Business, Energy and Industrial Strategy Committee
Oral evidence: Covid loan fraud, HC 1190
Tuesday 15 March 2022
Ordered by the House of Commons to be published on 15 March 2022.
Business, Energy and Industrial Strategy Committee Members present: Darren Jones (Chair); Tonia Antoniazzi; Alan Brown; Richard Fuller; Ms Nusrat Ghani; Mark Jenkinson; Andy McDonald; Charlotte Nichols; Mark Pawsey; Alexander Stafford.
Treasury Committee Member present: Siobhain McDonagh.
Questions 35 - 112
Witnesses
II: Patrick Magee, Chief Commercial Officer, British Business Bank; Richard Bearman, Managing Director, Small Business Lending, British Business Bank.
Witnesses: Patrick Magee and Richard Bearman.
Q35 Chair: We are now going to move on to panel two. We welcome Patrick Magee, who is the chief commercial officer at the British Business Bank, and Richard Bearman, who is the managing director for small business lending at the British Business Bank. Good morning and welcome.
That was a difficult introduction for you guys. Why did the Minister not get an answer to his letter?
Patrick Magee: Simply, the letter to the chair was not received by the chair. Indeed when Lord Agnew stood up on 24 January, when I heard “letter to the chair”, I had never heard of a letter to the chair. It had not been received, unfortunately.
Q36 Chair: Why was that?
Patrick Magee: It went through the screening system and—
Chair: It vanished.
Patrick Magee: Our chair has written back and said he did not receive it. In terms of the letter to my team, we did speak to the Cabinet Office. We were getting ready to come to PAC in January. We were working through that. We said that we would respond in January in terms of the information and the data.
Q37 Chair: Was this a one-off mistake or do letters from Ministers often vanish?
Patrick Magee: That was a one-off mistake. I cannot recall that happening before.
Q38 Chair: How much money has been granted in total by the banks with Government guarantees?
Patrick Magee: In total we are over £75 billion across all schemes, and in the region of £45 billion in the bounce back loan scheme.
Q39 Chair: How much of that money was used to refinance existing lending facilities from the banks?
Patrick Magee: We do not have a comprehensive number on that for bounce back loans, because refinancing was permitted. If someone had credit card debt or other debt, they were allowed to use the bounce back loan to refinance that. Again, I know small businesses that had £30,000 of credit card debt and were paying £3,000 in interest. Taking £30,000 saved them £3,000 in the midst of that crisis. We do not have a number on refinancing in bounce back loans. In CBILS and CLBILS, there was a cap of 20%.
Q40 Chair: It was an active policy decision to allow companies to refinance other credit.
Patrick Magee: The rules of the scheme allowed the money to be used for the economic benefit of the business. Refinancing was permitted.
Q41 Chair: Was there a discussion about using it for refinancing existing lending?
Patrick Magee: Yes, of course. I am going to struggle to defend the indefensible, and you may be unpersuadable, but you have 51-plus years of experience in investment and commercial banking sitting in front of you. We are the Government’s centre of expertise in terms of small business banking and how to work with lenders. We established the CBILS scheme, which has gone on to support 19,000 businesses with £24 billion of financing. There have been two NAO reports written about this. We were asked to set up this scheme with 11 days’ notice. We discussed all those policy aspects with the Treasury and with BEIS. We worked very hard with the lenders.
Again, Lord Agnew seemed to have some confusion about whether those minimum checks were there. My memoirs will be very interesting, if I ever choose to write them. There will not be many who read them. We sat down with those lenders over that first weekend and said, “You have to get the AML, KYC and fraud checks in.” The fraud checks that we agreed for them to put in helped save the taxpayer £2.2 billion in fraud, which was prevented by putting in those minimum fraud checks.
You mentioned the parliamentary question from your colleague, Mr McDonnell. We absolutely stepped in and discussed all those policy angles with the Treasury in an 11-day window. It is on record that we had reservations about the scheme. We knew that there would be high residual fraud risk; there would be value for money risk. We shared those concerns with our Ministers. We then received a ministerial direction to go ahead. I am not here to say, “We raised our reservations.” We raised those reservations, but every day since then, particularly in the first 11 days, we did everything in our power to mitigate those risks.
Q42 Chair: I will come back to the reservation notice. Why was the decision to put a 20% cap on refinancing applied to CBILS and CLBILS loans but not to bounce back loans?
Patrick Magee: If you recall—some of you may have been in some of the APPGs in April and May 2020 that I appeared in—there was a huge concern that the CBILS process was turning out to be a four to six-week process and the money was not getting out.
Q43 Chair: My question was not about timescales. Why was there not a restriction on refinancing on bounce back loans compared with the other products?
