had so far reimbursed banks almost £1bn for loans that had been defaulted on. He added that more than a quarter of this was estimated for loans that were fraudulent. Previous official estimates of loan guarantees paid out by the government — made in September 2021 — totalled just £19m.
Agnew singled out for criticism the Department for Business, Energy and Industrial Strategy (BEIS) and the state-owned British Business Bank, which administered the BBLS.
“The oversight by both BEIS and the British Business Bank of the panel lenders of BBLS has been nothing less than woeful,” Agnew said. “They have been ably assisted by the Treasury who appear to have no knowledge or interest in the consequences of fraud to our economy or society.”
Rachel Reeves, the shadow chancellor, said Agnew’s resignation was “a damning indictment of the chancellor and the government’s failures on fraud.”
“That the government’s own anti-fraud minister feels he is unable to defend the government’s record on billions of pounds of taxpayer cash gifted to criminals tells you all you need to know about the incompetence of this government,” she said.
The National Audit Office and BEIS have estimated that as much as £5bn could be at risk from fraudsters exploiting the weak checks that had been built into the bounce back loan scheme.
Agnew said that BEIS only employed two counter-fraud officials at the start of the pandemic, “neither of who were experienced in the subject”. He alleged that they refused to engage with the Cabinet Office’s counter fraud team.
In his resignation letter to prime minister Boris Johnson, Agnew decried the “desperately inadequate” track record of dealing with fraud. “It has certainly not been through want of trying, but the government machine has been almost impregnable to my endless exhortations,” he wrote.
Agnew insisted that his resignation was “no way linked” to the other scandals embroiling the Johnson government and focused his blame on Whitehall. “Any prime minister of this country should be able to reasonably expect, when taking on the mantle of power, that the levers of government were actually connected to delivering services for our citizens,” he said.
The former minister called for “urgent improvements” in lending data, “far greater challenge” of lender banks when inconsistency in the data is detected and further training of Treasury and BEIS officials in counter fraud.
He warned of a “new and dangerous phase” in the BBLS as banks were able to claim the cash from the loan guarantees without “a standard bar of quality assurance on what we expect as basic counter fraud measures”.
Agnew also alleged that “schoolboy errors” were made by officials and lenders, noting that over 1,000 companies who received bounce back loans (BBLS) were not trading before the pandemic began.
BEIS estimates suggest that overall losses due to fraud and companies unable to repay loans across all Covid schemes were likely to amount to almost £20bn, with about £17bn of these losses relate to the BBLS.
The BBLS has been criticised by public spending watchdogs for giving full government guarantees on loans handed out with only minimal checks on the borrower’s identity.
Critics say this opened the door to massive fraud and loss of taxpayer money, with officials and banks slow to tighten the rules to prevent obvious criminal activity, such as multiple applications or applications by companies set up after the start of the pandemic or dissolved before it began.
Agnew’s comments will focus scrutiny on the behaviour of lenders during the pandemic. Bankers have pointed out that they had misgivings about the scheme when it was set up and rejected accusations that they should have done tighter vetting of BBLS borrowers, arguing that the scheme was set up by the government to hand out cash as quickly as possible.
Officials at BEIS, the British Business Bank and the Treasury have acknowledged that there were risks to the scheme but say they were responding to the pressure in the first lockdown to work at speed to help small businesses whose operations were effectively stopped.
The NAO also criticised government efforts to limit taxpayers’ exposure to fraudulent loans as inadequate in a report last month, and warned that there were insufficient resources devoted to dealing with organised crime.