National Audit Office, Delivery of employment support schemes in response to the Covid-19 pandemic (HC 656, October 13, 2022)
Summary
National Audit Office report, Delivery of employment support schemes in response to the Covid-19 pandemic, on HM Revenue & Customs and HM Treasury, dated 13 October 2022 as HC 656 (Session 2022-23), by the Comptroller and Auditor General, Gareth Davies. The report covers the Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme (SEISS) from October 2020 until the schemes closed at the end of September 2021. Its key findings state that the schemes achieved their primary objectives of protecting jobs and businesses and supported 14.6 million employments and self-employed individuals at a total cost of £96.9 billion, including SEISS grants worth £28.1 billion and CJRS furlough payments worth £68.9 billion.
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REPORT
Delivery of employment
support schemes in response
to the Covid-19 pandemic
HM Revenue & Customs and HM Treasury
SESSION 2022-23
13 OCTOBER 2022
HC 656
We are the UK’s We support Parliament
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In 2021, the NAO’s work led to a positive financial impact
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benefits to citizens, of £874 million.
Delivery of employment
support schemes in response
to the Covid-19 pandemic
HM Revenue & Customs and HM Treasury
Report by the Comptroller and Auditor General
Ordered by the House of Commons
to be printed on 11 October 2022
This report has been prepared under Section 6 of the
National Audit Act 1983 for presentation to the House of
Commons in accordance with Section 9 of the Act
Gareth Davies
Comptroller and Auditor General
National Audit Office
23 September 2022
HC 656 | £10.00
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010965 10/22 NAO
Contents This report can be found on the
National Audit Office website at
www.nao.org.uk
If you need a version of this
report in an alternative format
for accessibility reasons, or
any of the figures in a different
Key facts 4 format, contact the NAO at
enquiries@nao.org.uk
Summary 5
Part One
Ensuring the schemes achieved
their objectives 14 The National Audit Office study
team consisted of:
Part Two Tim Bryant, Rosie Diamanti,
Management and implementation Jeremy Gostick and
of the schemes 24 Lucy Weston, under the direction
of Andy Morrison.
Part Three
Error and fraud in the schemes 35
Appendix One
Our audit methodology 48
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4 Key facts Delivery of employment support schemes in response to the Covid-19 pandemic
Key facts
£96.9bn 14.6m £4.5bn
amount distributed in grants number of individual HM Revenue & Customs’
across both schemes, net employments and (HMRC’s) latest estimate of
of repayments self-employed individuals total error and fraud across
supported by both schemes the two schemes
£5,887 average amount paid for each furloughed job over the course
of the grant scheme
£9,700 average amount each self-employed claimant received over
the course of the grant scheme
£2,217 average increase in the profits of self-employed people after
receiving COVID-19 grants in 2020-21, compared with the
previous year
£2.3 billion HMRC’s estimate of the value of grants employers wrongly
claimed for furloughed employees for periods when they
were working
£968 million value of repayments employers and self-employed people
chose to make because they decided they no longer needed
grants, or because they had claimed grants in error
£623 million HMRC’s forecast of the Taxpayer Protection Taskforce’s total
yield, lower than HMRC’s original expectation of £800 million
to £1,000 million
24 number of criminal investigations underway in March 2022
covering suspected fraudulent claims for the Coronavirus
Job Retention Scheme (CJRS) and Self-Employment Income
Support Scheme (SEISS) totalling £13 million
Delivery of employment support schemes in response to the Covid-19 pandemic Summary 5
Summary
Introduction
1 In October 2020, we published our first report on the role of HM Treasury
and HM Revenue & Customs (HMRC) (collectively referred to as the Departments)
in implementing the Coronavirus Job Retention Scheme (CJRS) and the
Self‑Employment Income Support Scheme (SEISS).1 HM Treasury and HMRC were
responsible for advising ministers on the design of the schemes. HM Treasury led on
policy design, and HMRC led on administrative design and then the implementation
and administration of the schemes.
2 In our first report we concluded that the Departments had met their objective to
rapidly implement the schemes and had protected jobs in the short term, although
some groups had been unable to access support. We reported that the Departments’
ability to manage the high risk of considerable amounts of error and fraud occurring
on the schemes would be a key test of value for money. This report covers the
remainder of the Departments’ COVID-19 pandemic response from October 2020
until the schemes closed at the end of September 2021.
Scope of the report
3 This report considers how the Departments managed risks in continuing to
implement and refine the schemes during the remainder of their existence, what
impact the schemes had, and how the Departments managed the risk of error and
fraud. Specifically, the report looks at:
• whether the schemes achieved their objectives to support incomes and the
labour market and reached those previously excluded from the schemes
(Part One);
• how the Departments managed the delivery of the schemes through their later
iterations, including attempts to improve the value for money of the schemes
by making them more targeted while managing the risk of error and fraud
(Part Two); and
• how HMRC has estimated the level of error and fraud and undertaken
compliance work to detect error and fraud (Part Three).
1 Comptroller and Auditor General, Implementing employment support schemes in response to the COVID-19
pandemic, Session 2019–2021, HC 862, National Audit Office, October 2020.
6 Summary Delivery of employment support schemes in response to the Covid-19 pandemic
4 This report does not consider other COVID-19 interventions designed to
support businesses, including Eat Out to Help Out, or business loans and benefits.
We have reported on the Bounce Back Loan Scheme.2
5 Appendix One describes our audit approach and evidence base.
Key findings
Achieving objectives
6 The employment support schemes achieved their primary objectives of
protecting jobs and businesses during the COVID-19 pandemic. The schemes
supported 14.6 million employments and self-employed individuals at a total cost
of £96.9 billion. The Departments distributed SEISS grants worth £28.1 billion to
2.9 million individuals and CJRS furlough payments worth £68.9 billion to 1.3 million
employers covering 11.7 million individual jobs. This equates to £9,700 per individual
SEISS recipient and £5,887 per furloughed job. The actual costs of the schemes fell
well below Departmental estimates except in early 2021, when lockdown restrictions
were more severe than anticipated. For example, spend on the fifth SEISS grant was
nearly £3 billion below expectations. Unemployment peaked at just over 5%, half
the level the Office for Budget Responsibility (OBR) predicted in July 2020 with the
schemes then in place to the end of October 2020 (paragraphs 1.8, 1.9, 1.18 and 1.19).
7 CJRS provided income support that broadly protected people from economic
hardship. An Office for National Statistics (ONS) survey a year into the COVID-19
pandemic showed that CJRS recipients had found the income support helpful.
The OBR found that job moves after September 2021 mainly reflected the labour
market catching up with the usual rate of employment turnover with only 2.6% of
job moves attributed to the withdrawal of CJRS (paragraphs 1.9 and 1.10).
8 SEISS was more generous per supported employment than CJRS, and on
average it increased claimants’ incomes above pre-pandemic levels. The government
set out to make the two schemes equal in generosity, although the terms of the
grants frequently varied from one another over the life of the schemes. Average
payment per individual for SEISS was higher than the average claim per employment
for CJRS. Reasons for this include the fact that SEISS claimants could receive
the grant while continuing working, while CJRS only covered hours not worked.
On average SEISS recipients saw trading profits increase by £2,217 (14%) after
receiving grants. Without the grants, they would have experienced a £5,164 (32%)
fall in average trading profits. However, ONS survey data found that the proportion
of SEISS claimants experiencing financial difficulties increased from 32% to 39%
in 2020-21 despite receiving grants, suggesting the impact of the pandemic on the
income of grant recipients was varied, with many losing income, while others gained
(paragraphs 1.4, 1.11 and 1.18, and Figure 1).
2 Comptroller and Auditor General, The Bounce Back Loan Scheme: an update, Session 2021-22, HC 861,
National Audit Office, December 2021.
Delivery of employment support schemes in response to the Covid-19 pandemic Summary 7
9 The Departments explored extending SEISS to excluded groups but the
government concluded that most changes would make the risk of fraud too great.
In October 2020, we reported that an estimated 1.8 million self-employed people
were ineligible for policy or administrative reasons. The government extended later
phases of SEISS to those who became self-employed in 2019‑20. The Departments
explored extending the scheme to other excluded groups, including ‘company
owner managers’. Based on the Departments’ advice the government concluded
the risk of fraud was too great because data were unreliable or could not be
verified independently. The Departments increased take-up of SEISS among
‘vulnerable’ groups, for example people experiencing mental health issues or victims
of domestic violence, who were eligible for grants but had not claimed from the
outset (paragraphs 1.12 to 1.17).
Designing the schemes effectively
10 The Departments carried out basic value for money assessments as the
schemes developed, but they did not quantify the cost and benefits of different
options in monetary terms. The Departments were planning the future of COVID-19
employment support in a fluid situation in which the policy around restrictions on
economic activity could change frequently and with little notice. The Departments
had insufficient time to produce the detailed documentation that we would normally
expect to support major spending decisions and faced difficulties in the absence of
timely and robust data. The Departments saw the schemes as inherently good value
for money compared with the negative impacts for households and the labour market
of no support. The cost of providing grants to those suffering no loss of income
and the cost of fraud were considered qualitatively but rarely quantified, as would
have been the case under normal business case processes. HM Treasury monitored
schemes in other countries to identify good practice (paragraphs 2.3 to 2.9 and 2.11).
8 Summary Delivery of employment support schemes in response to the Covid-19 pandemic
11 The design of the schemes meant that several billion pounds were distributed
in grants to taxpayers whose incomes were not significantly affected by the
COVID-19 pandemic, but the Departments did not quantify the cost:
• For CJRS: In February 2021 HMRC assessed that 11% of eligible employments
were in firms that had no reduction in turnover during the first six months of
the scheme compared with the previous year. A survey of employers between
November 2020 and February 2021 found that 15% of companies receiving
CJRS experienced no reduction in turnover, although a large majority of
these reported in the survey that without the scheme, they would have
made redundancies or closed. Those who said they would not have made
redundancies or closed permanently without CJRS, and simultaneously saw
their turnover increase or stay the same, claimed for around 354,000 jobs.
This is around 3.7% of employments claimed for under CJRS from March to
October 2020, and would equate to £1.5 billion if representative of all jobs
claimed for.
• For SEISS: In October 2020, the Resolution Foundation found that 17% of
those who claimed SEISS did not report a decline in income in any single
month from March to September 2020. In June 2022 HMRC analysis covering
the recipients of the first three SEISS grants found that 18% of the value of
the grants was paid to people who saw their turnover increase even without
the scheme. This equates to £3.5 billion of grants paid during that period.
In addition, 21% reported an increase in trading profits. The scheme rules
permitted claimants to continue working while in receipt of grants.
For both schemes the Departments also expected that grant payments would
provide a stimulus to businesses and the wider economy (paragraphs 2.12 to 2.15).
12 When refining the schemes, the Departments considered how to reduce
‘deadweight’, but only considered significant changes were practical in the later
phases. Assessing the relative value of different options for reducing the costs of
the schemes was more difficult without a quantified estimate of their impact on
deadweight (in particular, grants going to those not in need). The Departments
looked at options for reducing the cost of the schemes when economic
conditions improved:
• For CJRS, the government had paused the introduction of the Job Support
Scheme in October 2020. It was a fully worked-up, more targeted scheme,
but it was not reintroduced when restrictions were relaxed. When considering
changes to CJRS, the Departments were concerned about the timeliness
and robustness of data and the changing nature of the COVID-19 pandemic.
