UK taxpayers face losses from fraudulent Covid support claims

UK taxpayers face losses from almost £1bn in potential fraud uncovered in government-backed grants issued to help companies during the Covid-19 pandemic, according to the public spending watchdog.

In its annual report for 2021-22, the business department (BEIS) estimated that about £985mn had been issued in “irregular payments” under a series of grants given by local authorities to businesses forced to shut during Covid-19 lockdowns. That figure amounts to 8.4 per cent of all grants distributed in this way.

The schemes linked to these grants are the small business grant fund, the retail, hospitality and leisure grant fund and the local authority discretionary grant fund. Between them, they handed out £11.7bn in 2020-21.

However, BEIS’s most recent annual accounts also show that losses from the flagship Covid-19 £47bn “bounce back” loan scheme are expected to be lower than previously forecast.

The grants and the BBLS are part of the wider £154bn spent by the government to support businesses through the pandemic, including the £70bn furlough scheme, designed to safeguard jobs, and the £26bn coronavirus business interruption loan scheme, which provided larger loans for bigger companies.

In a statement in the BEIS annual accounts, the head of the National Audit Office said just £4.2mn of the council grants — or 0.4 per cent of estimated irregular payments — had been recovered by the end of the department’s financial year in April.

Gareth Davies said BEIS had “not made the progress it planned in recovering irregular grant payments”, adding: “This means wider recovery action is not starting until two to three years after the businesses received the irregular payments.

“The longer the department takes to start the recovery process, the lower the likelihood of successful recovery and potentially the greater the losses to the public purse.”

Later local authority grant schemes that feature in BEIS’s annual accounts show significantly lower rates of fraud and error, with a combined central estimate of £57mn.

The report also said the number of possible fraudulent grants was difficult to judge given the inclusion of “possibly eligible” ones in the numbers of those deemed irregular.

It said it was “not possible to determine exactly what the irregular spend percentage would have been — although this prudent approach may overestimate the level of fraud and error”.

BEIS did not immediately respond to a request for comment.

For the BBLS, BEIS said fraud estimates had increased from 7.5 per cent to 8 per cent of the £47bn total. But the department added that the central estimate of losses due to fraud in the scheme had been reduced to £1.1bn, down from almost £5bn before.

The difference is because a large number of loans previously flagged as fraudulent, such as when a company inflated its turnover to take the maximum £50,000 offered under the scheme, are now being repaid.

BEIS reported that total liabilities in relation to all Covid-19 loan schemes were £15.8bn, compared with £19.8bn at the end of March 2021. That figure is the combination of money lost to fraud and loans that will not be repaid because the companies that took them out have since collapsed.

The department also reported losses of £9mn in relation to 13 suspected fraudulent payments within the Future Fund scheme, which offered convertible loans to often lossmaking but fast-growth “innovative” companies.