Government support schemes defrauded of billions

27 September 2021

Fraudsters abusing government coronavirus support schemes have defrauded the UK taxpayer out of tens of billions of pounds throughout the pandemic, a new report has found. Failure to implement basic fraud checks when distributing financial support, including bounce-back loans and furlough payments, has enabled companies across the UK to claim benefits they were not entitled to. 

The UK government now faces costly and lengthy legal battles to recover the funds, which in turn could see insolvencies surge as fraudulent companies are wound up by the courts.

The initial response

A strong precedent has already been set in dealing with these cases. Two companies were wound up in recent months after fraudulently claiming £230,000 worth of bounce-back loan funding intended for companies in genuine financial difficulty. 

Councillor Liz Harvey, Herefordshire County Council’s cabinet member for finance, corporate services and planning, said: ‘We have spent more than a year allocating millions of pounds of financial support for local businesses who have been affected by the pandemic. To see companies trying to take advantage of this difficult and unprecedented situation, and fraudulently claim support that is intended to help those who really need it, is despicable.’

Numerous reports of employer furlough theft have surfaced since the start of the pandemic, demonstrating that these are not isolated incidents. Clearly there are a significant number of companies willing to exploit government support schemes for their own benefit and these companies must be held accountable. 

What next? 

The problem is so widespread that HMRC has created a Taxpayer Protection Taskforce (TPT) to crack down on abuse of government support schemes. The likely outcome is a wave of winding up petitions as the TPT tracks down and punishes fraudulent companies. 

In terms of addressing the loss of billions of pounds in taxpayer money, the immediate focus should be on minimising the long-term damage to the UK economy. While the TPT is a strong response to the problem, the reality is that the government alone cannot hope to salvage all of the funds misappropriated throughout the course of the pandemic. 

Given the scale of this new kind of fraud, collaboration between HMRC, the Insolvency Service and private restructuring advisory firms, who have the specialist investigative knowledge required to trace assets and bring claims against the directors, will be crucial to recovering these stolen funds.