The loans made under the Bounce Bank scheme carried lighter checks than others and were aimed at small businesses unable to access other COVID1-9 funding support.

A recent BBC investigation revealed how fraudsters were using the loan system. One of the victims, Mark Telling, discovered a company set up in his name by a criminal had “borrowed” £50,000 from the bail-out scheme. The BBC also spoke to Sue Burden, whose identity had been stolen to set up a bogus company to access the scheme.

Back in May, the government was warned that the scheme was at a very high risk of fraud from organised crime, officials said that the government has tried to minimise fraud through background checks for firms applying for funding. 

The Bounce Back scheme provides firms with 100% government-backed finance worth up to £50,000. Demand has been greater than anticipated, and the total value of these loans is now expected to be £38bn-£48bn, up from an estimate of £18bn-£26bn. The loans do not have to be paid back for six years and are interest-free for the first year. 

The NAO report warned that the speed with which the scheme was implemented increased the risk of fraud. It took a month to ensure businesses could not receive more than one loan, BBC News reports.

The Public Accounts Committee labelled the scheme as the government’s largest and most risky. The committee has said it will not assess the value-for-money of the scheme, as the loans will not start being paid back until May 2021.

The NAO analysis said losses from the scheme are likely to reach “significantly above” normal estimates for public-sector fraud of 0.5% to 5%. The report also said the UK’s five biggest banks will accumulate nearly £1bn between them from the scheme.

Meg Hillier, chair of the Public Accounts Committee, said the loans had been a vital lifeline for many businesses. However, she said that “the government estimates that up to 60% of the loans could turn bad - this would be a truly eye-watering loss of public money”. 

She added: “The bounce back loan scheme got money into the hands of small businesses quickly, and will have stopped some from going under. But the scheme’s hasty launch means criminals may have helped themselves to billions of pounds at the taxpayer’s expense. Sadly, many firms won’t be able to repay their loans and the banks will be quick to wash their hands of the problem.”