Taxpayers could lose £27bn to Covid loan fraud while benefit scams reach 'all time high'

MPs suggested that the government has created an opportunity for people looking to exploit their generous schemes designed to help firms throughout the crisis and prevent mass unemployment., with an “increased appetite for fraud” arising since the virus swept the UK.

However the UK Government insists it has blocked thousands of applications considered potentially fraudulent, although admitted it had to act “at speed” to bring in the financial programme.

The MPs’ report cites evidence from the National Audit Office which stated the risk of fraud and error has “risen significantly as a result of the government’s response to Covid-19”.

This was due funds being spent in areas associated with a higher degree of fraud, such as “ welfare, business support and grants”, and that the government “often prioritised the need for speed when setting up new initiatives over reducing the risk.”

The risk, they said, was also increased as the government gave money to companies it “did not have a prior relationship” with, as well as “modifying controls” designed to prevent fraud, and “a general increased risk appetite for fraud”.

READ MORE: Man arrested over alleged £495,000 fraud of Covid furlough scheme

Business support schemes such as the Bounce Back Loan, where firms can claim up to £50,000 and do not need to start repayments for the first 12 months, have left the Government vulnerable, MPs said, as they are reliant on banks to chase firms for payment with no incentive to do so.

The report states: “BEIS [the Department of Business Energy and Industrial Strategy] recognised that loan programmes, such as the Bounce Back Loan Scheme "had left it reliant on banks that lacked incentives to prevent, detect and correct fraud and error given it is not their money on the line."

In terms of Universal Credit, the Department of Work and Pensions (DWP) has referred fewer cases to investigators for fraudulent claims this year, while the level of fraud has soared.

The report explains that the DWP “introduced enhanced biographical questions from June 2020 to verify identity over the phone, leading to fewer cases referred to its fraud checking service” and added: “HMRC has carried out fewer compliance investigations since lockdown began as it had to prioritise the implementation of COVID-19 support schemes and be responsive to the needs of taxpayers struggling with the impacts of the pandemic.”

It also says that problems may arise as local authorities are responsible for delivering some of the schemes without the resources or expertise to properly handle fraud.

Dame Meg Hillier

The Committee has recommended that the Treasury strengthen its reporting requirements of fraud within three months, and within six months both the Treasury and Cabinet Office bring in mandatory fraud impact assessments to be signed off from fraud specialists within government for any schemes which carry even a moderate risk of fraud.

Dame Meg Hillier, chairwoman of PAC, said: “The Government knows it is losing over £26 billion a year to fraud and error in the tax and benefits systems, but admits to another £25 billion it can’t even detect.

“That’s over £50 billion worth of public services a year given away to fraudsters and by mistakes in payments - before the frightening losses racking up in our Covid19 spending so far, and against the backdrop of a massive surge in need.

“Fraud is never acceptable and when so many were suffering as a result of Covid the government needs to tackle the fraudsters robustly. The committee has long been concerned about the impact of departments’ own errors – including overpayments which need to be clawed back - which leads to further hardship for the already vulnerable.”

“If BEIS is worried that 100% taxpayer loan guarantees mean the lending banks don’t have enough skin in the game, departments across Government show a worrying, similar lack of urgency. The Covid emergency masks a more worrying underlying approach to managing risk and taxpayers’ money.”

A UK government spokesman said: "Our priority was to act at speed to protect workers and businesses, including through loans, grants, furlough and the Self-Employment Income Support scheme which have provided a lifeline to millions across the UK – helping them to survive the pandemic and protecting jobs.

“These schemes were designed to minimise fraud from the outset and we have rejected or blocked thousands of fraudulent claims.

“We won’t tolerate those who seek to defraud taxpayers and will take action against perpetrators, including through criminal prosecution.”