And the taxpayer is only set to get £1.1bn back. Speaking at the Treasury Committee on Wednesday (30 November), HMRC chief executive Jim Harra said the billions of pounds were lost to fraud via the furlough, self-employed support and the Eat Out to Help Out scheme.
What was Eat Out to Help Out?
Eat Out to Help Out ran for one month, in August 2020, after being introduced by then Chancellor Rishi Sunak. It was one of the first government policies aimed to help support businesses to reopen after the first Covid-19 lockdown.
The scheme saw the government discount 50% of the cost of food and non-alcoholic drinks at participating restaurants, cafes and pubs, with the intention to drive up custom on quieter days. It ran for a month, from 3 to 31 August 2020, applying all day from Monday-Wednesday and was UK wide.
Harra said the scheme had a fraud level of around 9%, which is "much higher" than would normally be expected in the tax regime generally. It worked on a self-assessment basis, relying on cafes and restaurants declaring the correct amounts to HMRC.
Efforts to clamp down on fraud have led to some arrests, which resulted in "quite a few voluntary disclosures" from restaurants who volunteered they’d made a mistake and repaid their claim.
Harra said: "I’m aware of one case where a restaurant claimed to have a record month in sales during Eat Out to Help Out at the same time as they were claiming to have furloughed all of their staff. You’d be surprised at what people think we won’t join up.”
Criticism of Rishi Sunak’s Scheme
A paper from Thiemo Fetzer, an economist at the University of Warwick, found that Eat Out to Help Out was closely linked to an increase of Covid-19 cases in the summer of 2020. He found the virus spread more rapidly in areas with a lot of participating restaurants and infections slowed within two weeks of the scheme ending.
Fetzer estimated the scheme may have been responsible for up to 17% of the Covid infections during the period it was active, which he says tallies with Public Health England’s data.
Mr Fetzer told Sky News: “The UK saw a massive explosion of cases in a way that was not seen in other countries. It’s that scheme that has helped to bring about an earlier second lockdown and restrictions on the restaurant sector that it was determined to help economically.”
What will be done about the £4.5bn lost to fraud?
More than 1,250 staff allocated to the task force will be redeployed, and as the task force comes to an end, compliance work on Covid error and fraud will continue.
Harra also told MPs that HMRC became the first law enforcement agency to seize a non-fungible token cryptocurrency asset. When asked about the potential of cryptocurrencies for tax evasion, he said HMRC is ahead of the game" compared to "most other tax authorities".
He said: "There is no doubt that they are an asset class along with several others that are used to try and hide the proceeds of evasion from us. In addition to managing the risks that [crypto] poses to us, we also need to make sure that we get the tax administration right so that we also enable the crypto asset industry to develop in the same way as any other industry."