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HMRC reveals new estimate for Covid fraud recovery

17th January 2022 by Alex Dunnagan

Three-quarters of Covid support claimed in fraud and error won’t be collected

HMRC has revealed that they expect to recover just 25% of a total £5.8bn paid out due to fraud and error in relation to the coronavirus support schemes. [1]HMRC responses to inaccurate claims, HMRC, 12 January 2022, https://www.gov.uk/government/news/hmrc-responses-to-inaccurate-claims

The latest figure has appeared in a document published on 12th January entitled “Myth Busters – HMRC’s responses to inaccurate claims” and sought to spin the figures as an achievement. Under a heading “HMRC has successfully tackled coronavirus help scheme fraud and error” HMRC explains “We recovered £500 million of overpayments in 2020 to 2021. The government then invested £100 million in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud in the schemes. We expect the taskforce to recover £800 million to £1 billion between 2021 and 2023.”

This equates to a total of between £1.3bn and £1.5bn, or 22% and 26% of the amount lost to fraud and error.

The new figures appear to be a significant revision down from November last year, when Jim Harra, the head of HMRC, told the FT that the organisation will struggle to recover more than half of the losses. [2]HMRC expects to recover less than half £5.8bn lost in Covid fraud and errors, Financial Times, 21 November 2021, https://www.ft.com/content/3991505c-8311-401e-aece-55342f2b07df

The published figures suggest that HMRC will be seeing up to a 10x return on investment when tackling fraud and error in the coronavirus support schemes. It is therefore difficult to understand why the department is not being given more cash to tackle the problem and instead is leaving ¾ of the money lost to fraud and error in the hands of people that wrongfully claimed it.

Recent research from TaxWatch showed that the DWP is receiving more than 2x the funding HMRC is getting to tackle fraud and error in the benefits system arising from the pandemic – demonstrating that when an issue is deemed to be important enough, the Treasury finds the money.

This research was featured in The Times, The Daily Mail, and Public Finance, among others. This then lead to Jim Harra being questioned by the Public Accounts Committee on the figures, and to an Urgent Question in the House of Commons on fraud.

References[+]

References
↑1 HMRC responses to inaccurate claims, HMRC, 12 January 2022, https://www.gov.uk/government/news/hmrc-responses-to-inaccurate-claims
↑2 HMRC expects to recover less than half £5.8bn lost in Covid fraud and errors, Financial Times, 21 November 2021, https://www.ft.com/content/3991505c-8311-401e-aece-55342f2b07df

Funding to fight covid related tax and benefits fraud

29th December 2021 by Alex Dunnagan

UK Government has announced an extra £510m boost to DWP to fight benefits fraud following the pandemic. This is in addition to £103m already announced in the spending review

HMRC spending £155m to tackle covid related fraud

TaxWatch estimates the increase in benefits fraud due to covid was £3.39bn in 2020-21

Fraud and Error in HMRC administered Coronavirus Support Schemes is worth an additional £5.8bn

Intro & Summary

Analysis by TaxWatch has found that the DWP is spending more than twice the amount being spent by HMRC on recovering an increase in fraudulent payments arising from the pandemic. This is despite the increase in fraud seen in the benefits system in 2021 over the previous year being significantly lower than HMRC estimate of fraud and error in the Covid-relief programmes.

How much benefits fraud has there been during Covid?

During the pandemic, the amount of fraud in the benefits system more than doubled from 1.4% of total benefits payments to 3% according to the DWP. The reasons for this is the higher levels of Universal Credit payments, a benefit which has a disproportionately high level of fraud, and the fact that the department had to abandon face to face checks.[1]Fraud and error in the benefit system for financial year ending 2021, Gov.uk, 13 May 2021, … Continue reading

If we just look at the increase in the total rate of fraud in the system, 1.6%, this equates to £3.39bn of fraud that is attributable to Covid related effects.