The government decided that tapering all payments, rather than targeting
payments on the basis of the financial impact of COVID-19 on claimants,
would be a simpler mechanism and would reduce costs further and more
rapidly. The Departments looked at similar schemes in other countries when
considering changes, although none involved tapering.
Delivery of employment support schemes in response to the Covid-19 pandemic Summary 9
• For SEISS, from November 2020 the Departments required claimants to
declare that they would suffer a significant reduction in profits due to the
pandemic during the claim period. Later, from July 2021, they introduced a
financial impact declaration for the final SEISS grant, with two levels of grant
corresponding to how far the self-employed person’s turnover had reduced
during the pandemic as a result of the government’s COVID-19 restrictions
(paragraphs 2.2, 2.10 and 2.18 to 2.23).
13 The introduction of a financial impact declaration from July 2021 saved up to
£2.5 billion in SEISS grants, pointing to the value of using such tests at an early
stage. While other countries had made use of financial impact tests from the outset,
the Departments told us they were concerned that introducing a test earlier on a
self-assessed basis would increase the risk of fraud, add complexity for customers
and risk delaying payments. In November 2020 the Departments introduced a
self-declaration by claimants that they believed their profits would be significantly
impacted, rather than a measurable test of financial impact. Later, the Departments’
introduction of the financial impact declaration in July 2021 coincided with a large
drop in the number of people making claims for SEISS grants (although some of the
reduction would have been due to the further reopening of the economy). In this final
tranche some £140 million was paid out to 140,000 SEISS claimants who reported
no decrease in turnover. Overall, a key lesson for the UK is that early use of clear
financial impact tests can reduce the amount of deadweight loss significantly, even if
some claimants choose to ignore the test and make claims fraudulently (paragraphs
2.11, 2.15, 2.23 and 2.24).
Error and fraud
14 HMRC’s latest estimate for the total of error and fraud in the two schemes is
£4.5 billion (4.6% of cost). The estimate is subject to considerable uncertainty,
with HMRC reporting that error and fraud could range from £3.2 billion (3.3%) to
£6.3 billion (6.4%). HMRC has reduced the CJRS estimate for 2020-21 from 8.7%
to 5.3%. HMRC’s estimates take account of £968 million of grants that recipients
chose to repay because they no longer needed them or claimed in error (paragraphs
3.7 to 3.8 and 3.19 and Figure 8).
10 Summary Delivery of employment support schemes in response to the Covid-19 pandemic
15 HMRC’s estimate of CJRS fraud is based on limited data, and it is unlikely ever
to know how much was paid incorrectly for furloughed employees. All estimates of
fraud are inherently uncertain, and it is particularly difficult to be sure about their
completeness. HMRC made adjustments for non-detection of error and fraud in its
estimates, but there are several aspects where the evidence is weak. We identified
three main areas of risk to it accurately quantifying the true extent of CJRS fraud:
• HMRC expected most organised crime attacks would be carried out through
digital means. It has seen little actual evidence of successful digital attack.
As HMRC’s programme of random checks did not provide data on the scale of
organised crime, its counter-fraud staff estimated organised crime may have
extracted around £100 million (0.15% of cost) from CJRS. We have not been
able to audit this estimate, which is opinion-based. However, we see a risk
of over-optimism because HMRC did not involve independent experts when
making its estimate.
• HMRC knew in advance of starting its random enquiry programme that the
programme would generate only a weak assessment of the risk of working
while furloughed, which is the largest cause of error and fraud. HMRC did
indeed find it was detecting too few cases when the programme started.
HMRC assessed that a population-representative survey of employees would
provide the strongest source of evidence but it did not commission this
research. It told us it was concerned about the practicalities of achieving a
representative sample and the scope for employees to misunderstand their
‘flexible-furlough’ status. Instead, it relied on surveys covering only the first
few months of the scheme when furloughed employees could not work at all.
Consequently, its estimate of £2.3 billion incorrectly paid for employees working
while furloughed relies on extrapolating survey data from the fixed-furlough
period to cover the final 15-month period of the scheme, and adjusting for
furloughed employees working part-time. With the amount of time that has
passed, a survey of employees is now less likely to be effective.
• HMRC considered it had insufficient information to estimate the other error
and fraud that its random enquiries missed. It therefore increased the level
of error and fraud it found by the 20% non-detection uplift it applies when
estimating Pay as You Earn (PAYE) employer compliance. However, the risk
of non‑detection on a new grant scheme such as CJRS is likely to differ from
a well-established tax (paragraphs 3.8 to 3.18).
Delivery of employment support schemes in response to the Covid-19 pandemic Summary 11
16 HMRC forecasts it will recover around £1.1 billion of error and fraud by
2023‑24, but yield from the Taxpayer Protection Taskforce is falling short of its
original expectations. In 2020-21, HMRC recovered £535 million, mainly from
writing to claimants suspected of non-compliance. In April 2021, HMRC established
the Taxpayer Protection Taskforce, increasing the staff it deployed to identify fraud
on COVID-19 schemes from around 600 to 1,000. HMRC’s expectation that the
Taskforce would recover a minimum of £800 million across 2021-22 and 2022-23
is proving challenging. The Taskforce’s in-depth checks of high-risk CJRS cases are
taking longer than expected to complete and have low yield. HMRC has deployed
fewer staff than expected in 2021-22 and 2022-23. It plans to compensate for
the shortfall by deploying 266 staff to this work in 2023-24. It now forecasts
the Taxpayer Protection Taskforce will secure £623 million by 2023-24, with
£605 million coming from CJRS and SEISS. If HMRC meets its forecast for yield,
between £2.0 billion and £5.1 billion of overpayments will remain unrecovered,
according to HMRC estimates (paragraphs 3.19 to 3.34 and Figure 9).
17 HMRC has restricted criminal investigations to the most serious cases and
its limited civil powers mean that few people have been penalised for abuse of
the schemes. As at March 2022, HMRC had 24 investigations underway linked
to CJRS and SEISS fraud, covering suspected fraudulent claims of £13 million.
Twenty‑three arrests have been made, but no cases have yet gone to court.
HMRC told us that it prioritises recovery of money above criminal prosecution in
most cases. HMRC has powers to issue civil penalties on CJRS and SEISS where
it has sufficient evidence of deliberate intent of fraudulent behaviour. In line with
the general supportive approach to claimants facing difficult circumstances, the
government did not seek powers to penalise those who had made mistakes. As at
March 2022, HMRC had levied £1.1 million of penalties for CJRS, 0.5% of the
overpayments identified through compliance work. For SEISS, penalties were
£3.5 million (7%). HMRC is unable to issue penalties for grant claimants who did not
take reasonable care. This is different from the position for taxes and means HMRC
must meet a high burden of proof and demonstrate deliberate intent to penalise
those who committed fraud (paragraphs 3.36 to 3.40).
Conclusion on value for money
18 The employment support schemes provided essential support to the economy
during the COVID-19 pandemic, and they achieved their primary objective of
preventing millions of job losses. They were introduced at commendable speed
as part of the government’s emergency response. Designing schemes at speed,
coupled with the inherent uncertainty over the course of the pandemic, meant that
the schemes would inevitably have flaws. The government made some changes to
the schemes as the pandemic progressed, notably extending the schemes to more
taxpayers and improving their accessibility. Still, it could have done more in bearing
down on deadweight loss and the cost of error and fraud.
12 Summary Delivery of employment support schemes in response to the Covid-19 pandemic
19 The schemes have cost close to £100 billion. In part, this was down to the
deliberately generous design of the schemes. The Departments sought to strike a
balance between delivering support to those who needed it and guarding against
the risk of fraud by limiting the schemes to proven taxpayers. The earlier use of clear
financial impact tests could have helped the Departments target financial support to
those whose incomes were genuinely affected by the pandemic and provided better
value for money, even allowing for the risk of claimant error and fraud when applying
such a test. It is likely that several billion pounds have been paid to claimants who
saw their incomes increase during the period. While the figures are highly uncertain,
large amounts of error and fraud are unlikely ever to be recovered. The Departments
will need to ensure they continue to bear down on fraud, where it is cost-effective
to do so, and pursue the most serious cases with the full force of the law where it
serves the public interest.
Recommendations
20 While payments under the schemes have ended, the need to bear down on
error and fraud has not. HMRC should:
a as part of strengthening its methodology for remaining compliance work,
analyse its performance in tackling the main risks of non-compliance and
identify what further data it can use to identify and tackle risky claims,
including for those where employees may have been working while being
claimed for furlough;
b work with the Cabinet Office and government’s counter-fraud functions to
improve protocols and thus increase the consistency of data collected on grant
claimants, and the pace at which data can be shared between HMRC and other
public bodies, in order to identify risky claims now and in the future;
c restate its expectations for compliance work in the light of performance to date
and publicise the number of criminal investigations, and amounts at risk, to
act as a deterrent. It should consider how its tax compliance work needs to be
adapted to include erroneous grant payments and encourage non-compliant
taxpayers to return overpayments in advance of this compliance work;
d as part of improving its methodology for estimating error and fraud, develop
scheme-specific estimates for non-detection of error and fraud and, where
appropriate, involve independent experts, such as academics and fraud
prevention professionals, for example in assessing the range and scale of
frauds by organised crime. The use of external experts can help to mitigate the
risk of group-think; and
e ensure that it routinely gathers data on the results of all its different compliance
interventions and use this when it deploys compliance staff by scheme and risk,
targeting resources to recover fraud where it remains cost-effective to do so.
Delivery of employment support schemes in response to the Covid-19 pandemic Summary 13
HM Treasury should:
f where it is cost-effective to tackle error and fraud, ensure sufficient resources
are available to HMRC and other departments so that fraud is pursued
efficiently across the government’s grant and loan schemes.
21 In evaluating the value for money of the schemes and learning lessons for the
future, HM Treasury should:
g as part of its evaluation of the schemes, define and assess the extent of
deadweight, looking at the full range of indicators including the amount of
grants paid to employers and the self-employed whose incomes increased,
including commissioning research where appropriate to cover gaps in data from
existing systems; and
h when designing similar grant schemes in the future, devise measurable
financial impact tests for consideration by ministers. Where data are not
available to validate eligibility we would normally expect a self-assessment of
expected income to be preferable to having no test as it could significantly
reduce payments to those not in need, and provide clear criteria against which
claimant behaviour could be assessed for possible instances of fraud.
22 In determining how the government should respond in a future crisis:
i HMRC should identify the data it would need to increase accessibility of future
schemes and reduce deadweight costs and error and fraud. It should consider
plans to improve the responsiveness and resilience of the tax system to future
economic shocks;
j HMRC should draw on the lessons it has learned from its compliance response
on CJRS and SEISS to consider how it would quickly identify, assess and
respond to the main causes of non-compliance in future support schemes, and
penalise fraud; and
k HM Treasury should ensure it develops robust plans for responding to
economic shocks linked to health, environmental or other crises. Plans should
be stress-tested to identify improvements and continually refined.
14 Part One Delivery of employment support schemes in response to the Covid-19 pandemic
Part One
Ensuring the schemes achieved their objectives
1.1 This part looks at how HM Revenue & Customs (HMRC) and HM Treasury
(together, the Departments) ensured that the Coronavirus Job Retention Scheme
(CJRS) and the Self-Employment Income Support Scheme (SEISS) reached their
intended audience and achieved their objectives. It covers:
• a history of the schemes, focusing on progress since we last reported in
October 2020;
• to what extent the schemes supported businesses and
minimised unemployment;
• to what extent the schemes were available to those in need; and
• the costs and take-up of the schemes.
