Covid: Government’s anti-fraud efforts was like Dad’s Army operation, says ex-minister

The government’s work to tackle Covid loan fraud during the pandemic has been like a “father’s army operation,” a former finance minister has said.

Lord Agnew resigned as Minister in January, expressing anger at the government’s anti-fraud approach.

Speaking to MPs on Wednesday, he said the months during the pandemic are “a happy time to be a crook”.

But the Treasury says it has struck the right balance between making loans quick and protecting against fraud.

Lord Agnew appeared before the Finance Committee, making his first public appearance since his dramatic resignation in the House of Lords.

During the session, he was asked about the government’s bounce-back loan scheme, which has provided £47bn in loans to support small businesses during the pandemic.

In March 2021, the business department estimated that 11% of loans – £4.9bn – were fraudulent, although the regulator of public spending said the figures were “highly uncertain”.

Lord Agnew said he supported the scheme but said “on the scam side it was just an operation by the father’s army”, referring to the sitcom.

Asked by Labour’s Angela Eagle if that meant it was “a little joke”, Lord Agnew replied: “Yes, absolutely”.

The ex-minister described how border police detained “two suitcases of cash” that the applicants had acquired through repayment loans intended for a home purchase in Turkey.

He criticized the Treasury Department for not using an existing anti-fraud database to screen loan applicants, instead taking six weeks to build its own system.

“By that point, 60% of the money was gone,” he told MPs.

Under the Bounce Back Loan scheme, banks accredited by the British Business Bank could provide businesses with 100% government-backed financing worth up to £50,000 or a maximum of 25% of annual turnover.

Lord Agnew warned the committee that a “sticking point” would come if banks used the guarantee to recover money on unpaid loans.

He argued that banks would simply reclaim the money from the government rather than try to recover loans that may have been drawn fraudulently.

“In the next few months there will be an avalanche of claims on the state guarantee,” he said.

He also said he had “suspicions” that one of the seven main banks involved had “really, really exploited” the system, but declined to say which.

“They were lending indiscriminately…they wanted to build their balance sheet. There was no downside because they thought they would get the 100 percent guarantee if either of them [the loans] gone wrong,” he said.

In a letter to the Finance Committee, the Treasury Department’s top official said that a “potentially catastrophic wave of millions in business failures and job losses” had been feared at the start of the pandemic.

Tom Scholar argued that the loans were able to direct funds “very quickly” to small businesses “in desperate need.”

This can only be achieved by “doing away with many of the usual procedures for evaluating loan applications,” which “inevitably greatly increases the likelihood of fraud,” he said.

He added that the government has since introduced tighter controls – like flagging inactive businesses – and continues to learn lessons from the Covid pandemic.