At the onset of the pandemic in March 2020, the government announced an unprecedented package of support for workers, protecting wages under the furlough scheme (Coronavirus Job Retention Scheme).

A week later, the government confirmed the self-employed would be helped under the Self-Employment Income Support Scheme (SEISS).

The UK’s independent public spending watchdog, the National Audit Office (NAO), said that while these schemes “successfully protected jobs and businesses”, the speed at which they were designed and implemented “led to some flaws and significant levels of fraud and error”.

It said HM Treasury led on policy design while HMRC led on administrative design, implementation and administration of the schemes.

Overall, SEISS grants worth £28.1bn were distributed to 2.9 million people while furlough payments worth £68.9bn were made to 1.3 million employers covering 11.7 million individual jobs.

Billions of pounds paid to the financially unaffected

While the actual costs of both schemes fell well below departmental estimates and unemployment peaked at just over 5%, the NAO said “several billion pounds were distributed to taxpayers whose incomes were not significantly affected by the pandemic”.

An HMRC survey of employers between November 2020 and February 2021 found 15% of companies receiving furlough payments experienced no reduction in turnover during the first six months of the scheme. But a majority said without the help they would have made redundancies or would be forced to close.

Of those companies that saw incomes stay the same or increase and they weren’t looking at redundancies or closure, they still claimed £1.5bn for 354,000 jobs.

Meanwhile, HMRC analysis of the first three rounds of the SEISS grants found that one in five (18%) were paid to people who saw turnover increase even without the scheme. This equates to £3.5bn in grants.

Stricter eligibility criteria

However, with the subsequent tranche of SEISS grants from July 2021, firms were required to submit a financial impact declaration which saved £2.5bn in SEISS payments.

“This coincided with a large drop in the number of people making claims for SEISS grants”, the NAO noted. However, £140m was still paid out to 140,000 SEISS claimants who reported no decrease in turnover in the final tranche of funding.

“Earlier use of clear financial impact tests could have provided better value for money, even allowing for the risk of claimant fraud and error when applying such a test”, it noted.

Fraud at £4.5bn

Indeed, HMRC’s latest estimates for total fraud and error in the schemes stands at £4.5bn – 4.6% of the total costs.

But the NAO said its random checks wouldn’t have picked up certain types of fraud and “it did not commission sufficient research with employees to understand how much went undetected”.

“It is unlikely ever to know how much it paid to employers opportunistically claiming furlough for working employees” which was the main cause of fraud and error, the NAO report revealed.

However, it added that HMRC has set up a Taxpayer Protection Taskforce, increasing the number of staff to identify fraud on the schemes from 600 to around 1,000. HMRC expects to recover £1.1bn by 2023/24. But the NAO said its checks are taking longer than expected and it is falling short of original expectations.

It recommends that HMRC works with other government departments to improve data collected on grant claimants and publicise criminal investigations as well as encourage non-compliant taxpayers to return overpayments.

‘Government must improve to tackle this issue’

Gareth Davies, the head of the NAO, 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.”

A government spokesperson said: “As the NAO acknowledges, our employment support schemes achieved their primary aim of protecting jobs and businesses, with unemployment peaking at just 5.2%.

“Our interventions helped millions of people and businesses through the worst effects of the pandemic, directly supporting 14.6 million employments and self-employed individuals while limiting fraud and error.

“A large majority of employers who did not experience a reduction in turnover due to Covid-19, 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.”