15 February 2023

Covid fraud: the problem with no cure

Niall Hearty, partner at Rahman Ravelli, examines the UK government’s efforts in the losing battle to recover fraudulent Covid payments 

 

Nobody wants to hear a bad diagnosis. But all the examinations indicate that the government’s attempts to recoup the huge amounts it lost to Covid-related fraud have little or no chance of making a recovery.

Despite the most strenuous attempts to put a positive spin on the situation, all the vital signs are showing that the efforts to regain what was lost are flatlining.

To take one recent statistic, taxpayers are facing a loss of almost £1 billion to fraudulent grant applications – and other payments made by mistake – from the days when the government was trying to help businesses that were struggling as the pandemic took its toll. The Department for Business, Energy and Industrial Strategy (BEIS) has said that the emphasis on getting the money to where it was supposedly needed means that a fortune has been paid out in error and is never going to be recovered. Its annual report has put the price of that “fraud and error’’ at £985 million.

This, in simple terms, is taxpayer money that is now gone for good. Perhaps even more damningly, it represents approximately 8.4% of all Covid payments distributed via small business and hospitality and leisure sector grants and the local authority discretionary grants fund. A total of £11.7 billion was handed out in 2020-21 – and almost a tenth of that should not have been.

The National Audit Office has said that an underwhelming 0.4% of all “estimated irregular payments” paid out in grants by local councils has been recovered. With recovery action often not starting until years after the businesses took money they were not entitled to, it is hard to envisage the coming years witnessing a huge flurry of long-overdue repayments.

For all the government references to crackdowns, those the government hopes to be cracking down on have had years to cover their tracks and / or dissipate the payments they should never have received. It should also be remembered that the grant payments were just a small slice of the £154 billion the government paid out to support businesses during the pandemic.

Recent weeks have also seen BEIS put the overall loss to the taxpayer through Covid loan support schemes at £15.8 billion and HMRC putting the price of error and fraud in Covid payments since 2020 at £4.5 billion.

Since the full effects of the pandemic kicked in almost three years ago, there has been a steady stream of bad news regarding the sheer scale of Covid-related fraud. This is, obviously, due primarily to those who have planned and then executed the fraud. But the fraud was only possible because the architects of the various payment schemes did not foresee the open goal they were offering to those who relish an opportunity to make illegal gains.

The government’s mantra about tackling Covid fraud sounds increasingly like sabre rattling long after the battle has been lost. It has had much less to say about its responsibility for what has happened or about holding individuals or departments responsible for the high-priced debacle that Covid payments have become. The fact that not a great deal of sophistication was required to make fraudulent gains from Covid schemes is the worst indictment of their introduction.

Nobody would argue that something had to be done to address the very obvious problems that coronavirus was causing the economy. Most people at the time recognised the need to help businesses who were imperilled by a once in a lifetime threat. Few, if any, of those people, however, would have expected the government’s response to provide colossal easy pickings for those looking for fraudulent gains.

It is unfortunate for all of us that there were many more who recognised this in the less principled sections of society than there were in the corridors of government.

There was certainly a need to help businesses whose very existence was under threat because of the pandemic, and desperate times often call for desperate measures. But it appears that the government’s coffers have suffered as a result of this rush to distribute cash. There has been no shortage of criticism of the government’s approach, some if which has even come from within the government itself. Any future publication of BBLS statistics in the future is unlikely to quell that criticism.

 

 

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