Exposed! The furlough frauds who’ve picked up £3.5 billion of your cash

7 September 2020, 22:00 | Updated: 8 September 2020, 07:50

Furlough: economist explains why £3.5bn was paid out in error

The Government could have paid out up to £3.5 billion in fraudulent or incorrect claims for the furlough scheme, a top civil servant has revealed.

Jim Harra, HMRC’s permanent secretary, said his staff believe between 5 and 10 per cent of furlough cash might have gone to the wrong places.

The Government has so far paid out £35.4 billion in furlough cash, according to the latest figures.

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It means that somewhere between £1.75 billion and £3.5 billion could have been paid out wrongly.

Mr Harra told MPs on the Public Accounts Committee: "We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between 5 and 10 per cent.

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"That will range from deliberate fraud through to error.

"What we have said in our risk assessment is we are not going to set out to try to find employers who have made legitimate mistakes in compiling their claims, because this is obviously something new that everybody had to get to grips with in a very difficult time.

"Although we will expect employers to check their claims and repay any excess amount, but what we will be focusing on is tackling abuse and fraud."

It is the first time HMRC has spoken publicly about the level of potential fraud that could have been committed as part of the job retention scheme, which covered up to 80% of an employee's salary while they were on furlough.

Responding to the news, Dr Jo Michell, Associate Professor of Economics at UWE Bristol, told LBC's Tom Swarbrick that the figure is "not good, but I think it's sort of to be expected."

He said: “I think if you said to somebody at the beginning of this scheme, how much of it do you think is probably going to go to the wrong place, fraud, misallocation and mistakes and so on, I don’t know what they’d have said but I wouldn’t have been surprised at five per cent, maybe ten per cent.

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“The problem is, when you put policies like this in place quickly, they are blunt instruments – you’re trying to hold back the dam and that just means throwing money, and some of that money is going to go to the wrong place.

“I think probably to put it in context, I think about tax evasion, tax loopholes, tax rates that are misaligned between higher income classes, we know that people on higher incomes pay lower effective tax rates - the kinds of numbers that you get each year from those kinds of things will actually outweigh this £3.5 billion substantially.

“Sure, I’m not downplaying it in any way, it’s not good, but I think it’s sort of to be expected, and there are actually bigger streams of money going missing all the time that the Government could be tapping into.”

Excluded, a group who represent the 3 million people who were unable to receive financial support, tweeted: “Imagine spending nearly six months spouting out the “too complicated and “fraud line and then this happens. Truly, truly appalling and unforgivable when families are suffering. It’s time to act! #excludeduk #wearenotgoingaway”

The Government rolled out the scheme quickly, causing many experts to say that a certain amount of fraud was inevitable.

Furlough is now winding down and is expected to end for good next month, however businesses who bring staff back from furlough will receive another £1,000 if the employee is still in work by the end of January.

By August 16 this year, 9.6 million people had been put on Government-supported furlough, with 1.2 million employers claiming the support.

Meanwhile, around 2.7 million self-employed people have claimed around £7.8 billion in support from the Government.

Mr Harra said that an academic study has estimated that the level of fraud and error might be even higher than 10 per cent.