Billions of pounds of taxpayers’ money has been lost by the Government due to fraud since the start of the pandemic, according to a report from the national spending watchdog.

An estimated £21bn including £7.3bn worth of Covid support measures have been stolen with little prospect of it being recovered, the National Audit Office (NAO) said.

It warned that it is “very unlikely” most of the missing money will be recovered and pointed the majority of public bodies have no idea of how much fraud they face and are unable to demonstrate they have the correct level of counter-fraud resources.

Frauds on Government accounts audited by the NAO exploded from £5.5bn total in the two years before the pandemic (2018-19 and 2019-20) to £21bn in the two years after. The estimates are in addition to an estimated £10bn of tax revenue lost to evasion and crime every year.

The report warns there is a risk “that people come to perceive higher levels of fraud against taxpayers as normal and tolerated. There is also a risk that the UK is becoming perceived as more corrupt than it was before the pandemic. Such perceptions could affect public confidence in the integrity of public services.”

Estimates by the Public Sector Fraud Authority (PSFA), set up last year in the wake of mounting concern involving Covid support funds, puts fraud losses still higher.

The PSFA estimate, which includes both fraud and payments made in error, is between £33.2bn – £58.8bn, out of total expenditure of £1,106.1bn and £608.8bn of HMRC tax income.

Despite the losses, the NAO found that “most departments have only limited counter-fraud and corruption capability and cannot demonstrate that it is proportionate to their risk”, with the NAO calling on departments and public bodies to act as “one government” when tackling fraud.

HM Revenue and Customs has recovered £762m out of an estimated £4.5bn of fraud and error in its Covid-19 support schemes as of March last year and expects to have recovered only £1.1bn by the time it winds down its Taxpayer Protection Taskforce, a dedicated unit set up to pursue Covid frauds.

The Department for Work and Pensions (DWP) generated fraud and error savings of £500m in a retrospective review of Universal Credit claims made during the height of the pandemic, but the NAO found at least £1.5bn of fraudulent claims that started during that period were still being paid in 2021-22. It said the DWP now planned targeted case reviews to “detect and recover as much of the rest as it can.”

Government lacks a “good understanding of the extent of corruption,” it warns. There is no separate estimate of the extent of corruption across government, the NAO says,

Efforts by Ministers to better understand fraud attacks and raise standards among civil servants working to counter fraud had made some progress the report found but added that “outside of tax and welfare, it still lacks robust assessments of where and what its fraud risks are and most public bodies cannot demonstrate that they have counter-fraud resources commensurate with the risk”

Gareth Davies, head of the NAO, said: “There has been a substantial increase in the level of fraud reported in the annual reports and accounts we audit. In addition to the loss of taxpayer money, it creates the risk that people come to perceive fraud and corruption across Government as normal and tolerated. If not tackled, this could affect public confidence in the integrity of public services.

Gareth Davies NAO National Audit Office Image taken from
Gareth Davies
Photo: NAO

“Government has more to do to understand the scale of the problem it faces and cannot yet demonstrate that it is tackling fraud effectively. The creation of the Public Sector Fraud Authority creates a real opportunity to address this.”

Meg Hillier, chairwoman of the Public Accounts Committee, said: “At least £21 billion of taxpayer money was lost to fraud since the start of the pandemic – four times as much as the two years before that.

“But most of government still does not know how much fraud and corruption it faces and cannot show that it is tackling it effectively.

“While the government set up the Public Sector Fraud Authority to bring much-needed focus to this
issue, it must ensure it learns the lessons from the pandemic and gets a grip on corruption and fraud
against the taxpayer.”

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