National Audit Office: Delivery of employment support schemes in response to the COVID-19 pandemic

Employment support schemes introduced during the COVID-19 pandemic successfully protected jobs and businesses, although the need to design the schemes at speed led to some flaws and significant levels of fraud and error, according to the National Audit Office (NAO).

In March 2020 the government announced two schemes to support employment during the pandemic: the Coronavirus Job Retention Scheme (CJRS) to provide grant payments to employers to cover part of the wages of furloughed employees; and the Self-Employment Income Support Scheme (SEISS) to provide grant payments to self-employed individuals whose businesses had been adversely affected by the pandemic. HM Treasury led on policy design, and HMRC led on administrative design, implementation, and administration of the schemes.

The NAO found that the employment support schemes achieved their primary aim of protecting jobs and businesses during the pandemic. HM Treasury and HMRC (the Departments) distributed SEISS grants worth £28.1 billion to 2.9 million individuals and CJRS furlough payments worth £68.9 billion to 1.3 million employers covering 11.7 million individual jobs. The actual costs of the schemes fell well below departmental estimates and unemployment peaked at just over 5%, half the level the Office for Budget Responsibility (OBR) predicted in July 2020 with the schemes then in place to the end of October 2020. The OBR found that only 2.6% of job moves after September 2021 could be attributed to the withdrawal of the CJRS scheme. Average SEISS payments to individuals were more generous than average claims per employee for CJRS, increasing SEISS claimants' incomes above pre-pandemic levels on average.

Due to the urgency created by the pandemic, the Departments had insufficient time to produce the detailed documentation that would normally be expected to support major spending decisions. They decided the spending on the schemes was ultimately beneficial compared to the expected negative impacts for households and the labour market if no support was provided.

Several billion pounds were distributed to taxpayers whose incomes were not significantly affected by the pandemic.  A HMRC survey of employers between November 2020 and February 2021 found that 15% of companies receiving CJRS experienced no reduction in turnover during the first six months of the scheme, although a large majority of these firms said that without the scheme they would have made redundancies or closed. Firms who said they would not have made redundancies or closed permanently and saw their incomes stay the same or increase as a result of the pandemic still claimed grants for 354,000 jobs, equivalent to £1.5 billion. In June 2022 HMRC analysis of the first three SEISS grants found that 18% of the first three SEISS grants were paid to people who saw their turnover increase even without the scheme. This equates to £3.5 billion of grants paid during that period.  

The introduction of a financial impact declaration from July 2021 saved up to £2.5 billion in SEISS grants. It coincided with a large drop in the number of people making claims for SEISS grants. Some £140 million was 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.

HMRC's latest estimate for the total of fraud and error in the schemes is £4.5 billion (4.6% of the total cost). HMRC's estimate of CJRS fraud is based on limited data - HMRC's programme of random checks would not 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. Its estimates of furlough paid for working employees (best estimate of £2.3 billion) relies heavily on survey data covering just the first few months of the scheme.

In April 2021, HMRC established the Taxpayer Protection Taskforce, increasing the staff it deployed to identify fraud on the schemes from around 600 to 1,000. HMRC expects to recover around £1.1 billion of fraud and error by 2023-24, but the Taskforce's in-depth checks of high-risk CJRS cases are taking longer than expected to complete and it is falling short of original expectations.

While payments under the schemes have ended, there is still a need to bear down on fraud and error. The NAO recommends that HMRC works with the Cabinet Office and government's counter-fraud functions to improve the consistency of data collected on grant claimants and the pace at which data can be shared between HMRC and other public bodies in order to identify risky claims now and in the future. It should also publicise the number of criminal investigations and encourage non-compliant taxpayers to return overpayments. It should also improve its methodology for estimating fraud and error, including developing scheme-specific estimates for non-detection of fraud and error. HM Treasury must provide sufficient resources to HMRC and other departments for tackling fraud and error.

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."