Only 1% of £1.1bn lost in Covid business scheme recovered, report finds

The “overwhelming majority” of fraud and error occurred during the initial incarnation of the grant scheme launched in March 2020, which did not require prepayment checks, the National Audit Office (NAO) said in its report on the rushed-through efforts.

The total of £1.1bn lost in grants amounted to just under 5% of the total for the scheme, according to business department statistics. The latest figures of retrieved money, collated by the newly renamed Department for Business and Trade (DBT) and cited by the NAO, showed that only £11.4m of that has been recovered – 1% of the amount lost.

The report sets out the sheer speed at which the eight separate grant schemes for businesses, administered by local authorities, were developed and launched, noting that the business department was only asked by the Treasury in late February to examine how such a system might work.

The first version began from 11 March, with a second on 17 March. As early as 19 April, the report says, local authorities had made 484,000 payments totalling £6bn, more than 50% of the total handed out in what was the biggest such support programme beyond the furlough scheme.

Matters were not helped by a lack of any shared contingency plan between local and national government on how to support businesses in the event of an emergency, the NAO said, with councils generally only hearing about new schemes when they were announced publicly, at which point they were already dealing with queries from local businesses.

One result of the accelerated timetable was the initial wave of fraud and error. Later versions of the grants not only used prepayment checks but also had access to much more accurate local information about businesses.

The report calls for the DBT and Treasury, working with councils, to draw up formal contingency plans by the end of this year about similar financial support if there is a future national emergency, using the lessons of the Covid scheme.

Gareth Davies, the head of the NAO, said the business department and local government “deserve credit for working quickly to set up and distribute grants to businesses”, but that the full impact of fraud and error remained unclear.

“The government does not yet know the impact of these grants – in terms of maintaining jobs or how much support might have been given to businesses which did not need it. Without such an assessment, an overall judgement about the value for money of the schemes remains open,” he said.

“The government’s experience of working at speed with local authorities to channel financial support during the pandemic offers important lessons should similar crises occur. The new Department for Business and Trade can now use these lessons to improve contingency planning and to build government resilience for responding to future national emergencies.”