At the beginning of the financial crisis, when stories emerged every day of new multi-billion-pound losses in the market, you often heard a quote first attributed to the late Senator Everett Dirksen : “a billion here, a billion there, and soon you’re talking REAL money”.  The sour joke might well have occurred to Lord Agnew as he contemplated the sums being written off as fraud on the Covid support packages, before resigning from his job as Minister for Efficiency and Transformation.
The numbers involved in the government’s support for businesses during the pandemic are so large as to cast a cloak of unreality over the whole topic. The various kinds of covid support include around £80bn for the Coronavirus Job Retention Scheme (CJRS), £47bn for Bounce Back Loans (BBLs), and over £30bn for other loan schemes.
The amounts at risk of fraud or bad debt are correspondingly monumental. Focussing only upon BBLs – the scheme under which banks were encouraged by a 100% government guarantee to lend money with minimal checks – the earliest estimates from the Department for Business, Energy and Industrial Strategy (BEIS) and the British Business Bank were for between 35% and 60% in write-offs. BEIS now expects a figure around the lower end of that estimate – a still-massive £17bn. Almost £5bn of that is ascribed to fraud, with the rest owing to defaults and error.  To put this in context, this is slightly more than the amounts set aside for the government’s flagship Levelling Up Fund.
The chancellor, Rishi Sunak, is right to remind us of what was at stake when BBLs were unveiled. In April 2020 the economy had suffered its sharpest-ever contraction. It was eventually to lose almost 10% of output in 2020, around £200bn. Hundreds of thousands of businesses saw their revenues vanish when the order went out for everyone to stay home. No one was sure what kind of recovery might follow, in the face of millions thrown out of work, and a swathe of British business wiped out by the recession. According to the Public Accounts Committee no economic analysis of BBLs has been produced . But any such analysis might well have estimated the value of saving so many thousands of businesses in the billions.
Billions in loans, billions in write-offs, billions in potential benefits – it is easy to see how the dizzying numbers might make the problem of fraud look like a rounding error. But Lord Agnew’s disquiet is well founded. Every billion lost to fraudsters is a billion pounds to be raised from future taxpayers or cut from other public spending, no matter that it might be a fraction of another even larger number.
We at the Institute for Government were among a minority who warned against a headlong rush towards unconditional loan finance . We argued that many companies would take on debt they could not afford and foresaw a recovery that might struggle in the face of the high financial burden of repayments, and the time wasted chasing down debts. The economic analysis does not exist to judge this question, but in any case Lord Agnew’s complaint is not about the actual creation of BBLs, which he called “an important and successful intervention”. Instead, the concern is about the lack of priority and resources being given to a vigorous pursuit of fraudulently-claimed loans.
Write-offs in the billions merit more resources. If BEIS really did employ two counter-fraud officials at the beginning of the pandemic, then that was clearly inadequate; compare this to the £2bn in BBLs agreed in the first day alone. Since then, more resources have gone in. After Lord Agnew’s resignation, the chancellor took to Twitter to defend the government’s efforts , highlighting a £100m investment in a “Taxpayer Protection Taskforce”, with over 1300 staff having conducted 13,000 one-to-one enquiries. But this unit was only established in March 2021 and is charged with scrutiny of a swathe of covid support schemes, including CJRS, all the different loan schemes and even Eat Out to Help Out (which provided discounts for over 160 million meals ). For some context, the Student Loans Company, which administers a total debt of around £100bn, and a much lower rate of fraud, has 3000 employees and incurs staff and administrative costs of around £200m a year. 
HMRC says that this Taskforce will recover over £1bn over the next few years. This is a good return on the investment, but such a good return that it suggests the taxpayer would benefit from an even larger commitment of funds and manpower.
It is hard to evaluate the justice of claims the lending banks are to some degree culpable for excessive fraud. The BBL programme was explicitly designed to force banks to discard their caution. In the run-up to the creation of these loans, they had been hectored for weeks for an inability to push money out of the door at the pace seen in Switzerland or Germany. They knew better than anyone how ill-equipped borrowers were, and how easily fraud might occur. The British Business Bank published a Reservation Notice setting out their explicit concerns about fraud . It clearly understood how the risk of credit, fraud or error is best handled preventatively, not with ferocious ex-post actions, and that this isn’t possible when events are proceeding at such pace
The government may have wished for a system in which banks and their shareholders funnelled state-guaranteed money to millions of borrowers, with none of their own money at risk and no tedious bureaucracy slowing it all down, and yet also act with hardened determination in chasing down repayments and fraud afterward, bearing all the reputational risk of doing so. This hope is commercially unrealistic. Such a system cannot exist, and the government was warned that it cannot.
More resources to chase down fraud after the fact can only achieve so much – there were over 1.5m Bounce Back Loans issued, and probably hundreds of thousands of defaults. Lord Agnew has suggested the use of more counter-fraud experts in creation of loan ideas, which might have led to a more robust approach.  In April 2020 the government swerved from an approach that supported loans with ordinary, time-consuming protections to one with practically none – no credit checks, and self-certification on the question of being affected by Covid. It is hard to believe this struck the right balance, and that with a little more thought an efficient system could not have been created that guarded against some of the more blatant frauds that emerged. A counter-fraud taskforce might have been set up earlier, as it was in Switzerland, for example.
In other ways, the opportunity for greater deterrence was missed. Bounce Back Loans flew out the door so quickly because to many recipients they appeared to be free money. Government communications did little to emphasise the danger of taking on debt that is hard to pay back. After hearing of so much frustration at the slow pace of the previous schemes, the chancellor himself made a virtue of the lack of checks involved in BBLs, telling MPs: “There will be no forward-looking tests of business viability; no complex eligibility criteria; just a simple, quick, standard form for businesses to fill in.”
In Whitehall it can sometimes seem like money has a different importance when labelled one way rather than another.  A one-off expenditure of millions will attract endless scrutiny, while a tax break that costs hundreds of millions, every year, goes unremarked upon. Losing money on a loan issued during a crisis might feel less damaging than actively paying it out to a criminal. Lord Agnew’s job was to withstand such biases. We should not allow the unique and extreme circumstances of the pandemic to obscure what is clearly a far from adequate performance in this area. Just as rule-breaking behaviour is no more forgivable for taking place during a pandemic, debt that was fraudulently incurred should be pursued, no matter that the loan was agreed during a crisis. Every billion counts.
- Joke seen in the wild here with Martin Wolf (using a trillion) https://www.ft.com/content/0e63ad12-ef9c-11dc-8a17-0000779fd2ac
- https://www.ft.com/content/e23871ba-3467-4045-83e6-3da5b0a7566d Financial Times, “UK banks push back over fraud worries in Covid loans”, 25 January 2022
- Figures gleaned somehow from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/946122/Annual_Report_2019-20_V6.pdf
- See How governments are combating Covid bailout fraud – FTAdviser.com from August 2020
- See https://www.ft.com/content/4c130544-e0fa-11e3-875f-00144feabdc0 “Five Whitehall lessons that Sir Humphrey never learnt”, Financial Times, 6 June 2014 – my first comment after leaving work in the government