History of the COVID-19 employment support schemes from
October 2020 to their termination in September 2021
1.2 Our October 2020 report Implementing employment support schemes
in response to the COVID-19 pandemic, described the development and initial
implementation of the schemes.3
1.3 In late March 2020, the government announced two UK-wide employment
support schemes in response to the coronavirus crisis. The schemes, administered
by HMRC following HM Treasury’s direction, were:
• CJRS: to provide grant payments to employers to help firms continue to keep
people in employment. Employers could put workers on temporary leave, and
the government would pay them cash grants of up to 80% of employees’
salaries, up to £2,500 a month. Phase 1 operated to the end of June 2020.
From July to October 2020, a modified second phase allowed employers to
bring employees back to work part-time, and the grant was reduced to 70%
(September) and 60% (October); and
3 Comptroller and Auditor General, Implementing employment support schemes in response to the COVID-19
pandemic, Session 2019–2021, HC 862, National Audit Office, October 2020.
Delivery of employment support schemes in response to the Covid-19 pandemic Part One 15
• SEISS: to provide grant payments to self-employed individuals whose business
had been ‘adversely affected’ by the government’s COVID-19 restrictions.
The grants were intended to help support self-employed individuals with living
costs, and they could continue to work, start a new trade or take up new
employment. The government originally set out to align SEISS with CJRS as
closely as possible.
Extensions to the schemes from October 2020
1.4 Figure 1 on pages 16 and 17 shows how the schemes were extended through
to September 2021 in response to recurring waves of the COVID-19 pandemic,
and how eligibility criteria and financial contributions changed. The government
set out to make the two schemes equal in generosity, although the terms of the
grants frequently varied from one another over the life of the schemes. Adjustments
to the schemes both tightened eligibility criteria in response to changes in the
government’s COVID-19 restrictions and widened eligibility by allowing additional
cohorts of new taxpayers to the schemes.
CJRS
1.5 By October 2020, the Departments had developed the Job Support Scheme
(JSS) as a more targeted alternative to CJRS. The government did not implement
its plan to introduce JSS from 1 November 2020 following its announcement of a
new lockdown. We discuss JSS in more detail at paragraph 2.6. Eligibility for CJRS
was extended twice by allowing employers to use the most recent payrolls on which
to base claims. When the government introduced the second national lockdown in
November 2020, it increased the proportion of wages paid back to 80%, removing
the need for an employer contribution to wages, before reducing it again in July and
August 2021.
SEISS
1.6 HMRC extended SEISS three times after October 2020. For SEISS 4,
eligibility was widened to include those who became self-employed during 2019-20.
The government also sought to make SEISS more targeted:
• from SEISS 3, by requiring claimants to declare that they reasonably believed
that any reduced activity, capacity or demand due to COVID-19 would result in
a significant reduction in their trading profits, compared with what they would
otherwise expect to have achieved during this period; and
• for SEISS 5, taxpayers who suffered a less than 30% reduction in turnover
received 30% of three months’ average trading profits, while the standard rate
was 80% for those who suffered a greater reduction in turnover.
16 Part One Delivery of employment support schemes in response to the Covid-19 pandemic Delivery of employment support schemes in response to the Covid-19 pandemic Part One 17
Figure 1
Implementation of the COVID-19 employment support schemes from August 2020 to
September 2021
Both schemes were extended several times, gradually increasing the numbers eligible and adjusting levels of support Extended to
depending on wider economic conditions 30 April
Scheme due to Extended to Extended to
Extended to 31 March
end 31 October 31 December1 30 September following March budget
Scheme open to those From 1 November scheme From 1 May scheme
on payroll before open to those on payroll before open to those on payroll
19 March 2020. the end of October 2020. before 2 March 2021.
Coronavirus
Job Retention Government contribution to Government contribution to wages increased on 1 November Government contribution to
Scheme (CJRS) wages decreased on 1 September from 60% (capped at £1,875) to 80% (£2,500) with no wages decreased on 1 July from
from 80% (capped at £2,500) to employer contribution required. 80% (capped at £2,500) to
70% (£2,187.50) with employer 70% (£2,187.50), with employer
contributing 10% minimum and contributing 10% minimum, and
on 1 October to 60% (£1,875) on 1 August to 60% (£1,875),
with employer contributing with employer contributing
20% minimum. 20% minimum.
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2020 2020 2020 2020 2020 2021 2021 2021 2021 2021 2021 2021 2021 2021
70% of someone’s average 80% of someone’s average 80% of someone’s From SEISS 4, the Test on turnover introduced. 30% or more reduction in
monthly trading profit for a three monthly trading profit for a three average trading grant took into account turnover: 80% of someone’s average monthly profits for
month period, up to £6,570. month period, up to £7,500. profit for a three 2019-20 tax returns. a three month period, up to £7,500.
month period, up
Less than 30% reduction in turnover: 30% of someone’s
to £7,500.
average monthly profits for a three month period, up
to £2,850.
Self-Employment
Income Support Scheme open From SEISS 3, claimants had to confirm that they From SEISS 4,
Scheme (SEISS) to those who reasonably believed that any reduced activity, scheme open to
continued trading capacity or demand due to COVID-19 would result those who became
in 2019-20 and in a significant reduction in their trading profits, self-employed
intended to compared to what they would otherwise expect to during the 2019-20
continue to trade. have achieved during this period. tax year.
SEISS 2 SEISS 3 SEISS 4 SEISS 5
ends 31 October ends 29 January ends 30 April ends 30 September
Publication of first National Audit Office report, 23 October 2020.
CJRS stages Support provided by CJRS Major change in CJRS eligibility
Note
SEISS stages Support provided by SEISS Major change in SEISS eligibility
1 HM Revenue & Customs previously announced CJRS would be replaced by the Job Support Scheme (JSS). Introduction of JSS was stopped
due to a resurgence in COVID-19 cases, first temporarily then permanently. Other events
Source: National Audit Office review of HM Revenue & Customs documents
18 Part One Delivery of employment support schemes in response to the Covid-19 pandemic
Extent to which the schemes met their objectives
1.7 The government’s objectives for the schemes as set out in late 2020 are
shown in Figure 2. The emphasis placed on particular objectives changed over time.
Increasing weight was given to those who were most in need and to developing an
exit strategy.
To what extent the schemes supported businesses and individuals and
minimised unemployment
1.8 A primary objective of the schemes was to help prevent large-scale job
losses, and deep negative impacts on the labour market. Figure 3 shows they
were broadly successful. In July 2020, the Office for Budget Responsibility (OBR)
forecast unemployment peaking at 10% with the schemes in place until the end of
October 2020, but it actually peaked at 5.2% in the last quarter of 2020. A similar
pattern was seen in most comparable countries, with a sharp increase in claimants
for unemployment-related benefits from March 2020 levelling off following the
introduction of support schemes or extension of existing schemes.
Figure 2
COVID-19 employment support scheme objectives in late 2020
The schemes had objectives for individuals and the economy as a whole
Coronavirus Job Retention Scheme (CJRS) Self-Employment Income Support Scheme (SEISS)
objectives objectives
Provide support that maintains existing Provide financial support to self-employed
employer-employee relationships in order to: individuals whose self-employment activities have
been ‘adversely affected’ by COVID-19.
• prevent job losses and large and persistent
negative impacts on the labour market; Target support on those most reliant on
self-employed income.
• reduce risk of business closure;
Enable claimants to continue to trade while using
• support incomes for individuals; and
the scheme.
• maintain capacity so firms could rescale
activity swiftly as restrictions lift.
For both schemes, HM Treasury and HM Revenue & Customs also wanted to:
• deliver support rapidly to all those who need it during the crisis period; and
• limit costs and scope for error and fraud as far as possible.1
Note
1 We discuss attempts to limit the costs and scope of error and fraud in Part Three.
Source: National Audit Office review of HM Treasury documents
Figure 3
People claiming unemployment-related benefits, February 2020 to April 2022
After an initial spike at the start of the COVID-19 pandemic, the numbers claiming unemployment-related benefits plateaued and then declined
Unadjusted claimant count (000)
3,000
2,500
2,000
1,500
1,000
500
0
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
2020 2021 2022
Unadjusted
claimant count (000) 1,234 1,232 2,084 2,648 2,583 2,643 2,692 2,681 2,601 2,649 2,638 2,586 2,653 2,631 2,590 2,436 2,268 2,222 2,138 2,055 1,992 1,926 1,864 1,809 1,751 1,669 1,613
Note
1 The Coronavirus Job Retention Scheme was announced on 20 March 2020 and the Self-Employment Income Support Scheme on 26 March 2020. Both schemes closed at the end
of September 2021.
Source: National Audit Office analysis of Office for National Statistics, Claimant Count: K02000001 UK: People, June 2022
Delivery of employment support schemes in response to the Covid-19 pandemic Part One 19
20 Part One Delivery of employment support schemes in response to the Covid-19 pandemic
1.9 The OBR found that 19% of those on furlough at the end of CJRS had
changed jobs by January 2022, but that this mostly reflected the labour market
catching up with the usual rate of employment turnover. Only 2.6% of moves could
be attributed to the withdrawal of CJRS.4
1.10 The schemes had objectives to support incomes and direct support to those
most in need. An Office for National Statistics (ONS) survey covering the financial
year 2020-21 showed that employees furloughed had found income support helpful.5
Research by the National Institute of Economic and Social Research found that the
incidence of overall financial distress among those furloughed increased by 2%, but
this was concentrated on those with high income, due to the cap on payments.6
1.11 In June 2022 HMRC compared 2020-21 trading profits against earlier
years for those receiving SEISS 1 to 3 and those self-employed who did not.
HMRC concluded that:
• on average, people who received SEISS saw profits and income increase, but
without it would have seen both fall significantly. If eligible claimants had not
received SEISS, their mean trading profit would have fallen by £5,164 (32%)
between 2019-20 and 2020-21. With the grant, mean trading profits for this
group rose by £2,217 (14%). This contrasted with SEISS recipients responding
to the ONS survey (paragraph 1.10), where those who experienced financial
difficulties increased from 32% in 2019-20 to 39% in 2020-21. They felt,
however, just as able to cope with unexpected expenses; and
• the impact varied from sector to sector. SEISS claimants in most sectors saw
income increase. Sectors that benefited most were ‘financial and insurance’,
‘construction’ and ‘professional scientific and technology’.
To what extent the schemes were available to those in need
1.12 In October 2020, we reported that, based on HMRC and third-party estimates,
around 2.9 million people were excluded from the schemes (1.8 million from SEISS
and 1.1 million from CJRS) either because of ministerial decisions on how to target
the schemes or because HMRC did not have data needed to properly guard against
the risk of fraud. The majority of self-employed people who did not qualify for
SEISS earned more than half their income from another source. The majority of
those excluded from CJRS were company directors paid by dividend, although they
could claim for income from earnings. It is unclear how many of the 2.9 million were
sufficiently affected to need financial support.7
4 Office for Budget Responsibility, What happened to furloughed employees after the CJRS closed?, March 2022.
5 Office for National Statistics, Economic well-being estimates from the Survey on Living Conditions, Great Britain, 2021.
6 National Institute of Economic and Social Research, National Institute UK Economic Outlook; Box B: Furlough and
household financial distress during the COVID-19 pandemic, Autumn 2021.
