When Keith Hamblett, a fruit and vegetable seller from Tyne and Wear, asked his bank for a government-backed loan in the autumn of 2020, the economy was still in trouble after lockdowns, and coronavirus cases were rising.
The Covid bounce back loan scheme was a welcome relief for many smaller companies, and Hamblett received £28,000.
But there was a problem: he had ceased trading, meaning he was not eligible for the support. Then, contrary to the terms, he withdrew £10,000, spending £2,400 on a luxury watch and the remainder on his own living costs. He then filed a bankruptcy petition with liabilities of £61,692.
These details have emerged via an Insolvency Service register of disqualified directors, which is publicising new cases of fraud, misrepresentation, error or misuse each week.
Other cases – flagged by the insolvency firm Real Business Rescue – include directors who spent tens of thousands on a Range Rover, a jetski, buy-to-let property, flying lessons and even pornographic websites.
Britain’s already overloaded courts system is bracing itself. A wave of Covid loan fraud cases is already hitting, as law enforcement agencies start to bring the perpetrators to book. Government accountants estimate nearly £5bn was wrongly claimed.
MPs, campaigners and those involved in the law enforcement effort are worried. They have told the Guardian that efforts to recover the money are underfunded. They say government agencies have asked ministers for more cash, but it has been refused.
And they worry that even if budgets were increased, years of cost-cutting means there just are not enough officers with the skills and training to pursue white-collar crime.
There is evidence ministers have turned down requests by law enforcement for more resources. The National Investigation Service (Natis), a Kent-based body little-known even in anti-corruption circles, was given the massive job of investigating bounce back loan fraud in the summer of 2020.
However, buried in a National Audit Office report published in December was the revelation that the government rejected Natis’s request for £39m over three years, instead giving it only £6m.
The decision was baffling, said the NAO, given the government’s own statement that for each £1 invested, Natis would recover £8 for the taxpayer. “The Treasury wouldn’t cough up any more money for it,” a person involved in funding conversations said.
Launched in April 2020, the bounce back scheme was one of Rishi Sunak’s biggest interventions during the first months of the pandemic, as the chancellor attempted to firewall the economy.
During the nearly 11 months it operated, the scheme handed out £47bn. The cash was distributed by 28 high street banks and other lenders, with applicants able to borrow up to £50,000 each.
The loans were underwritten by the taxpayer, which means the Treasury will refund banks if borrowers default.
The money was intended to help company owners keep their businesses going, and could only be granted if the borrower was a going concern. But billions were wasted – claimed by businesses that had already gone under, or by criminals who had no legitimate business at all.
Natis is thought to be drowning under huge caseloads. It received more than 2,100 intelligence reports by October 2021, but only had capacity to pursue a maximum of 50 cases a year.
Synectics Solutions, a fraud data company, was granted access to loan application information for two unnamed major bounce back lending banks. It found 45% of applications were for businesses that showed no evidence of trading at all, before or after March 2020. In 6% of cases there was evidence that raised “concerns the money may be siphoned off to the other companies”.
Enforcement also suffers from a hugely fragmented approach, meaning it is often not clear who is responsible for investigating crimes. There are at least 16 agencies across government responsible for countering fraud, not including police forces. Local and regional police, the National Crime Agency, Natis and the Insolvency Service have all been involved in arrests.
After the Treasury minister Lord Agnew resigned in protest at the lack of action on fraud, Sunak bowed to pressure in March by creating the Public Sector Fraud Authority – with £25m of new money.
The funding has been welcomed, although the body’s “data analytics experts and economic crime investigators” are expected to help existing agencies, rather than launch their own prosecutions. They will not start until July, more than two years after the bounce back scheme started.
Meanwhile, the cases keep coming. Deniz Atay, of north-west London, secured a £50,000 loan in October 2020, according to the Insolvency Service, despite his business having ceased to trade. He used some of the money to buy two vehicles that he later sold.
Graeme Cameron, of Nottinghamshire, who ran The Milestone pub, used most of a £20,000 bounce back loan for his own purposes, before going back in March 2021 for another “top-up” loan of £25,000 after he had ceased trading. Again, he spent the money on personal expenses.
Nathan Hill, of Exeter, obtained £50,000 using turnover figures for his business, Troopa Courier Services, that he could not back up with evidence. He used the majority of the £50,000 loan in June 2020 for personal spending, including on gambling, as well as transferring cash to other people. None of the individuals disqualified responded to requests for comment.
Ministers will be watching one case with particular attention: Tarek Namouz, a 42-year-old former pub landlord from London, appeared in court last month accused of sending thousands of pounds in bounce back loans to fund the terrorist group Islamic State in Syria. A case management hearing is scheduled for July.
Susan Hawley, the executive director of campaign group Spotlight on Corruption, said: “The same skills you need for tackling corruption and fraud have been decimated through the years. No one’s bleeding, or shouting. You can’t have an immediate response to it. Fraud is always being deprioritised as a low-harm issue.”
Spotlight on Corruption is pushing for more transparency, taking the British Business Bank (BBB), the semi-independent body that administered the scheme on behalf of the government, to a tribunal to try to compel it to release the names of all borrowers. The bank has so far refused, saying it would harm commercial interests.
Agnew has agreed to appear as a witness at the tribunal, which is expected to issue a ruling later this year.
“This mishandling is going to remain in the public domain for years, with anyone associated with it shredded by a thousand humiliations,” he told guests at an anti-fraud event in Westminster last month.
“Someone with some courage in government needs to do the right thing and open up the data. It will force the pace and make things happen.”
Some blame the banks, saying they were too lax in their checks on borrowers, and are not spending enough on recovering lost funds – simply drawing on the 100% government guarantee instead.
Agnew recently launched a public attack on Starling Bank, claiming the lender did not run adequate checks and used the scheme as an opportunity to grow its loan book and, in turn, its valuation.
By June 2021, it had distributed £1.6bn of bounce back loans. The bank’s chief executive, Anne Boden, said she was “shocked” by Agnew’s comments, and asked him to withdraw his statements.
Boden said Starling had been open and transparent about its approach to bounce back loans and was one of the “most active and effective banks fighting fraud”.
The exploitation of the bounce back loans comes on top of the estimated £5.5bn of Covid supported funds to have been lost to fraud or error, including furlough, the self-employment income support scheme and Sunak’s eat out to help out package for hospitality.
A government spokesman said it had stopped nearly £3bn in potential fraud on Covid schemes, adding: “Our £400bn Covid support schemes were implemented at unprecedented speed and protected millions of jobs and businesses at the height of the pandemic.
“We’re cracking down on anyone who sought to defraud our schemes and bringing them to justice.”
For Meg Hillier, the Labour MP who heads the Commons public accounts committee, chasing fraud is worth the investment not only in order to claw back money, but also for a “deterrent effect” – making gangs think twice before targeting future government schemes. It is, she said, “a good way of spending taxpayer money”.
