Rule of Law

Her Majesty’s Treasury recently announcing that it only expects to recoup a quarter of the £5.8 billion stolen from taxpayers during the pandemic through acts of fraud can only be viewed one way: an extremely high-priced failure and one that cannot simply be swept under the carpet.

The COVID-19 schemes that offered a financial lifeline to many businesses as the virus hit the UK won praise from some quarters and were met with grateful relief. However, the statement that some £4.3 billion of the £5.8 billion that was fraudulently obtained through those exact same schemes has now been ‘written off’ is an embarrassing admission from the Government.

While this news only confirms what many had suspected and predicted, it’s still a startling indicator of the cost of not making payments fraud-proof before monies are handed out.

The damning statistics were placed on Her Majesty’s Revenue and Customs’ (HMRC) website with an understandable lack of fanfare, but very soon spotted. The fact that Lord Agnew, both a Treasury and Cabinet Office minister, decided to quit over the issue further highlights the problem.

By accusing the Government of a “lamentable” lack of oversight and claiming the Treasury appeared to have little knowledge of – or interest in – the consequences of fraud, Lord Agnew dashed any hopes the Government may have harboured of quietly bringing an end to this saga.

New techniques

It doesn’t take the benefit of hindsight to recognise that fraudsters would view the COVID-19 pandemic as an opportunity to deploy new techniques in order to defraud the general public and Government bodies. That was always going to be likely and should have been apparent to the Government in 2020.

Criminals used sophisticated methods to abuse the various business support mechanisms put in place. It could be said that their thinking was clever, but it would have been far less effective if the authorities had assessed the Coronavirus schemes anywhere near as closely as those who were looking to make illegal gains from them.

It’s this lack of forethought that has saddled the Government with embarrassing levels of debt. However much of the money involved is written off doesn’t hide the long-lasting legacy of key decisions that were seemingly made in haste.

Last year, the National Audit Office was critical of the Government for failing to implement measures designed to prevent people from exploiting the various Coronavirus schemes. At the time, it accused the Government of prioritising payment speed over almost all other aspects of value for money. We now know the precise price that is being paid for that approach.

Government supporters

Supporters of the Government point to the inescapable fact that an unprecedented global pandemic occurred and made an urgent response necessary. Nonetheless, confirmation of the amount that the Government is writing off does not make for very easy reading, and especially so at what is a time of financial hardship for so many.

Defenders of the Government’s track record to date will also emphasise that HMRC will continue to investigate bogus claims that have been made. The Taxpayer Protection Task Force, which was provided for by funding in the Chancellor’s 2021 Budget, will see more than 1,250 HMRC staff attempting to identify those who’ve tried to make fraudulent gains from the Government schemes introduced in good faith to assist companies across the nation.

A total of £100 million is being spent on the Task Force, with investments being made in resources and technology in order to target non-compliance, and yet the majority of these cases are set to be civil interventions.

HMRC’s selective prosecution policy allows it to focus on professionals and others in positions of trust who enabled tax fraud. That should mean there will be those in positions of responsibility who will be held to account. If they result in prosecution, such criminal investigations will at least show that some heads have rolled as a result of pandemic-related wrongdoing.

That said, HMRC tends to reserve criminal investigations for those cases where it wants to send out a strong deterrent message. When it comes to pandemic-related fraud, the money has already been obtained and the Government has already thrown in the towel when it comes to trying to recoup most of it. It’s difficult to see precisely what deterrent message can be conveyed through subsequent prosecutions.

Balancing act

There can be little or no argument against prosecuting anyone who has been involved in fraudulently obtaining money from the COVID-19 schemes. At the same time, though, there needs to be an understanding that resources are limited, despite the money now being thrown at investigating bogus claims.

By investing £100 million in this venture, the Government has indicated that it’s fully aware of both the scale of the problem and the need to hold those responsible to account. An awareness of the potential for a problem of this magnitude two years ago would have been much more cost-effective. •

Niall Hearty is Legal Director at Rahman Ravelli (www.rahmanravelli.co.uk)