7 See footnote 3.
Delivery of employment support schemes in response to the Covid-19 pandemic Part One 21
Bringing new taxpayers into the schemes
1.13 Around 1.7 million self-employed people were ineligible for the first three SEISS
grants on policy or administrative grounds.8 Five hundred thousand people who
became self-employed in 2019-20, or were otherwise eligible for the first time in
2019-20, were invited to claim SEISS 4 and 5, although take-up among these groups
was around one-third. For CJRS, HMRC’s real-time information system meant that
it could add new claimants more promptly. New cohorts of employees were made
eligible for CJRS in November 2020 and 2.6 million in May 2021.
Self-employed people who continued to be ineligible
1.14 Our first report explained limited company directors paid by dividend were
ineligible for support.9 The Departments looked at how company directors might be
supported, identifying that between 300,000 and 900,000 were potentially eligible.
But the Departments were unable to identify how many were legitimate ‘company
owner managers’ (whose dividend income was pay rather than investment income).
The Departments considered that making company directors eligible meant that they
would have to rely on self-certification, creating the risk of considerable error and
fraud.10 The government agreed.
1.15 By SEISS 5, 1.7 million self-employed people were not eligible, consisting of
those who: made trading profits lower than non-trading profits (which includes
investment income and income from being an employee); made a loss; or made
profits of more than £50,000. This latter group generally saw profits rise during the
COVID-19 pandemic, while all other ineligible groups tended to lose income.
The Departments’ actions to address the needs of potentially
disadvantaged sub‑groups
1.16 The Departments assessed the schemes’ impact, including proposed changes,
on disadvantaged groups as required by the Public Sector Equality Duty under the
Equality Act 2010. They reviewed the likely impact of each iteration of the schemes
on the basis of age, disability and ethnicity. Lack of data limited monitoring of actual
impacts. HMRC did not collect data on the ethnicity, disability status, religious
beliefs, sexual orientation or marriage status of those within the schemes. HMRC did
establish that:
• people with disabilities suffering a period of long-term sickness could miss out
on SEISS payments;
• young people, women and people from ethnically diverse backgrounds were
more likely to be furloughed and, as with other lower-paid workers, more
vulnerable to redundancy when furlough was ended. Admitting new taxpayers
to schemes would, however, benefit younger people; and
8 See footnote 3.
9 Although they might have been eligible for CJRS for the portion of their income paid as salary.
10 This was also their view regarding an alternative proposal put forward by the Association of Independent
Professionals and the Self-Employed (IPSE) to the Treasury Select Committee to use the corporation tax return to
identify directors’ earnings.
22 Part One Delivery of employment support schemes in response to the Covid-19 pandemic
• in certain circumstances, women on maternity leave could miss out on
payments from both schemes.
1.17 HMRC identified in late 2020 that take-up of SEISS 1 was nearly 30% lower
among groups classed as ‘vulnerable’, for example those with mental health issues
or victims of domestic violence. Through experimentation, HMRC established that
reaching out to these groups by letter was effective at increasing take-up to levels
similar to the rest of the population. In 2020, HMRC had put in place alternative
arrangements for the digitally excluded to access schemes.
The costs of the schemes
1.18 The schemes cost £96.9 billion, consisting of:
• £28.1 billion in SEISS grants to 2.9 million individuals, equating to
£9,700 per individual; and
• £68.9 billion in CJRS grants to 1.3 million employers covering 11.7 million
individual jobs, equating to £5,887 per job.11
Reasons for the higher average payments on SEISS compared with CJRS include
the fact that SEISS claimants could receive the grant while continuing working, while
CJRS only covered hours not worked.
1.19 Figure 4 shows how HMRC’s estimates of the cost of the schemes compared
with outturn. HMRC drew on the work of the OBR and emphasised the uncertainty
around the costings, given the unknown path of the COVID-19 pandemic.
The forecasts consistently overestimated take-up, and therefore cost, of both
schemes, except for the early months of 2021, where a sudden surge in the
COVID-19 pandemic resulted in a third lockdown in December 2020. Lower than
expected take-up was particularly noticeable in the later SEISS grants.
11 Cost is amount distributed in grants, net of repayments.
Delivery of employment support schemes in response to the Covid-19 pandemic Part One 23
Figure 4
Cost forecasts and outturns for COVID-19 employment support schemes,
November 2020 to September 2021
The costs of the schemes were less than HM Revenue & Customs (HMRC) forecast in most periods
Coronavirus Job Retention Scheme
Cost (£bn)
7
6
6
5
4.8
4
4.1 4
3.7 3.8
3
3.1 3
2.9 2.8
2.7
2 2.2 2.3
1.9 1.9 1.8
1.7 1.7
1 1.4
1.1
0.8 0.7
0
Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21
Self-Employment Income Support Scheme2
Cost (£bn)
9
8
7.8
7 7.3
6 6.2
5.7
5.5
5
Notes
1 Forecasts for months for the Coronavirus Job
4 Retention Scheme (CJRS) and grants for the
Self-Employment Income Support Scheme (SEISS) are
3 the latest submitted internally at decision points for
2.8 continuation of the schemes: i) CJRS: 18 November
2020 (Nov–Dec 20); 14 December 2020 (Jan–Mar 21);
2
18 February 2021 (Apr–Sep 21); ii) SEISS:
15 January 2021 (SEISS 3);
1 25 February 2021 (SEISS 4 and 5).
2 SEISS 3 covered November 2020 to January 2021,
0 SEISS 4 February 2021 to April 2021 and SEISS
SEISS 3 SEISS 4 SEISS 5 5 May 2021 to September 2021.
SEISS grant 3 Figure covers the scheme extensions since we last
reported in October 2020.
HMRC forecast1
Source: National Audit Office analysis of HM Revenue &
Outturn Customs documents
24 Part Two Delivery of employment support schemes in response to the Covid-19 pandemic
Part Two
Management and implementation of the schemes
2.1 This part looks at the extent to which HM Revenue & Customs (HMRC) and
HM Treasury (collectively the Departments) implemented the Coronavirus Job
Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS)
cost-effectively from October 2020 onwards. In our first report, we recommended
that the Departments’ future consideration of options should demonstrate how risks
to value for money have been considered, understood and managed. A major risk
was that the speed with which the original schemes were implemented would lead to
significant amounts being paid to those who did not need support.
2.2 This part covers:
• how the Departments assessed value for money as they extended the schemes;
• the Departments’ assessment of the extent to which grants were going to those
not in need (‘deadweight’); and
• the Departments’ attempts to improve targeting of the schemes, including
reducing deadweight and managing error and fraud risks.
Assessments of value for money
2.3 In late 2020 and early 2021, the Departments had to plan COVID-19
employment support in a very fluid situation in which government policy restricting
economic activity could change frequently and with little notice. For example, the
Departments issued guidance to businesses on the new Job Support Scheme
(JSS) on 31 October, only for a new lockdown to be announced immediately.
HMRC organised an extension of CJRS over that weekend.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Two 25
2.4 In our first report, we explained that the Departments had insufficient
time to produce documentation, such as business cases, options appraisals
and detailed cost-benefit analysis, normally required to support key investment
decisions.12 This continued to be the case during the period from October 2020
onwards. Decision‑makers should ensure they have fully considered all the issues
regardless of whether they complete formal documentation.13 The Departments
plan to release an interim evaluation of CJRS followed by evaluations of both
schemes in due course.
2.5 The Departments kept the schemes under review and looked for good practice
and innovation elsewhere. They carried out extensive research into support schemes
in other countries when designing and considering changes to the schemes.
Like‑for-like comparisons were difficult because of differing levels of public health
restrictions and different tax, welfare and regulatory regimes. For example, some
countries had pre-existing schemes to support ‘short-time working’.
2.6 In early autumn 2020 the government had planned to replace CJRS with
a more targeted scheme – the JSS – to take advantage of the improving public
health situation. The JSS offered one level of support for businesses affected by
COVID-19 which remained open, and further support for those required to close by
health regulations. The Departments’ October 2020 value for money assessment
for JSS was extensive, including a detailed consideration of its impact on different
business sectors.
2.7 In the event, the Departments had to respond quickly to the resurgence of
COVID-19 at the end of October and extended CJRS in increments through to the
end of March 2021. The urgency meant that the Departments made a very limited
assessment of the value for money of the scheme’s extension. The government
considered that the severe restrictions on economic activity left it with no alternative.
2.8 At subsequent decision points to extend the schemes, the Departments carried
out largely qualitative assessments of value for money. In February and March 2021,
when deciding on the form and duration of CJRS beyond April, the Departments
emphasised the uncertainty around its value for money analysis. The Departments
discussed, but did not quantify, the benefits of CJRS (maintaining employer viability,
job matches and employment levels) and the disbenefits (deadweight forming an
increasing proportion of remaining furloughs and ‘job hoarding’). The Departments told
us that they lacked the real-time data to make a reasonable and fair assessment.
12 Comptroller and Auditor General, Implementing employment support schemes in response to the COVID-19
pandemic, Session 2019–2021, HC 862, National Audit Office, October 2020, paragraph 1.8.
13 Comptroller and Auditor General, Lessons learned: Delivering programmes at speed, Session 2021-22, HC 667,
National Audit Office, September 2021.
26 Part Two Delivery of employment support schemes in response to the Covid-19 pandemic
2.9 In the case of SEISS, the assessments restated the case made from the
scheme’s start – that it was good value for money because of the extremely
negative impacts for households and for the labour market without a scheme.
The Departments’ assessments estimated likely costs, but did not usually quantify
other elements of value for money. They also drew attention to delivery constraints
driven by the lack of good-quality data on the self-employed. Deadweight was
discussed as part of the Departments’ formal assessments of value for money, but
the ability to reduce levels of deadweight were not seen by the Departments as a
deciding factor in whether SEISS offered value for money.
The Departments’ assessment of the level of deadweight
2.10 The level of deadweight should be considered as part of a cost-benefit analysis
when comparing different options for support. As the COVID-19 pandemic continued
into 2021, the Departments’ analysis indicated that the broad nature of support
the schemes offered might be providing large sums to sectors of the economy that
were less in need and could be suppressing the natural turnover in the job market.
The Departments defined two types of deadweight that did not contribute to the
objectives set out for the schemes:
• grants supporting jobs that would have been retained anyway; and
• grants supporting jobs that would not be viable after removal of public
health restrictions.
International comparisons
2.11 The Departments analysed measures used in other countries to identify options
to improve targeting and limit deadweight, including:
• a test of financial impact to improve targeting of CJRS. Many other countries
had incorporated such a test in their equivalent schemes to exclude companies
which had not experienced a significant decline in revenue. The Departments’
analysis was inconclusive as to the merits of a test. It found most countries
relied on self-certification by claimants and it was concerned this could increase
the scale of fraud. The Departments told us they were also concerned about the
timeliness and robustness of taxpayer data needed to carry out a test on claims;
• a minimum hours threshold to focus on jobs that were most valuable to
employers. The few examples the Departments found were mostly in
pre‑existing schemes;
• the right level of employer contributions when schemes were being gradually
withdrawn. The Departments found no consensus on the level of contribution
and no use of tapering; and
Delivery of employment support schemes in response to the Covid-19 pandemic Part Two 27
• the best format for a declaration of financial impact for SEISS 5. Most countries
had a test of financial impact. Use of variable grants, depending on the level
of impact, was a common feature, and this influenced the approach taken
for SEISS 5.
Cost of supporting jobs that would be retained anyway
CJRS
2.12 In February 2021, HM Treasury looked at the impact of the COVID-19
pandemic on turnover when considering a possible financial impact test for CJRS.
