Nearly £1bn of fraudulent Covid grants made to UK firms ‘unlikely to be recovered’

Taxpayers are facing a loss of almost £1bn in fraudulent or erroneous grants paid to supposedly struggling businesses during the Covid-19 pandemic, according to the government.

The Department for Business, Energy and Industrial Strategy (Beis) said that because it was tasked with prioritising “getting money out of the door the majority of payments made in error are unlikely to be recovered”.

The department, which organised the handouts to businesses that said they were struggling during the pandemic, acknowledged in its annual report that a total of £985m was likely to be lost to “fraud and error”.

The expected losses amount to 8.4% of all grants distributed via the small business grants fund (SBGF), the retail, hospitality and leisure business grants fund (RHLGF), and the local authority discretionary grants fund (LADGF). In total £11.7bn was handed out in 2020-21.

“The debt recovery work stream within the department is gaining momentum with further recoveries expected throughout 2022-23,” Beis said in the annual report. “However, due to prioritisation of getting money out of the door the majority of payments made in error are unlikely to be recovered by the department.”

Gareth Davies, the head of the National Audit Office, which scrutinises how well government spends public money, said just 0.4% of all the “estimated irregular payments” paid out in grants by local councils had been recovered.

“Delays in the department’s planned assurance exercises contributed to slower progress in activity to recover irregular payments,” he said. “At 31 March 2022, local authorities have recovered £4.2m in irregular payments on business support grant schemes (which is 0.4% of estimated irregular payments), with a further £1.2m identified and referred to the department for recovery.

“The department did not complete its planned assurance exercises to its original spring 2022 timetable and revised its completion date to 2022-23.”

Davies said the delay meant “wider recovery action is not starting until two to three years after the businesses received the irregular payments” and he warned: “The longer the department takes to start the recovery process, the lower the likelihood of successful recovery and potentially the greater the losses to the public purse.”

A government spokesperson said: “We’re continuing to crack down on Covid support scheme fraud and will not tolerate those who seek to defraud consumers and taxpayers.

“We wholly support the Insolvency Service in penalising those who sought to defraud the scheme for their own financial gain.”

The money paid out in the grants was a fraction of the total £154bn the government paid out to support businesses during the pandemic, including the £70bn cost of the coronavirus job retention scheme (widely referred to as the furlough scheme) and £26bn in the coronavirus business interruption loan scheme to big companies.

The total taxpayer loss related to Covid loan support schemes is expected to come in at £15.8bn, Beis said. This is less than the £19.8bn estimated in March 2021.