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£21bn of taxpayer money lost to fraud since the Covid pandemic began

Rebecca Goodman
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Rebecca Goodman

Fraud rose from £5.5bn to £21bn over the two years since the start of the pandemic, with the majority unlikely to be recovered by the Government, a report reveals.

The 281% rise – between 2020 and 2022 compared to 2018 to 2020 – is largely because of the Covid pandemic.

Of the £21bn, £7.3bn relates to temporary Covid schemes, with the majority of money lost unlikely to be recovered.

The report from the National Audit Office (NAO) stated that while the figures used are “inherently uncertain” they are most likely to be underestimated so the amount lost could actually be far higher.

The Government is also criticised and blamed for the rise in fraud between 2020 and 2022. It said it often prioritised speed instead of the consequences of fraud and corruption.

There is also around £10bn lost each year from tax evasion and other tax crimes. But the figure increases to £33.2bn to £58.8bn when including error across all Government departments in 2020 and 2021, according to the Public Sector Fraud Authority (PSFA). The PSFA was established last year in response to concerns about fraud during the Covid-19 pandemic.

This is out of £1,106.1bn of expenditure and £608.8bn of tax income.

Of the money lost, 89% relates to tax and welfare spending, with HM Revenue & Customs (HMRC) and the Department for Work & Pensions (DWP) spending approximately £22m each year on staff hours to measure fraud and error.

Most of the money will not be recovered

Government departments are now trying to recover the money lost but the report suggested “it is very unlikely that most will be recovered”.

At HMRC, for example, around £762m has been recovered out of an estimated £4.5bn of fraud and error in the Covid support schemes as of 31 March 2022.

HMRC also expects to have recovered around £1.1bn by the time its Taxpayer Protection Taskforce, specifically set up to tackle this type of fraud, is closed.

At the DWP around £500m has been recovered but at least £1.5bn of fraudulent claims that began during the pandemic were still being paid out during 2021 to 2022.

The Government’s vulnerability rose because of its response

The report claimed that the reason the Government vulnerability to fraud rose was a direct result of its response to the pandemic.

Much of this was unavoidable, such as spending money in areas that are inherently vulnerable to fraud and corruption including giving out grants and loans to individuals.

However, the report said the Government prioritised speed when setting up these new initiatives, above the potential risk of fraud and corruption.

It also said the fraud risk could have been better managed without impairing the emergency response, such as with faster transparency, better management of conflicts of interest, addressing known vulnerabilities sooner and timely financial reporting.

Fraud and corruption normalised?

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.

“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.”