Coronavirus Grant Schemes: Fraud

(Urgent Question): To ask the Chancellor of the Exchequer, if he will make a statement on fraud in the coronavirus grant schemes.

Since March 2020, the Government have delivered a comprehensive multibillion-pound package to support individuals and businesses during the pandemic. As the House would expect, the Government have taken the issue of potential fraud relating to covid grant schemes extremely seriously.

Robust measures were put in place to control error and fraud in the key covid support schemes from their inception. For instance, to minimise the risk of fraud and error and unverified claims, the coronavirus job retention scheme and self-employment income support scheme were designed in a way to prevent ineligible claims being made up front, and made grants for employees and businesses using existing data held on Her Majesty’s Revenue and Customs’ systems. That included cut-off dates around scheme eligibility and the need for customers to be registered for pay-as-you-earn online or self-assessment. In 2020-21, HMRC recovered £536 million of over-claimed grants.

To further bolster anti-fraud measures, at the spring Budget last year, the Government invested more than £100 million in a taxpayer protection taskforce of more than 1,200 HMRC staff to combat covid-related fraud. This taskforce is expected to recover between £800 million and £1 billion from fraudulent or incorrect payments during 2021-22 and 2022-23.

The Government’s bounce back loan scheme supported more than £46 billion of finance to 1.5 million businesses. We are continuing to actively work with the British Business Bank, lenders and fraud authorities to tackle fraud and to recover loans obtained fraudulently. The value of prevented fraud was £2.2 billion, and we continue to recover further funds through our counter-fraud work. In addition, as part of the spring Budget last year, we announced plans to significantly strengthen enforcement activity against fraudulent bounce back loans. That included introducing processes with the Insolvency Service to prevent the fraudulent dissolution of companies being used as a means to escape liabilities, granting the Insolvency Service new powers and investing further in the National Investigation Service.

I am grateful to the Minister. Last week, the Government confirmed that they expect to write off around £4.3 billion of the funds allocated to coronavirus help schemes. There was no press release, no Instagram video, no statement to this House and no sight of the vanishing Chancellor at all; it was just buried away on the Government website. The Government website states, and the Minister repeated the claim, that from the beginning:

“Robust measures were put in place to control error and fraud in the key coronavirus support schemes.”

If robust measures to prevent fraud were in place, why did they fail to this shocking degree?

In November, the head of HMRC estimated that around half the money lost could be recovered. Why has that estimate now been downgraded to only a quarter of the funds? Why are the Government giving up so easily and not doing more to track down the money, rather than allowing it to remain in the hands of the fraudsters and criminals who have stolen it from taxpayers?

Mr Deputy Speaker, £4.3 billion is a huge sum of money. It is enough to take hundreds of pounds off energy bills this year for every household in the country. It is about the same annual amount as the Chancellor took off people on universal credit in the Budget in November. It is roughly the same as half the annual policing bill for the whole country. This write-off of £4.3 billion comes as households face a cost-of-living triple whammy of rocketing energy bills, the Chancellor’s tax increases and a decline in real wages. Coming on top of the billions wasted on crony contracts and the amounts lost in loan schemes, these levels of waste destroy any claim that the Conservative party had of being careful stewards of the public finances. Will the Minister launch an investigation into how this happened and do more to recover this money from the fraudsters who stole it in the first place?

I thank the right hon. Gentleman for his comments, which I am very happy to address. First, we are not writing anything off. The figures quoted are what we expect that taxpayer protection taskforce to recover in the next two years in which it will exist. HMRC has longer to address fraud in the schemes, which it will do in the context of wider compliance activity. HMRC did not produce the figure of £4.3 billion. I understand that it was an inference made by journalists who subtracted £1.5 billion from the estimate of the amount to be recovered by the taxpayer protection taskforce from the £5.8 billion estimated as error and fraud in 2020-21. That was published and Jim Harra and others from HMRC publicised all this before Christmas—in November. HMRC simply used the same numbers in a “mythbuster” article to be published later this week.

Those are the facts. There is nothing new here today, but I would like to address some of the underlying concerns. The right hon. Gentleman is absolutely right to say that fraud is unacceptable. We think that, which is why—as I said in my opening remarks—in March last year, the Chancellor dedicated £100 million to employ 1,265 people from HMRC to undertake these fraud checks and to bear down on the fraud. We have had 13,000 one-to-one inquiries and sent 75,000 letters to those thought to have incorrectly claimed.

I point out to the right hon. Gentleman, however, that many of these schemes were stood up, refined and adapted very quickly. In order to meet the needs of individuals, the self-employed and businesses up and down the country, £81.2 billion of payments were made across the three main schemes. Although I recognise that there has been an element of fraud, the Government have never been complacent about that. Grants for employees and businesses used data on HMRC systems. The design of the scheme was informed by expert advice from HMRC, which has extensive knowledge and understanding of where errors and fraud risks lay. We have implemented post-payment compliance to identify and recover overpayment, and we have invoked automated controls into digital claim processes, which have prevented 100,000 ineligible, mistaken claims.

I say to the Opposition that it is the easiest job in the world to stand on the sidelines and criticise, but what would they have done? Would they have waited and left businesses in peril? Would they have done that in search of the perfect? Some £407 billion has gone to businesses, the vast majority of which went to the right places. Of course there will be lessons to learn, but if the same situation happens again, will my hon. Friend prioritise the needs of business, rather than making the perfect the enemy of the good?

I thank my hon. Friend for the clear point behind his question. We were straining every sinew in the Treasury to get money out as quickly as possible. On 14 April 2020, a Labour party press release stated:

“It is clear that additional action needs to be taken to increase the take-up of the different measures. We have called for urgent action…as take-up is worryingly low.”

