Tackling Fraud and Preventing Government Waste
(Limited Text - Ministerial Extracts only)
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The Paymaster General (Michael Ellis)
This is a Government who have been relentless in their efforts to protect lives and livelihoods throughout the pandemic, taking unprecedented steps to see the country through what have been difficult times for us all. It goes without saying that we took and continue to take our responsibilities to taxpayers extremely seriously. They rely on us to make decisions on their behalf in their best interests, and that is exactly what we do. As a Government, we have been consistent in doing exactly that, acting, in the words of the Chief Secretary, “quickly, effectively and responsibly”.
Several hon. Members rose—
Michael Ellis
I will just make some progress.
I am sorry that Lord Agnew chose to resign from his position as a Minister in the Treasury and in the Cabinet Office, and I want to take this opportunity to thank him very much for the important work he did while he was in government. The Government have been working to achieve better quality government for citizens, with relentless focus on outcomes, ensuring every £1 of taxpayers’ money is spent well; ensuring policy making reflects the communities we serve through, for example, the movement of civil service jobs away from London to Darlington, Stoke, Preston and elsewhere; driving the post-Brexit procurement rules reform to make procurement more transparent, provide better services to citizens and deliver social value; and procuring ventilators at the beginning of the pandemic. We have focused on value for money and supporting the taxpayer.
Andy McDonald (Middlesbrough) (Lab)
The Minister is talking about good stewardship of public money, but was he as concerned as I was to read in the press that, under the Tory Tees Valley Mayor, the public share of the joint venture to develop and secure major industrial opportunities, which has had tens of millions of pounds of taxpayers’ money invested in it, has been transferred to JC Musgrave Capital and Northern Land Management? Does that not raise major questions about how public moneys have been spent? Does he agree that, given wider concerns about governance and the vested interests of political donors, what is needed is an independent inquiry into the governance of the Tees Valley Combined Authority and the South Tees Development Corporation?
Michael Ellis
What I do know is that Ben Houchen is an excellent Mayor and Labour wishes that it had mayors like him.
Fraud is unacceptable wherever and however it is perpetrated. The Government remain determined to stamp it out. I can say that as a Minister and a former Attorney General, and as someone who prosecuted such cases in an earlier life—
Several hon. Members rose—
Michael Ellis
I will make a little progress, if I may.
As the House will be aware, since March 2020, the Government have delivered a comprehensive multi-billion pound package to support households and businesses. Before I turn to specific measures that we are taking and have taken to combat fraud, it is worth reminding ourselves of three key facts. First, with regard to the covid schemes that we introduced, the vast majority of people did the right thing. They understood what the schemes were for and accessed them in a way that was wholly appropriate. Secondly, this was a once-in-a-generation event and I ask the House to accept that. Businesses were on the brink of collapse. They needed support really quickly—something that the Labour party understood and Labour Members were screaming about at the time. We were able to deliver that support, and to do so properly, in record time and in a way that the world was envious of.
Thirdly, the support worked. Many thousands of jobs were saved, and today we have a thriving labour market, with record low unemployment, the economy returning to its pre-pandemic size faster than expected, and you know what, Mr Speaker—the fastest-growing economy in the G7.
Alexander Stafford (Rother Valley) (Con)
Clearly, the Government have given unprecedented levels of support to people, especially those in Rother Valley. So would the Minister condemn, as I condemn, Labour-run Rotherham Council, which handed back millions of pounds of discretionary funding to the Government because it could not get the money distributed fast enough? That is a waste of taxpayers’ money and giving the money back to the Government was a scandal.
Michael Ellis
That is a very peculiar happenstance that my hon. Friend rightly mentions. Other local authorities around the country made good use of that generous provision, and I think Rotherham have questions to answer.
Nick Smith (Blaenau Gwent) (Lab)
On Lord Agnew of Oulton, who resigned over the fraudulent covid business loans, the good, decent Lord said that there was “zippo of detail” on how the Government plan to deal with the issue of business loans. Can the Minister say how the Government will claw back the £77 million loss on the eat out to help out scheme from the missing Chancellor?
Michael Ellis
If the hon. Gentleman will allow me to make some progress, he may hear about what the Government have been doing, and will continue to do.
The Government’s priority at the time was to get financial support to businesses. That was the alpha and omega of everything—it was to get that financial support to businesses, and their employees by extension, and as quickly as possible, to protect jobs and livelihoods. In total, we made available over £100 billion of loans and grants to over 1 million businesses, through bounce back loans, the coronavirus business interruption loan scheme, the coronavirus large business interruption loan scheme, and business grants. There were myriad schemes that we were using.
Emma Hardy
The Minister’s defence—that this was a pandemic and the Government had to act quickly—does not seem to hold any water when we know that back in 2014 there were problems with Companies House. There were problems with international fraud and money laundering, and problems with how easily businesses could be set up through Companies House, yet the Government have dragged their feet; they have not taken action. That was years before the pandemic hit the United Kingdom. Had the Government taken action when they knew about the problems with Companies House, we probably would not be dealing with the amount of fraud that we are right now.
Michael Ellis
As it happens, we have given, as a Government, over £60 million to Companies House to continue its necessary reforms and we have undertaken myriad measures to prevent the problems that the hon. Lady refers to.
