Britain's biggest lenders have blocked criminals from obtaining loans worth more than £1bn from the flagship coronavirus rescue scheme, it has emerged.
The British Business Bank told MPs that nearly 27,000 applications for the hugely popular 'bounce back' loans, which would have been worth £1.1bn had they got through the system, have so far been blocked by lenders due to concerns about fraud.
The loans are issued by banks such as Lloyds and Natwest to help small firms get through the Covid crisis but are 100pc guaranteed by the taxpayer. Take-up has been much higher than anticipated when the scheme launched in May, raising fears it was being targeted by criminals.
Critics warned when the programme was introduced that it would be a magnet for fraudsters due to the fact it has a fast application process - which Sunak once said could be done “in the time it takes to have lunch” - and lighter checks.
The amount of potentially fraudulent loans that banks had blocked were revealed in a letter sent to the Public Accounts Committee before a hearing into the scheme on Thursday.
During the session Sir Tom Scholar, the Treasury permanent secretary, said the decision to simplify the application process to get money out as fast as possible to struggling businesses "reduced the checks that lenders were able to make" and was "not a decision the Chancellor took lightly".
"In the end it was a calculated decision that given the needs of businesses and the urgency of the situation, it was appropriate to accept a higher degree of risk," he said.
"But I think it was a reasonable decision to try first of all with a more conventional approach and then very quickly, in a matter of a couple of weeks, move to an unconventional approach which is the one we ended up with with the bounce back loans scheme."
Banks conduct more stringent checks on the larger coronavirus business interruption loan scheme (CBILS), where only 80pc of the funds lent are guaranteed, but came under attack earlier in the year when the loans were not getting out to the country's smallest businesses quickly enough and so launched the bounce back scheme.
The Government this week extended the deadline to apply for coronavirus loans from the end of November to the end of January as a result of the second national lockdown that began on Thursday.
Lenders have dished out more than £60bn under the coronavirus loan schemes for businesses, mostly as Bounce Back loans.
Earlier this year the National Audit Office warned that Bounce Back loans being exploited by fraudsters could cost taxpayers £26bn. The National Crime Agency has also said that it has received intelligence suggesting criminals are targeting the scheme.
Banking chiefs are concerned about how they will be viewed if forced to demand money from entrepreneurs whose companies were destroyed by coronavirus restrictions.
One senior banker said earlier this year that he feared a new backlash when the scale of fraud became clear, in a major blow for an industry still struggling to restore its image after the 2008 financial crisis.
The Cabinet Office has said it believed fraud losses were likely to be significantly above the 0.5pc to 5pc generally estimated for public sector schemes.