Rishi Sunak mounted a fightback in the row over who is to blame for billions in taxpayer cash being wasted after fraudulent claims by businesses during the pandemic.
The chancellor rejected suggestions he was “ignoring” the situation after Boris Johnson denied he had agreed with a Treasury decision amid reports £4.3bn of Covid loans were being written off, a figure now being disputed by the government.
Meanwhile, an ally of Sunak used an urgent question in the House of Commons yesterday to raise why a key piece of legislation which would help retrieve money obtained through fraud has been ditched, in an apparent attempt to shift culpability.
Tory MP Kevin Hollinrake asked about claims from Lord Agnew that the Economic Crime Bill would not be brought forward in this parliamentary session.
Agnew had cited this as one of the reasons for his decision to quit as a Treasury and Cabinet Office minister earlier this week, accusing the government of "schoolboy" handling of fraudulent Covid business loans.
In his letter to the prime minister after he dramatically resigned at the despatch box in the upper chamber he wrote: “Last week a foolish decision was made to the kill off the prospect of an economic crime bill in the third session.
“This would have enhanced our ability to tackle fraud with further savings of taxpayers money."
In the Commons yesterday, Hollinrake put further pressure on the government to tackle the issue. "Economic crime costs the people of this country £100bn per annum, according to the National Crime Agency," he said.
"The government has repeatedly committed to legislate to give our agencies the tools they need to tackle this problem.
"It was very concerning to hear from Lord Agnew, who recently resigned from his role as minister responsible for countering fraud, that a decision has been made to drop the economic crime bill from the legislation due in the next parliamentary session."
In response, business minister Paul Scully would not confirm whether the government was scrapping plans for the new law.
"I am sure he understands I am not going to speculate on the content of any future Queen's Speech”, he replied to Hollinrake.
But he added: "However, I can confirm the government is committed to tackling economic crime.”
The Conservative former minister John Penrose said ditching the economic crime bill “will be about as popular as a cup of cold sick with anybody out there who is concerned about the fight against corruption, or the fight for transparency”.
He said: ”The well of excuses after three or four years of promising this piece of legislation, or its related pieces, has now run dry, and it is absolutely essential for the credibility of this country and of this government, particularly at a time when we have a crisis in Ukraine and all sorts of Russian oligarchs waiting to move money into this country if they possibly can."
The row began after The Times reported that documents had been quietly published on the HMRC website earlier this month showing that the Treasury expects to write off about £4.3bn of Covid loans.
Scully told MPs yesterday afternoon HMRC did not produce the £4.3bn figure, and suggested it was “an inference, I think, by journalists”.
HMRC has so far only outlined plans to recover a portion of the £5.8bn that has been lost to fraud and error on Covid support schemes it administered.
The latest documents say nothing about plans to recover the remaining sum – between £4.3bn and £4.5bn – leading to the inference it could be written off.
HMRC permanent secretary Jim Harra has previously said the tax agency "will not be able to recover it all" and said that its plans to claw back the cash did not go further than 2022-23.
Before Scully dismissed the £4.3bn figure, the matter was raised at PMQs, with Labour’s Kate Osamor asking Johnson did he “agree to the chancellor writing off £4.3bn of fraud”, to which he replied: “No of course not.”
The prime minister's official spokesperson later insisted that Johnson was saying that he did not condone fraud, rather than that he had not agreed with Sunak.
Shortly afterwards the chancellor sent a series of tweets addressing the fraud costs.
"A lot of people are concerned about fraud in our Covid support measures and they're absolutely right to be," he tweeted.
"No, I'm not ignoring it, and I'm definitely not 'writing it off'."
He outlined investment being made to tackle the issue. "The vast majority of people did the right thing but we are still addressing incorrect claims," he added.
"Last year we stopped or recovered nearly £2.2bn in potential fraud from Bounce Back Loans and £743m of overclaimed furlough grants."
Alain Tolhurst is chief reporter for CSW's sister title PoliticsHome, where this story first appeared.