Treasury writes off £4.3bn in Covid payments lost to fraud

The Treasury expects to recover only £1 of every £4 stolen from the public purse by fraudsters during the pandemic, it has admitted for the first time.

The department has written off £4.3 billion of £5.8 billion that was stolen from its emergency Covid-19 schemes that propped up swathes of the workforce during successive lockdowns, including the furlough scheme, the self-employed income support programme and Eat Out to Help Out.

This means that a maximum of only 26 per cent of money unlawfully taken from the Treasury will be recovered.

The figures, which were contained in documents quietly published on the HMRC website last week, represent the first time Rishi Sunak’s department has put a number on how much it expects its new £100 million 1,265-strong anti-fraud taskforce to get back from Covid-19 scammers. In November Jim Harra, the HMRC chief executive, said the department would struggle to recoup more than half of the money lost.

In a statement accompanying the figures, HMRC said it had been clear “from the beginning” that the furlough and self-employed schemes — which were developed within days as Britain entered lockdown and ordered businesses to shut in March 2020 — would be “targets for fraud”.

While the department spent a total of £81.2 billion on the schemes, it believes £5.8 billion has been stolen by workers and businesses claiming money they were not entitled to. It said it had recovered £500 million of overpayments in the 2020-21 tax year, and expected its taskforce to get back between £800 million and £1 billion more by 2023, a total of £1.5 billion at the most.

It said 8.7 per cent of furlough payments were made either to fraudsters or by mistake, 8.5 per cent of payments to its Eat Out to Help Out scheme, which was set up to help reopened restaurants in the summer of 2020, and 2.5 per cent of cash handed to freelancers and entrepreneurs as part of its self-employed income support payments.

Tax experts were stunned by the bleak Treasury projections.

Alex Dunnagan, a researcher for TaxWatch, a think tank, said the department urgently needed to invest more than £100 million in the anti-fraud taskforce. He said the Treasury’s admission “implies that criminals will be keeping billions of pounds of public money with no consequence”.

He added: “It is also surprising that HMRC are trumpeting this as a success when no reasonable person could see this as acceptable performance.”

Accountants who helped clients apply to the schemes highlighted that the priority was to pay out to people as quickly as possible.

“HMRC could have either put in place a robust checking process that would have slowed the payment of these support payments to a trickle or allow a straightforward claim process and accept that fraudulent and incorrect claims would run into billions,” Tim Stovold, a partner at the accountancy firm Moore Kingston Smith, said.

“It will be very difficult for HMRC to recover these amounts now. Fraudsters have thoroughly covered their tracks.”

Also in its statement, HMRC said it had prevented more than 100,000 “ineligible or mistaken claims” during the pandemic by putting in place controls in the digital claims process and blocked a further 29,000 claims by carrying out additional pre-payment checks based on risk profiles.