That is why we intervened to change the design of the bounce back loan scheme and to make it 100% backed to get the money out quickly—£46 billion to 1.5 million businesses. I am sure that lessons can be learnt from what we have done—absolutely they can—but the principle of getting that money out and designing schemes with HMRC’s excellent input during that period was imperative for the Government.

It seems, again, that when the going gets tough, the Chancellor goes missing.

HMRC said in its statement that fraud in the covid support schemes is in line with its original planning assumptions, but expecting this eye-watering level of fraud seems almost worse than it happening by accident. We see it also in the bounce back loan schemes. How much of the fraud relates to UK company structures and the related issues at Companies House, which make the UK such a magnet for money laundering?

As well as the Treasury being out of pocket, constituents of mine employed by companies deliberately employing dubious corporate structures did not even receive the furlough payments to which they were fully entitled. What consequences will there be for those companies, and for those people who never received the money that they were due, due to fraud and error? For the many people around these islands who received no support whatsoever—those who were excluded from support schemes—this fraud and error is all the more galling. Will the Minister apologise to them and put that right? Finally, when HMRC is chasing down an estimated 170,000 families who claimed child benefit in error, why is it letting fraudsters and criminals waltz off with £4.3 billion of public money, all of this in the midst of a cost of living crisis? That money should be in the pockets of our constituents, not of criminals.

I listened very carefully, as I always do, to the hon. Lady. I totally agree that we must not accept any fraud and error as inevitable, and we will continue to bear down on that. From the start we designed the schemes to involve “know your customer” and anti-money laundering checks on application. Measures were put in place by the British Business Bank to detect multiple applications—indeed, there was co-operation among UK Finance members on that. Subsequently, we have developed further interventions involving the National Investigative Service, the Insolvency Service and Companies House data to prevent rogue company directors from escaping liability. We will continue to bear down on the fraud that may have occurred. But initial data on the repayment of bounce back loans shows that in only 2% have borrowers defaulted, and only 7% are behind repayments in any form. There is no complacency in the Government’s approach, and we will continue to look at ways to maximise what we can reclaim where there have been errors and fraud.

It is right that we look carefully at how council tax payers’ money is spent, but let me refer to the current covid grant scheme, particularly for Cornwall. We in Cornwall need reassurance that Cornwall Council has absolute discretion in how to ensure that current leisure grants, for example, go to the businesses that most need them. At the moment, the council is saying that it has to pay the money to whoever applies, irrespective of how well their business is doing. My understanding from the Government is that, if a business is impacted by omicron, staff shortages, or reduced consumer demand, that is when the grant is paid. Could the Minister confirm to me, and to Cornwall Council, that it is for the council to ensure that the money goes where it is most needed, and that is what the Government intend?

I can certainly confirm that the intention behind the range of interventions was to find the most appropriate delivery mechanism for the different support payments, and obviously we have worked with local authorities to give them that discretion. Every authority will need to be held to account for how it has decided to deliver the grants. My hon. Friend has made a clear case for where those priorities need to lie, and we are clear about the intention behind the grants, but it will be for local authorities throughout the country to make their decisions in the right way.

Seventy-one million pounds of taxpayers’ money was fraudulently claimed through the eat out to help out scheme. How many arrests have been made, and are the criminals now enjoying prison food?

I am sorry, but I cannot give the hon. Gentleman an exact answer. What I can say to him is that, according to HMRC, the expectation of fraud as part of that particular intervention in the summer of 2020 was about 8.5%, and the figures submitted by Jim Harra, the head of HMRC, in last year’s report were in line with the expectations set out at the start of this journey.

Our much-loved Kettering gymnastics club provides sporting facilities for about 1,000 local young people every week. It is a not-for-profit club, registered with HMRC under the community amateur sports club scheme, and it operates as a club and not as a business. It has previously received covid grant funding from the council, but the later schemes issued in December 2021 seem to refer just to businesses, rather than to clubs. Can the Minister clarify the Government’s guidance to local authorities about whether clubs are eligible for the new funding?

I recognise that the gymnastics club in Kettering, along with so many other clubs of that type around the country, provides an enormously valuable point of contact for young people. I should be happy to examine my hon. Friend’s point in detail and write to him with clarification, rather than dealing with it from the Dispatch Box. The principle of giving discretion to local authorities in order to meet the needs in particular communities has guided the Government throughout this process, and we have used this grant channel a number of times for that reason, but I will look as sympathetically as I can at the question that he has raised.

The Minister referred to default as though it were the equivalent of fraud. The Public Accounts Committee has examined in great detail the issue of fraud in this area. As I am sure he knows, there are grants and bounce back loans taken fraudulently that people will be repaying, but the criterion on which they obtained them was itself fraudulent.

The Minister seems to be accepting this level of fraud. Will he make a clear statement that fraud at all levels will be investigated? We gained the impression from HMRC and others who appeared before us as witnesses that they would take the low-hanging fruit and let a lot of fraud continue without being tracked down.

I know that the hon. Lady’s Select Committee is conducting an in-depth inquiry. I believe that the second permanent secretary and others appeared before the Committee last week, and I look forward to its report.

I can absolutely clarify that we do see the distinction between a credit loss and fraud. What we are talking about here is: what are the most effective mechanisms, and over what timeframe, to get that money back? Also, we have received moneys back from, for example, the furlough scheme: moneys and grants that were made in error. So it is a complicated picture. I am certainly not suggesting from this Dispatch Box that the Government are writing anything off, or do not grasp the distinction between a credit loss and fraud. This needs to be tackled, but it needs to be tackled in a time and money-efficient way. Obviously the law of diminishing returns begins to apply after a certain point, and we will again by led by HMRC and its excellent advice as we pursue the matter.