COVID business support fraud: Government slow to take action to recover estimated £1.1bn losses, says PAC

- Still unknown how much money was spent that might not have been needed or impact achieved by £22.6bn provided to businesses

- Confusion, delays and uncertainty in roll-out of support caused by Government’s distance from practical realities on the ground

The Government has been slow to take action to recover losses to error and fraud in COVID grant schemes of over £1 billion. A report published today by the Public Accounts Committee finds that, three years on from the provision of £22.6 billion in business support schemes in the pandemic, the Government had, by May 2023, recovered only £20.9 million of an estimated £1.1 billion in fraud and error losses.

When challenged by the PAC on its approach to recovering losses, Department for Business and Trade (DBT) officials responded that checking payments is very expensive, there are legal questions about the ability to recover some payments, and it will be “incredibly hard” to recover much of the losses. The PAC is urging the Government to set out the specific steps it will take to tackle this fraud and error, to recover funds and restore public trust.

The impact achieved by the £22.6 billion provided to businesses, or how much money was spent that might not have been needed, remains unknown. Government knew when setting up the grant schemes that too much would be provided to some businesses and not enough to others, but how far the money succeeded in protecting businesses and employments is still not clear.

The report also finds that likely underinvestment as a result of financial pressures faced by local authorities made it harder to deliver COVID schemes for some councils. Central government’s distance from the practical realities on the ground meant confusion, delays and uncertainty for small businesses and local authorities.

Officials acknowledged to the Committee that, in the early phases of the crisis, the connection between policy making and knowledge about delivery of the schemes was “not as strong as we would have liked it to be”. HM Treasury also accepted that there were things it should have known but did not at the start of the pandemic about varieties of businesses and the capabilities of local authorities.

Dame Meg Hillier MP, Chair of the Committee, said: “The Government must not wait for the conclusions of the COVID inquiry to learn the lessons laid out in this report. Never again should a national emergency find policy being written as we go along, without firm planning and good local data, with local authorities not properly funded to work in partnership on the support required. The next emergency must find the Government rigorously prepared with an understanding of the optimal means to support businesses through difficult times.

“The lack of planning from Government also meant that a door was left wide open in these schemes to fraudsters who took shameful financial advantage of schemes that were designed with national solidarity in mind. It is simply not good enough to give up on recovering this money simply because it is difficult to do so. Public trust is harmed if the Government shrugs its shoulders at criminals lining their pockets with state support.”

PAC report conclusions and recommendations 

The Department for Business, Energy & Industrial Strategy prioritised the need to distribute grants quickly. In doing so it made compromises on how targeted the support was and on the checks required to be made before money was paid out. The government, working with local authorities in England, distributed financial support to businesses quickly. The first scheme was initially announced by HM Treasury on 11 March 2020. The Department designed and then introduced the schemes less than a month later. By 19 April, 314 local authorities in England had distributed £6 billion (54% of the £11.1 billion total distributed for these first schemes) to small businesses. To move this quickly on the early schemes, the Department’s Accounting Officer sought directions from the minister to proceed as the Department could not demonstrate, amongst other things, that local authorities were well placed to manage the risk of losses. The Department acknowledges that it was not sufficiently aware of the importance of pre-payment checks in managing this risk. The initial grants were directed at very broad categories of business that the government thought would be particularly vulnerable.

Recommendation 1: As part of its Treasury Minute response, HM Treasury should set out what basic level of control it needs to see in place in the event of a national emergency, and how trade-offs with speed of response should be handled.

The Departments have been slow to take effective action to recover losses - three years since the Department for Business, Energy & Industrial Strategy introduced the schemes, less than 2% of the estimated £1.1 billion lost to error and fraud has been recovered. In May 2023, DBT told us it had recovered £20.9 million of the estimated £1.1 billion of losses to error or fraud. £985 million of these estimated losses are from grants in the earliest schemes, most of which had been paid out by late May 2020. BEIS started working with authorities to check payments among these schemes at the end of March 2021, finishing this work in May 2022. When we challenged officials about improving their approach to recovering losses, we were told that checking payments is very expensive, there are legal questions about the ability to recover some payments, and it will be ‘incredibly hard’ to recover much of the losses. However, DBTs Accounting Officer said he had asked a non-executive director on the Department’s Board to “to review this and to see what more we could do to recoup the money.” Officials said the Department is also looking at following up with authorities that have provided less information on fraud and error.

Recommendation 2: The Department for Business and Trade and its non-executive directors should ensure that the current review of the approach to recovery is rigorous and takes a sufficiently broad view of the public interest, including in its terms of reference:

• An assessment of the public value that can be achieved from pursuing these monies, including the deterrent effect of pursuing fraudsters and the impact on public confidence;
• testing the Department’s previous assumptions and revisiting past conclusions; and
• setting a figure for what it believes is recoverable and at what cost.