Patrick Magee: To be crisp here, CBILS was not working quickly enough. The decision was to get money there for the economic benefit of the businesses—
Q44 Chair: Conditionality on whether you can use it for refinancing is not going to change the speed of delivery of the money; it is just a condition on what you can and cannot use it for.
Patrick Magee: Then the banks would have to set up a monitoring system in order to track that and so on.
Q45 Chair: Did this go to ministerial level to sign off? Was it decided in the British Business Bank?
Patrick Magee: These policy decisions and design decisions were all ministerial decisions.
Q46 Chair: Was it BEIS or Treasury?
Patrick Magee: It was both. There were ministerial letters between the two Departments.
Q47 Chair: Lord Agnew talked about the data dashboard and various items of data that he had requested from the British Business Bank when he was a Minister. Do you not have it?
Richard Bearman: Do you want me to jump in? We have a huge amount of data.
Q48 Chair: Why do you not publish it?
Richard Bearman: We share through a number of forums. Particularly, we have a counter-fraud forum, which the Cabinet Office is a member of, as is Treasury—
Q49 Chair: The Minister was the counter-fraud Minister in the Cabinet Office, and he said he did not get the data.
Richard Bearman: I cannot speak to whether he was passed that data, but we share that data through a fraud dashboard that we provide. We also work very closely with the Cabinet Office to produce other data.
Q50 Chair: Are you saying that the former Minister was incorrect and that, when he said that, as a Cabinet Office Minister with responsibility for anti-fraud and corruption, he asked for data and did not get it, he was not looking in the right place?
Richard Bearman: I cannot say what he was provided. All I was going to say is that we provide a fraud dashboard that has a lot of data on fraud and on lender performance.
Q51 Siobhain McDonagh: Can we see that?
Richard Bearman: We have consolidated that into a lender dashboard and added to that. That was produced and shared with—
Siobhain McDonagh: Can we have a copy of that?
Richard Bearman: I have no doubt that you could be provided with a copy of that. That is for ministerial access.
Chair: I think the answer is yes, and we would be delighted to look at it.
Q52 Ms Ghani: It is really important, Richard, that we get this absolutely accurate. We were just given evidence that no dashboard was made available—let me finish. You are now saying that there is information available. Are you now talking to me and saying there is information or a dashboard? We do not want to be in contempt of the Committee. Who is telling the truth?
Richard Bearman: It is not a question of that. What I am saying is that there is data provided.
Q53 Ms Ghani: What data are you providing that he was looking for and he was not getting?
Richard Bearman: We provide data on lender performance. We provide information on where there are arrears or defaults. We work closely with the Cabinet Office and its data analytics programme. It also feeds into this forum on data around particular areas of fraud risks.
When it comes to the lender dashboard, to explain for a moment, subsequent to Lord Agnew’s letter we are combining that data into one dashboard and adding additional data points to—
Q54 Ms Ghani: You are combining, so it has not yet been combined on the dashboard.
Richard Bearman: There is data provided in two dashboards. We are combining it into one and adding additional data points to that submission to the regular forum.
Q55 Ms Ghani: He wrote and asked for a dashboard. Is that information available right now in the format he asks for?
Richard Bearman: It is available in a different dashboard.
Q56 Ms Ghani: It is not in the format that he is asking for. You are not able to provide him with the information he is asking for.
Patrick Magee: May I come in? As Richard said, there were two sets of dashboards. The Cabinet Office was involved in the counter-fraud strategy board. To this idea that we were not involved, we worked with Cabinet Office officials from 6 May 2020. There was a dashboard on fraud statistics that was shared frequently in 2021, and his colleagues had access to that and he had access to that. Again, he has cited some of those statistics. We were also doing a lender performance dashboard. The overall performance of the scheme is managed by BEIS and Treasury, so we were sharing that dashboard. He wanted us to combine the two. The two have been combined and that was shared on the counter-fraud strategy board on 7 March. There are two dashboards, and he wanted them—
Q57 Ms Ghani: Why is it so complicated?
Patrick Magee: I do not know—
Ms Ghani: It is your responsibility to bring the information forward, but you are making it so complicated. If you have the data, hand it over to the Minister while he is a Minister or hand it over to him now he is no longer a Minister. Why is it so complicated?
Patrick Magee: It is not that complicated. This whole dashboard issue is a bigger issue than this.
Q58 Chair: Can I just check on the chronology? Maybe this is the issue. When did you start working on the dashboards?
Patrick Magee: We have been working on the dashboards throughout the scheme. We have published public data—
Chair: It was from the very start.
Patrick Magee: Yes. In the early stages, you are talking about deployment. In the first year you do not have arrears or defaults, because it was interest free and there was a payment-free period. You do not really have performance data in the first year. Then when you get into June 2021 you start looking at lender performance. Then we started to provide dashboards.