It estimated that 11% of eligible employments were in firms that had experienced
no reduction in turnover during the first six months of CJRS compared with
the same period in 2019. HM Treasury considered this a possible example of
deadweight but did not quantify its cost.14
2.13 A survey of employers carried out on behalf of HMRC between November 2020
and February 2021 put the proportion of firms claiming CJRS and experiencing no
reduction in sales or turnover at 15% (Figure 5 overleaf). Despite this, a large majority
of those employers reported in the survey that without the scheme they would have
made redundancies or closed. Fifteen per cent of spending on CJRS to the end of
October 2020 would have been equivalent to around £6.5 billion. Those firms who
said they would not have made redundancies or closed permanently without CJRS,
and simultaneously saw their sales or turnover stay about the same or increase due to
COVID-19, claimed for around 354,000 jobs.15 This is around 3.7% of employments
that were claimed for through CJRS from March to October 2020, and would equate
to £1.5 billion if representative of all jobs claimed for.
SEISS
2.14 In October 2020, a Resolution Foundation survey found that 17% of those
claiming SEISS did not report a decline in income in any month from March to
September 2020. The Resolution Foundation concluded that “SEISS grants were
claimed by 435,000 people who did not face any fall in their earnings, at an
estimated cost of £1.3 billion.” Based on this, HMRC estimated in January 2021 that
10% to 20% of recipients probably experienced no fall in income. In June 2022
HMRC analysis found that 21% of SEISS claimants reported increased trading
profits, even without the scheme (compared with 51% with an increase in profits
the previous year). Around 18% of the value of the first three SEISS grants was
paid to people who reported an increase in turnover. We estimate this equates to
expenditure of £3.5 billion. There was no requirement for turnover to fall in order
to receive a grant. HMRC told us that such a requirement could have discouraged
individuals from continuing to work in their trade or from seeking to grow
their business.
14 It is possible for a firm’s profits to reduce even if its turnover does not, depending on what happens to its costs.
15 Some 137,000 jobs were in firms with increased sales or turnover and 217,000 jobs were in firms with no change
in sales or turnover.
28 Part Two Delivery of employment support schemes in response to the Covid-19 pandemic
Figure 5
Changes to sales or turnover for Coronavirus Job Retention Scheme
(CJRS) claimants and non-claimants to 31 October 2020
Fifteen per cent of employers claiming CJRS saw sales or turnover stay the same or increase
Percentage of CJRS claimants and non-claimants
100
90
80 83
70
60
50
48
40
37
30
20
10 13 12
3 2 2
0
Increased Stayed the same Decreased Don't know
Change in sales or turnover
CJRS claimants
CJRS non-claimants
Note
1 Employers were asked “Before 31st October, what impact, if any, had COVID-19 had on your organisation’s sales or
turnover? Had it… 1. Increased, 2. Stayed about the same, 3. Decreased”.
Source: Research carried out on behalf of HM Revenue & Customs
2.15 In February 2021, HM Treasury identified that “a significant proportion” of those
receiving SEISS at the end of 2020 came from sectors that were least impacted
by the COVID-19 pandemic, were open, or had a ‘better’ recovery after the first
lockdown. HM Treasury divided the self-employed into groups depending on the
impact of government COVID-19 restrictions. It estimated, for example, that more
than half of claims were from those in sectors that were open or where people could
work from home, albeit likely facing reduced demand.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Two 29
2.16 In June 2022, HMRC calculated that recipients of the first three SEISS
grants saw an increase in average trading profits of 14% compared with the year
before, although the impact on the incomes of individual claimants will have varied.
A business’s profits may not have reduced as significantly as anticipated when
the SEISS grant claim was made and the business may have recovered better
than expected. This does not affect eligibility as scheme rules allowed grants
to be claimed even if incomes had increased. SEISS 5 paid out £140 million to
140,000 claimants who reported no decrease in turnover.16
Cost of supporting jobs that would not be viable in the long term
2.17 This form of deadweight was not generally assessed by the Departments.
It reasoned that employments on full furlough for a long period would be fraudulent
claims or non-viable employments, unless they were in the limited and declining
number of closed occupations. In February 2021 HMRC identified around
580,000 people who had been fully furloughed from March to the end of November,
although only some of these would count as deadweight on the basis that their jobs
would not be viable in the long term. Of these, 190,000 subsequently remained on
full furlough for the entire 18 months of the scheme. The Departments raised the
ratio of employer contributions to the employee’s wages to encourage employers to
retain only viable jobs as the scheme neared completion.
The Departments’ attempts to reduce the costs of the schemes
Reducing the costs of CJRS
2.18 By January 2021, the CJRS policy objectives included minimising productivity
loss, minimising costs and facilitating structural adjustments in the economy.
In December 2020, the Departments had looked at future options for CJRS in
anticipation of restrictions being relaxed in spring 2021. The Departments were
concerned about the timeliness and robustness of data needed to keep up with the
evolving COVID-19 pandemic. The Departments’ qualitative analysis indicated that
several options would not be viable (although without quantitative analysis of their
implications for deadweight or error and fraud) including:
• Eligibility criteria based on business sectors. This option was discounted
because of:
• difficulties defining sectoral boundaries and lack of accurate data,
leading to a likely reliance on businesses self-defining their sector, with a
consequent fraud risk; and
• the differing impacts of government COVID-19 restrictions within some
sectors, which “risked deadweight costs” (although the Departments did
not compare this to existing deadweight costs).
16 HM Revenue & Customs, Self-Employment Income Support Scheme statistics, December 2021.
30 Part Two Delivery of employment support schemes in response to the Covid-19 pandemic
• A financial impact test based on the level of restrictions a business faced, which
had been envisaged as part of JSS to exclude large firms that were performing
strongly and hence reduce deadweight. The Departments had not finalised how
this would be applied in JSS, and their analysis was that it would not be directly
transferable to CJRS due to a lack of timely and complete information.
2.19 In December 2020, the Departments considered that significant changes
to the schemes would be more deliverable from March onwards, because of
the work needed to put the changes into operation, uncertainty about the
path of the COVID-19 pandemic, and claimants’ existing expectations. Internal
assessments showed that implementing the ‘paused’ JSS remained a strong option.
They considered improving targeting of payments by means of either a test of
financial impact or a reintroduction of ‘tapering’ (gradual increase in the level of
employer contribution towards the employee’s wages). They considered the latter
was the simplest option, based on the experience of using it in summer 2020 and
delivery challenges with alternatives, but left options open.
2.20 When making decisions about the design of the remainder of CJRS in February,
the Departments continued to view tapering as “the simplest approach to avoid a
cliff-edge exit from the scheme while also increasing its value for money by reducing
deadweight.” In their analysis of the approaches taken by other countries, the
Departments found no examples of other countries ‘tapering’ support over time.
2.21 After considering several scenarios, the Departments concluded that both
tapering and targeting payments based on the impact of COVID-19 on businesses’
turnover would reduce the monthly cost of the scheme, as well as the average
monthly cost per employment supported. They assessed that tapering would be
more deliverable and fairer than more targeted options, given limitations to the
timeliness and robustness of data. They concluded that tapering would reduce
the costs further and more rapidly, but that “this analysis does not take account
of the wider economic benefits of maintaining these employer–employee matches
(which are a key goal of the scheme).” In fact, the fall in employee take-up during
the last three months of CJRS, when tapering was introduced, was slower than in
the previous three months, although the economy reopened fully in July (excluding
international travel) (Figure 6).
Delivery of employment support schemes in response to the Covid-19 pandemic Part Two 31
Figure 6
Coronavirus Job Retention Scheme (CJRS) take-up rates, November 2020 to September 2021
Take-up of the scheme declined steadily before and after tapering was introduced
Take-up by those eligible (%)
Taper introduced
45 from 1 July
40
35
30
25
20
15
10
5
0
Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21
Employers’ take-up of CJRS 36.3 36.1 41.4 41.4 39.2 34.8 29.9 27.8 24.9 22.7 21.0
(percentage of those eligible)
Employees’ take-up of CJRS 13.2 13.6 16.7 16.2 14.8 12.1 8.5 6.6 5.5 4.7 4.0
(percentage of those eligible)
Note
1 Take-up by employers reduced by around one quarter in both the three months before tapering and the three months after. Take-up for employees
reduced by 55% in the three months before tapering and by 39% in the three months after.
Source: National Audit Office analysis of HM Revenue & Customs data
32 Part Two Delivery of employment support schemes in response to the Covid-19 pandemic
Reducing the costs of SEISS
2.22 Scheme rules had always permitted claimants to continue working while
receiving SEISS grants. From November 2020, the Departments required claimants
to declare that they reasonably believed that any reduced activity, capacity or
demand due to COVID-19 would result in a significant reduction in their trading
profits, compared with what they would otherwise expect to achieve during this
period. 17 The objectives for SEISS were refined in early February 2021. They placed
more emphasis on targeting support to those self-employed people who needed it
until their business recovered, providing business with certainty, and having a clear
exit strategy.
2.23 The Departments introduced a financial impact test for SEISS 5, when
self‑assessment tax returns for 2019-20 were available, consisting of a two-tier
grant based on a claimant’s expectations about reductions in their turnover due to the
COVID-19 pandemic. Although there were two tiers of grant, eligibility was not removed
from any existing claimants. SEISS 5 grants covered the period from 1 May 2021.
When applications for SEISS 5 opened on 28 July, the economy had fully reopened,
excluding international travel. Take-up dropped significantly to 38% (Figure 7),
reducing the cost of SEISS 5 by £2.5 billion compared with the cost if take-up had
been at the same level as SEISS 4. The Departments told us they were concerned
that introducing a test earlier on a self-assessed basis would increase the risk of error
and fraud, add complexity for customers and delay payments. They currently estimate
that additional error and fraud attributable to the SEISS 5 financial impact declaration
amounts to around £170 million to £200 million. Where data are not available to
validate eligibility we would normally expect a self‑assessment of expected income to
be preferable to having no test, as it could significantly reduce payments to those not
in need, and provide clear criteria against which claimant behaviour could be assessed
for possible instances of fraud.
Estimating the impact of scheme changes on error and fraud
2.24 In assessing options for changing the schemes the Departments should,
alongside quantifying the likely impacts on deadweight, have estimated the impacts
on error and fraud. It follows that adding to the schemes’ eligibility criteria will
increase the incidence of error and fraud. More eligibility criteria increase the
likelihood that applicants will make mistakes and try to circumvent the rules to
maximise grants.18 Decision-making would have benefited from the Departments
setting out more clearly the relative scales of deadweight cost and error and fraud
when comparing options. This would have been much easier with robust real-time
data about the impact of COVID-19 on claimants.
17 HM Revenue & Customs, [Withdrawn] How your trading conditions affect your eligibility for the Self-Employment
Income Support Scheme, November 2020.
18 In Part Three we look in detail at the amount of estimated and actual error and fraud on the schemes.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Two 33
Figure 7
Take-up rates for the five Self-Employment Income Support Scheme
(SEISS) grants, May 2020 to September 2021
Smaller grants for those whose turnover had declined by less than 30% and improved economic
conditions are both likely to have contributed to the large reduction in take-up for SEISS 5
Take-up by those eligible (%)
100
90
80
77
70
69
65
60
58
50
40
38
30
20
10
0
SEISS 1 SEISS 2 SEISS 3 SEISS 4 SEISS 5
SEISS grant
Notes
1 The 20 percentage point reduction between SEISS 4 and SEISS 5 exceeded the reduction between SEISS 1 and
SEISS 4 (19 percentage points).
2 SEISS 1 covered May 2020 to July 2020, SEISS 2 covered August 2020 to October 2020, SEISS 3 covered
November 2020 to January 2021, SEISS 4 covered February 2021 to April 2021 and SEISS 5 covered May 2021
to September 2021.
