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Rishi Sunak has defended the government’s Covid-era Bounce Back Loan (BBL) scheme against claims that it was plagued by excessive fraud, telling the Covid-19 Inquiry that the need to act quickly outweighed the risks.
The former chancellor said he was fully aware of the scheme’s vulnerabilities when it was launched in May 2020, but insisted that delaying it to introduce additional checks would have put hundreds of thousands of small businesses at risk of collapse.
“I keep hearing as if there were no checks done whatsoever, or that we didn’t know what we were getting ourselves into,” Sunak said while giving evidence to the inquiry. “Both of those narratives are completely wrong. Of course we knew the risks we were taking on.”
Bounce Back Loans allowed small businesses to borrow up to £50,000 with a 100 per cent government guarantee, meaning taxpayers would cover losses if companies defaulted. Nearly 1.5 million loans worth around £46 billion were issued, making it the largest of the government’s pandemic support schemes.
A report published last week by the Covid Counter-Fraud Commissioner, Tom Hayhoe, estimated that fraud and error in the scheme could total 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, as some types of fraud are not fully captured by current reporting methods.
Hayhoe’s report found that the scheme was launched in less than two weeks and relied largely on standard banking fraud controls. Although loans were capped at 25 per cent of turnover, lenders had to accept applicants’ declarations without independent verification. There were also no checks on whether businesses had genuinely been affected by the pandemic or how the funds were used.
Sunak acknowledged those weaknesses but said the speed of delivery was critical. He told the inquiry that around 40 per cent of all bounce back loans were issued in the first four weeks and that even a short delay could have caused widespread business failures.
“You could have lowered the ultimate fraud levels by waiting and building some of these checks,” he said. “But you have to then be confident that you were going to accept the loss of business that would result from that.”
He added that, at the time, there was no pressure to slow the scheme down. “Nobody was waving their hands saying, ‘Slow it down, more checks, more form filling,’” he said.
Sunak also argued that a fraud rate of around 4 per cent was broadly in line with other large government programmes, such as universal credit, working tax credit and housing benefit.
Following the scheme’s launch, the government did introduce additional safeguards, including systems to prevent companies from taking out multiple loans through different banks, which was against the rules.
Looking ahead, Sunak said that if a similar emergency scheme were needed again, better data on companies and improved systems would make the trade-off between speed and fraud prevention “less acute”. However, he warned that such trade-offs would never disappear entirely.
“But we shouldn’t ever think there is not going to be that trade-off,” he said. “There is.”