The governance within the BBB is much better than Lord Agnew would have you believe. There are many things that I would agree with him around. Fraud is a huge issue; we need to challenge the lenders; we need to track the data. We are doing that. We have been tracking that data; we have been challenging in portfolio reviews. We have been sharing it back with the banks and challenging the banks: have they been doing the right things and following the scheme rules? I do not agree that there is not a plan. We have been taking very active steps with the lenders to absolutely minimise that risk.
Q59 Chair: The British Business Bank issued a reservation notice, which is the same as requesting a ministerial direction. Was that because the British Business Bank felt like it could not cope with the scale of what it was being asked to do?
Patrick Magee: No. We raised it in three areas. The first was value for money. How would the losses be compared to the benefits for the economy? In the longer term, we will all realise that the scheme saved hundreds of thousands of businesses.
We raised a value for money concern, a propriety concern about the potential residual fraud risk, and a feasibility concern, which was about whether the banks could mobilise the scheme in 11 days, develop a completely new product and put it out to market. I was very concerned in the first week or two that the whole banking system would not be able to get these bounce back loans out and that this desire to get money quickly through the banking system to SMEs would fail. That was the concern.
I absolutely would agree with you: in those early days, it was a challenge. We had launched CBILS; we had launched CLBILS. The call came in to do this. I have another team that works on EFG and CBILS. They were extremely busy delivering those. Having worked in the banking sector for 20 years, Richard joined me two or three years ago. He runs the start-up loans programme, which lends money to entrepreneurs who want to start businesses. There are many similarities there. The Cabinet Office came in and looked at the start-up loans programme, and gave us a gold award for counter-fraud, a few years back. I was very lucky to have Richard on hand, so I asked Richard to focus on the bounce back loan scheme.
Q60 Chair: What I do not entirely understand is why the Treasury did not work directly with the banks.
Patrick Magee: They were working directly with the banks through us. Through those 11—
Q61 Chair: The Chancellor announced that he was going to do something; he then passed it to BEIS, which passed it to the British Business Bank, which passed it to the banks. Why did the Treasury not just work with the banks to get the money out?
Patrick Magee: Without blowing our own trumpet, we are the centre of expertise. We run these programmes. We run the EFG programme. I have staff within the bank who worked on the launch of EFG in 2009. We have the skills, the operations and the experience of working with the banks to deliver these.
Frankly, I was pleased that the bank existed. I have worked in Government for 10 years. The Government did not have a development bank 10 years ago; my job was to set up the British Business Bank. I have been delighted to set up and run it. If Government had not had the British Business Bank to run these schemes, the economy would have been in a worse place. That is why we were called to arms.
Q62 Alan Brown: To stick to the concerns that you had, you highlighted that you had concerns about fraud. You put those forward as risks to Ministers. Were there any specific areas of the fraud concerns you highlighted that changes were made to counteract or were all your concerns ignored? In those areas of fraud that you were concerned about, is the level of fraud that has subsequently been realised better or worse than you anticipated?
Patrick Magee: That is a very good question. We had concerns. Fraud comes in many forms. You can have duplicate fraud; you can have date of incorporation fraud; you can have first-party or third-party fraud, and so on. We had a range of concerns, as Lord Agnew highlighted. We did bring in a private sector consultant who works with the financial services industry. We looked at the fraud standards and the procedures the banks could put in place. We got the banks to implement those procedures and have sight of those areas. Those recommendations were taken on board, where possible. We then went on to take further steps, including putting in a duplicate check, putting in date of incorporation flags, putting in change of director flags and then sharing that data back with the banks.
In the very early days, our initial estimate was that fraud could be 10% to 20%. That is what we were thinking at the time of our reservation notice. In the BEIS annual report and accounts, we did a very detailed fraud sampling exercise, on which we again worked very closely with the Cabinet Office. That came out with a central estimate of 11.15%. That has been subsequently revised, and much further and deeper work has gone on to those cases. That estimate is now 7.5%. The level of fraud is going down, but it is still much higher than you, I or anyone else would be comfortable with.
Q63 Alan Brown: Why has that estimate of fraud levels gone down? What work has been done? Is this because of recovery or is this just because you are saying, “We have done more checks and we do not think that element is fraud”?
Richard Bearman: It is the latter. As we get to understand the scheme better, we can explore more data. That consultancy continues to work, continues to dig into the data and spends time working with the lenders to understand what the lenders are seeing. It is just getting further detail. It is very fair to say that it is still very uncertain. There is still lots to happen with this scheme over the coming months and years. There are areas that we need to continue to dig into. I would expect our estimate of 7.5% to change in the future. Essentially, it is that latter point.
