A government department ordered changes to the contents of an independent investigation into a loan made by Barclays under a state-backed lending scheme in order to reflect the bank’s views, the Guardian has learned.
The department of business, innovation and skills (BIS) asked the auditing firm RSM Tenon to investigate whether a 2006 Barclays loan to a company owned by the Yorkshire businessman Jeffrey Morris contravened the now-defunct small firms loan guarantees scheme (SFLG).
The programme cost the taxpayer nearly £200mn in compensation for banks, with Barclays claiming £69,471 for the Morris loan when he defaulted on it in 2009.
RSM Tenon delivered its report at the end of October last year, but BIS asked the firm to amend the document.
The Guardian has learned that within three hours of receiving Barclays’ response to its report, BIS told RSM Tenon to “review and amend the report to reflect this response”.
RSM Tenon submitted its amended report a month later.
According to an internal BIS e-mail, the altered report “reflects a ‘softening’ towards Barclays’ position following recent discussions”.
Alec Shelbrooke, the MP for Elmet and Rothwell, called for a full investigation.
He said: “Ministers need to be able to trust the reports given to them by civil servants and this episode fundamentally undermines that relationship. The permanent secretary now needs to launch a full investigation.”
The scheme for startup businesses, which guaranteed banks a return if their investment defaulted, cost the taxpayer at least £183mn between 2006 and 2008.
The Guardian reported on the loan last year, prompting BIS to instruct RSM Tenon to carry out a review.
It found that Barclays believed Morris had a net worth of more than £20mn at the time the loan was made, but an SFLG loan was only permissible if the borrower had exhausted all other forms of collateral.
The government then guaranteed to repay 75% of the amount outstanding on the loan to the bank if it went bad.
The report was immediately shown to Barclays and the bank was asked for its response. The notes of a conference call between BIS officials, RSM Tenon and Barclays held on October 31 reveal that Barclays asked for time to address the issues in the report.
There is nothing to suggest Barclays behaved improperly. BIS declined to comment.
On November 9, Barclays produced its response to the RSM Tenon review. It attempts to discredit a previous internal report by Barclays, which had concluded Morris had a net worth in excess of £20mn, which should have precluded Barclays from offering a loan under the SFLG.
In a statement Barclays said: “RSM Tenon audited the loan based on all available information and concluded that ‘the loan and the business appear to meet the eligibility criteria of the scheme at the time’ and that they had ‘no reason to believe that the bank did not follow their normal commercial lending processes, as applicable and expected of the lenders in 2006. “Recent evidence provided by Morris’ solicitors to BIS and RSM Tenon did not change this conclusion. Separately, Barclays is seeking to enforce a multi-million pound high court judgment obtained against Morris, but we are unable to comment on this as it is subject to on-going litigation.”
On November 21 last year RSM Tenon submitted the amended report, including the new line that the auditor had “no reason” to believe that the process was flawed. It added: “Overall we have no reason to believe the bank did not follow their normal commercial lending processes.”
The amended report was released under the Freedom of Information Act in January this year but was heavily redacted to exclude some of RSM Tenon’s more serious continuing concerns.