Source: National Audit Office presentation of HM Revenue & Customs data, Official Statistics: Self-Employment Income
Support Scheme statistics, December 2021
34 Part Two Delivery of employment support schemes in response to the Covid-19 pandemic
2.25 The Departments rarely quantified the impact on error and fraud as part of
considering options for reducing the schemes’ costs. In January 2021, HM Treasury’s
review of the cost of extending CJRS into summer 2021 covered options around
targeting, tapering and financial impact, but did not compare their likely impacts on
error and fraud. Error and fraud were more likely to be assessed when deciding how
to implement a particular option. Most notably, in February 2021, the Departments
estimated the error and fraud resulting from introduction of a self-declaration of
financial impact for SEISS.19 HMRC estimated the impact of recipients attempting
to fraudulently suppress their level of turnover in order to qualify for a larger grant.
It decided that the impact on error and fraud would be “low to moderate” (adding five
percentage points or more to the rate of error and fraud). HM Treasury had previously
argued that the increase in error and fraud would be too great to adopt such an
approach, without quantifying the risk.
19 The test makes it more straightforward to retrospectively identify people who should not have made claims and
recover overpayments.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Three 35
Part Three
Error and fraud in the schemes
3.1 In October 2020 we reported on the early implementation of the Coronavirus
Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme
(SEISS).20 The pace at which the schemes were designed and implemented meant
HM Treasury and HM Revenue & Customs (HMRC) (collectively the Departments)
had to accept a greater risk of error and fraud than normal.
3.2 We concluded that a key value for money test for the schemes would be how
far the Departments can mitigate error and fraud. We said the Departments should
do more to counter acts of fraud, and ensure sufficient resources were committed
to recover money where cost-effective to do so.
3.3 In this part of the report, we consider:
• HMRC’s preventative controls;
• the possible scale of error and fraud in both CJRS and SEISS, including the risk
of non-detection;
• HMRC’s progress in tackling error and fraud; and
• HMRC’s criminal investigations and the civil penalties it has levied.
HMRC’s preventative controls
Controls for CJRS
3.4 HMRC initially assessed that CJRS would be most at risk from organised
criminal attacks and opportunistic fraud from claimants intentionally inflating their
claims. The Departments initially limited applications to existing taxpayers to reduce
the risk of fraud, including from false companies submitting claims. Once received,
HMRC had 72 hours to check claims to meet the policy priority of making payments
within six days of the application.
20 Comptroller and Auditor General, Implementing employment support schemes in response to the COVID-19
pandemic, Session 2019–2021, HC 862, National Audit Office, October 2020.
36 Part Three Delivery of employment support schemes in response to the Covid-19 pandemic
3.5 In October 2020, we identified weaknesses in HMRC’s control environment,
most notably around employers claiming furlough for employees who were working,
which was against scheme rules (“working while furloughed”). HMRC could not prevent
such claims and thus intended to recover sums after payment. In early 2021, HMRC
responded to our report, and the subsequent Committee of Public Accounts report,
and strengthened its preventative controls by publishing the names and an indication
of the amounts claimed by employers, and notifying employees they were included
in furlough claims through their personal tax accounts.21,22 However, with many
employers facing cashflow pressures, the conditions remained for many to over-claim.
Controls for SEISS
3.6 As with CJRS, HMRC was concerned SEISS faced risks of organised criminal
attack and opportunistic fraud and utilised many of the same controls. It initially
restricted the scheme to existing taxpayers. It assessed the overall risk of error and
fraud as lower because it invited people to claim directly and calculated the grant
using tax records. It used pre-claim and compliance checks to help identify those
who were not eligible.
The possible scale of error and fraud
3.7 In July 2022, HMRC published its first estimates of CJRS and SEISS
error and fraud in 2021-22 and revised estimates for 2020-21. Its estimates
are highly uncertain.23 Over the whole life of the schemes, HMRC considers it
is likely error and fraud of CJRS and SEISS was between £3.2 billion (3.3% of
cost) and £6.3 billion (6.4%), with a most likely estimate of £4.5 billion (4.6%)
(Figure 8 on pages 37 and 38).24
3.8 HMRC has reduced its most likely estimate of error and fraud in CJRS
in 2020‑21 from 8.7% to 5.3% and increased its estimate for SEISS from
2.5% to 3.2%. HMRC’s estimates the rate of SEISS error and fraud increased
in 2021-22, most notably because of the financial impact declaration for SEISS 5
(paragraph 2.23). Around two-thirds of total CJRS error and fraud is due to
working while furloughed (HMRC’s best estimate is £2.3 billion), which HMRC
estimates through a complex model using survey and other data, and a number of
assumptions. Its estimates for most other CJRS risks are based on enquiries into a
random sample of claims made in the scheme’s first eight months.25
21 HC Committee of Public Accounts, COVID-19: Support for jobs, Thirty-Fourth Report of Session 2019–2021,
HC 920, December 2020.
22 Personal tax accounts are digital accounts that enable taxpayers to check their tax records.
23 The National Audit Office continues to qualify the accounts of HMRC on the basis that the levels of error and fraud
on COVID-19 employment support schemes is material – see Comptroller and Auditor General, HM Revenue &
Customs 2021-22 Accounts, July 2022, Part Two, pages R29 to R43.
24 Values are total error and fraud before post-payment compliance activity.
25 At September 2022, HMRC was completing enquires into a sample of claims made for the period from
November 2020 to September 2021.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Three 37
Figure 8
HM Revenue & Customs’ (HMRC’s) estimates of error and fraud in the schemes, rate and amount,
2020-21 and 2021-22
HMRC estimates that both the amount and rate of error and fraud was highest on the Coronavirus Job Retention Scheme (CJRS) in 2020-21.
For the Self-Employment Income Support Scheme (SEISS) the amount was highest in 2020-21, but the rate was highest in 2021-22
Error and fraud rates by scheme
Percentage
14
12
12.0
10
8.7
8
7.6
6.7
6 6.3
5.3
4 4.5
4.1
3.7 3.7 3.5
3.2 3.2
2.8
2 2.5 2.4
2.0 1.8
0
CJRS 2020-21 CJRS 2020-21 (revised) CJRS 2021-22 SEISS 2020-21 SEISS 2020-21 (revised) SEISS 2021-22
Scheme
Lower estimate Most likely estimate Upper estimate
Cost of error and fraud by scheme
£ billion
8
7 7.3
6
5 5.3
4.6
4
4.1
3 3.2
2 2.2
1
0.2 0.2 0.8
0.3 0.4 0.5 0.6 0.5 0.6 0.3 0.4 0.5
0
CJRS 2020-21 CJRS 2020-21 (revised) CJRS 2021-22 SEISS 2020-21 SEISS 2020-21 (revised) SEISS 2021-22
Scheme
Lower estimate Most likely estimate Upper estimate
38 Part Three Delivery of employment support schemes in response to the Covid-19 pandemic
Figure 8 continued
HM Revenue & Customs’ (HMRC’s) estimates of error and fraud in the
schemes, rate and amount, 2020-21 and 2021-22
Notes
1 In November 2021, HMRC published its original estimates of error and fraud in CJRS and SEISS in 2020-21 in
its Annual Report and Accounts for 2020 to 2021. In July 2022, HMRC revised these estimates and published
estimates for 2021-22 in its Annual Report and Accounts 2021 to 2022.
2 HMRC’s statistical view is that its estimates provide 95% confidence that actual error and fraud lies within the upper
and lower ranges it has calculated for each scheme. There is some overlap between the two ranges reported for both
schemes for 2020-21. HMRC plans to publish final estimates in 2023.
3 HMRC estimates the residual error and fraud within the schemes. Residual error and fraud is defined as the
monetary value of error and fraud remaining after pre-payment checks but before the effects of post-payment
compliance activity have been realised.
4 HMRC’s estimates of the likely levels of error and fraud in CJRS are based upon a combination of: the results of a
mandatory random enquiry programme into a sample of claims; insights from HMRC administrative data; internal
and external surveys; pre-payment risking and verification checks; post-payment compliance data; and experience
from error and fraud rates in other tax and benefit streams it administers. HMRC’s estimates for SEISS are based
upon modelling using a mixture of data from Self-Assessment tax returns, insights from HMRC administrative
data and post-payment compliance outputs. HMRC’s estimates for both CJRS and SEISS remain subject to
significant uncertainty.
5 Values are in nominal terms to maintain consistency with HMRC’s Annual Report and Accounts.
Source: National Audit Office presentation of data in HM Revenue & Customs, Annual Report and Accounts 2021
to 2022, July 2022, Table 7, page 30 and HM Revenue & Customs, Annual Report and Accounts 2020 to 2021,
November 2021, page 266
Challenges in estimating error and fraud in CJRS
3.9 Estimating the scale of error and fraud is inherently challenging. It is particularly
difficult to be sure about the completeness of fraud estimates. We examined
HMRC’s adjustment for non-detection of CJRS error and fraud, and its estimates
for organised criminal activity and furlough error and fraud arising from employees
working while furloughed.
The risk of non-detection of fraud
3.10 A random enquiry programme examining a sample of claims is a standard
HMRC approach to measuring error and fraud. For CJRS, HMRC checked its sample
for errors but found it difficult to identify opportunistic fraud, including employers
failing to pay furloughed employees.26 HMRC also found no cases of organised crime
through the random enquiry programme, either because there was no such fraud in
its sample or because it was not detected. Its guidance required few checks for the
risks of organised crime. Its checks did consider whether a company was employing
staff prior to the scheme, but would not detect hijacked or coerced companies, or
identify falsified records. Caseworkers told us it was unlikely the enquiry programme
would identify organised crime.
26 Four per cent of furloughed staff responding to a 2020 National Audit Office survey said that their employer had
paid them less than 80% of their pay which was the minimum amount they should have received under CJRS.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Three 39
3.11 HMRC usually adjusts random enquiry programmes for non-detection because
it is inevitable some errors and fraudulent activity will be missed. For CJRS, HMRC
made a specific adjustment for employees working while furloughed because it
was difficult to identify many instances when reviewing claims (paragraph 3.16).
It also made a wider adjustment for other error and fraud risks, including organised
crime. However, the wider adjustment was not based on the design and operation
of the scheme, or the maturity of the CJRS enquiry programme. HMRC considered
it did not have sufficient information to make a robust adjustment based on the
scheme. Instead, it used the same 20% uplift it applies when estimating employer
compliance for Pay as You Earn (PAYE). The nature of error and fraud occurring on
CJRS differs to PAYE because it:
• involved a greater degree of self-assessment than PAYE;
• provided greater scope for employers to benefit financially when many faced
cash flow problems; and
• as a grant scheme, was attractive to fraudsters.
3.12 As the CJRS enquiry programme was new, and covered a new grant, it was
likely to be at a higher risk of non-detection than HMRC’s more mature approach for
assessing non-detection on PAYE, a well-established tax.
Estimating the risk of organised criminal activity
3.13 HMRC considers that organised criminal activity is unlikely to have succeeded
at scale because it restricted CJRS initially to existing taxpayers and its control
environment was successful. Its pre-payment controls focused on preventing attacks
from organised crime, most of which it expected to be digital. HMRC checked
whether claims had links to previous frauds, and checked for digital attacks,
including multiple claims from the same device. However, HMRC was unable to
check claims to other central and local government data because of the government
priority to make CJRS payments quickly and because external data were not in a
suitable format. There remained ways in which organised crime could have gained
from CJRS, including:
• digital attacks including using compromised tax accounts;
• using existing companies they already controlled;
• obtaining existing companies or coercing legitimate companies to submit
fraudulent claims; and
• creating new companies, including in anticipation of government extending
CJRS to new taxpayers.
