Covid furlough scheme lost £4.5 billion to ‘error and fraud’, watchdog finds

Billions of pounds awarded as part of Covid employment support schemes were lost in ‘error and fraud’, a public spending watchdog has warned.

The National Audit Office (NAO) said that billions went to people whose incomes increased or “were not significantly impacted by the pandemic.

It criticised the government for not doing more to prevent mistakes and fraudulent claims when rolling out the furlough scheme and the self-employment income support scheme, warning that billions of pounds could remain unrecovered.

In total, according to the latest report into the schemes by the NAO, £4.5 billion - nearly 4.6% of the total cost of the £96.6 billion emergency Covid support - was claimed in error or in fraud.

Even that estimate is subject to “considerable uncertainty”, auditors say, with the figures ranging from between £3.2 billion to £6.3 billion.

Gareth Davies, the National Audit Office head, said that the government needs to ensure “sufficient resources” are available to tackle the issue.

He said: “The Covid employment support schemes were introduced at speed and provided essential support to individuals, businesses and the economy during the pandemic.

“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.

“The government must improve the way it estimates levels of fraud and error and allocate sufficient resources to tackle this issue.”

In the detailed report published on Thursday (13 October), auditors found that the schemes met their objectives of protecting workers and businesses, and the actual cost of the schemes was also lower than estimated by the government.

Around £5,900 was the average paid for each furloughed job over the course of the scheme, while £9,700 was the average amount each self-employed claimant received. The report also reveals that on average an increase of more than £2,200 was recorded in the profits of self-employed people who received Covid grants in 2020 and 2021.

However, officials had stern words for the Treasury and the government over the design of the scheme, effectively suggesting it could have done more to save money. In particular, the government is criticised for not making use from the outset of clear financial impact tests.

According to the report, “it is likely that several billion pounds have been paid to claimants who saw their incomes increase during the period”.

It adds: “While the figures are highly uncertain, large amounts of error and fraud are unlikely ever to be recovered. The Departments will need to ensure they continue to bear down on fraud, where it is cost-effective to do so, and pursue the most serious cases with the full force of the law where it serves the public interest.”

There were 24 criminal investigations underway into fraudulent claims as of March, while HMRC is predicting it will recover around £1.1 billion over the next two years.

Dame Meg Hillier, chair of the Commons Public Accounts Committee, urged the government and HMRC to “get a grip” on the issue.

She said: “Government’s Covid employment support schemes protected millions of people and businesses from hardship during the pandemic. While it established this essential support quickly, billions of pounds were wasted through fraudulent claims and loose controls. Government was too slow to act in response.

“HM Revenue & Customs must get a grip on how it measures and tackles fraud and error. Particularly at a time of constrained public finances, this could go a long way to supporting millions of citizens and essential public services.”

Responding to the report, a government spokesman said: “We are not writing off any fraud from these schemes – our work to root out those who abused the system is ongoing.

“Meanwhile, we effectively minimised fraud from the start with compliance checks that did not unnecessarily delay payments when they were needed and further compliance activity undertaken by HMRC has secured and protected more than £1 billion.

“The NAO found that the employment support schemes achieved their primary aim of protecting jobs and businesses, with unemployment peaking at just 5.2%.”