When it was announced in the first days of the coronavirus pandemic in March 2020, the chancellor, Rishi Sunak, described the furlough scheme as “as one of the most significant economic interventions at any point in the history of the British state and by any government anywhere in the world”.
Boris Johnson and Sunak were proud of a trailblazing scheme that would pay 80% of the wages of up to 11.7 million workers up to a maximum of £2,500 a month. “We have put aside ideology and orthodoxy to mobilise the full power and resources of the British state,” Sunak said from the 10 Downing Street lectern.
Furlough payments were just one of a number of schemes hastily introduced by the government in the early stages of the pandemic to support individuals and businesses financially. Others included the self-employed income support programme, “eat out to help out” – and the business Bounce Back Loan Scheme (BBLS).
In the House of Lords on Monday, Theodore Agnew, the minister responsible for Whitehall efficiency and counter-fraud, singled out lax oversight of the BBLS in his dramatic resignation speech.
Lord Agnew criticised oversight of Covid loans by the Department for Business, Energy and Industrial Strategy and the British Business Bank, a state lender, saying it had been “nothing less than woeful”. He added that Sunak’s department, the Treasury, appeared to have “no knowledge or little interest” in the consequences of fraud.
The warning signs have long been visible, such as multiple companies being formed at the same address. And the first prosecutions have started trickling through.
The government has long pointed to the wartime footing under which its support schemes were rolled out, and the urgent need to pump cash into the economy or risk the collapse of vast numbers of businesses.
In a debate in the House of Commons earlier this month, John Glen, economic secretary to the Treasury, claimed the government has “taken the issue of potential fraud relating to Covid grant schemes extremely seriously”, but said “it would have been impossible to prevent all related fraud”.
However, right from the start the Covid financial support announcements sparked concern at the headquarters of HM Revenue and Custom further down Whitehall.
“From the beginning it was clear the schemes would be targets for fraud and that customers would make mistakes,” HMRC said last year as it wrote off £4.3bn stolen through the various Covid-19 emergency support schemes.
HMRC believes that about £5.8bn – or £1 in every £14 of the £81.2bn paid out through the schemes – has been stolen. So far just £500m has been recovered, and it expects only another £800m-£1bn may be recovered by 2023.
In March, the business department estimated that 37% of bounce back loans, worth £17bn, would not be repaid and that 11% came from fraudulent applications.
A subsequent investigation by the accountancy firm PwC in October revised the fraud rate down to 7.5%, although the National Audit Office said in its December report that it had not had time to check this estimate itself.
The NAO had long singled out the government’s “inadequate” attempts to tackle fraud within the £47bn BBLS scheme that was designed to try to help save companies at risk of collapse during the pandemic.
It said anti-fraud checks for the scheme had been “implemented too slowly”, with limited verification and no credit checks on borrowers. As the scheme progressed 13 additional counter-fraud measures were introduced, but most came too late to prevent fraud and were focused instead on detection.
Gareth Davies, the head of the NAO, has warned that the fraud already identified could be just the tip of the iceberg. “The true level of fraud will become clearer over time,” he said.