Overall, the total amount of fraud in the benefits system is estimated by DWP to be £6.35bn. However, this figure is before anything is recovered by DWP. DWP recovered £0.8bn in 2021. Although we don’t know how much of this was fraud recovery versus error recovery, we do know that overpayments on benefits caused by error were 0.9%, or £1.9bn, which equates to 23% of the total figure given for fraud and error (£8.4bn).

Assuming that the DWP recover fraud and error overpayments in proportion to the amount of it that exists, we get a recovery of £616m (the remaining 77% of the compliance yield). With a total fraud of £6.35bn (3% of £211.7bn), if we subtract the £616m recovered, that leaves us with the net figure of losses to benefits fraud in 2021 of £5.73bn.

Covid related tax fraud

HMRC administered three Coronavirus support schemes throughout the pandemic, the Coronavirus Job Retention Scheme (CJRS, or Furlough as its commonly known), the Self Employment Income Support Scheme (SEISS), and Eat Out to Help Out (EOHO). These schemes were subject to widespread abuse, costing the UK government an estimated £5.8bn in fraudulent and erroneous claims.

On top of this, the 2019-20 tax gap revealed that “Criminal Attacks”, “Evasion”, “Hidden Economy” and “Avoidance” equated to £15.2bn in tax losses. These four behaviours are all clearly fraudulent and made up 43% of the entire 2019-20 tax gap.[2]The tax fraud gap – 2021 edition, TaxWatch, 16 September 2021, http://13.40.187.124/tax_fraud_gap_2021/ However, in addition to this, there are other behaviours identified by HMRC that may contain elements of fraudulent behaviour. HMRC’s TaxGap is presented net of compliance yield.

While we don’t have the figures for 2020-21 yet, there is nothing to indicate that the amount of fraud within the tax gap will have decreased.

How much are HMRC and DWP being given to combat covid related tax and benefit fraud?

An analysis of government announcements over the last year reveals that the amount of effort being put into tackling tax fraud and benefits fraud is wildly disproportionate to their relative tax losses.

In December 2021, the DWP announced that £510m of additional funding had been awarded to the department over the next three years to tackle the increase in benefits fraud seen as a result of Covid. This would allow the recruitment of 2000 new fraud investigators and was in addition to the £103m DWP secured for fraud and error at the Spending Review 2021.[3]Autumn Budget and Spending Review 2021, Gov.uk, 27 October 2021, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1029973/Budget_AB2021_Print.pdf [4]Counter-fraud Funding, Hansard, 13 December 2021, https://hansard.parliament.uk/commons/2021-12-13/debates/21121315000012/Counter-FraudFunding This takes the total amount allocated to the DWP to deal with the problem to £613m over a three year period, starting in April 2022, a little over £200m a year.

The contrast with the amount being spent by HMRC is stark. In the March 2021 Budget Chancellor Rishi Sunak confirmed the creation of a £100m “Taxpayer Protection Taskforce”, to be staffed by 1,265 “HMRC operatives”, seeking to recoup money wrongly claimed from pandemic support schemes.

With HMRC announcing on multiple occasions that it was not intending on hiring new staff to deal with fraud and error in Coronavirus support schemes,[5]It was reported in City Wire in March of 2020 that HMRC wasn’t planning on increasing its recruitment despite the new workload that had arisen out of the pandemic. HMRC confirmed this again in … Continue reading it is thought that these 1,265 staff are likely to have been moved from other departments.

The PCS Union reported in June 2021 that the Fraud Investigation Service of HMRC had been asked to contribute 37 staff members, which begs the question of how many of the others are fraud investigators.[6]FIS resourcing for the Covid taxpayer protection taskforce at HMRC, PCS, 23 June 2021, https://www.pcs.org.uk/news-events/news/fis-resourcing-covid-taxpayer-protection-taskforce-hmrc

The Autumn 2021 Budget revealed that the Taxpayer Protection Taskforce would see an additional £55m of funding next year. The Taskforce is a time limited operation believed to be currently funded until 2022-23. This puts the amount spent on recovering Covid related fraud at HMRC at £77.5 a year, less than 50% of the resource allocated to the DWP.

