More than 4,800 Covid loans issued to construction companies are suspected to have been fraudulent, Construction News can reveal.
As the pandemic took hold three years ago, the government created emergency loan schemes designed to ensure banks lent money to businesses despite the introduction of unprecedented social restrictions. These included the coronavirus business interruption loan scheme (CBILS), which offered companies with turnover of up to £45m loans of up to £5m, and the bounce-back loan scheme, which offered up to £50,000 for small firms.
The CBILS, introduced in April 2020, came with 80 per cent government guarantees for lenders; bounce-back loans, which began in May 2020, had 100 per cent guarantees in place for financial institutions.
Data obtained via the Freedom of Information Act from the schemes’ facilitator, the British Business Bank, shows that 4,825 loans across the two schemes are suspected of being fraudulently claimed within the construction sector.
Of the total, 4,792 relate to the bounce-back loans.
The bank did not provide a figure for how much the loans were worth but, based on the maximum loan available under the scheme, it could be up to £239.6m.
The 4,792 loans equate to 1.8 per cent of all bounce-back loans issued to the construction sector during the period they were available, up to the end of March 2021.
There has been a spate of cases in recent months where the Insolvency Service has banned company directors for abusing the rules of the loan system.
These include a director from Rotherham who overstated the turnover of four different companies to secure a total of £200,000 through the loans; a London-based builder who falsely claimed to have been trading in 2020 in order to obtain £50,000; and one who turned his construction firm into a car-washing business and falsely claimed to be turning over £280,000 when it actually turned over less than £50,000.
Anil Iyer, a civil engineer and director of B4 Investigate, which develops fraud-fighting software, said the figures did not surprise him. He added that in general, fraud and unexplained loss in the built environment is twice the average of other industries.
“It’s clear that the lack of due diligence caused by the manner in which this scheme was rolled out by the government has been a major factor. There are simple fixes such as the use of data analytics to spot red flags and our industry needs to adapt, but first it needs to accept it has a major problem,” he said.
In January 2022, Treasury minister Lord Agnew resigned from the government in protest at a decision to write off £4.3bn in fraudulently obtained Covid loans.
Earlier this year, the government won a legal case ruling that it did not have to reveal the names of the companies that had claimed through the emergency loan system, which transparency advocates said would enable more fraud to be exposed.
DRS Bond Management managing director Chris Davies said: “The government doesn’t really want to admit how much money has been wasted on these schemes, particularly on fraud.
“The ubiquitous nature of many of these loans and the lack of discretion taken with many of them does not look like good policy in hindsight, especially given the rate of insolvencies in the construction sector in recent months.”
The government has argued its priority was to get money to businesses quickly and the British Business Bank has previously stated that up to 500,000 companies, across all sectors, may have been saved thanks to the Covid loans.
A Department for Business and Trade spokesperson said: “Our Covid-19 business grant schemes helped to secure millions of businesses and livelihoods through the pandemic – supporting jobs and the economy during unprecedented times.
“No amount of error and fraud is acceptable, and we are continuing to work hard to recover these funds where possible.”