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

Government work to tackle fraud of Covid loans during the pandemic was like a "Dad's Army operation", an ex-Treasury minister has said.

Lord Agnew stepped down as a minister in January expressing anger at the government's performance on fraud.

Speaking to MPs on Wednesday, he said the months during the pandemic were "a happy time to be a crook".

However, the Treasury says it struck the right balance between issuing loans quickly while guarding against fraud.

Appearing at the Treasury Committee, Lord Agnew was making his first public appearance since dramatically resigning in the House of Lords.

During the session, he was asked about the government's Bounce Back Loan scheme which gave out £47bn worth of 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 public spending watchdog has said the figures are "highly uncertain".

Lord Agnew said he supported the scheme but said "on the fraud side, it was just a Dad's Army operation" making reference to the sitcom.

Asked by Labour's Angela Eagle whether that meant it was "a bit of a joke", Lord Agnew replied, "yes, absolutely".

The ex-minister described how the Border Force stopped "two suitcases of cash" which the applicants acquired through bounce back loans, destined for a house purchase in Turkey.

He criticised the Treasury for not using an existing counter-fraud database to check loan applicants, instead taking six weeks to build its own system.

"By that time 60% of the money had gone," he told MPs.

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

Lord Agnew warned the committee that a "crunch point" was coming, when banks would make use of the guarantee to claim back money on unpaid loans.

He argued banks were more likely to simply claim the money back from the government rather than trying to recoup loans that had potentially been claimed fraudulently.

"There will be an avalanche of claims on the state guarantee coming into the Treasury in next few months," he said.

He also said he had a "suspicion" that one of the seven main banks involved "really, really took advantage" of the scheme, but declined to name which one.

"They lent indiscriminately... they wanted to build their balance sheet. There was no downside because they though they were going to get the 100% guarantee if any of them [the loans] went wrong," he said.

In a letter to the Treasury Committee, the top Treasury civil servant said at the start of the pandemic there had been fears of a "potentially catastrophic wave of millions of business failures and job losses".

Tom Scholar argued that the loans had been able to "channel finance very rapidly" to small business "in desperate need".

This could only be done by "dropping many of the usual procedures for assessing loan applications" which "inevitably significantly increased the likelihood of fraud", he said.

He added that the government had later introduced stricter checks - such as flagging inactive companies - and was continuing to learn lessons from the Covid pandemic.