Q64 Alan Brown: In our briefing for this, it was estimated that £47 billion of bounce back loans went out. BEIS estimates that £17 billion, so well over a third of that, will not come back. Within that, there is a £5 billion fraud element. Are those figures you would agree with?
Richard Bearman: That is from their accounts. The revised figures—Patrick has just explained the 7.5%—bring that fraud estimate down to £3.5 billion.
Q65 Alan Brown: If there is less fraud, does that mean the taxpayer is getting more money back or is it still money that is going to be lost? It is not paid back; it is not fraud, but it is still just lost anyway.
Richard Bearman: It is bringing down the total amount of loss. Our latest estimates see it coming down. It is still a huge figure. Do not get me wrong. It is not something that does not make me frustrated and angry. The figures are coming down in the latest estimates.
Q66 Alan Brown: Lord Agnew was very big on the fact that the Government should be reporting which businesses got how much and should not hide behind commercial sensitivity or anything. He thinks that will help shine a spotlight on that and maybe allow further work to be done in terms of fraud. Should information on the companies that accessed money be published?
Richard Bearman: It is a decision that needs to be agreed with BEIS.
Q67 Alan Brown: Does the commercial sensitivity argument hold up?
Richard Bearman: There are a couple of other considerations in there that are important, not just the commercial sensitivity of the lenders. If we are talking about individual businesses, it is the potential commercial sensitivities of those businesses themselves. There is a risk of creating potential scamming fraud of the businesses if people become aware of what they have got. It is a decision that will have to be taken with BEIS colleagues.
Q68 Alan Brown: Why would publishing the data on what companies have received potentially create scamming fraud?
Richard Bearman: It is a small point, but, if someone is aware that a certain business has taken a loan and has had an engagement with us or others, that gives them the opportunity for third-party takeover fraud—to pretend to be someone who needs to collect or to put pressure on it. It is that kind of thing. It is a small point.
Alan Brown: To be honest, I cannot follow that.
Q69 Chair: That really should not be a reason for not publishing the data, should it?
Richard Bearman: It is a consideration.
Q70 Chair: It is not a reason not to publish. Whose decision is that? Is it yours or the Minister’s?
Richard Bearman: Ultimately, it is a ministerial decision.
Patrick Magee: We are discussing data publication strategy with colleagues across Government. Again, there are two types of data. There is overall scheme performance data, which we have been publishing; then there is lender-by-lender data on the performance of the lenders; and then there is the local plumber, and so on, who could be subject to being approached. There are those elements, and we are discussing that. Under the state aid laws that apply, there is disclosure above a certain threshold in CBILS and so on.
Q71 Chair: When will the decision be taken whether to publish or not?
Patrick Magee: We have been discussing that over recent months with colleagues across Government.
Chair: I am asking when.
Patrick Magee: The plan was to publish the next set of data in May, based on the March year end.
Q72 Chair: That is the individual data about which companies received what bracket of income.
Patrick Magee: That is the overall publication strategy that we are working on.
Chair: We have lots of questions for you and I am conscious of time, so we are going to need to keep the pace up, if that is okay, with direct answers where possible.
Q73 Ms Ghani: We do not know what the data is, as Lord Agnew said, but there is possibly a loss of £4.9 billion through fraud.
Patrick Magee: That would be based on the 11.5%. Based on the 7.5%, it drops to between £3.5 billion and £4 billion.
Q74 Ms Ghani: Patrick, you have said three times that the bank is either a centre of expertise or a centre of excellence. There is a level of arrogance here. Do you still think you are a centre of expertise and excellence, knowing how much money has been lost?
Patrick Magee: It is one of our objectives set by Government to be this Government centre of expertise.
Ms Ghani: It is an objective.
Patrick Magee: It is one of our six objectives.
Q75 Ms Ghani: You said you are a centre of excellence and a centre of expertise, but you have lost quite a bit of money.
Patrick Magee: The policy design here was to get that money out to support businesses in the wider economic interest. Having made our concerns known, it was our job to be experts and to deliver that scheme. We had to scale our systems, which used to manage 2,000 loans, to manage 1.6 million. We brought a lot of operational knowhow to the table; we brought a lot of expertise. I am sorry if I sounded a little proud.
Q76 Ms Ghani: I just wanted to know how much fraud you could accept while continuing to be a centre of expertise or a centre of excellence.
Patrick Magee: We knew from the first day on 22 April when we were told about it that this would be subject to fraud, because the number of checks would be lower. In our own risk appetite statements—our board manages us in an appropriate financial institution-type way—we have carved that out, because it was ministerially directed to take that risk.
Q77 Tonia Antoniazzi: I have a question for both of you. How has administering these loans affected your workload?
