The state-owned British Business Bank issued formal objections to the government’s coronavirus Bounce Back Loan and Future Fund schemes ahead of their launch, newly-released documents show.
In letters sent to business secretary Alok Sharma in May, BBB chief executive Keith Morgan raised concerns including the BBL scheme’s “very significant fraud and credit risks” and whether the Future Fund would offer “value for money”.
Launched in May, BBLs are 100 per cent government-backed loans of up to £50,000 introduced to help keep small businesses mitigate the disruption caused by Covid-19. As of 20 September, bounce back loans totalling just over £38bn had been approved for 1.3m small businesses, according to the latest figures from the Treasury.
The Future Fund was introduced to provide loans for startups ineligible for other government support, providing them with loans subjected to matched funding by private investors.
In a letter sent two days before the launch of the BBLs, Morgan raised three formal objections to the scheme.
These included concerns over its “extensive reliance on customer self-certification and the corresponding fraud risk” and “potential for market distortion”. He said that the Bank had commissioned a review of the scheme by accountant PwC, which had classified its fraud risk as “very high”.
Morgan highlighted concerns over bounce back loans’ value for money, writing: “the scheme is vulnerable to abuse by individuals and by participants”.
He added that the time pressure presented by the scheme’s quick introduction had “created huge operational challenges” for accredited lenders. The fast turnaround time meant it had been “impossible to agree a methodology to prevent duplicate applications,” Morgan added.
The BBLs scheme was first announced by chancellor Rishi Sunak on 27 April, before being launched on 4 May. The Future Fund was announced on the 20 April, before launching a month later.
In the letter addressing the Future Fund, Morgan raised a formal objection that it was “highly uncertain” whether the scheme would offer value for money for the government.
“It is also possible that other alternatives may yield better value for money for the Exchequer,’” he continued, “although we have not been able to evaluate those alternatives”.
Responding to the release of the letters, a government spokesperson said: “Our loan schemes have provided a lifeline to thousands of businesses across the UK – helping them survive the outbreak and protecting millions of jobs.”
“Our support has been targeted to ensure we help those who need it most as quickly as possible and we won’t apologise for this,” they added.
“We’ve looked to minimise fraud – with lenders implementing a range of protections including anti-money laundering and customer checks, as well as transaction monitoring controls. Any fraudulent applications can be criminally prosecuted for which penalties include imprisonment or a fine or both.”