Government lacks proof of impact of £97 billion of taxpayers’ money spent on furlough job support

- £4.5 billion lost to fraud and error in furlough

- At least £5 billion paid out where incomes did not drop while many in genuine need got no support

- Still  minimal understanding or action on missing workforce since pandemic 

In a report today the Public Accounts Committee says HM Treasury and HM Revenue & Customs quickly put employment schemes like furlough and the SEISS for self-employed in place.  But HMRC was too slow to manage problems in the support design that meant some in genuine need missed out, and to tackle fraud and error where support was given that was not actually needed.

Levels of unrecovered error and fraud are far too high: HMRC has had little success recouping the £2.3 billion incorrectly paid to employers who claimed taxpayers’ money for furlough payments for employees who continued to work.  The Taxpayer Protection Taskforce is being wound up without recovering the money expected.

Gaps and lags in HMRC’s data continued to drive the problems with HMRC providing excessive support to some while others who did need it were ineligible under tax rules. HMRC must now send a clear message on recovering fraud through its tax compliance activities and must urgently increase the rate of repayments from those who overclaimed. It must quickly address known gaps in its data without imposing excessive bureaucracy on taxpayers, so that large-scale financial interventions ensure all those in need and only those in need get assistance.

Dame Meg Hillier MP, Chair of the Committee, said “Bad actors in British business are running rings around the Revenue. Perhaps some of the same companies that were complaining about even the minimal levels of transparency over billions and billions that were paid out in order to save jobs in this country but are now just lost to the public purse, likely forever.

“While money that genuinely saved jobs and households was got out admirably quickly, the weak recovery effort will fail to deter potential future criminals. Too many companies claimed that shouldn’t have and now won’t give it back.”

PAC report conclusions and recommendations

1      The Departments do not have a good enough understanding of the impacts of the £97 billion of taxpayers’ money they spent on the COVID-19 employment support schemes. The Departments have published interim evaluations covering the delivery and impact of CJRS from March to October 2020 and of the first three of the five SEISS grants. In 2023 they plan to publish final evaluations which will also cover the remainder of the schemes through to September 2021. The Departments have said that the evaluations cover jobs and incomes protected and the schemes’ impact on the wider economy. This includes exploring links to increased levels of economic inactivity among the over 50s since the COVID-19 pandemic. Understanding other impacts of the schemes, such as business survival rates, the effects on those who were eligible and ineligible for support, and the effects of furloughed employees being able to take on a new job, could also inform future large-scale financial interventions. The Departments say they want to learn from wider international experience of providing employment support during COVID-19, but they assert that published material is limited because other countries have not reported levels of error and fraud or published evaluations.

Recommendation 1a: The Departments should, by December 2023, publish their final evaluations of CJRS and SEISS, which should cover their wider impacts including on business and people who were ineligible, economic inactivity amongst the over 50s, second jobs for furloughed staff and consequences of support for those not adversely affected by the pandemic.

Recommendation 1b: The Departments should, by December 2023, work with other relevant countries to develop a better understanding of how UK unemployment support schemes and those in other comparable countries compare and publish the results.

2      Gaps and lags in HMRC’s data contributed to the schemes providing excessive support to some, while others in need were ineligible. We have previously reported that data limitations contributed to some people being excluded from the schemes, including the newly self-employed and employed, and limited company directors who took their income as dividends. Data weaknesses also contributed to the first three of the five SEISS grants providing £3.5 billion to people whose self-employed incomes had increased during 2020-21. By October 2020, the Departments had also made CJRS payments of around £6.5 billion to employers whose turnover stayed the same or increased during the pandemic, with £1.5 billion of this going to employers who reported that they would not have made redundancies or closed permanently even without the scheme. Making Tax Digital is intended to provide more frequent and timely data on the income and expenses of self-employed people, but HMRC cannot say when this will be delivered.  HMRC has also conducted a public consultation about collecting additional data, such as dividends paid to limited company directors, which could help it target support. HMRC acknowledges, however, that this could impose added burdens on customers.

Recommendation 2:  The Departments should set out, by July 2023, their priorities for obtaining data which would enable the better targeting of economic support. In doing so, they should consider how they can keep burdens on customers proportionate.