Patrick Magee: We have been extremely busy. Again, I apologise if I have been a little defensive. Teams across the bank stood up to deliver these schemes. We have had to scale the bank. We have had to outsource a lot of activity. Lord Agnew said at one point that we should wake up. We hardly slept for the first couple of months, because we had so much work to do. It has been a huge challenge, but the team has risen to it.
Q78 Tonia Antoniazzi: Richard, you said there was still lots to happen. Lord Agnew said that we have to try to save some money now. Do you have sufficient capacity now to monitor and risk assess outstanding loan balances and take action where there are indications of fraud? There is still a lot to be done.
Richard Bearman: As Patrick said, in the early days it was very challenging. We have built out our teams. We now have a bounce back loans team in place. We are building and expanding a fraud and financial crime team in the bank. We have lots more resource now to do that. The key for us over the coming months and years is to continue that engagement with the lenders; to make sure we are using the data we have; to work closely, as we have done throughout, with the Cabinet Office to feed that data into the lenders in order to allow them to take action where necessary; and, where appropriate, to challenge the lenders if there is an issue. We have good resource now. In the early days, it was very challenging.
Q79 Tonia Antoniazzi: Are you going to try to save some money now?
Richard Bearman: Yes, absolutely. It has been two years of real focus and dedication to this. I am as angry as Lord Agnew about the fraud. I am not sitting here in any way thinking it is a good outcome that any fraud takes place. I am dedicated to keep pushing on this, working with the lenders, working within the realms of the scheme and thinking about what else we can do.
To take a step back, one thing that has been positive is how we have worked across Government with BEIS, with Treasury and particularly with Cabinet Office. One of my worries with some of this is that I do not want a wedge between us and the Cabinet Office. Its counter-fraud function team has been really important to us. They have done really good work with us. I hope they will continue to do that over the coming months and years.
Q80 Mark Pawsey: Mr Magee, Lord Agnew has made some very serious charges about the bank. Why is the chair not here to defend what the bank has been doing?
Patrick Magee: There was not a request for the chair to attend. We responded to the request. I am sure the chair would—
Q81 Mark Pawsey: As the figurehead, the leader of the organisation, would he not have wanted to be in your seat justifying what has happened over the past two years?
Patrick Magee: In Government terms, I was the senior responsible officer on the frontline. If the chair wants to give his views from his position, I am sure he can do that.
Q82 Mark Pawsey: Before getting involved in the covid loan schemes, what was the level of activity of the British Business Bank?
Patrick Magee: At the time of covid, we supported around 100,000 businesses with around £8 billion of finance under our schemes.
Q83 Mark Pawsey: What is it post covid?
Patrick Magee: We are now at 1.6 million, which is a scaling up to 16 times the number of businesses.
Q84 Mark Pawsey: We have heard Mr Bearman say that you had to outsource some activities and you are building up a team. You are building and expanding the team; you have more reserve now in the sense that you did not have that previously. Is the truth of the matter not that you were frankly out of your depth?
Patrick Magee: I would not recognise that. We were given a huge challenge and we have risen to that challenge.
Q85 Mark Pawsey: It was a massive challenge that you were not equipped to do at the time.
Patrick Magee: We always had plans in place to take the enterprise finance guarantee and widen it. That is what happened with CBILS, taking it one step further.
Q86 Mark Pawsey: Would it not have been more honest for you to say, “We would love to do this job, but we are really not equipped to do it”?
Patrick Magee: What would have been the counterfactual, then? Money would not have got to small businesses.
Q87 Mark Pawsey: Government might have gone directly to the high street banks and had to design an alternative scheme.
Patrick Magee: We had the operations, the systems, the legal agreements, the relationships and the accreditation. Government would have been in a much worse position.
Q88 Mark Pawsey: Is part of the problem that you are not regulated in the way that banks are more broadly? Should you be regulated in the same way as our high street banks?
Patrick Magee: That is again a slight misperception. If I summarise why the PRA is there, it does prudential regulation to make sure depositors’ savings are safe. We do not take deposits. The Financial Conduct Authority is there to make sure customers are treated fairly. We do not deal directly with SMEs. The banks do that. We do work very closely with the FCA and we talk very closely to it about this scheme. Again, we are an economic development bank; we are not a high street bank.
Q89 Chair: Who should be regulating you to make sure you protect taxpayers’ money?
Patrick Magee: As Lord Agnew said, it is our board. I am sure our chair would give a robust defence, as would I, of the work of the board, which is filled with financial services experts. We also have UKGI, UK Government Investments, which sits on our board and manages our governance. We are in daily discussions with BEIS and HMT.
