Only a tiny fraction of the £1.1bn Covid support funds lost to fraud and error was recovered, according to a report by the public spending watchdog.
Despite promises from Prime Minister Rishi Sunak that the losses were not ‘written off’ and government investigators would “go after” those who took unfair advantage of Covid employment support, only £11.4m of losses – about 1 per cent of estimated total lost – were recovered by the middle of February 2023, the National Audit Office (NAO) found.
Emergency funding measures launched to help millions of businesses survive through pandemic restrictions resulted in the Government paying out £22.6m.
NAO found the initial schemes rushed vast sums of money out with minimal preparation. Treasury Minister Lord Agnew later resigned as a result of the inadequate arrangements to prevent fraud.
The office found that councils were not notified of new schemes until they were publicly announced by the Treasury and faced “significant practical challenges” scrambling to respond.
With no contingency plans to support businesses in a national emergency, local authorities often struggled to understand the schemes’ rules and put in place the adequate processes.
A failure to insist on pre-payment checks during the initial rush to get money out to support businesses across the country led to large sums being incorrectly paid or being stolen by fraudsters, the NAO found.
“Early schemes lost significant sums to error and fraud, but [the business department] addressed this in later iterations,” said Gareth Davies, head of the NAO.
The report found that officials learned lessons from the initial response in 2020 by strengthening governance arrangements and introducing pre-payment checks, which helped to greatly reduce the level of losses in later schemes.
It found that officials only began to estimate losses over a year later as they tried to deal with subsequent Covid-support schemes.
Ministers asked local authorities, themselves under pressure during the pandemic, to pursue any losses from error and fraud.
However, the report points out that all recovered monies had to be paid back to the Treasury, so local authorities have had no financial incentive to identify losses beyond those identified in initial random sampling.
The NAO said councils are now referring cases to the business department for its recovery and litigation contractor, but no money had yet been recovered.
The Government remains unaware of the impact of Covid grants in terms of maintaining jobs or how much support was given to firms that did not need it, the watchdog warned. The support schemes’ “value for money remains open”, NAO added.
It said the Treasury had yet to commission an evaluation of the overall effect that government support provided to business.
“At the start of the pandemic, HM Treasury and the Department of Business, Energy and Industrial Strategy took decisions in the midst of great uncertainty and without much of the data that would normally allow them to assess where best to target support and the quantum of support needed.
“HM Treasury informed us it has no plans to evaluate the overall impact of government support to business, for example looking at the impact of support provided across departments and its own response to the emergency,” the NAO report said.
The Department for Business and Trade said: “This report confirms that our Covid-19 business grant schemes helped to secure millions of businesses and livelihoods through the pandemic – supporting jobs and the economy during unprecedented times. No amount of error and fraud is acceptable and we are continuing to work hard to recover these funds where possible.”