HMRC looks ‘soft on fraud’ over billions of lost Covid support, MPs warn

Public Accounts Committee blasts lack of ambition as department expects to write off “at least £4bn” in furlough and SEISS payments
Photo: Howard Lake/Flickr/CC BY-SA 2.0

By Jim Dunton

11 Feb 2022

MPs have accused HM Revenue and Customs of sending out the wrong messages to would-be fraudsters because of its “unambitious” approach to recovering billions of wrongly paid out through pandemic support schemes.

Members of parliament’s Public Accounts Committee said the tax department’s plans to focus only on the worst cases of abuse in its Coronavirus Job Retention Scheme and the Self-Employment Income Support Scheme could mean only one-third of an estimated £5.8bn in fraud is recovered.

They said that the figure – the vast majority of which involved the CJRS, also known as the furlough scheme – only related to fraud in 2020-21, meaning losses through fraud would be even greater because the schemes continued into the current financial year.

Last month, Cabinet Office and HM Treasury minister Lord Theodore Agnew quit the government in protest at what he described as the “woeful” performance of the Department for Business, Energy and Industrial Strategy, in relation to fraud in its Covid-related Bounce Back Loan Scheme. Agnew added that the Treasury appeared to “have no knowledge or little interest in the consequences of fraud to or economy or society”.

Around £4.9bn is currently estimated to have been fraudulently claimed via the BBLS. In his resignation speech, Agnew noted that BEIS had virtually no in-house counter-fraud competence at the outset of the pandemic, in contrast with HMRC’s longstanding competence.

However, in their latest report, MPs asked HMRC to clarify whether it was pursuing all fraud related to Covid-19 support schemes where it was believed to be cost-effective to do so, and – if not – what extra work could be done.

PAC members also flagged that HMRC had stepped down its compliance work – essentially trying to ensure that tax owed is paid – in response to pandemic-related pressures. But they said the department did not have “a convincing plan” for restoring activity back to pre-pandemic levels and that a backlog of cases had built up.

Quoting HMRC figures indicating £1.5bn spent on compliance activities in 2020-21 generated a yield of £30.4bn, MPs asked the department to set out how it determined the overall size of its compliance programme and the extent to which additional spending would boost tax revenue.  

Committee chair Dame Meg Hillier said members were worried HMRC was projecting an image that it was “soft on fraud” and that the unscrupulous were being rewarded.

 “The PAC is concerned about how long HMRC will be playing catchup to get back to revenue collection levels before the pandemic,” she said.

“The level of fraud and error in furlough that employers will get away with is a real concern. What signal does it send when HMRC rolls over on billions of pounds of fraud and error directly related to Covid support packages?

“With the current parlous state of the public finances we can ill-afford to be so cavalier over so much taxpayers’ money.

“Every taxpayers’ pound lost to a fraudster will lead to honest ordinary people feeling the post-pandemic pinch harder and harder.”

Elsewhere in their report, PAC members noted that pandemic-related changes to working practices had left the department with more office space than it needed – against the backdrop of its hubs programme and “long-term non-breakable property leases”.

MPs called on HMRC to work with the Cabinet Office to draw up a plan for making use of spare office space and provide quarterly reports of the amount and cost of empty space.  

A government spokesperson acknowledged that the PAC report contained “lessons that need to be learned” but said “many of the statements” made by the committee were incorrect.

“No fraudulent payments have been written off and we’re taking action on multiple fronts to recover overpayments, and our Taxpayer Protection Taskforce is expected to recover up to £1bn from fraudulent or incorrect payments,” they said.

“The vast majority of payments in the schemes were made correctly to employers, and most error and fraud was legitimate claimants making mistakes or inflating their claims, often small amounts per case.

“Our Covid support schemes were implemented at unprecedented speed to protect millions of jobs and businesses at a time when families needed it the most. As a result, our economy is back to pre-pandemic levels and growing at the fastest rate in the G7. The cost of inaction would have been far greater than the cost of fraud and error in the support schemes.”

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