Barclays faces new questions over lending

Barclays branch

The government is extending its investigation into Barclays‘ involvement in a state-backed loan scheme, after the business minister, Michael Fallon, intervened.

The bank faces renewed questioning over its use of the now defunct Small Firms Loan Guarantee programme after evidence emerged that it broke guidelines during a period of heady bank lending before the credit crunch. The scheme for startup businesses, which guaranteed banks a return if their investment defaulted, has cost the taxpayer at least £200m in compensating banks.

Fallon is to scrutinise a loan made to a company owned by a Yorkshire businessman, Jeffrey Morris, who has alleged Barclays did not comply with eligibility rules. Fallon will look again at events surrounding the loan, which could pave the way for a wider inquiry, amid pressure from Alec Shelbrooke, Tory MP for Elmet and Rothwell. Shelbrooke raised the question of the loan in parliament in September and has maintained a dialogue with the Department for Business, Innovation and Skills (BIS). “I was deeply dissatisfied with the response from BIS to my questions about the serious issues raised by this loan. I approached Michael Fallon, provided him with the evidence and asked him to re- open the investigation,” the MP said.

BIS confirmed it had asked the accountants who conducted an earlier inconclusive study of the loan, RSM Tenon, to look at new evidence. “We have received the additional documentation from Mr Morris’s lawyers. RSM Tenon require some time to review the contents and we will be providing a response to Mr Morris’s lawyers before their two-week deadline.”

The Guardian reported on the loan in September, prompting BIS to commission RSM Tenon. The evidence includes papers allegedly showing Barclays sought collateral for the deal and gave the loan to a long-established business – actions that contravened the scheme’s terms. Morris defaulted on the loan in 2006 but Barclays reclaimed most of the balance owed – £91,667 – from the taxpayer.

Morris argues that an internal email sent by Barclays in May 2006 shows the bank had arranged an SFLG loan for his business, Diamond Shape, even though he still had available collateral. Under the terms of the scheme, an SFLG loan could be guaranteed by the government only if the borrower had exhausted all other forms of collateral.

Barclays said: “The May 2006 email does not relate to Diamond Shape Ltd. It concerns a personal loan and was not relevant to the review of the March 2006 Diamond Shape’s SFLG application. Barclays co-operated fully and openly with RSM Tenon during their recent audit and provided the information requested. Information which did not relate specifically to Diamond Shape, or which postdated the loan, was out of scope.”