The National Audit Office (NAO) has this month published a further update report (the Report) on its review of the Bounce Back Loan Scheme (BBLS / the Scheme), specifically focussing on Government’s efforts to protect public money since the Scheme closed and loan repayments commenced.

Background to the Scheme

The Scheme, launched in May last year, was the largest of the Government’s COVID-19 related business support loan schemes and targeted its support towards the smaller end of the SME population. The Scheme offered loans to SMEs of up to £50,000, or a maximum of 25% of annual turnover. The loans were backed by a 100% guarantee from Government. Government also covered the interest payments for the first year and, together with a hold on capital repayments for the first year, the Scheme proved extremely popular, with 1.5 million loans worth £47 billion being taken out as at September 2021. It is only in the last few months that SMEs have experienced repayments under BBLS loans kicking into action.

Government prioritised fast payment to SMEs under the Scheme, so the application process was significantly streamlined. No credit or affordability checks on applications were carried out and applicants were able to self-certify their application documents. As a result, it is considered that a high number of fraudulent applications were made and a significantly higher number than expected of those were not identified at the time of the lend.

Current status

The Report states that, as at March 2021, it is estimated that 37% of BBLS loans will not be repaid, and that 11% of BBLS loans, worth £4.9bn,  are fraudulent. Against that backdrop, the NAO looked at what the Department for Business, Energy & Industrial Strategy (the Department) was focussing on in terms of seeking to tackle the sizeable fraudulent element of the Scheme.

The Department originally envisaged that lenders would tackle fraud in the BBLS space, as part of its prioritisation of speed of payment out. Those lender checks were the only counter-fraud measures in place at the Scheme’s outset. The Report notes that the 13 additional counter-fraud checks introduced after the Scheme had been in place for some time came too late to prevent significant volumes of fraud and were focussed on detection, rather than prevention. The Report is critical of the Department’s counter-fraud strategy, saying it lacked governance and sufficient resources. That lack of resource is still evident, the NAO reports, with the Department’s current focus being on pursuing organised crime, leaving lenders to deal with those cases where applicants overstated turnover by less than 25%. But the commercial incentive for lenders to act on and seek recovery of fraudulent loans themselves is low, given that they are able to reclaim the funds through the Government’s guarantee.

NAO recommendations

The Report makes a series of recommendations to the Department for managing the Scheme through 2022. These focus on the formulation of a clearer strategy for longer-term management of counter-fraud activity, with a re-assessment of the Department’s counter-fraud engagement within the BBLS loan population and a review of the resources required to improve and expand its current counter-fraud operations.


It is clear that the fallout of the Scheme will not be fully known for at least some months yet. The estimates provided by the Department to the NAO for the purposes of the Report were generally heavily caveated, and there is limited data available to determine with any certainty the general repayment performance of BBLS loans as repayments have only recently been required to be made, or have been put on hold via the extensions offered by lenders under the Scheme. That said, it is absolutely clear that there is unfortunately an abundant population of fraudulent activity in the Scheme, which the Department does not have an adequate strategy or sufficient resource to effectively deal with. Unless the Department takes into full account the NAO’s recommendations as set out in the Report, it will be the lenders who remain left with the job of identifying and recovering fraudulent funds. With such a high proportion of fraudulent application being let through due to the nature of the Scheme, together with the massive scale of the Scheme itself, that is no small task.

If you would like to know more, please contact Peter Richards-Gaskin, Partner or Jack Hargreaves, Associate, in TLT’s Financial Services, Disputes and Investigations team.

Date published

15 December 2021



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