Fraud feared in pounds 250m loan plan

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Police are investigating allegations of fraud in a pounds 250m government scheme which aims to help adults retrain for jobs.

Officials at the Department for Education and Employment asked for the inquiry into bogus applications for career-development loans.

Police believe that some claimants have made multiple applications and some have received money for courses which do not exist. Some of the fraudulent claims appear to have been highly organised. Ministers agreed to guarantee the repayment of the loans, which are made by banks, and the department has so far spent pounds 29m covering unpaid debts run up by applicants.

How much of this is caused by fraud is not yet clear. Stephen Byers, Labour's employment spokesman and MP for Wallsend, said: "At a time of scarce resources, it is vital that every pound of public money is used for its proper purpose. The Government should not have sat idly by and allowed this to happen. Improving people's skills and equipping them for the future through career development loans is vitally important."

In parliamentary questions tabled on Friday, he asked for new safeguards to stop fraudulent claims being made. He also asked for an estimate of the fraud losses so far.

The loans, of up to pounds 8,000, are available for the unemployed or for those who want to train for a new career.

Police are concerned that the high-street banks involved did not always investigate the existence of courses or check on the backgrounds of applicants. Forces throughout the country have been warned that the scheme may be open to fraud.

A spokesman for the Department for Education and Employment said: "You can't say that pounds 29m has been paid out because of fraud. There is no direct link between default and fraud.

"Some people have difficulty in repaying loans because they are on a low income.

"Only eight cases are being investigated. That is a tiny proportion of the total loans since the scheme started in 1988."

A range of measures was in place, he said, to check the validity of applications. To get a loan, an applicant had to produce a certificate from a training provider. "The department guarantees a proportion of career development loans made by the banks to encourage them to make loans," he said.

"This in no way relieves the obligation on the person to whom the loan is made to repay it to the bank. It is for the bank to assess whether to make the loan."

Around pounds 250m has been paid out since the scheme began.

Scotland Yard said police had been asked by the department to investigate earlier this year. "Subsequent investigations revealed a series of allegations of deception and investigations are ongoing."

Barclays, one of the four banks involved, said it was working with the department to prevent fraud. "Barclays is a responsible lender and, as with any loan, it appraises all individuals' financial circumstances when receiving an application."

Training establishments were checked against the department's central database, it said.