Former minister Theodore Agnew has launched a scathing attack on Treasury permanent secretary Sir Tom Scholar over the department’s attitude towards fraud in one of the government’s biggest Covid support schemes.
Lord Agnew said a just-published letter from Scholar to MPs, responding their questions on criminal abuse of the government’s pandemic support schemes, “embodies everything about the complacency that grips the civil service”.
He went on to describe the Treasury’s handling of fraud in relation to the £47bn Bounce Back Loan Scheme for business as “a Dad’s Army operation”, referring to the BBC sitcom focused on the bungling antics of a Home Guard unit in the Second World War.
Lord Agnew dramatically quit government in January over what he described as officials’ unacceptable handling of fraud and error in pandemic support packages, particularly the loan scheme. The scheme was administered by the Department for Business, Energy and Industrial Strategy but developed in conjunction with the Treasury and also monitored by it.
The previous month, the National Audit Office reported that BEIS’s best estimate was that £4.9bn had been paid in fraudulent loans made through the scheme. But the public spending watchdog cautioned that the figure was “highly uncertain” and that some £17bn of the loans issued under the scheme may not be repaid.
Appearing before parliament’s Treasury Select Committee yesterday, Agnew – whose former ministerial remit took in both the Cabinet Office and the Treasury – reiterated his support for the Bounce Back Loan Scheme, but criticised its stance towards fraud.
“I have no issue with the principle of doing it, but it’s all about the implementation,” he said.
“We will probably see very substantial credit losses on that scheme. Again, that’s fine. We had to get the money out to our legitimate businesses and give them the lifeline they needed. So that is all fine. But on the fraud side, it was just a Dad's Army operation.”
Asked by acting committee chair Dame Angela Eagle whether he meant the Treasury’s efforts had been “a bit of a joke”, Agnew replied “yes, absolutely”.
Referring to Scholar’s 11-page letter, the former minister – who was responsible for counter-fraud work as well as driving cross-government efficiency and civil service reform – said there were many vague details that required deeper investigation.
“It embodies everything about the complacency that grips the civil service,” Agnew said. “That letter, clearly he didn’t write it because he hasn’t corrected grammatical errors in it. But he’s the second most senior civil servant in the country and he, I think, could have done an awful lot better.
“I very much hope you will drill hard into that letter.”
Counter-fraud function 'never consulted'
One example Agnew gave to MPs was the Treasury’s decision to seek counter-fraud advice from consultancy PwC rather than from the Cabinet Office-based counter-fraud function.
“They are a very good team,” he said. “They’re only a small team, but they have deep expertise in this area. They were simply closed out of the room. They were never consulted in the establishment of the Bounce Back Loan Scheme for reasons that I never got to the bottom of.”
Agnew asked: “Why didn’t he go to the people on his doorstep, who absolutely understand fraud in all its manifestations?”
Higher than normal degree of fraud and error 'always expected'
Scholar’s letter contained updated estimates for fraud in relation to the government’s Covid support schemes.
He said a more recent projection for fraud in relation to the Bounce Back Loan Scheme was £3.3bn, representing a rate of 7.5%, down from the 11.15% rate that produced the £4.9bn figure.
Scholar’s letter said the government provided almost £400bn through Covid support packages, including initiatives such as the Bounce Back Loan Scheme and the Coronavirus Job Retention Scheme – also known as the furlough scheme.
“Despite doing everything possible in the circumstances to protect the taxpayer, the government always expected a higher than normal degree of fraud and error,” the letter said.
“This was inevitable when launching schemes whose essence was to pay significant sums of money, as quickly as possible, to millions of economic actors, both individuals and businesses.
“This risk was explicitly factored into the decision-making at the time, where ministers had to judge the overall public interest in providing support, while also considering the risks to the economy and the public finances of a failure to act, or a delay in acting.”
Scholar said that the actual incidence of fraud and error in schemes had been within the original estimate “in almost every case”.
A BEIS spokesperson said the department was continuing to work to crack down on fraud and would not tolerate those that sought to defraud consumers and taxpayers.
“Our Covid support schemes were implemented at unprecedented speed to protect millions of jobs and businesses at a time when families needed it the most,” they said. “Last year lenders reported preventing nearly £2.2bn in potential fraud from the Bounce Back Loan Scheme.”
The department said government was still working actively with the British Business Bank, lenders, and enforcement authorities to recover Bounce Back Loans obtained fraudulently.
It added that 1.5m businesses had been supported through the scheme, and many may not have survived without it.
This story was updated at 15:30 on 10 March 2022 to include a response from BEIS