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UK taxpayers face billions in losses from Covid loan schemes

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UK taxpayers face losses of almost £5bn from fraudsters who exploited minimal checks around the government’s Covid-19 bounceback loan scheme for small companies, according to the first official estimate.

Overall losses on all state-backed Covid-19 loans — because of companies being unable to afford to repay, plus fraud and error — are likely to amount to almost £20bn, said the annual report by the business department.

These losses are expected to “crystallise as lenders call on the scheme guarantees to compensate them for loans that were not likely to be repaid”. 

The extent of the losses is still lower than initially expected, with an official estimate last year suggesting that the government’s loan schemes for companies during the coronavirus crisis could cost taxpayers between £18bn and £26bn.


Even so, the large numbers, especially for fraud, raise fresh questions over the design and implementation of the schemes. They were put in place quickly to channel funds to businesses facing collapse in the early stages of the Covid-19 pandemic.

The majority of losses will involve the bounceback loan scheme, which sought to prop up struggling small businesses.

Loans of up to £50,000 were on offer, following minimal checks by banks on borrowers, which sparked concern about the ease with which fraudsters could access the scheme. More than £46bn was lent by banks, with loans fully guaranteed by the government.

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For the first time, officials have used the report to give an estimate of fraud on bounceback loans.

They calculate that between £3.6bn and £6.3bn could be lost in fraud and error. The central estimate is for £4.9bn of fraud.

However, the final cost will not be known until UK authorities have attempted to recover money, including from criminal gangs that targeted the bounceback scheme.

The government covered the first year’s interest payments for borrowers with bounceback loans, which on a combined basis cost £832m last year. Of this, the report estimated that £92.8m of the payments related to suspected fraudulent loans.

The report also showed that bounceback loans worth £1.3bn, or 2 per cent of the scheme, have already been defaulted on by borrowers unable to repay their interest or capital, and unwilling to take advantage of holiday periods on offer.

A further 7 per cent of the bounceback loan book is in arrears. However, about £2bn has been made in early repayments to banks under the scheme.

The report also revealed that chancellor Rishi Sunak’s Future Fund, a scheme that offered convertible loans to prop up promising start-ups during the pandemic, has been hit by fraud.

As much as £29m was recognised in the report for suspected fraudulent payments involving the scheme, which lent in excess of £1bn to more than 1,100 start-ups.

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Efforts to counter fraud on the government’s Covid-19 programmes to support companies have so far led to more than 60 arrests and the recovery of more than £3.5m.

Lenders also told the government that they had prevented fraud of more than £2bn, according to the report.

In total, as of September 30, businesses had drawn 1.6m facilities worth £77bn through the government’s three main Covid-19 loan schemes for companies that covered small, medium and large businesses.

Losses under the schemes for medium and large businesses are much lower than under the bounceback programme as they tended to carry more stringent checks by banks.

The business department said: “The government support schemes have provided a lifeline to millions of businesses across the UK — helping them survive the pandemic and protecting millions of jobs.

“We are continuing to crack down on Covid-19 fraud and will not tolerate those that seek to defraud the British taxpayer.”

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