The success of the vaccine has so far exceeded the scientists’ most optimistic predictions. After a truly frightening and miserable year, we are at last seeing infection rates coming down and we can start to dream about life returning to normal. The government deserves to be congratulated for the part that they have played in achieving this. Their brave decision to place irreversible orders with multiple vaccine suppliers long before anyone knew whether the vaccines would work has resulted in the UK getting a preferential supply which should enable us to come out of lockdown long before the rest of Europe. However, the success of the government’s vaccination programme should not blind us to the many other mistakes that they have made over the last eighteen months. The mistakes that I should like to focus on in this article are mistakes in the way that financial support has been distributed. This has been nothing short of scandalous.
On one hand, several hundred thousand people have slipped through the safety net and have received no support from the government whatsoever. Many of these people have lost everything through no fault of their own. At the other end of the scale, many billions of pounds have been given to companies and to individuals who did not really need it. Huge sums have been given in rate relief, grant support and furlough money without any obligation to prove that the company or business has suffered any financial losses as a result of Covid. A small number of estate agency businesses have returned the furlough money and the government grants that were paid to them but most have not. The rights and wrongs of this will continue to be debated for many years to come.
To my mind, however, the most shocking and potentially expensive issue is the way that the bounce-back loans have been abused. The Financial Times referred to them in a recent article as “a giant bonfire of taxpayers’ money.” The Sunday Times gave examples of blatant abuses of the scheme including the purchase of designer watches, supercars and an extraordinary case where a company director reputedly used £25,000 of his bounce-back loan to pay off his drug dealer and gave him another £25,000 on account to pay for future drug supplies!
I had a row with one of my clients the other day about this. He had taken a £50,000 bounce-back loans for his company and used it to buy a Bentley. I said that this was not what the loan was intended for. He quickly got angry and defensive and asked me what the bounce-back loans were intended for? I started to respond and quickly realised that I didn’t actually know the answer. So, I googled “What can bounce-back loans be used for?” After nearly half an hour, I was not much the wiser. According to the British Business Bank website, a bounce-back loan must be used to provide “an economic benefit to the business such as providing working capital. “ However, the definitions are very vague.
It seems to me that the government has distributed over £46 billion of bounce-back loans backed by 100% government guarantees to over 1.5 million different companies with virtually no checks whatsoever. Applicants filled out a short form, no-one checked any of the answers and no-one checked whether the companies actually needed the money or had been affected by Covid. The banks did not seem to care because the loans are guaranteed by the government. All they seemed to care about was getting the loans out as quickly as possible – usually within 48-hours.
I predict that this will turn into a huge financial scandal. It has been estimated that up to half of the money, well over £20 billion, will never be paid back. Much of the remainder will I fear be spent on cars and holidays and home improvements and other things that it was not intended for. Perhaps worst of all, huge amounts of the money will be kept in deposit accounts for a rainy day that will probably never happen.
Whilst so much money has been wasted, people who want to buy businesses are finding it harder than ever to find commercial loans to do something that has the potential to be of huge benefit to the economy.
The world seems to have gone completely mad and no-one seems to care. The press gave pages of space to stories about the £58,000 that Boris Johnson may or may not have raised through inappropriate channels to pay for the refurbishment of his Downing Street flat. In the meanwhile, £20 billion of taxpayers’ money has probably been lost or misappropriated but this story has hardly been covered at all. The inevitable consequence is that taxes will rise still further to pay the bill for all of this. This of course will be paid for by honest, hardworking people.
I usually like to end my articles with a constructive suggestion but I cannot think of anything that can be done to avert the developing scandal over bounce-back loans. All we can hope for is that the government learns the necessary lessons from this fiasco and that future loan schemes are based on the CBILS scheme which provided much-needed funding to well-run businesses for the benefit of the economy as a whole. And if you did take a bounce back loan for your business don’t hoard it for a rainy day or spend it frivolously. Instead, put it towards something that will increase the profitability and value of your company such as an acquisition
Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than forty years.