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Billions Paid to Booming Firms by Government During Pandemic

Inadequate record-keeping also risks losing the taxpayer billions more in fraud, reports David Hencke

Former Prime Minister Boris Johnson and former Chancellor Rishi Sunak at a Downing Street press conference during the pandemic. Photo: Andrew Parsons/10 Downing Street

Billions Paid to Booming Firms by Government During Pandemic

Inadequate record-keeping also risks losing the taxpayer billions more in fraud, reports David Hencke

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Billions of pounds of public money was given to companies and individuals whose businesses were booming during the pandemic, a new National Audit Office (NAO) report has revealed.

The report found that HM Revenue and Customs (HMRC) may never know the full extent of the fraud committed due to insufficient record-keeping. Staff now chasing up fraud suspects are relying on surveys or old VAT records to find out whether firms cheated the Government out of taxpayers’ money, it said.

“HMRC must get a grip on how it measures and tackles fraud and error,” Labour’s Meg Hillier, chair of the Public Accounts Committee, said. “Particularly at a time of constrained public finances, this could go a long way to supporting millions of citizens and essential public services.”

According to the NAO, firms that said they would not have made redundancies or closed permanently during the pandemic saw their incomes stay the same or increase – but still claimed furlough grants for 354,000 jobs, equivalent to £1.5 billion.

A HMRC analysis in June of the first three SEISS grants (money paid to the self-employed) found that 18% was paid to people who saw their turnover increase even without the scheme. This equates to £3.5 billion of grants paid during that period. 

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The latest estimate of fraud and error in the schemes is £4.5 billion – 4.6% of their total cost.

“HMRC’s estimate of fraud is based on limited data – HMRC’s programme of random checks would not have picked up certain types of fraud and it did not commission sufficient research with employees to understand how much went undetected,” the report said.

“It is unlikely ever to know how much it paid to employers opportunistically claiming furlough for working employees, which was the main cause of fraud and error. Its estimates of furlough paid for working employees (best estimate of £2.3 billion) relies heavily on survey data covering just the first few months of the scheme.”

HMRC set up the Taxpayer Protection Taskforce, increasing the staff deployed to identify fraud on the schemes from around 600 to 1,000.

HMRC expects to recover around £1.1 billion of fraud and error by 2023-24, but the Taskforce’s in-depth checks of high-risk CJRS (involving companies) cases are taking longer than expected to complete and it is falling short of original expectations.

Details in the report reveal that HMRC received more than 40,000 allegations of fraud on its hotline and decided to examine more than 22,000 of them.

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HMRC figures, according to the NAO report, “indicate that by 2023-24 between £2 billion and £5.1 billion of error and fraud will remain unrecovered”.

A number of cases are not being pursued. These include a company director putting his daughters on the payroll to receive furlough support money; an employer inflating salaries from £719 to £2,500 a month; and a small firm employing 17 people claiming five times the amount it was entitled to.

Gareth Davies, head of the NAO, said the Government “must improve the way it estimates levels of fraud and error and allocate sufficient resources to tackle this issue”.

“The COVID employment support schemes were introduced at speed and provided essential support to individuals, businesses and the economy during the pandemic,” he said. “The furlough and self-employed schemes prevented millions of job losses but billions went to people whose incomes increased during the pandemic, and billions more was lost in fraud and error.”

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