The Department for Business and Trade has been told to get detailed figures for the cost of recovering more than £960m in Covid support packages for small business that is still outstanding after being wrongly paid out in the early months of the pandemic.
Watchdog MPs on parliament’s Public Accounts Committee said that as of May, only £20.9m had been recovered out of £1.1bn in small-business support loans suspected to have been illegitimately obtained. DBT's latest figure for recovered funds is £32.6m.
The losses relate to eight schemes run by DBT’s predecessor, the Department for Business, Energy and Industrial Strategy, and the Treasury in partnership with local authorities, which processed applications. The schemes lent a total of £22.6bn to small businesses between March 2020 and March 2022 to help firms through the pandemic via channels such as the Small Business Grant Fund; the Retail, Hospitality and Leisure Grant Fund; and the Restart Grant.
As of March, the National Audit Office said just £11.4m of the schemes’ suspected £1.1bn in fraud had been recovered. PAC said that by May, the recovered funds had only risen to £20.9m – or 1.9%. DBT’s latest figure, released late last night in response to the PAC report, would put the recovery level at 3%.
The NAO’s March report said no contingency plans for supporting firms during a national emergency had existed between central and local government when the Treasury asked BEIS to work up grant-scheme proposals for small businesses in February 2020. It said 90% of the fraud and error in the small-business schemes related to the initial wave, which did not require pre-payment checks.
Losses in the small-business schemes are only part of the bigger picture of fraud. Other pandemic-time schemes, such as Bounce Back Loans, have been estimated to have lost billions of pounds to fraud.
Back in May, PAC members quizzed newly appointed DBT permanent secretary Gareth Davies about his department’s ability to recoup more of its small-business loan losses. He admitted that officials would find it “incredibly hard” to recoup large amounts of the illicitly obtained cash.
Departmental staff told MPs that checking payments was very expensive and that there were legal questions about its ability to recover some payments. However, Davies said he had asked a non-executive director on the department’s board to review what more could be done to recoup the money.
In their latest report, PAC members said DBT’s review of Covid-loan recovery should assess the public value of chasing up the fraudulently obtained funds, “including the deterrent effect of pursuing fraudsters and the impact on public confidence”.
MPs said the review’s terms of reference should also require a figure to be set for the level of funding that is believed to be recoverable and the cost of that recovery. Additionally, they called on DBT to improve its knowledge of small business and for the Treasury to set out a basic level of control in relation to financial risk that needed to be in place in the event of a future national emergency.
PAC chair Dame Meg Hillier said her committee’s evidence sessions and the NAO report that prompted them had exposed multiple shortcomings on the part of the Treasury and the business department.
“Never again should a national emergency find policy being written as we go along, without firm planning and good local data, with local authorities not properly funded to work in partnership on the support required,” she said.
“The next emergency must find the government rigorously prepared with an understanding of the optimal means to support businesses through difficult times.”
Hillier said the government's lack of planning meant a door had been “left wide open” for fraudsters to take advantage of schemes that were designed with national solidarity in mind.
“It is simply not good enough to give up on recovering this money simply because it is difficult to do so,” she said. “Public trust is harmed if the government shrugs its shoulders at criminals lining their pockets with state support.”
Hillier added that government could not wait until the outcome of the UK Covid-19 Inquiry to begin learning lessons.
A government spokesperson said the £1.1bn figure for fraud in the small-business schemes was an estimate based on an approach agreed between the NAO and the Office for National Statistics. They said the vast majority of those payments were made to recipients who were “not eligible”, making them “payment errors rather than fraud”.
The spokesperson said that to date, £32.6m of irregular payments from the local-authority administered schemes had been recovered, with a further £13.6m described as “pending”.
“It was only right that we stepped up to support the country in unprecedented times – saving businesses and jobs,” they said.
“We are working with local authorities to recover payments made to businesses who weren’t eligible for the grant scheme and have recovered nearly £33m and a further £4bn of taxpayer’s money in funds held by local authorities.”
They added that “decisive action” had been taken to recover taxpayers’ money linked to fraudulent Bounce Back Loan Scheme applications, with “more than £12m” recouped so far.