However, none of this appears to be new money. An Office for Budget Responsibility (OBR) analysis produced alongside the Autumn Budget showed is that the amount of tax HMRC is going to collect will fall in the next two years, in part because of the reallocation of staff away from their jobs to the new taxpayer protection task force [7]For more information see: Budget 2021 – Four tax takeaways, TaxWatch, 02 November 2021, http://13.40.187.124/budget-2021/.

This lack of funds is leaving money on the table. Jim Harra, the head of HMRC, stated in an interview with the FT in November 2021 that the organisation will struggle to recover more than half of the losses to fraud and error to Coronavirus support schemes, and plans to recoup the money lost may not go beyond 2022-23 [8]HMRC expects to recover less than half £5.8bn lost in Covid fraud and errors, Financial Times, 21 November 2021, https://www.ft.com/content/3991505c-8311-401e-aece-55342f2b07df.

TaxWatch has already reported the stark disparity of funding to tackle all forms of tax and benefit fraud, with the result that many fewer people that engage in tax fraud end up with a criminal record than those engaging in benefits fraud. The latest figures show this pattern repeating for covid related tax and benefit fraud.

This research was featured in the Daily Mail.

References[+]

References
↑1 Fraud and error in the benefit system for financial year ending 2021, Gov.uk, 13 May 2021, https://www.gov.uk/government/statistics/fraud-and-error-in-the-benefit-system-financial-year-2020-to-2021-estimates/fraud-and-error-in-the-benefit-system-for-financial-year-ending-2021
↑2 The tax fraud gap – 2021 edition, TaxWatch, 16 September 2021, http://13.40.187.124/tax_fraud_gap_2021/
↑3 Autumn Budget and Spending Review 2021, Gov.uk, 27 October 2021, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1029973/Budget_AB2021_Print.pdf
↑4 Counter-fraud Funding, Hansard, 13 December 2021, https://hansard.parliament.uk/commons/2021-12-13/debates/21121315000012/Counter-FraudFunding
↑5 It was reported in City Wire in March of 2020 that HMRC wasn’t planning on increasing its recruitment despite the new workload that had arisen out of the pandemic. HMRC confirmed this again in October 2020, stating that it does not believe it can recruit additional staff to deal with furlough fraud and error due to the 18-month time-lag between starting recruitment and getting staff fully trained.
↑6 FIS resourcing for the Covid taxpayer protection taskforce at HMRC, PCS, 23 June 2021, https://www.pcs.org.uk/news-events/news/fis-resourcing-covid-taxpayer-protection-taskforce-hmrc
↑7 For more information see: Budget 2021 – Four tax takeaways, TaxWatch, 02 November 2021, http://13.40.187.124/budget-2021/
↑8 HMRC expects to recover less than half £5.8bn lost in Covid fraud and errors, Financial Times, 21 November 2021, https://www.ft.com/content/3991505c-8311-401e-aece-55342f2b07df

Furlough fraud to cost up to £7bn – with no civil penalties issued yet

12th May 2021 by Alex Dunnagan

• Furlough fraud and error set to cost between £3.5bn and £7bn

• 5 known arrests for fraud so far concerning £5m in fraud

• No civil penalties have yet been issued for furlough fraud

• More investment required to tackle the scale of the problem

Furlough fraud and error is set to cost between £3.5bn and £7bn by the time the Coronavirus Job Retention Scheme (CJRS) ends in September 2021 a new estimate produced by TaxWatch has found.

Despite being aware of the scale of the problem, and making several high profile arrests, HMRC appear not to have issued any penalties for furlough fraud yet.

DWP estimates that £4.6bn per year is lost to benefits fraud and error. To tackle this, the Counter Fraud, Compliance and Debt (CFCD) Department of the DWP had approximately 8,000 staff in 2019. By comparison, this new Taxpayer Protection Taskforce sees 1,265 HMRC staff chasing up to £7bn of money lost to fraud and error lost from CJRS, while also having to deal with issues arising from the multitude of other Covid-19 schemes.

Read the full report here.


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