Between March 2020 and March 2021, the government backed £80 billion in loans to help 1.6 million British businesses survive the pandemic. These loans provided crucial support but were designed and operated in a way that has put a colossal amount of taxpayer money at risk. By latest estimates, £3.7 billion will be lost to fraud in one of the four schemes. Overall losses could be up to £23.1 billion according to the Office for Budget Responsibility.
Since June 2020, Spotlight has been calling with other anti-fraud and anti-corruption groups for transparency about who received these loans. In the autumn of 2022 we took a case to the First-Tier Tribunal to seek transparency. On 4 January, the Tribunal dismissed Spotlight’s appeal against the British Business Bank (BBB) and Information Commissioner for their refusal to publish the names of companies that received these taxpayer-backed Covid loans.
The proceedings highlighted significant government failings to protect public funds from fraud. If the government is going to stop the public purse from being robbed in future government support schemes and avoid further losses, it must learn lessons from this debacle by:
- increasing counter-fraud expertise in the design of government support schemes;
- scaling up investment in law enforcement to identify and tackle fraud;
- improving management of data to ensure best practice and counter fraud; and
- committing to transparency in any future government support schemes.
The Tribunal’s decision
After a 3-day hearing at the end of November, the Tribunal found that the BBB’s decision to withhold the names to protect the companies’ commercial interests outweighed the public interest in transparency and scrutiny. Spotlight will not be appealing the decision1.
The Tribunal found that “these schemes involve a significant risk of default and the consequent significant risk of future expenditure of very large amounts of public money” and acknowledged “an extremely high public interest in transparency and scrutiny in relation to the operation of these schemes.”
However, the Tribunal said this was outweighed by the harm that publication would cause to the economic interests of companies – although it did not accept that the harm would be particularly extensive or wide-ranging in relation to three of the four schemes.
The Tribunal found that other measures which have taken place or were due to take place would provide enough scrutiny of the loan schemes, and that publishing the names would not significantly aid the BBB’s efforts to identify and combat fraud. We respectfully disagree.
When it set up the loan schemes, the BBB had no counter-fraud experts and failed to consult Cabinet Office experts, the government’s only priority was delivering the loans at pace, BEIS was not analysing fraud data, and scant resources were allocated to preventing fraud.
If the names had been published back in 2020, we believe that fraudsters would have been deterred, that huge public losses could have been avoided, and that scrutiny of the loan schemes would have been substantially enhanced.
It didn’t all go the BBB’s way. The Tribunal rejected the argument that borrowers would have expected commercial confidentiality and left open the possibility that the names of companies could be published in a future bailout.
The names of some loan recipients have been published under European state aid rules. But the Tribunal’s decision means that details of £60.71 billion of the £79.31 billion issued through three of the schemes will remain secret. The government has so far published the names of 400 of 1,190 companies that received a Future Fund Scheme loan.
What needs to happen next
In our view, if the government is serious about tackling fraud, it needs to take the following steps:
1. Increase counter-fraud expertise in the design of government support schemes
Government departments must never again set up bailouts without counter-fraud experts. The government’s new Public Sector Fraud Authority (PSFA) was established to reduce the impact of fraud in the public sector, including in the Bounce Back Loan Scheme (BBLS). Counter-fraud expertise should be a priority in the design of future bailouts, both from PSFA and from enhanced counter-fraud functions within government departments.
2. Scale up investment in law enforcement to identify and tackle fraud
A report by the National Audit Office in December 2021 found that the £32 million that BEIS had assigned to recover fraudulent funds in BBLS, and the £6 million target that it set the National Investigation Service (NATIS) to recover over three years, was “inadequate”. The government later allocated £13 million to NATIS and £11 million to boost the BBB’s counter-fraud work.
NATIS has so far made only 49 arrests into BBLS fraud and opened investigations with a total value of £160 million. This is a fraction of the amount expected to be lost to fraud through the BBLS. These proceedings should be a wake-up call for the government to get serious about resourcing law enforcement to prevent fraud and other economic crime.
3. Improve the management of data to ensure best practice and counter fraud
The Public Accounts Committee (PAC) identified that the government lacked the data it needed to assess fraud in the BBLS; and that it lacked data to hold lenders to account while having no long-term plans to recover money.
The BBB told us that it would need to manually double and possibly triple-check details of 1.5 million BBLS loans simply to establish which borrowers were companies, partly due to errors from banks. It is unacceptable for a public authority to rely on problems with its own data in order to withhold that data from scrutiny.
The government must ensure that good data practice is identified and incorporated into the design and implementation of any future state aid scheme, to counter fraud and avoid the systemic failings that have characterised the Covid-19 loan schemes.
4. Commit to transparency in any future government support schemes
In its June 2021 report on Fraud and Error, the PAC recommended that HM Treasury “set out the transparency principles it expects for government support schemes, including the presumption that the business beneficiaries of government support schemes will be published”.
The government rejected that recommendation, saying transparency requirements were set out clearly to businesses using the Covid-19 loan schemes. However, it emerged in the Tribunal that businesses had not been told clearly that their names could be published, and the BBB’s view was that the loans were commercial and should remain shrouded in secrecy.
The government should reconsider its position on transparency in any future schemes and develop a presumption that the names of beneficiaries of state aid are published. Privacy and confidentiality must not be assumed to outweigh other considerations, like countering fraud and enabling the public to understand who benefits from taxpayer support.
1 Spotlight published a briefing in November – which explained our reasons for calling for the names of companies that received Covid-19 loans to be published – along with our skeleton argument and witness statements.