40 Part Three Delivery of employment support schemes in response to the Covid-19 pandemic
3.14 In April 2020, HMRC estimated that organised crime might account for 2.5%
to 5% of expenditure on the initial CJRS scheme. HMRC considers there has not
been the level of digital and other attacks it expected. It prevented or detected
organised criminal attacks of up to £450 million (0.65% of CJRS’s cost) by
March 2022, comprising:
• up to £262 million of claims rejected following pre-payment checks, which
focused on tackling organised crime; and
• £188 million of claims made by organised criminals that its fraud service
prevented (£128 million), recovered (£47 million) or were investigating
(£13 million).
3.15 HMRC’s counter-fraud staff assessed losses to organised crime, drawing on
compliance and fraud investigation data. They considered scenarios for losses,
with the largest set at 100% of HMRC’s non-detection adjustment (paragraph 3.11).
They decided on 50%, equal to around £100 million over the scheme (0.15% of
CJRS cost). We have not been able to audit this estimate, which is opinion-based.
However, we see a risk of over-optimism. HMRC did not involve independent experts
when making its estimate and scenarios were limited to its existing non-detection
adjustment. 0.15% is much lower than both HMRC’s assessment at the start of
CJRS, and the value of criminal attacks which HMRC prevented or detected.
Estimating furlough error and fraud
3.16 HMRC knew in advance of starting its random enquiry programme that
the programme would only generate a weak assessment of the risk of working
while furloughed, resulting in an underestimate of error and fraud. Experience of
operating the random enquiry programme proved that this assessment was accurate
and HMRC found it hard to identify employees working while furloughed when
reviewing claims. It identified the strongest source of evidence would be to carry out
population-representative surveys directly of employees, but it did not commission
further research for the period from July 2020. HMRC told us it considered further
research was unlikely to provide reliable data because of difficulties in identifying,
and getting responses from, a representative sample of furloughed employees,
and concerns that respondents might misunderstand their furlough status under
‘flexible-furlough’. With the amount of time that has now passed, a further survey of
employees is less likely to be effective.
3.17 HMRC developed a model to assess furlough error and fraud, instead of using
its random enquiry programme. It reviewed surveys of employees which HMRC, the
National Audit Office and third parties had undertaken to understand the extent
of furloughed employees working between March and June 2020. Five surveys
reported that between 9% and 26% of furloughed employees were working, with
another reporting 63%. HMRC judged that 20% was the best estimate. After
making adjustments, including for employees undertaking voluntary work, training or
working a second job, HMRC estimated that furlough error and fraud was 6.6% of
all CJRS spend during this period.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Three 41
3.18 HMRC estimated that furlough error and fraud fell to 1.1% during the 15 months
from July 2020 when ‘flexible-furlough’ was allowed. In the absence of survey data
for the period, HMRC used data collected for other purposes, and made adjusting
assumptions, in estimating that:
• overpayments for each employee working while furloughed would be around
four-fifths lower under ‘flexible-furlough’. It expected a reduction as rule
changes meant that, if employees worked during some of the hours that were
being claimed for under the furlough scheme, doing so invalidated only that
part of the claim, rather than the full claim. HMRC identified two approaches for
quantifying the change, selecting the one which produced the largest reduction
in estimated error and fraud;27 and
• the incidence of employees working while claimed for furlough was around
one‑fifth lower. The HMRC estimate depends on surveys covering March to
June 2020 only and is difficult to substantiate in the absence of robust data
showing whether the behaviour of employers and furloughed employees
changed under ‘flexible-furlough’. Caseworkers told us the freedom to work
part-time made it difficult to detect whether someone was working for hours
they were furloughed. Thus, more furloughed employees may have worked
inappropriately during ‘flexible-furlough’.
HMRC’s progress in tackling error and fraud
3.19 The priority to pay grants quickly meant HMRC could not address some risks
to error and fraud before payment. It helped employers and self-employed people
to voluntarily repay grants claimed in error or where they were no longer needed
(£968 million by March 2022). It began post-payment compliance work in earnest in
September 2020, and established the Taxpayer Protection Taskforce in April 2021 to
increase its compliance activities in 2021-22 and 2022-23.
3.20 The government’s policy is to pursue deliberately fraudulent behaviour,
but not penalise applicants for honest mistakes. HMRC is not able to recover all
overpayments and has focused on the most serious cases.
3.21 In February 2022, the Committee of Public Accounts concluded that HMRC’s
plans for recovering overpayments were “unambitious”. It said HMRC needed to
reassure Parliament and the public that it was serious about tackling error and fraud
and was taking all recovery action where cost-effective to do so.28
27 It reduced the CJRS error and fraud rate for 2020-21 by 0.4 of a percentage point more than the alternative.
28 Committee of Public Accounts, HMRC Performance in 2020–21, Thirty-Seventh Report of Session 2021–22,
HC 641, February 2022, page 5.
42 Part Three Delivery of employment support schemes in response to the Covid-19 pandemic
3.22 We examined the overall results of HMRC’s compliance programme, resources
deployed, and returns from:
• ‘one to many’ activities, to communicate standard, common messages
to multiple claimants where non-compliance was suspected; and
• ‘one to one’ compliance cases, where HMRC considered there was high risk
a claimant had overclaimed.
Overall results of compliance work
3.23 HMRC’s key performance measure is error and fraud repaid or due for
repayment (‘yield’) following compliance activity. In 2020-21, yield was £535 million,
with the large majority coming from ‘one to many’ interventions.
3.24 HMRC had expected the Taxpayer Protection Taskforce to recover a further
£800 million to £1,000 million across 2021-22 and 2022-23. Since April 2021,
HMRC has largely undertaken more resource-intensive ‘one to one’ activities and
returns have fallen. In August 2022, HMRC forecast yield of £623 million, some
£180 million below the lower end of its expectation that the Taskforce would recover
£800 million to £1,000 million (Figure 9).29 HMRC considers yield has been more
difficult to secure because error and fraud is lower than expected. If HMRC meets its
prediction for yield, between £2.0 billion and £5.1 billion of overpayments will remain
unrecovered, according to HMRC estimates.
3.25 HMRC is forecasting yield of £343 million for 2022-23 – a 52% improvement on
2021-22 levels. This will be challenging to achieve. HMRC assessed that compliance
cases still open at April 2022 may yield around £150 million. HMRC is adding new
areas of compliance work in 2022-23, including whether tax has been paid on grants.
However, 2021-22 yield was around 10% below HMRC’s forecasts and HMRC told the
Committee of Public Accounts that it expected returns to diminish.30
3.26 HMRC expected the Taxpayer Protection Taskforce would enable it to open
30,000 ‘one to one’ cases during 2020-21 to 2022-23. It is on course to exceed this.
It had closed 26,854 cases by March 2022, four-fifths of which were on the simpler
SEISS scheme.31
‘One to many’ activities
3.27 CJRS claimants accounted for 95% (£480 million) of yield. HMRC wrote to
88% of the largest businesses who claimed CJRS, receiving around 1,200 individual
repayments and amendments reducing claims, which yielded £370 million.32
29 £623 million includes £18 million yield from the ‘Eat Out to Help Out’ scheme, which provided a discount to
encourage people to return to eating out in August 2020.
30 Letter April 2022 from Jim Harra to Committee of Public Accounts Chair Dame Meg Hillier, available at:
https://committees.parliament.uk/publications/21983/documents/163435/default/
31 The 26,854 figure includes 349 Eat Out to Help Out cases.
32 Large businesses have a turnover of more than £200 million. Individual businesses may have made multiple repayments.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Three 43
Figure 9
Yield from post-payment compliance, 2020-21 to 2023-24
Annual yield is expected to be highest in 2020-21. At August 2022, HM Revenue & Customs (HMRC)
forecast the Taxpayer Protection Taskforce would yield £623 million from the three years of 2021-22
to 2023-24
£ million
600
500
Taxpayer Protection
400 Taskforce in operation1
300
200
100
0
2020-21 2021-22 2022-23 2023-24
(forecast) (forecast)
Financial year
Eat Out to Help Out (£m) 2 6 12 0
Self-Employment 16 52 196 10
Income Support
Scheme (SEISS) (£m)
Coronavirus Job 519 167 135 44
Retention Scheme
(CJRS) (£m)
Total 536 226 343 54
Notes
1 HMRC established the Taxpayer Protection Taskforce in April 2021 to increase its compliance activities in 2021-22
and 2022-23. The Taskforce’s activities will now extend into 2023-24 (paragraph 3.35).
2 Most yield in 2020-21 came from HMRC’s ‘one to many’ activities to communicate standard, common messages to
multiple claimants where non-compliance was suspected. Yield from such activities is recorded when overpayments
are recovered. Most yield in 2021-22, and forecast for 2022-23 and 2023-24, is from ‘one to one’ compliance cases
where HMRC considered there was high risk a claimant had overclaimed. For ‘one to one’ cases, yield is recorded
when the overpayment is identified rather than recovered. HMRC applies a 10% discount as some overpayments
will not be recovered.
3 As well as CJRS and SEISS, the Taskforce also covered the ‘Eat Out to Help Out’ scheme, which provided a discount
to encourage people to return to eating out in August 2020.
4 Values are in nominal terms to maintain consistency with the basis of the yield expectation for the Taxpayer
Protection Taskforce and values reported by HMRC.
5 Numbers may not sum to total due to rounding.
Source: National Audit Office analysis of HM Revenue & Customs data
44 Part Three Delivery of employment support schemes in response to the Covid-19 pandemic
‘One to one’ activities
3.28 By the end of March 2022, yield was £250 million, of which four-fifths came
from CJRS claims. We examined factors which affected yield:
• HMRC’s investigations of potential fraud.
• The time taken by HMRC to complete compliance cases.
• HMRC’s use of intelligence and insight.
HMRC has management information on yield and resourcing by scheme and team.
To help us examine its performance, HMRC analysed its records to provide activity
and results data for each of its compliance interventions which target particular
fraud risks or groups of risky claimants.
HMRC’s investigation of potential fraud
3.29 ‘One to one’ yield totalled £197 million in 2021-22, with £122 million (62%)
arising from HMRC’s fraud investigation service, which investigates the most serious
frauds, including one case which yielded £83 million.
3.30 Returns from HMRC’s compliance programme were low in 2021-22, particularly
on cases covering CJRS claims from medium-sized and small employers.
These cases yielded £27.5 million, or just £51,000 for each of the 540 staff working
them. HMRC is forecasting yield will rise to around £170,000 per person in 2022-23,
as long-running cases close. On tax compliance, HMRC expects a yield of around
£1 million per person.
3.31 HMRC has recovered little of the furlough error and fraud from employees
working while being claimed for, which HMRC estimates could have cost £2.3 billion.
HMRC’s compliance intervention targeting furlough error and fraud had closed
254 cases by March 2022 yielding only £640,000.33 HMRC has so far found it difficult
to identify furlough error and fraud from interrogation of HMRC data and open-source
material, and it has not been successful in using other potential sources of insight.
• To help it investigate the relationship between employers and employees,
HMRC has interviewed some employees but with limited success. Employees
can be reluctant to be interviewed and can refuse, for example because
they are in collusion with management, or may be concerned about their
employer’s reaction.
