What caused him to take such drastic action?
In a surprising development Lord Agnew told the House of Lords: “Given that I am the minister for counter fraud, it would be somewhat dishonest to stay on in that role if I am incapable of doing it properly.
“It is for this reason that I have sadly decided to tender my resignation as a minister across the Treasury and Cabinet Office with immediate effect.”
Lord Agnew was answering an urgent question from the opposition on the scale of bounce back loan fraud and said he was unable to defend the Government’s record.
In what became his resignation statement, the minister said that the Department for Business, Energy and Industrial Strategy (BEIS) had shown a “lamentable” oversight of Covid-19 loan schemes which had resulted in large amounts of fraud being committed.
He told a rapt chamber that “the Treasury appears to have no knowledge or little interest in the consequences of fraud to our economy or our society.”
When the bounce back loan scheme was launched by the government in May 2020 to great popular and professional acclaim, it was widely seen as a critical lifeline to many businesses across virtually every sector of the economy.
Fast forward 20 months and what was seen as integral to saving a business and keeping it afloat could now equally be seen as a reason they could sink.
Repayments for bounce back loans have been coming due in the past year including those that delayed them for an additional six months when they were able to.
Others have been able to use interest payment holidays but the capital amount still has to be repaid even if their own trading circumstances haven’t recovered or have worsened since due to various restrictions and changes in customer behaviour.
Recent legal changes have also made it easier for The Insolvency Service to take action against directors it suspects of misusing bounce back loans or improperly obtaining them.
Their range of sanctions have also expanded so that as well as being at the risk of fines and/or disqualification, now they could be made personally liable for any bounce back loan borrowing they have accrued.
This is happening just as the potential scale of bad bounce back loan borrowing is being released in the wider business community.
An FOI inquiry to the Insolvency Service revealed that 9,733 companies in England, Wales and Scotland that had taken out a bounce back loan had entered an insolvency procedure between May 2020 and October 2021.
This is more than half of all the 18,251 company insolvencies recorded during this period.
Lord Agnew’s decision can be directly linked to the recent meeting of Parliament’s Public Accounts Committee which recently discussed a report published by the National Audit Office (NAO) in December on the value for money provided by the bounce back loan scheme during its operational life.
It contained the alarming finding that as many as a third of bounce back loans issued could have been obtained fraudulently.
Sarah Munby, permanent secretary for BEIS stated that “the initial goals of Covid-19 business support schemes were met” which meant that money was provided quickly to those who needed it.
The scheme also meant that a spike in business failures was averted but admitted that it would take years to be able to officially answer whether the scheme was “truly value for money” although the exact losses to fraud would be updated and reported by BEIS every year.
The NAO currently estimates that some £4.9 billion has been permanently lost to fraudulent activity and that £17 billion is regarded as credit losses and most likely will never be repaid.
This is the equivalent of 37% of all bounce back loan borrowing.
Last year we investigated the various bounce back loan borrowing estimates from various official sources including both BEIS and the National Audit Office (NAO) as well as the Office of Budget Responsibility (OBR).
From this we compiled three potential scenarios on how much could be lost to potential fraud and written off at the expense of the taxpayer.
The £17 billion amount referenced at the Public Accounts Committee hearing is just under our median case scenario which predicted that £18.6 billion could be defaulted upon.
In order to quantify the scale of the potential losses we compared them to the cost of building Wembley Stadium again and calculated that the lost amount is the equivalent of the cost of building 16 state-of-the-art new sports stadiums.
A huge problem is coming for the government
Chris Horner, insolvency director with BusinessRescueExpert said: “The evidence before the PAC matches our own experience from talking to business owners and directors that have tried to quite legally close down their businesses with an outstanding bounce back loan but have seen the process stopped by HMRC.
“Dissolving or striking off a business that has a bounce back loan is virtually impossible today as lenders and investigators are understandably being pressured from the government to recover as much of these arrears as they can.
“The fact that Lord Agnew, the minister in charge of overseeing bounce back loan recovery has chosen to resign rather than defend the approach would suggest that this is the perfect time for concerned business owners and directors to get in touch before the government becomes even more aggressive in looking to claw back outstanding arrears.”
A week might be a long time in politics but hours are even more precious if you’re running your own business – especially if you’re unsure about which direction you need to travel.
Many businesses won’t have to contend with the same pressures and speculation facing senior members of the government at the moment but they will, in many ways, have to manage even greater threats to the livelihoods of them and their employees.
No matter what happens to members of the current cabinet in the coming days and weeks, they will still be employed as MPs and won’t be made redundant or have to close the House of Commons.
For many small businesses and SMEs with outstanding bounce back loan debt that they took out absolutely legally and legitimately to support their businesses during the pandemic – that safety net doesn’t exist.
We offer a free consultation for anybody worried about their business and how they are able to service them.
There are ways to restructure debt to make it more manageable for otherwise viable businesses and if circumstances are realistically too much to keep a company going, there are different ways that it can close down – efficiently and reasonably quickly – including if they have an outstanding bounce back loan.