Furlough fraud exposes the shortcomings of doling out endless amounts of cash
Outrage has erupted over the news that £5.8bn has been “criminally siphoned off” the emergency Covid-19 schemes that propped up millions of workers and paid for us to eat on the cheap. The very same folk who complained ministers weren’t acting fast enough to provide support, rejecting warnings that furlough was excessively generous, are now shocked to learn that these handouts have attracted fraudsters.
HMRC has written off £4.3bn of the £5.8bn total, meaning that 26 per cent of the money unlawfully taken from the Treasury will be recovered. These are not small sums. But dig beneath the headlines and the tale is less sorry than first appears. As HMRC has stressed, part of the total is down to error. Much of it will be contentious, and difficult to prove in court. And delays in implementing schemes like furlough would have come at a cost. The number of self-employed plummeted in 2020, as these people waited months to receive financial aid. Additional mitigations against fraud would have necessitated layers of bureaucracy, with smaller businesses particularly hard hit.
Yet there are a number of issues. First, instances of fraud fell once “flexible furlough” was introduced, validating concerns that, in its initial iteration, the scheme was poorly designed. Unscrupulous activity aside, the deadweight costs from the Coronavirus Job Retention Scheme (CJRS) would have been vast – thousands of businesses may have taken advantage of it full-time when they only required it partially. Why was each furlough period required to last three consecutive weeks, and why did workers need to use Furlough 1.0 in order to qualify for its flexible successor?
Second, Eat Out to Help Out represented one of the poorest uses of taxpayer money since £1.7bn was spent trying to grow groundnuts in East Africa back in the 1940s. Over one month, the government paid £522m for over 100m subsidised meals. The scheme delivered no obvious lasting benefit to restaurants in terms of footfall. Instead, there was loose regional correlation between take-up and new Covid-19 cases. The government might be repeating the same rushed mistakes with Kickstart – the Chancellor’s flagship £2bn jobs scheme to get young people into work. The National Audit Office (NAO) has warned it may not be delivering value for money.
More recently, the spending watchdog found that just 8 per cent of big government projects had robust evaluation plans in place, leading its chief Gareth Davies to warn that ministers are spending billions on interventions that are never properly evaluated. The “culture of drinking” in Number 10 pales in contrast to the culture of waste embedded in government departments.
Insofar as there are solutions, we could prepare the next war with tactics from the previous one. Though it’s too early to say how well the German Kurzarbeit scheme performed, it could be a model worth emulating in future lockdowns. Under the social insurance programme the government pays 60 per cent of normal pay but, crucially, does not require workers to be completely detached from the firm as the UK scheme has done.
Reports that the government is spending billions of taxpayers’ money without knowing whether these “investments” are making a difference should act as a wake up call to ministers. Perhaps the state should be doing a little less, and doing it more efficiently.