Fraudulent pandemic-era loans cost UK $1.8 bn: Report

The UK government has paid $1.8 billion to banks that provided loans to small businesses during the Covid-19 pandemic that later turned fraudulent, Bloomberg reported. This marks a significant increase from the $810 million refunded by the end of 2022.  

Banks involved in the state-guaranteed emergency support programs are currently managing a total of £77 billion in loans, raising concerns about the widespread nature of fraudulent activities.

As the financial toll rises, the Opposition is criticising the government for swiftly implementing support programs without adequate consideration for the potential cost to taxpayers.

The Bounce Back Loan Scheme (BBLS) announced during the Covid-19 pandemic is in the eye of the financial storm. As per the government’s estimates, 3.75 per cent of loans by value under the scheme have been flagged as suspected fraud.  

Barclays, a key player in the program, reported that over 6 per cent of its loans could be fraudulent, a significant increase from 2.3 per cent earlier this year. Starling Bank, having lent £1.6 billion under BBLS, has a similar percentage of its loans under scrutiny for suspected fraud.

“We continue to proactively tackle BBLS fraud, going above and beyond the requirements of the government lending schemes,” Bloomberg quoted a Barclays spokesperson as saying.

The bank emphasised its efforts in investigating and recovering funds through “collaboration with liquidators and a litigation funder”. In fact, last year, the institution sought the closure of nearly 100 businesses through UK courts in an attempt to recover Covid-19 debts.

While the Bounce Back Loan Scheme faces a surge in suspected fraudulent activities, the Coronavirus Business Interruption Loan Scheme (CBILS), aimed at larger companies, presents a more reassuring picture. With just £50 million of the £25.8 billion program flagged for potential fraud, it stands in stark contrast to the challenges encountered by its smaller-scale counterpart.

In response to the current situation, lawmakers are intensifying calls for a thorough investigation into the lapses that allowed fraudulent loans to reach such staggering proportions. The government, acknowledging the concerns, maintains that most businesses have either repaid or are adhering to the repayment schedules.  

However, the $10.79 billion received by banks for defaulted loans has only intensified scrutiny over the hasty deployment of support measures during the pandemic.

(With inputs from Bloomberg)

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