Q90 Richard Fuller: You are taking a lot of incoming today. It is fair to put on the record that there are thousands and thousands of businesses across this country that have benefited and that are still in business because of the work that you and your colleagues put in. We do appreciate that, but you are aware, of course, that the focus here is on the other aspect. I just wanted to put that on the record.
To return to the point that Mr Pawsey mentioned, Lord Agnew mentioned that you had two personnel with relevant anti-fraud experience when this started. Did you look at that at the time and think, “We are way under-resourced in this area”?
Patrick Magee: It was actually BEIS that had two people who did counter-fraud. We had a range of people across the bank who would have had significant fraud and financial crime experience. Richard had run large elements of a high street bank; we had people within the start-up loans area. We did not have a dedicated team, but we had various people across the bank.
Q91 Richard Fuller: At no point did you think, “We are under-resourced for this challenge”.
Patrick Magee: In those early days we knew there was a huge mountain to climb, but it was the middle of a pandemic.
Q92 Richard Fuller: I appreciate that you want to do your bit, but did you make representations to say, “We do not have the resources; we need more resources”?
Patrick Magee: From the outset, we were saying, “Yes, we are going to need to build and scale. We are going to have to build things up.”
Richard Bearman: Because of that lack of resource to drive this through, the initial point was when we engaged external consultants. We worked with a consultancy that specialised in fraud on financial services. We brought it in while we built up our own resource.
Q93 Richard Fuller: Lord Agnew referred to that earlier on, did he not? He implied that the recommendations from the consultant were not implemented. Is that correct?
Richard Bearman: It was more than just one; it was a team of consultants.
Richard Fuller: It always is.
Richard Bearman: The report they provided laid the basis for a lot of the work that was undertaken. The duplicate fraud check was brought in on the back of that report.
Q94 Richard Fuller: You have talked about multiple consultants, but there was clearly one consultant report that was quite seminal on this issue. That will have gone to your board. Did your board accept that consultant’s report? Did they implement the recommendations in full?
Richard Bearman: I have to say I am not sure which particular report he was referring to. I am sorry.
Q95 Richard Fuller: Perhaps we can follow up with the chair in due course, Chair. In the House of Lords, Lord Agnew gave three statistics that are relevant, but he did not put the scale of those statistics. Lord Agnew said that three out of seven of the main lenders account for 80% of loans that were given to companies that were already dissolved. Two out of seven main lenders account for 81% of loans to companies that were incorporated post covid. One out of seven of the main lenders accounted for 38% of duplicate BBL applications. There is no scale of how many companies that were dissolved received loans, how many companies that were incorporated post covid received loans or how many duplicate application BBL companies there were and what the scale of the loans provided was. Are you able to provide us with the missing information on each of those?
Patrick Magee: I am happy to do that either in writing or now, but in terms of companies already dissolved it is in the region of 1,000 companies. A major contributor to that was the fact that Companies House had suspended various procedures. In terms of the duplicate loans, we are doing work around that. In the fraud-sampling exercise I talked about, 4.5% of the book looked to be duplicates. We have been doing detailed work across the 1.5 million loans, and at this stage we have identified 22,000 loans that look as though they are very closely matched. We are looking at a much wider population. The 22,000 is 1.5%, so that number will probably go up. Richard, do you have the numbers in terms of incorporation?
Richard Bearman: It is about 1,500.
Q96 Richard Fuller: Do you know the amount of pounds sterling that was lent to each of those groups? Can you provide that to the Committee?
Richard Bearman: I am sure we can.
Q97 Richard Fuller: Given that one out of seven, two out of seven and three out of seven are big proportions, what in your mind accounts for that difference between banks?
Richard Bearman: As we have looked at it, there are different areas with different banks where operationally, particularly in the early days, they had challenges as well. The scheme was put together in 11 days, as we said. It was put together very quickly, but the lenders also had to operationalise it quickly. You have concentrations of risk that have come through different lenders in different ways. Fundamentally, they may have had operational issues, such as companies formed after 1 March. We have not been sitting on that; we have been engaging the lenders about that. We have been challenging them, talking to them about that and asking them to report back.
We have seen that, where there have been errors, where there have been flaws, lenders have been removing guarantees from cover, taking responsibility for those areas and self-correcting. Fundamentally, were errors made? Yes, they were, but the lenders are responding well to the challenge. They are acknowledging errors and self-reporting as well. They are coming to us and saying, “We have found another error here and will remove these cases from cover,” and they are doing so.
Q98 Chair: Which consultancy provided the anti-fraud advice?
Richard Bearman: It was PwC.
Chair: Presumably there was a write-up of its recommendations.
Richard Bearman: Yes.
Chair: Could you send that to us?
Richard Bearman: I am sure we can, yes.
