Covid-19: Support for jobs Contents

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1Implementing and evaluating the initial covid-19 employment support schemes

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury and HM Revenue & Customs (HMRC) about the employment support schemes that they have established since the start of the covid-19 pandemic.1

2.In late March 2020, the government announced that it would create two employment support schemes to provide financial support to business and employees. HMRC and HM Treasury—collectively referred to as ‘the Departments’—were responsible for advising ministers on the design of two schemes, the Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme (SEISS). HM Treasury led on policy design and HMRC led on administrative design and then the implementation and administration of the schemes. The CJRS provided grants directly to businesses where the employer had chosen to furlough employees, putting them on temporary leave. To qualify, an employee had to be on the employer’s Pay-As-You-Earn (PAYE) system and had a tax return submitted through HMRC’s Real-Time-Information (RTI) system by 19 March 2020. In the first part of the scheme, the grant covered 80% of the employees’ salary, up to a maximum of £2,500 per month. From July to October, a modified version of the scheme allowed employers to bring employees back to work part-time, and gradually increased the costs that the employer was expected to cover.2 By mid-October, 9.6 million jobs had been furloughed as part of the scheme, at a cost of £41.4 billion.3

3.SEISS offered a grant payment to self-employed individuals whose business was adversely affected by the pandemic. The first grant payment, for the period March to May, covered up to 80% of a self-employed person’s trading profits, based on past tax return data drawn from HMRC’s Self Assessment system, up to a maximum of £2,500 per month. A second grant, for the three months from June to August, covered 70% of trading profits up to a maximum of £2,190 per month.4 By mid-October, the combined cost of the two SEISS grants was £13.7 billion, with at least 2.6 million claimants.5

4.In September, with the hope that the economy would be largely open and recovering, the government announced the creation of a Job Support Scheme (JSS) that would replace CJRS from 1 November, offering top-ups to wages where the employee was working at least one-third of their normal hours.6 Additionally, HM Treasury announced an extension to SEISS but at a much-reduced rate of 20% of trading profits. In October, HM Treasury announced further changes to both the JSS and SEISS.7 However, with the introduction of a new lockdown across the whole of England from 5 November, HM Treasury announced that the JSS would be replaced with the extended CJRS through to March 2021. The value of the SEISS grant was also increased back up to 80% of trading profits until the end of January 2021.8

Quick response to the pandemic

5.In response to the pandemic, in March 2020 the Departments were tasked with designing and administering employment support schemes to support all UK workers, including the self-employed. HM Treasury told us that the UK did not have a job support scheme of the sort that some other countries already had, so it needed to develop the new schemes from a “standing start”. HMRC similarly told us that introducing the new schemes required a “herculean effort” by its policy, digital and operational staff. The NAO found that Departments were hindered in this task by a lack of contingency planning for a pandemic. Contingency planning for pandemics had focused on the public health response rather than the economic response. HM Treasury had, however, drawn on some contingency planning for financial rescues as well as some draft policy work on wage subsidy schemes and short-time working schemes.9 The Departments also considered comparable schemes available in other countries, but noted that their direct application to the UK might be limited due to the different labour markets and welfare contexts.10

6.Despite lacking contingency plans, the Departments managed to design and implement both CJRS and SEISS ahead of the tight schedules that they set themselves. HMRC made CJRS available to employers from 20 April against an initial target of the end of April. SEISS meanwhile, was made available to the self-employed from 13 May, two weeks ahead of the initial timetable. HM Treasury stated that it was hard to see how the schemes could have been implemented quicker unless the UK already had an existing scheme in place, as countries such as Germany did. HMRC also noted that it may not be practical to retain such schemes ready to go at a moment’s notice, as the cost of maintaining them in normal times might be quite prohibitive.11 The tight timetabling, however, meant that HMRC and HM Treasury did not follow all standard processes, with documents such as business cases, options appraisals and detailed cost-benefit analysis missing. HMRC argued that not producing such documents did not have a “material effect on the outcome” because there was such close working between the teams and as a result there wasn’t such a need for documentation for handovers.12

7.HM Treasury and HMRC worked collaboratively to develop the response under lockdown conditions. Both Departments agreed that this owed much to the close policy partnership that the two Departments have established over a number of years. HM Treasury told us that in designing the schemes they had introduced a joint policy and operational team from the start of the project, which meant it was able to draw on HMRC’s expertise in implementing schemes and confidently advise ministers on what would work. HMRC agreed that having a tightly integrated team was key to being able to think about the art of the possible and introduce the schemes quickly.13 Staff from both Departments also worked long hours to ensure that the schemes were delivered on time. For example, HMRC’s IT project team told the National Audit Office that a major IT project would normally take 18 to 21 months to deliver, whereas these schemes were delivered in four weeks.14