Central government’s distance from the practical realities on the ground meant confusion, delays and uncertainty for small businesses and local authorities. Business, local authorities and MPs all experienced at times a lack of clarity about precisely which businesses were covered by which schemes, and experienced delays when seeking clarification from BEIS. BEIS published multiple iterations of guidance and related documents as it worked through issues it had not anticipated when the schemes were launched. Examples of difficulties cited to us included distinguishing ‘wet-led’ pubs from other pubs and assessing whether meals were ‘substantial’. In addition, many local authorities were relying on data and systems which could not easily be used to identify which businesses were eligible for grants. Local authorities were key partners in the delivery of many COVID schemes, but having faced financial pressures over recent years it is not clear how far investment in IT infrastructure has been maintained. The challenges faced by some authorities in administering these grant schemes underline the impact of likely underinvestment. Officials acknowledged that, in the early phases of the crisis, the connection between policy making and knowledge about delivery was ‘not as strong as we would have liked it to be’. When we pressed witnesses about the limitations in government knowledge about the variety of businesses and the capabilities of local authorities, HM Treasury accepted there were things they should have known but did not at the start of the pandemic.

Recommendation 3: Within six months, the Department for Business and Trade should write to the Committee setting out how it proposes to improve its understanding of small businesses operating in different sectors and how it is strengthening its mechanisms for receiving and acting upon feedback from this segment of the business community.

The Department for Business and Trade needs to build on the progress made during the pandemic in developing the approach to the oversight of grants. BEIS responded to the initial and multiplying pressures on the administration of the schemes as the pandemic unfolded by commissioning a review of its management of the schemes. The review led to improvements to its programme management and governance.  HM Treasury and BEIS also developed their approach to grant design by, for example, targeting support at those businesses most affected by the lockdown restrictions and placing an increased emphasis on prepayment checks for later schemes. DBT is now continuing to build its capability and capacity in this area by establishing what it describes as a centre of excellence for grant management.  This sits within a directorate of 120 staff, compared to 20 when the schemes were first introduced.  The centre of excellence has so far focused on developing its understanding of grants from an ’end to end’ perspective, to set expectations at all stages of the grant process.

Recommendation 4: The Department for Business and Trade, working with the Cabinet Office, should share its approach to grant management more widely with other parts of government and ensure that this delivery experience is drawn upon at the earliest possible stage in the design of policies involving potential new grant schemes.

We do not yet know the impact achieved by the £22.6 billion provided to businesses, or how much money was spent that might not have been needed. Government set up grant schemes knowing that they would provide too much to some businesses and not enough to others, particularly for the earliest grants that required Ministerial Directions to authorise them. We know the cost of the schemes, but DBT is still waiting for the results of an evaluation that is trying to measure how far they met the government’s objectives to protect businesses and employment. HM Treasury told us it will look ‘very carefully’ at these results in relation to how choices about scheme design affected value for money. When we pressed witnesses about the trade-off between speed and controls, they acknowledged the importance of being better able to advise Ministers in future about such choices and trade-offs than they had been able to at the start of the pandemic. While HM Treasury stressed to us the importance of looking at the impact across the entirety of business support, not only grant schemes, it made no commitment to complete such an assessment of its own response.

Recommendation 5:

(a) As part of its Treasury Minute response to this report, the Department for Business and Trade should set out what it has concluded from the completed Ipsos evaluation.

(b) HM Treasury should write to the Committee with its plans to capture and distil lessons from the experience of supporting businesses through the pandemic within three months.

The government did not have in place a plan for how it would provide support to businesses during a national emergency like the pandemic. At the time the pandemic started there were no contingency plans in place between central and local government on how to provide support to businesses. HM Treasury, BEIS and local authorities therefore had to react in the absence of pre-agreed processes. Local authorities were often not aware of new schemes until they were publicly announced, leaving them to field questions from local businesses without being in a position to provide ready answers. Lessons began to be learned as the pandemic unfolded, for example the Department’s creation of a programme board in 2021 which included representatives from local government, but all this took time.  The Department acknowledges that there are lessons to learn and informed us that it is feeding into Cabinet Office’s wider consideration of lessons learnt. 

Recommendation 6: The Department for Business and Trade, working together with other relevant departments and local authorities, should develop a contingency plan for how it would respond should it be asked to provide financial support to businesses and other groups should a situation analogous to the pandemic occur in the future. The Department also needs to do better to understand the capability of local government systems when considering future schemes