HM Revenue & Customs has been accused by an influential group of MPs of “ignorance and inaction” on recouping £6bn of fraudulent Covid-19 support payments, drawing an angry backlash from the tax authority.
The public accounts committee (PAC), which monitors state spending, issued a litany of criticisms of HMRC, warning that money surrendered to fraudsters would ultimately add to the cost of living crisis engulfing Britain.
In a series of criticisms described as “damning” by shadow chancellor Rachel Reeves, the PAC said:
HMRC has effectively “written off” £4bn of Covid-related fraud.
Plans to recover fraudulent payments are “unambitious”.
This risks “rewarding the unscrupulous”.
Customer service at the tax authority has “collapsed”.
HMRC is not doing enough to crack down on tax avoidance.
PAC chair Dame Meg Hillier highlighted the volume of fraudulent claims made via three HMRC-administered Covid grant schemes, which include furlough, the Self-Employment Income Support Scheme and Rishi Sunak’s Eat Out To Help Out package for hospitality.
Citing HMRC’s estimate that it may recover £2bn of £6bn in fraudulent claims, she said: “The level of fraud and error in furlough that employers will get away with is a real concern.
“What signal does it send when HMRC rolls over on billions of pounds of fraud and error directly related to Covid support packages?”
HMRC said its estimate of what will be recovered did not mean that it has written off the remainder, which it intends to pursue.
But the report said HMRC was not doing enough to reclaim the money and was also failing in its wider duties, including ensuring tax compliance and preventing people being lured into avoidance schemes.
“With the current parlous state of the public finances we can ill afford to be so cavalier over so much taxpayers’ money,” said Hillier.
“Every taxpayers’ pound lost to a fraudster will lead to honest ordinary people feeling the post-pandemic pinch harder and harder.”
Criticism of HMRC comes weeks after Treasury minister Lord Agnew resigned over a separate decision by the government to write off £4.3bn of fraudulent business loans.
Reeves said: “This is damning. It should be a source of enduring shame to the chancellor that he has so casually written off billions in taxpayers’ money that is now in the hand of criminals and gangs.”
HMRC staff are understood to feel that the tax authority is being unfairly singled out and that it is making progress on beefing up its tax collection capacity after a pandemic-affected year when it collected £609bn, down 4.3% on the previous year.
A government spokesperson said: “While we acknowledge lessons that need to be learned in this report, we reject many of the statements made by the PAC.
“No fraudulent payments have been written off and we’re taking action on multiple fronts to recover overpayments, and our Taxpayer Protection Taskforce is expected to recover up to £1bn from fraudulent or incorrect payments.”
The taskforce is made up of nearly 1,300 staff and is expected to recover an additional £1bn of taxpayers’ money.
The spokesperson added: “The vast majority of payments in the schemes were made correctly to employers, and most error and fraud was legitimate claimants making mistakes or inflating their claims, often small amounts per case.
TimelineCovid-19 loan fraud
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From March 2020 to May 2021, the
three main Covid loan schemes – bounce back, CBILS and a scheme for
larger loans, CLBILS – handed out nearly £80bn to businesses. Yet serious fraud concerns have emerged since then, most notably in relation to the bounce back loan scheme.
The government extends CBILS to cover large businesses in the CLBILS.
Sunak announces the bounce back loan scheme (BBLS) for loans of £50,000 for those who certified that they qualified.
British Business Bank chief executive Keith Morgan writes to business secretary Alok Sharma that the scheme’s rapid launch posed “very significant fraud and credit risks”.
The business department launches the bounce back loan scheme, with 80,000 applications by the first afternoon.
The National Audit Office warns taxpayers stand to lose £26bn on BBLS and that up to 60% of customers may fail to repay loans. HSBC closes the scheme to new customers.
The Treasury extends BBLS, CBILS and CLBILS to end of January 2021. (It will be extended again.)
Sunak announces £100m for a taxpayer protection taskforce of more than 1,200 HMRC staff to combat Covid19-related fraud - but the loan scheme is not covered.
All three loan schemes closed to new applicants. All loans were processed by 31 May.
A National Audit Office report describes government funding for counter-fraud on the bounce back loans “inadequate” and highlights £4.9bn estimated BBLS fraud losses.
Treasury and business minister Lord Agnew resigns at the House of Lords dispatch box, citing frustrations with the lack of action on Covid-19-related fraud.
“Our Covid support schemes were implemented at unprecedented speed to protect millions of jobs and businesses at a time when families needed it the most.
“As a result, our economy is back to pre-pandemic levels and growing at the fastest rate in the G7. The cost of inaction would have been far greater than the cost of fraud and error in the support schemes.”
HMRC added that the report’s claims of a collapse in customer service, such as call waiting times on the phone, were a “gross distortion”.
At a PAC select committee hearing last week, HMRC deputy chief executive Angela McDonald said she expected the authority to clear its backlog of outstanding cases by April.