Conclusions and recommendations
1.The Departments have shown great agility in implementing the employment support schemes quickly in response to covid-19. Despite lacking contingency plans for economic support in a pandemic, the Departments managed to design and implement both schemes ahead of the tight schedules they set themselves. HMRC started making CJRS payments from 20 April 2020, ten days ahead of its initial plans. The self-employed could start claiming SEISS from 13 May, two weeks ahead of the initial timetable. To date, CJRS has enabled 9.6 million jobs to be furloughed and at least 2.6 million self-employed people have claimed SEISS payments, providing crucial financial support through the early months of the pandemic. During this period, the Departments showed the immense value of close co-operation, not just between government departments but also between policy and operational colleagues. This helped ensure that the schemes were designed in a way that allowed them to be successfully implemented at speed. Both Departments also deserve credit for the time and effort invested by staff in the initial period to ensure that the schemes were designed and implemented quickly.
Recommendation:HM Treasury should, within three months, write to the Committee about how it will ensure the lessons from close working between policy and operational staff are drawn-out for other government departments.
2.The age of the Self Assessment system made it more difficult for HMRC to provide financial support for the self-employed. Its tax system for the self-employed lags behind that available in other countries. The Self Assessment system was built in the 1990s, and its design and age limits the amount, timeliness and quality of the data that HMRC holds on the self-employed. HMRC had to cleanse the data in the system before it could use it, adding several weeks delay to introducing the SEISS. HMRC has an ongoing programme, Making Tax Digital, designed to upgrade its systems and permit users to provide information more frequently using digital devices—as opposed to the current annual tax return. Making Tax Digital should have been in place by 2019 but, apart from a pilot project, is now not due until 2023. By contrast, HMRC’s investment in the Real Time Information system in 2013 gave HMRC access to much more timely data about employees on the Pay-As-You-Earn system. Therefore, it was able to use this for the design of CJRS and base eligibility on more up-to-date information.
Recommendation:HMRC should write to the Committee within three months to explain what it has learnt from its review of other countries’ self-employed systems and how it will apply these to its plans for delivering the Making Tax Digital programme.
3.The Departments have not done enough to reduce the number of people excluded from the schemes. The Departments still do not have a complete assessment of the number of people excluded from the first phase of CJRS and SEISS up to the end of October 2020, but the best estimate suggests that it may have been as many as 2.9 million workers. The extension to the schemes announced by the Chancellor in November was not accompanied by any substantial changes to the design of the schemes that would likely reduce the number of people who are excluded this time round. The more time moves on, the greater the potential number of newly self-employed people that might be excluded from SEISS. The scheme continues to be based on 2018–19 tax return data submitted to HMRC by 31 January 2020—despite the fact that the 2019–20 tax year ended in April 2020 and many self-employed workers and employees who slipped through the net because of the short term nature of their employment contracts will already have submitted their 2019–20 tax returns. HMRC has also not considered whether it could use other data sources across government.
Recommendation:HM Treasury and HMRC should investigate whether more data within and outside of the tax system could be used to determine eligibility for currently excluded groups and write to the committee within six weeks to explain their findings. HM Treasury and HM Revenue and Customs should liaise with departments which have a detailed knowledge of the affected sectors in order to improve access to Covid-19 related support schemes for currently excluded groups.
4.The Departments did not evaluate the schemes or identify which the groups they support before extending them. Both the schemes have been extended due to the prolonged impact of the pandemic, but the Departments have not yet produced evaluations of the initial CJRS and SEISS schemes. HMRC provides monthly updates on the cost of the schemes and the take-up by demographics such as age and gender. It does not, however, have data analysing take-up by protected characteristics such as race and disability. It does have some preliminary analysis that suggests 90% of furloughed workers return to their employer after furlough, but more needs to be done to track the medium- and long-term effects after furlough ends. Recent data shows the unemployment rate has now risen from 4.0% at the start of the pandemic to 4.8%, and the Office for Budget Responsibility (OBR) is projecting unemployment will rise to 7.6% in 2021.
Recommendation:HMRC should, as soon as possible, develop and report monthly performance information on the schemes, such as take-up by protected groups and employment outcomes.
5.The Departments will not know the actual levels of fraud and error within these schemes until 2021. HMRC does not expect to have a statistical estimate of the total fraud and error levels across both schemes until the end of 2021. Whilst waiting for this estimate, there are other metrics already available that can begin to build a picture of the levels of fraud and error, such as the amounts of overpayments detected and recovered and the number of arrests and prosecutions due to criminal activity on the schemes. Levels of opportunistic fraud, where furloughed workers continued to work whilst companies claimed grants, could have occurred in between 7% to 34% of cases. HMRC also plans to publish which companies are accessing the extended CJRS and to directly notify employees when they have been furloughed, something it decided not to implement during the first phase of the scheme between March and October 2020. We welcome this suggestion that it is making some changes to try and reduce the opportunity for fraud to occur.
Recommendation:HMRC should write to the Committee within three months outlining how it can utilise the information it already collects to better estimate the levels of fraud and error; and also outline what steps it intends to take to recover CJRS and SEISS grants made during the first phase of the scheme if recipients made substantial profits or were not adversely affected by the pandemic.
HMRC should list companies which have signed up to the furlough scheme by the end of January 2021.
6.Too much chopping and changing of the new schemes has created uncertainty for the UK nations, regions and businesses, regarding financial support and job security. Nations, regions and businesses, as well as their employees, need as much certainty as possible to allow them to plan ahead. Instead what they got in the autumn was a sequence of announcements, right to the very end of the end of first phase of the schemes, constantly adjusting the levels and availability of funding support for workers. The government announced on 5 November that both the CJRS and SEISS would be extended with levels of support broadly equivalent to the levels provided under the first phase of the schemes. We are concerned that businesses’ response to this initial uncertainly may have resulted in more workers being laid-off, even though eligibility for the government’s extended schemes was moved back to 23 September to cover such redundancies.
Recommendation: The Departments should provide as much clarity and forewarning as possible about the employment support arrangements that will be available for UK nations, regions and businesses under conditions of national lockdown, regional lockdown and easing of restrictions for the remainder of the covid-19 pandemic. It should commit to this ahead of the Treasury minute response so employers can be clear that they can plan ahead with greater certainty.
7.We are concerned that HM Treasury is unable to explain how much the extended schemes are forecast to cost or what would constitute value for money. HM Treasury argues that it falls to the Office for Budget Responsibility (OBR) to produce forecast costs for the scheme extensions. However, HM Treasury is nonetheless responsible for providing assurance to Parliament of the value for money of schemes, of which costing is an important part. The OBR now forecasts that extensions to the schemes will cost the taxpayer a further £21 billion. It is also unacceptable that the Departments are unable to explain what constitutes value for money in these schemes. We accept that when the schemes were initially developed back in the spring the exceptional circumstances at that point made such analysis difficult. In the intervening period, however, we would have expected HM Treasury to have developed a more rigorous assessment of the costs and benefits of the schemes to ensure taxpayer money is spent wisely.
Recommendation:HM Treasury should write to the Committee within a month to set out how it will assess value for money for the extended schemes.
Published: 20 December 2020 Site information Accessibility statement