Chair: That would be helpful—ideally with a list of what you accepted and what you did not accept.
Q99 Andy McDonald: On the issue of transparency, Chair, I was going to ask that very question. We heard an account from Lord Agnew that was wholly different from your description of the positive relationship between the Cabinet Office’s counter-fraud function and yourselves. How can there possibly be such a diametrically opposed account of what has happened here?
As Mr Fuller has pointed out, everybody is absolutely delighted that we were able to get money out to businesses to save those good businesses and keep people employed. That is not the issue. The issue around transparency is that we do need to know who got what and where. There will be competitor businesses that did it right and people who did it fraudulently; we do not know the difference between the two. If Switzerland and other countries are doing it, why do we not have a more transparent and open system here? As Back-Bench Members of Parliament, we are used to the run-around and the non-answers. Is it not an incredible indictment for a Government Minister not to get the information he has asked for? How can you correct that position, if it lies at your door?
Richard Bearman: As I said earlier, the Cabinet Office has been hugely useful and important to us. I was engaged with the Cabinet Office the week the scheme launched. They have been coming to the lender forums that we hold. We held lender forums right from the first week of the launch. We get together with the lenders to talk about consistency and risk and so on. The Cabinet Office has a place there. Their data analytics programme has been hugely helpful.
Q100 Andy McDonald: So when Lord Agnew says he is not getting a response to the reasonable requests he is making, that is somehow not accurate? Why was a Government Minister not getting answers?
Patrick Magee: As I was saying earlier, he had full access to the counter-fraud data. There was a performance dashboard that was being shared, and we have merged the two together. That has been shared with his Department. I absolutely regret that he did not get it. I spent half an hour discussing with him in his two-year tenure, and I had a very good discussion with him. I totally agree with him: fraud is a very significant issue. At the end of the conversation on 18 November, I said, “I absolutely want to take action on the lenders here. We want to challenge them. We very much welcome your participation. If you want to come with me to see the lenders in the future, that is fine.”
Richard Bearman: To be clear, on the letter that was sent in December, there were some additional asks. We put those additional asks into the new lender dashboard, which was provided last month. Did we capture everything he wanted? No, obviously not. Have we responded to that letter? Yes, and we have added those additional asks.
Q101 Charlotte Nichols: Your suggestion seems to be that, if the Cabinet Office was involved in all of these discussions the whole time, Lord Agnew was in fact getting the data he had asked for. Based on his earlier testimony, your assessment of things seems to be that the issue is incompetence within the Cabinet Office, not incompetence within the British Business Bank.
Patrick Magee: No, we are certainly not saying that. As Richard said, we worked very constructively with Cabinet Office officials. Again, they have challenged us to do more, and we have risen to that. We have dug into that data and shared that data. He wanted the data at the next level, in consolidating two dashboards. I am not saying there is any incompetence. I really welcome the work we have done with Cabinet Office. As Lord Agnew was saying, the data analytics has absolutely helped us. They have absolutely come in and been very helpful. I am saying there has been a lot of collaboration there. Lord Agnew seemed very frustrated about the dashboards. I apologise about that. We had two dashboards; he wanted to bring them together.
Richard Bearman: Again, just to reiterate, in the letter in December Lord Agnew is saying that there is more information he wants over and above what is already provided. Whether he was receiving that or not I do not know, but he was asking for more information. That is what we have subsequently added over the last two months.
Q102 Charlotte Nichols: When you say “whether he was receiving that or not”, are you saying that the information had been sent and he had just somehow not received it?
Richard Bearman: I do not know. All I am saying is that we have a biweekly counter-fraud forum with BEIS, Treasury and Cabinet Office. We provide data into that on lender performance. We work with Cabinet Office, and it provides data to that on fraud. I do not know whether that was sufficient. There was a request for more and we acted upon it. It is important to clarify that data is provided. We do provide data into that environment. Did I send that personally on to Lord Agnew? No, I did not. We submitted that through the counter-fraud forum that we have in place. When asked for additional data points, we have subsequently provided them over the last two months.
Patrick Magee: There is a taxonomy that I have used with the team for most of the last two years. Data is great—we have huge amounts of data; we have 70 data points on each of the 1.6 million facilities—but insight is much better, because that drives action. Again, through the work we have done with the Cabinet Office, we have been getting good insight. We have been sharing that back with the banks, and they have been taking that action. I do not recognise this concept that we are not taking action.
Chair: Joining us from the Treasury Select Committee, we have Siobhain McDonagh.
Q103 Siobhain McDonagh: In answer to a Member’s question, you said that you were not regulated other than by your board. Would you have benefited from an independent regulator watching what you were doing and supporting you?