Limitations of the self-assessment system

8.HMRC used the data in its Self Assessment system to calculate how much self-employed people would receive as part of the SEISS grant award. However, this was developed in the 1990s and lags behind other countries’ systems. HMRC told us that with better quality data it may have been able to help more people and tailor the level of the grant award more to meet people’s individual circumstances. It accepted that it needed to get better quality data and that it was “definitely moving slower than the best countries around the world in resolving that”.15 HMRC conceded that poor data quality meant it had to do a fair bit of data cleansing before launching the scheme to ensure that the data was accurate. It suggested that if this hadn’t been required, it may have been able to open the scheme a couple of weeks earlier.16 The NAO found that technical issues with the Self-Assessment system also meant that HMRC had to manually enter the trading profits of around 800 self-employed people to prevent them from being excluded.17 HMRC has a programme in place, Making Tax Digital, designed to upgrade its systems and permit users to provide information more frequently using digital services. This should provide HMRC with better quality data going forward. This should have been in place by 2019, but apart from a small pilot project, is not now expected until 2023.18

9.HMRC’s investment in its RTI system meant that, unlike SEISS, eligibility for CJRS was based on more up-to-date data. The RTI system is used on a monthly basis by employers to submit tax information on their workforce to HMRC. HMRC said that this information was vital in enabling it to run the CJRS safely. It meant that any employee on an employer’s Pay-As-You-Earn system at 19 March 2020, the day before the first national lockdown, could potentially be furloughed.19 Similarly, with the latest national lockdown, eligibility for the CJRS extension is based on employees on employer payrolls on 30 October.20 The downside to using RTI data in CJRS is that employers could submit claims based on data they submitted after the scheme was announced, whereas the use of old self-employed taxpayer data in SEISS prevented that problem. This increased the risk that employers would deliberately misstate their positions to increase their CJRS grant awards.21

Evaluation of the initial schemes

10.The extension of both schemes was announced in November 2020. At that stage the initial schemes had not been formally evaluated. The Departments told us that they were undertaking informal evaluations to help them tailor their communications to those the schemes were aimed at. They explained that they would be undertaking full evaluations of all of the schemes, and that these would be made public, but that full evaluations were not due until “later next year”. HMRC expected that such evaluations would consider the value for money of the schemes; how individuals with protected characteristics were covered, and the ability of the schemes to meet the needs of different communities.22 The NAO found that, to date, HMRC’s evaluation of the schemes had largely focused on lessons learned around project management as its sought to refine its ongoing delivery. On the wider issue of whether the schemes will have prevented mass unemployment, HM Treasury told us it was too soon to tell, but that the government felt it was the right thing to do to extend the schemes.23

11.We asked whether the Departments had undertaken any evaluation on the regional differences in take-up or the schemes and take-up by groups with protected characteristics.24 HMRC currently reports monthly on the cost of the schemes and provides analysis on take-up by different demographics. The data for October 2020 showed that CJRS had cost £41.4 billion and the two SEISS grants had cost £13.7 billion.25 Take up for CJRS was largest amongst the wholesale and retail, and repair of motor vehicles, sectors, whilst in SEISS it was largest in the construction sector. It is also possible to analyse take-up by age and gender, as well as by parliamentary constituency for both schemes.26 HMRC does not, however, monitor take-up of the schemes by different ethnic groups as it is not required to collect that data as part of its regular tax administration. HM Treasury commented that it looked at Office for National Statistics (ONS) data to consider the potential effects of the schemes on unemployment, including regional unemployment.27 ONS’ unemployment data for July to September 2020 showed that the unemployment rate was 4.8%, up from 4.0% in March 2020.28 HMRC told us it had done some preliminary research about what happened to furloughed workers once they come off furlough, which suggested that around 90% of them return to their previous job.29 The medium to long-term projections on unemployment, however, are less encouraging; the Office for Budget Responsibility (OBR) forecast, released on 25 November 2020, suggests that unemployment might peak at 7.6%, or 2.6 million people, in 2021.30

12.HMRC’s initial planning assumptions suggested that the level of fraud and error would be 5% to 10% within CJRS and 1% to 2% within SEISS. We asked whether it expected the level of fraud and error to change under the new scheme. HMRC told us that it had originally estimated that around half of the fraud and error in the CJRS (2.5% to 5%) would potentially be due to fraud committed by organised criminal gangs, but it had subsequently revised that down to 0.6% due to the controls it had put in place. There were fewer controls in place, however, to tackle the risk of furlough fraud where, for example, employers furloughed workers but then continued to get them to work, against the rules of the scheme. The NAO found that this could have occurred in between 7% to 34% of claims, though HMRC itself had not yet conducted analysis on this issue. HMRC told us that it had, however, sought to close the opportunities for this type of fraud with the extension of the CJRS, and that it planned to publish the names of companies accessing the scheme and directly notify employees when they have been furloughed. Neither of these controls were in place in the initial CJRS scheme. HMRC told us that it was also able to monitor its efforts to tackle fraud and error through other metrics, such as the number of arrests and prosecutions it has made. It told us that, to date, it had made three arrests for CJRS fraud.31

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