Fraud and error are long standing threats to the public purse and cost the taxpayer in the region of £29.3 billion to £51.8 billion in 2018–19. As part of the COVID-19 pandemic response, the government introduced several large-scale schemes which provided vital support to many vulnerable businesses and individuals. However, these schemes also significantly increased government’s exposure to fraud and error and are expected to result in billions of pounds of additional losses to the taxpayer. Between April 2020 and March 2021, fraud within Universal Credit rose to an all-time high of 14.5%, or £5.5 billion. Between 35% and 60%, equivalent to £16 billion to £27 billion, of loans issued through the Bounce Back Loan Scheme may never be repaid due to fraud or credit risks.
Fraud and error have traditionally been the sole responsibility of each department to manage leading to considerable variations in their approaches. The cost of fraud and error within the tax and benefits system is fairly well understood by government, and HMRC and DWP have well-established approach to tackle and address fraud and error in their areas’. But for many areas of spend outside the tax and benefits system there is still no formal measurement and limited capability to tackle fraud and error, risking large amounts of fraud and error being unidentified or untackled. Cabinet Office estimates this annual level of undetected fraud and error could cost the taxpayer up to £25 billion a year before COVID-19 schemes are considered.
Cabinet Office and HM Treasury’s central mechanisms for managing fraud and error are still in their infancy. We are concerned that departments are not required to consult with the Government’s Counter Fraud Function when designing new spending initiatives, even where high risks of fraud are identified. Whilst departments recognise the potential benefits of closer collaboration for preventing and detecting fraud and error, their efforts are hindered by a lack of real time data sharing and weak transparency arrangements.
It is essential that government recovers monies paid out as a result of fraud or error to allow taxpayers’ money to be spent on those that need it most. Our work has shown that this is often a complex and time-consuming process. Successful recovery will be dependent on the respective resources, powers and policies available to each department.