In a recent inquiry into the Bounce Back Loan (BBL) scheme during the Covid-19 pandemic, former Chancellor Rishi Sunak has taken a firm stance, defending the program against claims of excessive fraud. During this inquiry, which highlights the financial measures enacted to support businesses during a tumultuous period, Sunak asserted that while he was aware of the inherent risks of fraud, he would make the same decisions again given the context and urgency of the situation.
The Bounce Back Loan scheme, introduced in May 2020, allowed small businesses to access loans of up to £50,000 with a 100% government guarantee. This meant that taxpayers would cover the losses if the businesses were unable to repay the loans. Despite its well-intentioned design, the scheme’s rapid implementation led to vulnerabilities that were exploited, with inaccuracies and fraud often cited in government reports.
According to Sunak, who has served as the country’s Chancellor during the pandemic, postponing the rollout of the loan scheme, even for a brief period, could have jeopardized numerous small enterprises. He explained that the need to act quickly was paramount, stating that the potential risks associated with fraud should be balanced against the immediate needs of struggling businesses. His words reflect a broader understanding of the economic context; many companies faced unprecedented challenges, and swift support was essential to keep them afloat.
However, the program has not been without its criticisms. Reports indicate that nearly 1.5 million loans, totaling around £46 billion, were issued under the BBL scheme. Alarmingly, lenders have flagged approximately £1.9 billion of these loans as potentially fraudulent. A report by Tom Hayhoe, the Covid Counter-fraud commissioner, has estimated that overall fraud and error linked to the scheme could reach up to £2.8 billion. The Public Sector Fraud Authority has suggested that the actual number may be even higher, as various types of fraud evade identification through current monitoring practices.
Sunak, defending the scheme during a second day of inquiry testimony, rejected the notion that the program had no safeguards. He underscored that checks were indeed in place, though limited to standard banking fraud controls, and that there was an understanding of the risks involved. His rationale for favoring speed over more stringent checks emphasized that too many delays could lead to loss of support for businesses already in distress.
Mr. Hayhoe’s report mentioned that loans were capped at 25% of a business’s turnover, yet lenders had relied exclusively on the information provided by the businesses when distributing the funds. The government did not rigorously investigate whether the companies had been negatively impacted by the pandemic, nor did they verify the intended use of the received funds. Sunak concedes that while further measures to prevent fraud could have been integrated post-launch, the priority at that moment was ensuring that businesses received necessary funds without delay.
He explained that waiting to implement more thorough checks could have exacerbated the economic fallout, indicating that a significant percentage of BBLs were distributed within the first few weeks of the scheme’s establishment. Delaying the process, as Sunak pointed out, could have led to many businesses filing for bankruptcy. He stated that at no point did he hear calls to slow down the process and said with conviction, “I would have done exactly the same thing in the same situation,” reinforcing his position on the necessity of rapid financial support during a crisis.
Moreover, he noted that a fraud rate of approximately 4% in the BBL scheme does not notably exceed fraud rates observable in other extensive government programs, such as those related to universal credit and housing benefits. This comparison tends to lend some credence to his defense by situating the BBL program within a broader context of public sector financing. Looking ahead, Sunak suggested that if a similar scheme were ever required again, improvements in data collection and enhanced measures could facilitate a better balance between speed and the minimization of fraud risk.
Ultimately, the inquiry raises vital questions about the balance between speed and security in government financing initiatives during unprecedented crises. These reflections serve to inform future strategy and policy design.
