Fraud and error are likely to have cost the UK government as much as £16bn across the Covid-19 emergency loan schemes, according to parliament’s spending watchdog, which described the losses as “unacceptable”.
A report from the public accounts committee published on Wednesday said the Treasury should by the end of the year come up with estimates of fraud and error losses across the individual schemes and how much it intends to recover.
The government guaranteed or gave out loans worth £129bn to people and companies during the coronavirus pandemic to support them financially through lockdown restrictions. However, ministers were warned from the start that the speed of the schemes would open them up to fraud.
Since then government agencies have found large-scale frauds across several parts of the system, ranging from the coronavirus job retention scheme (CJRS) for furloughed workers, the bounce back loan scheme (BBLS) for small companies, and the coronavirus business interruption loan scheme (CBILS) for mid-sized businesses. Reports from crime and bankruptcy agencies have shown some loans were used to fund gambling, luxuries and home improvements.
Theodore Agnew dramatically quit his role as a Treasury minister in a speech in the House of Lords last month after criticising the lack of action to recover stolen money.
Data from government departments’ annual reports suggested fraud and error losses of between £12.4bn and £20.1bn, with a central estimate of £15.7bn, the report said.
The furlough scheme is estimated to have suffered the largest fraud and error losses of £5.3bn, followed by the BBLS where £4.9bn is thought to have been lost. The government has funded a “taxpayer protection taskforce” to chase fraud in the schemes including furlough run by HM Revenue and Customs, but anti-corruption experts are concerned that funding is inadequate to fight fraud in bounce back loans.
The government will also have to write off £21bn in loans to people or businesses who will be unable to pay them back.
Dame Meg Hillier, the Labour MP who chairs the public accounts committee, said the loans fraud was part of a pattern of repeated failings by the government.
“Lack of preparedness and planning, combined with weaknesses in existing systems across government, have led to an unacceptable level of mistakes, waste, loss and openings for fraudsters which will all end up robbing current and future taxpayers of billions of pounds,” she said.
Hillier added that the Treasury should continue to account specifically for Covid-19-related spending measures throughout their lives, rather than allowing the spending to be absorbed into individual budgets.
All of the UK’s Covid-19 responses are expected to cost £370bn over as long as 20 years in the case of the cultural recovery fund, according to National Audit Office data. Some £260bn had been spent by September 2021.
“Government must be held accountable in this way to all the future taxpayers who will be paying for this response,” Hillier said. “Crucially this must ensure lessons are learned for when the next big crisis hits – be it climate, health or financial.”
A Treasury spokesperson said: “We reject the claims made in this report. No fraudulent payments have been written off and the taxpayer protection taskforce is expected to recover up to £1bn from fraudulent or incorrect payments.
“Thanks to the speed and scale of our intervention, the economy is back to pre-pandemic levels and growing at the fastest rate in the G7. The cost of inaction could have had a catastrophic impact on jobs and livelihoods.”