Whilst the initial stages of the COVID pandemic required a rapid response from the British government to ensure that businesses and people could survive months long lockdowns - setting up systems and processes to provide financial support in a matter of days - that doesn’t mean that the approach taken, whilst challenging, should not be beyond criticism.
And yes, speed of delivering support was crucial for people during an incredibly distressing time, but it’s also true that COVID is set to cost the British taxpayer eye watering sums of money. Which is why accuracy in providing support was so crucial during those early months - mistakes made could run into the billions of pounds.
Which, unfortunately, is the situation that the British Government now finds itself in. According to a report out this week by MPs sitting on the influential Public Accounts Committee (PAC), the COVID support schemes that were introduced to provide financial aid to businesses across the country are likely going to result in a £4.9 billion fraud and error bill, that will ultimately be funded by the taxpayer.
That’s £4.9 billion that could have gone to a whole host of people that received little to no support during the COVID pandemic, which didn’t fit the current administration’s criteria for ‘in need’.
The Committee highlights a number of failings on behalf of the Department for Business, Energy & Industrial Strategy (BEIS), which include a lack of quality data being shared with local authorities, which distributed some of the financing, and it also failed to use some of the tools available to it in order to combat fraud and error.
BEIS was responsible for government’s business support loan schemes including the Bounce Back Loans Scheme, the Coronavirus Business Interruption Loan Scheme, and the Coronavirus Large Business Interruption Loan Scheme. In 2020–21, its budget increased from £14 billion in 2019–20 to £44 billion, with much of the increase directly attributable to the government’s response to the COVID crisis and associated support for businesses.
It also points out that BEIS is yet to outline its wider learnings from the mistakes made in order to ensure something similar doesn’t happen again.
Commenting on the Committee’s report, Dame Meg Hillier MP, Chair of the PAC, said:
BEIS says it saw this risk coming but it’s really not clear where Government was looking when it set up its initial Covid response. It offered an open goal to fraudsters and embezzlers and they have cashed in, adding billions and billions to taxpayer woes. These lessons should have been learned from the banking crisis a decade ago, and could have been prepared in the Government’s pandemic exercises.
These mistakes must be written out of future crisis responses, now, and Government would do well to apply the learnings to the mounting, interrelated crises it now faces in climate change, energy supply and the cost-of-living.
The PAC outlined a number of areas where BEIS fell short and issued some key recommendations about how to move forward.
Firstly, it notes that the Department does not have a good assessment, or insight into data, of the levels of fraud and error in local authority administered business support grants. Between 2020 and 2022 BEIS relied on local authorities to distribute funding to local businesses across nine schemes, but the Department has so far only “attempted” to assess the extent of fraud and error in the initial three schemes administered in Spring 2020.
The Department’s sample examined only 476 grants, representing 0.05% of grants paid out by number. It told the Committee that it plans to expand this sample, but work has not yet started and the success of any future work also relies on local authorities’ willingness to cooperate. The PAC said:
We are concerned that local authorities have few incentives to do so given that all recovered funds are to be passed to the Department, and the limitations to the estimates of fraud and error make it challenging for the Department and local authorities to assess the time and resources required to recover these funds.
The report also states that BEIS was aware of heightened fraud risks within its COVID business support schemes from the outset but “did not make full use of all the tools at its disposal to prevent and detect fraud”.
The Department expected some fraud attempts, sought ministerial directions, but did not attempt to quantify the potential exposure - nor did the requests sufficiently identify or reflect the potential risks from organized economic crime.
For example, the number of new companies being registered in 2020-21 rose by more than 20% compared to any of the previous five years. The Department, at the time, didn’t recognize that approximately 170,000 new companies was suspicious.
Finally, the Committee also highlights how BEIS is yet to outline how it plans to protect taxpayers in the future. It notes:
The Department now has two years’ worth of experience designing, implementing, and managing COVID-19 business support schemes, and some experience of recovery activities where fraud and error has been identified. It has identified some learning that, for example, has allowed it to refine its approach to identifying fraud and error in COVID-19 business support grants.
However, this is to reduce shortcomings in existing schemes, and we would expect to see the Department demonstrating that it is learning wider lessons from these schemes which it could then apply to improve its stewardship of public funds in the future. Several of the Department’s major areas of expenditure in the coming years, such as supporting public sector decarbonisation and achieving net zero, will again require routing taxpayer funds through third parties as it did with COVID-19 business support schemes.
We would expect lessons the Department has learned during the pandemic to support the design and delivery of these future schemes.
I’d suggest that this is a fundamental failing, once again, of the government not having suitable data sharing principles in place. Something is thrown over the wall and it appears that from that point it will never be understood again. Yes, there are barriers in place when it comes to the regulatory responsibilities of different institutions, but we need a way for the public sector to (safely) get a better understanding of its wider activities. Ultimately, not doing so ends up costing the taxpayer significant sums, time and time again.