3      HMRC’s performance in recovering the £2.3 billion incorrectly paid to employers claiming furlough for employees who continued to work has been woeful. When it introduced CJRS in spring 2020, HMRC recognised that there was a high risk that employers would exploit the scheme by claiming furlough for employees that continued to work. HMRC accepted that it could not prevent such claims and it intended to recover sums through post-payment compliance activity. But two years on, HMRC’s compliance activity has had little success. HMRC estimates that it paid out £2.3 billion of furlough for employees who were in fact still working. By March 2022, HMRC’s main compliance intervention targeting employers claiming furlough for working employees had yielded only £640,000, equivalent to just 0.03% of the money claimed incorrectly. HMRC now reports it is hard for its compliance teams to prove after the event that employers were claiming furlough for employees still working, particularly if they were only furloughed part-time. HMRC could have done more to collect evidence on risky claims through visits and interviews. Given the amount of furlough claimed for working employees, HMRC needs to look again at how it collects such evidence.  

Recommendation 3: HMRC should set out, in its Treasury Minute response, how it will improve its ability to recover furlough claimed for employees who continued to work.

4      HMRC’s decision to close the Taxpayer Protection Taskforce in 2023-24 puts at risk the recovery of taxpayers’ money paid out as a result of error and fraud. In April 2021, HMRC set up the Taxpayer Protection Taskforce as a dedicated team of over 1,000 staff to increase its recovery of overpayments on the COVID-19 employment support schemes and the Eat Out to Help Out scheme. HMRC received an additional £100 million of funding for the Taxpayer Protection Taskforce, and it currently expects the Taskforce to recover between £525 million and £625 million. Despite these returns, HMRC plans to close the Taxpayer Protection Taskforce in September 2023 and will instead address non-compliance on the employment support schemes as part of its wider tax compliance work. We are concerned this change could lead to HMRC giving too little attention to the large sums of money outstanding on the employment support schemes. HMRC estimates indicate that between £2.0 billion and £5.1 billion of error and fraud within the schemes is likely to remain unrecovered by 2023-24. It would be unacceptable for HMRC to write-off such a large amount of taxpayer’s money. It must continue to tackle non-compliance on the schemes while it evidently remains cost-effective to do so.

Recommendation 4a: HMRC should continue compliance work on the COVID-19 employment support schemes while it remains cost-effective to do so. It should set out, in its Treasury Minute response, how it will assess the cost-effectiveness of continuing compliance work after September 2023, and how it would compare to addressing fraud on other government spending.

Recommendation 4b: HMRC should report annually in its Report and Accounts the yield it obtains from COVID-19 employment support schemes and the levels of unrecovered error and fraud until it stops its COVID19 grants compliance activity all together.

5      We are concerned that in the absence of effective criminal and civil sanctions there is little incentive for those who overclaimed COVID-19 employment support to make repayments. Despite the billions of pounds lost in error and fraud, HMRC has taken little action to punish culprits. It asserts that it limits its criminal investigations to the most serious cases of fraud committed by criminals. HMRC was undertaking just 31 criminal investigations in November 2022 compared to the almost 50,000 civil cases it had opened by October 2022. Civil cases focus on claims that HMRC considers may represent opportunistic fraud. Most employers that committed opportunistic fraud within CJRS by intentionally overclaiming were smaller companies. HMRC can penalise employers if it can prove they deliberately overclaimed, but it admitted suspicious cases are not treated as outright fraud if deliberate behaviour cannot be proved. By March 2022, HMRC had only issued penalties on CJRS totalling £1.1 million, just 0.5% of the value of overpayments it had identified. Consequently, employers who had overclaimed furlough have little incentive to voluntarily repay grants as they are unlikely to be penalised if identified by HMRC’s compliance teams.  

Recommendation 5a: HMRC should increase the number of employers it penalises for making excessive claims; and incentivise other employers to repay grants they have wrongly claimed.

Recommendation 5b: HMRC should set out, in its Treasury Minute response, its estimates of the number and value of furlough claims where it suspects, but cannot prove, that employers intentionally overclaimed; and its latest data on the amounts it has recovered from those employers.

6      The Departments have yet to fully capture the lessons that must be learnt from the employment support schemes to inform future large-scale government financial interventions. We have stressed throughout our work examining the COVID-19 pandemic the vital importance of government learning lessons from its preparedness and response. It is imperative that lessons are learnt from the employment support schemes successes and their shortcomings, including the lack of support for some of those in need and the large sums lost in error and fraud. The Departments report they have prepared ‘play books’ on what they have learnt so far. The Departments’ evaluations of the schemes should provide further insights, as should acting upon our recommendation that they compare UK practice with wider international practice. Publishing all the key lessons they identify would help others in government who may need to intervene in future crises.

Recommendation 6: The Departments should, by December 2023, publish the lessons that can be learned from the schemes for large-scale financial interventions in the future, and what actions they will take as a result.