• HMRC judged that employers could not be visited during lockdown periods
and visits would not be cost-effective, particularly after the grant period had
finished, and told us that the lack of real-time data would not have allowed
visits to be properly targeted.
HMRC is now using VAT data to help it identify employers whose trading was
inconsistent with its furlough claims.
33 The £640,000 figure is a proxy for recoveries. It is identified overpayments less a 10% discount for non-payment.
Delivery of employment support schemes in response to the Covid-19 pandemic Part Three 45
Time to complete cases
3.32 Cases managed by HMRC’s main COVID-19 compliance team are proving more
difficult to complete than HMRC expected. In 2021-22, the team took an average
of 9.5 months (58% longer than the six months expected) to close CJRS cases
and 8.2 months (37% longer) to close SEISS cases. Open cases were also taking
longer. At March 2022, HMRC had been working 47% of open CJRS cases for more
than one year. HMRC considers scheme extensions and rule changes have made
casework more complex, reducing by one third the cases a caseworker can manage.
Using intelligence
3.33 Across both schemes, HMRC found it difficult to use many of the 40,983
allegations received through its fraud hotline. It judged 22,064 were of sufficient quality
for its compliance teams to consider. Initially some CJRS compliance cases were based
on fraud hotline intelligence alone, but these were low-yielding. HMRC does not have
management information on the nature of allegations, how many it has investigated
and resulting yield, nor the reasons why many allegations were unproductive.
Resources deployed
3.34 The Taxpayer Protection Taskforce enabled HMRC to increase its compliance
activities on the schemes. In 2021-22, HMRC deployed an average of 961 staff on
CJRS and SEISS, up from 594 in the second half of 2020-21. In total, the Taskforce
cost around £60 million in 2021-22. The Taskforce’s actual compliance staffing
in 2021-22, and forecast staffing for 2022-23, is below its 1,250 complement
(Figure 10 overleaf).34 HMRC expects to make up for the shortfall by deploying an
average of 266 full-time equivalent staff in 2023-24. HMRC is receiving £100 million
between 2021-22 and 2025-26 to partly compensate for the diversion of staff from
tax compliance activities during the Taxpayer Protection Taskforce’s existence.
3.35 At September 2022, the government was deciding on the future of the
Taxpayer Protection Taskforce, and when and how to bring compliance work on
CJRS and SEISS into its business-as-usual activities. It has decided to deploy
resources to the Taxpayer Protection Taskforce until at least September 2023.
HMRC figures indicate that by 2023-24 between £2.0 billion and £5.1 billion of error
and fraud will remain unrecovered. HMRC’s estimates of yield indicate that its return
on investment on CJRS and SEISS compliance activities was 4:1 in 2021-22, and
could be 7:1 in 2022-23.
34 Total Taskforce complement of 1,265 included 15 posts in HMRC’s legal team. In addition to the Taskforce, a further
295 staff on average in 2021-22 worked on activities linked to post-payment compliance of COVID-19 schemes, of
which two thirds were temporary staff in support roles.
Figure 10
Number of post-payment compliance staff in the Taxpayer Protection Taskforce, 2021-22 to 2022-23,
and equivalent roles in 2020-21
Staffing increased in spring 2021 when the Taskforce was established but average staff levels were 8% below its’ complement in 2021-22 and are forecast
to be 13% below in 2022-231
Number of staff (average for period)
1,400 Taxpayer Protection Taskforce compelment –
1,250 througout 2021-22 and 2022-23
1,200
1,000
800
600
400
200
0
Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar
2020-21 2021-22 2022-23
(forecast)
Quarter of financial year
Cross-scheme2 0 0 0 0 70 94 142 115 50 48 47 46
Eat Out to Help Out 1 0 0 39 93 79 88 71 83 71 70 70 70
Self-Employment Income Support 0 1 109 306 451 431 268 238 185 95 95 95
Scheme (SEISS)
Coronavirus Job Retention 0 93 415 358 447 645 688 677 853 895 842 797
46 Part Three Delivery of employment support schemes in response to the Covid-19 pandemic
Scheme (CJRS)
Total 0 94 563 757 1,047 1,258 1,170 1,113 1,160 1,107 1,054 1,007
Notes
1 HM Revenue & Customs (HMRC) established the Taskforce in April 2021 to increase its compliance activities in 2021-22 and 2022-23. The Taskforce is responsible for CJRS, SEISS
and Eat Out to Help Out which provided a discount to encourage people to return to eating out in August 2020. It also includes HMRC’s fraud investigations into these schemes.
2 HMRC does not have data on staff covering more than one scheme prior to April 2021. HMRC started collecting data from April 2021 so that it could track actual staffing against
the Taskforce complement.
3 Numbers may not sum to total due to rounding.
Source: National Audit Office analysis of HM Revenue & Customs data
Delivery of employment support schemes in response to the Covid-19 pandemic Part Three 47
Criminal and civil penalties
Criminal penalties
3.36 As at March 2022, HMRC had 24 investigations underway linked to CJRS
and SEISS fraud, covering suspected fraudulent claims of £13 million. Some of the
investigations are linked to wider tax risks.35 None have yet gone to court but there
have been 23 arrests spanning nine cases. HMRC prioritises recovery of money over
prosecution in most cases.
Civil penalties
3.37 Finance Act 2020 gives HMRC the power to raise penalties of up to 100%
of any CJRS or SEISS overpayment where it has sufficient evidence of deliberate
fraudulent behaviour.36 In line with the general supportive approach to claimants
facing difficult circumstances, the government did not seek powers to penalise those
who had made mistakes. For tax, HMRC can penalise customers who fail to take
reasonable care in providing information and gain as a result, which encourages
compliance with the tax system as a whole.
3.38 HMRC has issued few penalties on CJRS and SEISS. As at March 2022, CJRS
penalties totalled £1.1 million (0.5% of the overpayments identified through ‘one to
one’ compliance work) and SEISS penalties £3.5 million (7%).
3.39 We reviewed 30 CJRS compliance cases where HMRC had identified
overpayments. In four cases there were strong indications that claimants may have
deliberately inflated claims beyond their entitlement but penalties had not been issued.
• A company director’s daughters added to payroll after the scheme cut-off date.
• An employer inflated monthly pay from £719 to £2,500.
• A company director claimed furlough although they had submitted nil PAYE
returns before the start of CJRS.
• An employer claimed five times more than it was entitled to for 17 employees
during 2020-21.
Following our review, HMRC re-examined these cases and concluded there were
either no grounds or insufficient evidence to impose penalties.
3.40 With HMRC needing to meet a high burden of proof, and no mechanism to
penalise claimants for not taking reasonable care, few employers are likely to be
penalised for inflating claims.
35 There were also seven civil investigations into serious attempted frauds.
36 Penalty is in addition to repayment of overpaid grant. As discussed at paragraphs 3.19 and 3.20, HMRC also seeks
to recover overpayments of grants in cases of error.
48 Appendix One Delivery of employment support schemes in response to the Covid-19 pandemic
Appendix One
Our audit methodology
1 HM Revenue & Customs’ (HMRC’s) and HM Treasury’s objectives for the
schemes evolved over time, but broadly speaking were to:
• prevent job losses and large, and persistent negative impacts on the
labour market;
• support incomes for individuals;
• allow businesses and individuals to continue trading; and
• limit scope for error and fraud as much as possible.
2 Our key overarching question was “Have HMRC and HM Treasury (the
Departments) delivered the schemes cost-effectively given the constraints of the
COVID-19 pandemic?” We considered the following questions:
• Have the Departments implemented each phase cost-effectively, given the
constraints of the COVID-19 pandemic?
• Have the Departments ensured the schemes reached the people intended and
achieved the objectives of the schemes?
• Have the Departments managed error and fraud risk cost-effectively given the
constraints of the pandemic?
3 Our conclusion is based on analysis of the evidence collected.
4 We collected and analysed evidence between January and September 2022.
5 The report covers the operation of the schemes from October 2020 to
September 2021, and the post-payment compliance activities that are continuing
into 2023.
6 In the report we have differentiated in the text between analysis carried out by
the Departments, and the conclusions that they drew from it, and decisions about
the schemes taken at government level.
Delivery of employment support schemes in response to the Covid-19 pandemic Appendix One 49
Methods
Interviews
7 We conducted more than 50 meetings including ‘teach-ins’ about aspects of the
study scope, discussions of information requirements, emerging findings, and weekly
liaison meetings with staff in both Departments:
• staff from HMRC’s Customer Compliance Group who led on the compliance
regime for both Departments, and staff directly involved in compliance
casework, including HMRC’s Fraud Investigation Service;
• staff from HMRC’s Knowledge, Analysis and Intelligence Team to discuss the
monitoring and evaluation of the schemes;
• HMRC and HMT policy staff involved in the design and delivery of the
schemes; and
• HMRC internal audit.
8 We also engaged with experts from the Institute for Government, National
Institute for Economic and Social Research, Chartered Institute of Taxation, the
Resolution Foundation, CIFAS and the Association of Independent Professionals and
the Self-Employed.
9 These interviews and meetings were carried out online.
Document review
10 We reviewed several hundred documents from both Departments covering:
• policy documents discussing the options available for the Coronavirus Job
Retention Scheme (CJRS), the Self-Employment Income Support Scheme
(SEISS) and the Job Support Scheme (JSS) during their various iterations and
recommendations on the way forward at each stage – including options for the
greater targeting of support – and cost forecasts;
• consideration of admitting groups ineligible for the schemes, and the impact of
the schemes on demographic sub-groups of the population;
• lessons learned and contingency planning for future interventions;
• early work on the evaluations of the schemes, including analysis of the impact
of SEISS on recipients’ trading profits and turnover;
• the derivation of estimates of error and fraud; and
• pre- and post-payment compliance activities to detect and deter error
and fraud.
50 Appendix One Delivery of employment support schemes in response to the Covid-19 pandemic
11 We reviewed research and reports by government bodies (for example, the
Office for Budget Responsibility and the Office for National Statistics) and third
parties (for example, the Resolution Foundation) on the impact of the schemes on
individuals and the wider economy.
Compliance case review
12 In conjunction with colleagues auditing the accounts of HMRC, we reviewed
a sample of post-payment compliance cases undertaken by HMRC as part of its
random enquiry programme, reviewing papers and interviewing caseworkers.
Survey
13 We undertook a survey of seven Supreme Audit Institutions (SAIs) in countries
where responses to a survey undertaken for our first report on CJRS and SEISS,
updated by further research, indicated they were operating similar schemes to
CJRS and/or SEISS. We asked questions around the information published by their
governments, and reports undertaken by the SAIs themselves on the coverage of
the schemes, and in particular information on the extent of fraud and compliance
activities. We received five responses.
Quantitative analysis
14 We undertook quantitative analysis on scheme take-up rates and costs;
and post-payment compliance analysis around resources deployed, returns from
different types of intervention and elapsed time to process cases.
15 HMRC carried out analysis on the population of self-assessment taxpayers on
our behalf, to protect taxpayer confidentiality, which was reviewed by National Audit
Office (NAO) experts.
16 To answer the question “Have the Departments ensured the schemes reached
the people intended and achieved the objectives of the schemes?” we have drawn
on third party analysis of the macroeconomic impacts of the schemes.
Back catalogue
17 In designing and carrying out our work we took account of previous NAO
analysis examining the two schemes, as well as other government interventions
during the COVID-19 pandemic. We also deployed our fraud and error audit
framework for assessing the Departments’ approaches to managing error and fraud.
The framework builds on significant past experience of government interventions.
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