Contingent Liability (Letter of Credit) and Bounce Back Loan Scheme Update

Kwasi Kwarteng Excerpts

Monday 5th September 2022 Written Statements

[The Secretary of State for Business, Energy and Industrial Strategy (Kwasi Kwarteng)]

Contingent Liability (Letter of Credit)

Today I will lay before Parliament a departmental minute describing a number of contingent liabilities arising from the issuance of letters of credit for the energy administrators acting in the special administration regime for Bulb Energy Limited (“Bulb”). These letters of credit replace previous ones provided, announced within past written ministerial statements, which soon expire.

It is normal practice when a Government Department proposes to undertake a contingent liability of £300,000 and above, for which there is no specific statutory authority, for the Department concerned to present Parliament with a minute giving particulars of the liability created and explaining the circumstances.

I have ensured that Parliament has been afforded the full 14-sitting-day notification period to allow the proper scrutiny of these new contingent liabilities.

Bulb entered the energy supply company special administration regime on 24 November 2021. Energy administrators were appointed by court to achieve the statutory objective of continuing energy supplies at the lowest reasonable practicable cost until such time as it becomes unnecessary for the special administration to remain in force for that purpose.

My Department has agreed to provide a facility to the energy administrators, with letters of credit issued, with my approval, to guarantee such contract, code, licence, or other document obligations of the company consistent with the special administration’s statutory objective. I will update the House if any letters of credit are drawn against.

The legal basis for a letter of credit is section 165 of the Energy Act 2004, as applied and modified by section 96 of the Energy Act 2011.

HM Treasury has approved the arrangements in principle.

Publication of latest bounce back loan scheme and lender performance data

Today the Government provide an update on the performance of the bounce back loan scheme (BBLS), which was designed to provide rapid access to finance for small businesses affected by the coronavirus pandemic. The data in this release includes specific information on the value of loans marked as suspected fraud, and claims made and settled by individual lenders who are accredited for the scheme.

This data release is part of the Government’s ongoing commitment to transparency in relation to BBLS. The Government will continue to provide updates at regular intervals. This update will be published on the BEIS website to allow members to further scrutinise the data.

The data in this publication is as at 31 July 2022, unless otherwise stated. The data comes from information submitted to the British Business Bank’s (the Bank’s) scheme portal by accredited scheme lenders.

As of 31 July 2022, businesses have drawn a total of £46.6 billion through BBLS. The first evaluation of BBLS, published in June 2022, found that up to 500,000 businesses could have permanently ceased trading in 2020 in the absence of the scheme.

It is unfortunate that some have taken the decision to take advantage of this vital intervention by defrauding the scheme for their own financial gain. The Government have always been clear that anyone who sought to do so is at risk of prosecution.

Checks were put in place from the outset to reduce the risk of fraudulent applications being successful. Lenders are the first line of defence, and were required to make or maintain know-your-customer and anti-money laundering checks and use a reputable fraud bureau to screen applicants against potential or known fraudsters. Lenders reported preventing over £2.2 billion-worth of fraudulent applications as a result of these checks.

The Government remain focused on working with the Bank, lenders and law enforcement agencies to tackle fraud in the scheme. This work is supported by the Public Sector Fraud Authority, who have led the development of a sophisticated analytics programme to better understand the level and types of fraud committed against the scheme.

We are working with enforcement bodies including the National Investigation Service (NATIS) and the Insolvency Service to investigate instances of fraud, recover fraudulent loans and penalise fraudsters. Since September 2020, NATIS has opened 273 investigations into BBLS fraud, with a total value of £160 million. Some 78 suspects have been dealt with to date, with 49 arrests made. Meanwhile, Insolvency Service activity on BBLS fraud has so far resulted in 242 director disqualifications, 101 bankruptcy restrictions and 1 criminal prosecution. This enforcement activity is in addition to recovery work being undertaken by lenders as part of their obligations under the BBLS guarantee agreement.

At spring statement 2022, the Government announced an additional £48.8 million of funding over three years to tackle public sector fraud. This included further investment of £13.2 million in NATIS, effectively doubling their capacity to investigate BBLS fraud, and £10.9 million to enhance the Bank’s counter-fraud and assurance work programme.

Headline figures

£28.3 billion: the outstanding balance of total drawn loans making payments on schedule

£4.7 billion: the amount that has been fully repaid by borrowers

£3.2 billion: the outstanding balance of loans in arrears that haven’t yet progressed to defaulted

£1.4 billion: the outstanding balance of loans defaulted that haven’t yet progressed to claimed

£2.6 billion: the outstanding balance of loans claimed that haven’t yet progressed to settled

£1.2 billion: the total settled amount (the amount paid out to lenders under the BBLS guarantee agreement)

£1.1 billion: the total drawn value flagged by lenders as suspected fraud

Notes:

The values stated above will not add up to the total drawn values as set out in column 1 of table 3 (Detailed loan status by lender). That is because the above figures do not take account of events which can reduce outstanding balances—for example: partial repayments of a loan, certain recoveries received in respect of a loan, and amounts written off loans by lenders.

To aid the reader’s understanding of the data, the terms used in this publication are defined at the end.

All businesses remain responsible for repaying their loans under BBLS and are fully liable for the debt.

It is important to recognise that it is still relatively early in the life of the scheme, and therefore it is too soon to definitively assess the performance of the BBLS scheme as a whole. Data being collected from accredited scheme lenders is subject to refinement, addition, and correction over time. Please see “Limitations and further considerations” for further background.

The attachment can be viewed online at: http://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2022-09-05/HCWS292

[HCWS292]