Rishi Sunak has defended the Government’s Covid-era Bounce Back Loan (BBL) scheme against claims that it is plagued by excessive fraud, telling the Covid-19 inquiry that the need to act quickly outweighs the risks.
The former chancellor said he was fully aware of the system’s vulnerabilities when it was introduced in May 2020, but insisted a delay to introduce additional controls would have put hundreds of thousands of small businesses at risk of collapse.
“I keep hearing as if there were no checks at all or that we don’t know what we’re getting ourselves into,” Sunak said as he testified at the inquiry. “Both narratives are completely wrong. Of course we knew what risks we were taking.”
Bounce back loans allowed small businesses to borrow up to £50,000 with a 100% government guarantee, meaning taxpayers would cover losses if businesses failed. Almost 1.5 million loans have been made worth around £46 billion, making it the largest of the government’s pandemic support schemes.
A report published last week by Covid fraud chief Tom Hayhoe estimated that fraud and errors under the scheme could amount to up to £2.8 billion, with £1.9 billion already flagged as fraudulent by lenders. The Public Sector Fraud Authority believes the final figure could be higher because some types of fraud are not fully captured by current reporting methods.
Hayhoe’s report found the system was rolled out in less than two weeks and relied largely on standard bank fraud controls. Although the credit limit was 25 percent of sales, lenders had to accept applicants’ declarations without independent verification. It was also not checked whether companies were actually affected by the pandemic and how the funds were used.
Sunak acknowledged these weaknesses but said the speed of delivery was crucial. He told the inquiry that around 40 per cent of all bounce back loans were granted in the first four weeks and that even a short delay could have resulted in widespread loss of business.
“You could have ultimately reduced the fraud rates by waiting and building up some of those checks,” he said. “But then you also have to be sure that you accept the resulting loss of business.”
He added that there was no pressure to slow down the plan at this point. “Nobody waved their hands and said, ‘Slower, more checks, more forms to fill out,'” he said.
Sunak also argued that a fraud rate of around 4 percent was broadly in line with other major government programs such as Universal Credit, Working Tax Credit and housing benefit.
After the program was introduced, the government introduced additional protections, including systems designed to prevent companies from taking out multiple loans from different banks, in violation of the rules.
Looking ahead, Sunak said that if a similar emergency program were needed again, better data on businesses and improved systems would make the trade-off between speed and fraud prevention “less acute”. But he warned that such compromises would never completely disappear.
“But we should never believe that this compromise will not happen,” he said. “There are.”
