Today the National Audit Office (NAO) reports that the government quickly developed schemes to protect jobs and support businesses financially during the COVID-19 pandemic, but the pace at which they were designed and implemented means there is a risk of considerable levels of fraud and error, particularly for the furlough scheme.
On 20 March 2020, the government announced the Coronavirus Job Retention Scheme (CJRS) to provide grant payments to employers to cover part of the wages of furloughed employees. This was followed on 26 March by the Self-Employed Income Support Scheme (SEISS) to provide grant payments to self-employed individuals whose businesses had been adversely affected by the pandemic. On 24 September 2020, the government announced a new Job Support Scheme (JSS) and an extension to SEISS until April 2021. On 9 October, an extension to the JSS was announced to support companies legally required to close as a direct result of COVID-19 restrictions. Total spending on CJRS and the initial SEISS scheme is forecast to reach almost £70 billion by the end of October.
HM Revenue & Customs and HM Treasury (the Departments) implemented both schemes ahead of their schedules, with CJRS available from 20 April and SEISS by 13 May. Given the compressed timeframe to design each scheme, the Departments could not follow standard processes comprehensively, such as producing business cases, options appraisals and detailed cost-benefit analysis.
Implementing the schemes quickly was a significant challenge. This was potentially increased by the lack of pandemic contingency planning or existing employment support schemes that the Departments could easily adapt.
The schemes have been largely successful in protecting jobs in the period to October 2020, with at least 12.2 million people benefitting from support. The CJRS scheme supported 9.6 million jobs and, at its peak in May, around 30% of the UK workforce was furloughed. The SEISS scheme supported at least 2.6 million self-employed, around 77% of the 3.4 million people potentially eligible for the scheme. Over half of respondents to a NAO survey of UK employees said that their main job had been impacted by COVID-19, more than a quarter said they had been placed on furlough and 4% said they had been made redundant between March and June.
As many as 2.9 million people were not eligible for the schemes, either because of ministerial decisions about where to focus support, or because HMRC did not have data needed to properly guard against the risk of fraud. This includes 1.1 million people estimated by third parties to be ineligible for CJRS because HMRC had limited data to validate claims or determine eligibility. HMRC estimates that around 1.6 million self-employed people did not meet the criteria for SEISS, for example because most of their income did not come from being self-employed (1.4 million people) or their trading profits exceeded £50,000 (200,000 people). Third parties estimate that a further 200,000 were ineligible for SEISS because they were newly self-employed in 2019-20 and had not yet submitted a self-assessment return.
When designing the schemes, the Departments considered the equality implications of their design decisions, including carrying out equality impact assessments. They identified a high proportion of Black, Asian and Minority Ethnic (BAME) people were self-employed and undertook work to raise awareness of the SEISS scheme with stakeholder groups. HMRC data shows that a greater proportion of younger workers were furloughed. A greater proportion of men were furloughed initially, but this reduced over time and by September there was little difference between men and women.
There is considerable risk that some employers committed furlough fraud by keeping employees working in lockdown, against the rules of the scheme, or by claiming payments and not passing them on to employees in full. HMRC’s fraud hotline has received over 10,000 reports, many referring to cases where employees worked despite their employer claiming for them as furloughed staff. The NAO found that 9% of people it surveyed admitted to working in lockdown at the request of their employer, and against the rules of the scheme. HMRC concluded it would tackle fraud through whistleblowing and retrospective compliance work. However, employees would not have known if their employer was part of the furlough scheme unless their employer had informed them. HMRC intends to publish the names of employers claiming the new JSS scheme and to notify employees through their personal tax accounts when an employer has claimed JSS.
The scale of total fraud and error is likely to be considerable, particularly for CJRS, but HMRC will not know the actual levels until the end of 2021 at the earliest. In September HMRC’s assumption was that fraud and error could range from 5-10% on CJRS, which would equate to £2.0 billion to £3.9 billion. For the first SEISS grant, HMRC’s planning assumption was that fraud and error could range from 1-2%. Given the lack of available data, both these estimates were necessarily assumption-based rather than evidence-based. HMRC is developing its understanding of the full scale of fraud and error, and believes it will need to redeploy staff from tax compliance work to tackle fraud and error on the schemes.
The NAO recommends that HM Treasury and HMRC should consider how to ensure that reliable information, covering as many people as possible, can be used to determine eligibility so that fewer people suffering loss of income are excluded from similar schemes in the future. The Departments should also accelerate programmes to assess the total value of fraud and error, and ensure sufficient resources are committed to recover overpayments and fraudulent payments on both schemes where it is cost-effective to do so.
“HM Treasury and HMRC met their objective to rapidly implement the schemes and the civil service should be commended for making these available ahead of schedule. Indications are that the schemes helped to protect jobs in the short-term, but it is also clear that many other people have lost earnings and have not been able to access support.
“It appears that the scale of fraud and error could be considerable, particularly for the furlough scheme. HMRC could have done more to make clear to employees whether their employer was part of the furlough scheme. In future, the Departments should do more while employment support schemes are running to protect employees and counter acts of fraud.”
Gareth Davies, the head of the NAO