Failures by the tax authorities in the roll-out of pandemic employment support schemes has resulted in billions of pounds worth of taxpayers’ money being lost through fraud and error, MPs have said.

Shortcomings and slowness by HM Revenue and Customs (HMRC)in dealing with problems in the hurried-up schemes meant some in need of support missed out while others got cash where it wasn’t needed.

Their findings will embarrass Prime Minister Rishi Sunak, who was chancellor when the schemes were created, and has vowed to go after those “who took advantage” of the scheme. When the scale of the abuse of the furlough frauds began to emerge he denied he was “ignoring” the problem saying “I’m definitely not ‘writing it off” he said.

Despite his vow, MPs on the parliamentary Public Accounts Committee (PAC) said the Government has had little success recouping the cash

They found that while the Treasury and HMRC moved quickly to put the schemes providing “essential” support for businesses and individuals in place, they were too slow to better target support to those in genuine need, and tackle error and fraud.

MPs said the schemes – the Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme (SEISS) – were set up rapidly in March 2020, and were extended several times before ending in September 2021.

Describing the schemes as “costly” at £96.9bn, they said it included an estimated £4.5bn of “error and fraud” and at least £5bn paid during the first year of the schemes to self-employed people and employers whose incomes had not reduced.

The PAC said the extent of error, fraud and unnecessary support was disappointing because over one million of people whose incomes were hit by the pandemic did not qualify for support.

It said levels of unrecovered error and fraud are “far too high” and HMRC investigators have had “little success” in recouping the £2.3bn incorrectly paid to employers often claiming furlough for employees who continued to work. They said they have closed 254 cases and recovered £640,000 to date.

HMRC has taken little action to punish culprits, the PAC complained, undertaking just 31 criminal investigations in November, 2022 compared to the almost 50,000 civil cases it had opened by October 2022.

Civil cases focus on opportunistic frauds according to HMRC. Its investigators can penalise employers if it can prove they deliberately overclaimed, but it admitted suspicious cases are not treated as outright fraud if deliberate behaviour cannot be proved.

By March 2022, HMRC had only issued penalties on CJRS totalling £1.1m, 0.5 per cent of the value of overpayments it had identified. “Consequently, employers who had overclaimed furlough have little incentive to voluntarily repay grants as they are unlikely to be penalised if identified by HMRC’s compliance teams,” the report says

The Revenue is also ending the work of the Taxpayer Protection Taskforce, a dedicated team of over 1,000 dedicated staff set up to recover the wrongly paid sums as well as those of the Eat Out to Help Out scheme.

The Taskforce received an additional £100m funding and is expected to expected to recover between £525m – £625m before it closes in September.

The taskforce work will be carried on as part of its wider tax compliance work it told MPs.

“We are concerned this could lead to HMRC giving too little attention to the large sums of money
outstanding. HMRC estimates indicate that between £2bn and £5.1bn of error and fraud within the schemes is likely
to remain unrecovered by 2023–24. It would be unacceptable for HMRC to write-off such a large amount of taxpayer’s money,” the report warns.

“HMRC must now send a clear message it is committed to recovering fraud on these schemes,” MPs said.

EMBARGOED TO 0001 WEDNESDAY JUNE 8 File photo dated 14/12/09 of Home Office Minister responsible for identity cards, Meg Hillier. A group of cross-party MPs has accused ministers of squandering billions of pounds of taxpayers money on ill-thought-out "levelling up" plans and through the unfair allocation of funding. The Public Affairs Committee (PAC) has described the way in which the Department for Levelling Up, Housing and Communities (DLUHC) has been allocating large sums of money as "unsatisfactory". Issue date: Wednesday June 8, 2022. PA Photo. Dame Meg said the Government was "gambling taxpayers money on policies" which are "little more than a slogan". See PA story POLITICS PAC. Photo credit should read: Martin Rickett/PA Wire
Dame Meg Hillier, chair of the Public Accounts Committee Photo: Martin Rickett/ PA

Dame Meg Hillier, the committee chair, said: “Bad actors in British business are running rings around the Revenue.

“Perhaps some of the same companies that were complaining about even the minimal levels of transparency over billions and billions that were paid out in order to save jobs in this country but are now just lost to the public purse, likely forever.

“While money that genuinely saved jobs and households was got out admirably quickly, the weak recovery effort will fail to deter potential future criminals. Too many companies claimed that shouldn’t have and now won’t give it back.”

The PAC concluded the Government does not have a good enough understanding – and lacks proof of – the impact of £97bn of taxpayers’ money spent on furlough job support.

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The government defended its record over the furlough schemes. “Without furlough, millions of people would have lost their jobs. We had to act quickly to prevent catastrophic increases in unemployment. These schemes limited fraud and error, without delaying payments for those in desperate need of them. Over £1bn has already been protected or recouped and we continue to root out those who abused the system.”

Officials said a large majority of employers who did not experience a reduction in turnover due to COVID, still reported that without the furlough scheme they would have made redundancies or closed. Equally, grants may have supported self-employed individuals to stay afloat, even where their incomes later rose.

The total amount of money either blocked from being paid out, or recovered since the start of the schemes, is more than £1.2bn, with compliance activity still ongoing they said. “We are absolutely dedicated to tackling error and fraud in the Covid support schemes. We are not writing anything off and will continue to prioritise the most serious cases of abuse beyond the end of 2022/23.”

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