Rishi Sunak is facing fresh questions about Covid fraud after i analysis uncovered disturbing evidence of how the Bounce Back Loans scheme he introduced for struggling businesses has been abused.
Mr Sunak’s leadership campaign has frequently cited the success of the measures he put in place to protect the economy during the pandemic.
But the extent of the mismanagement of the £47bn Bounce Back is revealed in financial misconduct cases that show the maximum amount was often given to clearly ineligible companies.
Government accountants have estimated that a total of nearly £3.5bn was wrongly claimed.
Yo can reveal that one company director, who was subsequently disqualified for 11 years, was able to take out a loan for £50,000 – the maximum amount – despite his packaging business only having a turnover of £354.
Firms pay penalty for lack of due diligence
Businesses taking out Bounce Back Loans have told Yo of the lack of checks made for the taxpayer-funded scheme.
Tony, who received a loan despite his company having been served a winding-up petition and was later disqualified for four years with his business shut down, said the application was “really straightforward”.
“The only question they asked on the application form was you bankrupt or insolvent,” he said. “We believed at the time that we weren’t and we felt like we could survive.”
Other company directors also fell victim to what they perceived as innocent mistakes which led to heavy penalties they argue they would have avoided if banks had done due diligence.
A company director said: “We went online, around 7:30 at night, filled out what was the online form entirely by myself and pressed the button.
“I got an acknowledgment straight away, 9 o’clock the following morning the money was in my business account.”
The director used his first-year turnover based on his first trading year, rather than the calendar year, to apply for the loan leading him to receive a higher amount that he was eligible for. The mistake led to an 11-year disqualification as a company director.
Last night, a Labor peer and financial expert accused Mr Sunak of telling a “one-sided story” about the loans.
“The Government are giving public money away, and the buck has to stop with them,” Lord Sikka, an Emeritus Professor of Accounting at the University of Sheffield said.
“A lot of the frauds are amateurish, if someone wanted a loan HMRC references numbers should have been checked. A bank wouldn’t give you a loan usually without a reference.
I think [Sunak] is telling a one-sided story, people haven’t asked how these frauds went on and when did you become aware. It was far too easy it is to form a fraudulent company. He should be asked questions of this going forward – we’re yet to see the worst of this.”
The Insolvency Service financial misconduct conduct reports analyzed by Yo also reveal cases where Bounce Back Loads were given to companies that were already insolvent, or clearly heading that way.
Examples included Beauty & Melody Shop Ltd – a business that took out a £50,000 loan despite accounts publicly stating that it had become insolvent as of 30 June 2019 – nearly a year before the pandemic began.
Mr Sunak repeatedly cited the success of the furlough scheme during his campaign for the Conservative Party leadership. But he has appeared careful not to make reference to Bounce Back Loans.
Asked about the scheme at hustings on Thursday, the former Chancellor claimed that the task force he set up to combat fraud was projected to collect over £1bn but that he didn’t know as he wasn’t at The Treasury any more.
Conservative MP David Jones said: “I think to be fair to Rishi what he was trying to do of course was to keep businesses afloat. But that doesn’t mean that certain minimal levels of due diligence should not have been applied.
“Given what’s been discovered, it’s now extremely important for the Treasury to conduct a thorough-going review.”
Thousands of cases of financial misconduct published by the Insolvency Service over the last year have been analyzed by Yo, revealing details of £5m of Bounce Back Loans misuse. Examples of the fraud have been well documented in The Times as political pressure has built on the treasury to reveal more details about the debts.
They show that more than £1m of the bad loans were given out by Barclays, £760,000 by Lloyds and a further £600,000 by NatWest.
The data is only a snapshot of the level of fraud, new cases are being published every week.
Since the loans were backed by the Government, the banks faced few penalties for allowing ineligible loans to slip through, but many applicants, who often made simple errors on their applications, were faced with serious punishments lasting years.
In the past three months, almost a third – 28 per cent – of new financial misconduct cases published to the Insolvency Service related to Bounce Back Loans.
The Treasury was contacted for comment.