Patrick Magee: As I say, the PRA is set up to manage prudentially banks that are taking deposits. We do not take deposits. The FCA is managing conduct. Again, the rules that the PRA and the FCA write and monitor would not be applicable to us. I worked on the set-up of the bank 10 years ago, and we discussed whether to be regulated. I have a letter from the FCA that basically says, “You are an economic development bank, not a retail bank. We do not want to, and should not, regulate you.”
Q104 Siobhain McDonagh: Is there need for another form of regulation? Can you rely on just your board? You know how it is: when you get on a board, you become committed to an organisation and probably do not provide the level of independent scrutiny that is required.
Patrick Magee: I sit as an executive director on that board. If you look through the history, quite a few directors have joined the board in the last couple of years. They do provide that insight and challenge. I would certainly say that our independent directors do provide that independent challenge.
Q105 Siobhain McDonagh: Looking back, did you have the capacity, the staffing, the knowledge and the expertise not only to administer covid loans but to minimise the fraud and loss associated with them, as we have been discussing this morning? Is Lord Agnew just living in a complete fantasy world?
Patrick Magee: As I said, it was a huge challenge. We had to rise to that challenge. If you look at the second NAO report, when we were doing our estimations in mid-2020 as to what it would cost to administer those loan schemes over the business planning spending review period, we were talking about £80 million. The Government had supported us with that. By the time we did our 2021 business plan, those costs had risen to the region of £130 million, and the Treasury supported us. Did we have that £130 million sitting on our balance sheet and those teams ready to go? No. Have we been supported to build out those teams? Yes, absolutely.
Q106 Siobhain McDonagh: On the Treasury Select Committee, we have done an investigation into Greensill. To some of us, it threw up a suggestion that, after numerous texts, emails and meetings between the former Prime Minister David Cameron and both Treasury officials and Ministers, the Treasury threw Greensill to you and you gave it loan guarantees at the same time as it was being investigated by the PRA and the Serious Fraud Office. Do you think that makes you look a bit stupid?
Patrick Magee: No, I do not. Again, there was an NAO report on this and a PAC hearing at which I appeared. Some of those regulatory investigations came after—
Siobhain McDonagh: Some of them came at the same time.
Patrick Magee: The ones that were before were the ones in respect of the bank that GFG owned. That was not shared with us; I agree.
Q107 Siobhain McDonagh: In retrospect, would you have really given £500 million of loan guarantees if you knew those investigations were going ahead?
Patrick Magee: Again, if you factor different information into a different circumstance, you may well come to a different outcome.
Q108 Siobhain McDonagh: Do you feel a bit cross with the civil servants at the Treasury for allowing you to do that?
Patrick Magee: One of the key recommendations and findings from the NAO and PAC was that we should review what can be shared between different Government agencies. At times there are useful insights that can come across. Some progress has been made on that.
Q109 Siobhain McDonagh: You have now withdrawn the loan guarantees. Do you not think that some of the people who invested in and bought stuff from the bank are going to come back to you? They did it at a time when they were led to believe that those guarantees were there. Indeed, they were there. You have retrospectively done that. Are you not going to end up in the courts?
Patrick Magee: In any insolvency situation, as Greensill is in, there is always litigation risk. That is why we have been very carefully walking through that procedure. Technically we have suspended them. The investigation is still ongoing. As you say, there is information coming out. There may well be litigation but, again, it is our job, as you have held us to account to today, to preserve the taxpayers’ purse and decide whether those guarantees were used appropriately by Greensill. We are very closely looking at that.
Q110 Siobhain McDonagh: As MPs, all of us fight over relatively small amounts of money for our constituents and for charities doing really important work in our constituencies. Can you see how it might look, when you were allowed to give £500 million in loan guarantees to an organisation that was, at the same time, being investigated by the Serious Fraud Office?
Patrick Magee: Again, I can go back through the chronology with you, perhaps offline, if that would be okay.
Q111 Siobhain McDonagh: If that happened—
Patrick Magee: If that happened—
Siobhain McDonagh: I am confident it did happen, but I am taking into account your suggestion that it was not at the same time. I am fairly sure it was. How can that happen? I do not understand. How can somebody let you do that?
Patrick Magee: In a criminal investigation—I do not know whether it is right to describe an SFO investigation as a criminal investigation—secrecy is important, as is preserving the powers. We have all seen the reports of SFO investigations falling over because the evidence and the procedure was not followed.
Q112 Siobhain McDonagh: Somebody could have phoned you and said, “Look, Pat, do not do that. I cannot tell you why, but just do not do it.”
Patrick Magee: Had I received that call, I would have taken due account of it.
Chair: That brings this panel to an end. Thank you for your contributions, Patrick Magee and Richard Bearman.