NAO finds that, while Covid-19 employment support schemes prevented job losses, billions of pounds went to people whose incomes increased and billions more was lost in fraud and error

New report recommends that government improves the way it estimates levels of fraud and error and allocates sufficient resources to tackle the issue

The National Audit Office (NAO) has found that, while the Covid-19 employment support schemes achieved their aim of preventing job losses, billions of pounds went to people whose incomes increased during the pandemic and billions more was lost in fraud and error.

In Delivery of employment support schemes in response to the Covid-19 pandemic, published today, the NAO provides a follow up to its October 2020 report on the schemes which concluded that, although HM Treasury and HMRC (the Departments) had met their objective to rapidly implement the schemes and had protected jobs in the short term, some groups had been unable to access support and the Departments’ ability to manage the high risk of considerable amounts of error and fraud occurring on the schemes would be a key test of value for money.

The NAO's new report, which covers the period from October 2020 until the employment support schemes closed at the end of September 2021, finds that the schemes achieved their primary aim of protecting jobs and businesses during the pandemic, with the Departments distributing Self-Employment Income Support Scheme (SEISS) grants worth £28.1 billion to 2.9 million individuals and Coronavirus Job Retention Scheme (CJRS) furlough payments worth £68.9 billion to 1.3 million employers, covering 11.7 million individual jobs.

However, the NAO also finds that several billion pounds were distributed to taxpayers whose incomes were not adversely affected by the pandemic -

'A HMRC survey of employers between November 2020 and February 2021 found that 15 per cent of companies receiving CJRS experienced no reduction in turnover during the first six months of the scheme, although a large majority of these firms said that without the scheme they would have made redundancies or closed. Firms who said they would not have made redundancies or closed permanently and saw their incomes stay the same or increase as a result of the pandemic still claimed grants for 354,000 jobs, equivalent to £1.5 billion. In June 2022 HMRC analysis of the first three SEISS grants found that 18 per cent of the first three SEISS grants were paid to people who saw their turnover increase even without the scheme. This equates to £3.5 billion of grants paid during that period.'

The NAO goes on to find that the introduction of a financial impact declaration from July 2021 saved up to £2.5 billion in SEISS grants, with around £140 million paid out to 140,000 SEISS claimants who reported no decrease in turnover in the final tranche of funding, and that -

'Earlier use of clear financial impact tests could have provided better value for money, even allowing for the risk of claimant fraud and error when applying such a test.'

In addition, noting that HMRC’s latest estimate for the total of fraud and error within the schemes is £4.5 billion (4.6 per cent of the total cost), the NAO says that -

'HMRC’s estimate of CJRS fraud is based on limited data - HMRC’s programme of random checks would not have picked up certain types of fraud and it did not commission sufficient research with employees to understand how much went undetected. It is unlikely ever to know how much it paid to employers opportunistically claiming furlough for working employees, which was the main cause of fraud and error. Its estimates of furlough paid for working employees (best estimate of £2.3 billion) relies heavily on survey data covering just the first few months of the scheme.'

In conclusion, finding that, although payments under the schemes have ended, there is still a need to bear down on fraud and error, the NAO recommends that HMRC -

works with the Cabinet Office and government’s counter-fraud functions to improve the consistency of data collected on grant claimants and the pace at which data can be shared between HMRC and other public bodies in order to identify risky claims now and in the future;
publicises the number of criminal investigations and encourage non-compliant taxpayers to return overpayments; and
improves its methodology for estimating fraud and error, including developing scheme-specific estimates for non-detection of fraud and error.

Head of the NAO Gareth Davies said today -

'The Covid employment support schemes were introduced at speed and provided essential support to individuals, businesses and the economy during the pandemic. The furlough and self-employed schemes prevented millions of job losses but billions went to people whose incomes increased during the pandemic, and billions more was lost in fraud and error. The government must improve the way it estimates levels of fraud and error and allocate sufficient resources to tackle this issue.'

NB - the government has today published the following research reports on the two schemes -

For more information, see Delivery of employment support schemes in response to the COVID-19 pandemic from nao.org.uk

NAO finds that, while Covid-19 employment support schemes prevented job losses, billions of pounds went to people whose incomes increased and billions more was lost in fraud and error

Related news stories