The first lockdown came into force on 23 March 2020. By 24 May, just a couple of months later, we had already paid out almost £28 billion in loans, rising to £80 billion by the time that the schemes closed on 31 March 2021—astronomical support.
Kevin Hollinrake
Much has been made of Lord Agnew’s resignation and we should take his resignation points very seriously. We should also acknowledge that he described the bounce back loan scheme, in his resignation piece to the Financial Times, as an “important and successful intervention”. Is not his real point that we need to make sure that checks and balances have been followed by all banks who were given the responsibility of distributing these loans?
Michael Ellis
I agree with my hon. Friend on that, and also on Lord Agnew, who is a noble man and was an excellent Minister. The sheer volume of schemes introduced and the speed with which they were designed and implemented meant it simply was not possible at the time to prevent every instance of fraud and error, and I accept that. However—
Several hon. Members rose—
Michael Ellis
I must make some progress. The measures that we implemented to minimise fraud and error were robust and comprehensive. Some £2.2 billion of what were deemed potentially fraudulent bounce back loan applications were blocked through up-front checks—£2.2 billion that the Labour party has not said anything about. Lenders were required to make and maintain appropriate anti-fraud, anti-money laundering and “know your customer” checks. Specifically, they were required to use a reputable fraud bureau to screen against potential and known fraudsters and, if an application failed the lender’s fraud checks, the lender was unable to offer a loan.
There were measures in place: those lender checks, with the duplicate loan check, incorporation date check and change in director check that were put in place in the following months, were the most impactful of all the checks implemented. The minimum standards were agreed following consultation with PwC and lenders on what would have the biggest impact on preventing fraud while still meeting the policy objective of delivering finance quickly.
It is true that PwC originally estimated the extent of fraud relating to bounce back loans at £4.9 billion, but last December it revised that figure down to £3.3 billion—so, as usual, the Labour party has its figures wrong. We will not be taking lectures from a party that, I seem to recall, left a multi-billion-pound black hole in the Defence budget the last time it was in government.
Dame Meg Hillier
I should just pick up on that point. As the Paymaster General knows, those figures are all still highly uncertain. Around £17 billion—another highly uncertain figure—of the £47 billion of loans may never be paid back. Some of that will be fraud and some because businesses have gone under. However, the key point is that he says checks and balances were put in place. He knows that was not the case: they were dropped for speed. We all lobbied for speed but, as my hon. Friend the Member for Leeds West (Rachel Reeves) said, it was the Treasury’s responsibility to ensure that the checks were in place. Why were 61% of loans by value out of the door before checks were introduced in June so that people could not apply twice? That is a simple thing, and the door was shut after the horse had bolted.
Michael Ellis
The hon. Lady has fairly said that she and others on the Opposition side did push for the Government to take action. They are right to accept that—and they were right to do so. This Government did take the precautions and, if we had waited any longer, businesses would have gone under. They would have gone down.
I suggest to the House that the news has been good in other ways too. In 2020, a National Audit Office report contained an estimate that as much as 60% of the sums lent might never be recovered. In fact, nearly 80% of the loans are being repaid or have already been repaid, and we are keeping up the pressure. For instance, we have given the Insolvency Service and Companies House new powers to prevent rogue company directors from escaping liability for their bounce back loans. So far, that has been used in respect of—
Dame Meg Hillier
On a point of order, Mr Speaker, I am reluctant to make a point of order in a debate, but it is important to reflect on what the Paymaster General has just said and he may wish to correct the impression that he gave. Those loans are 10-year loans, so it cannot be the case that 80% of them have been repaid at this point. He may want to look again at his notes and perhaps correct the impression he gave.
Mr Speaker
I think that is more a point of clarification than a point of order, but it is now on the record.
Michael Ellis
It is not worth answering that point, Mr Speaker.
As I said, we have given the Insolvency Service and Companies House new powers to prevent rogue company directors from escaping liability for their bounce back loans. So far, that has been used in respect of almost 62,000 companies holding loans worth £2.1 billion. We are giving the Insolvency Service new powers to disqualify rogue company directors and we have already introduced regulations that allow for greater scrutiny of pre-pack administrations.
Crucially, newspaper reports that the Treasury has written off £4.3 billion in fraudulent covid support payments are simply not true. The £4.3 billion is not a figure produced or recognised by HMRC. As the Chancellor of the Exchequer has said, we are not—I repeat, not—ignoring money relating to fraud in our covid support measures and we are definitely not writing it off. We were and remain determined to crack down on fraud wherever it arises. That is why, for instance, we invested more than £100 million in a taxpayer protection taskforce. At the March Budget last year, we created a taskforce of more than 1,200 HMRC staff to combat fraud in our coronavirus loan schemes. To hear the Opposition, they would deny the existence of those 1,200 staff, who are busy working away to combat fraud. The taskforce is expected to recover up to £1 billion from fraudulent or incorrect payments.
Richard Fuller
Can my hon. Friend take us back to the points that Lord Agnew made and clarify whether I have it correct? In putting out much-needed money, the Government relied on intermediaries, and therefore much of it went through the banking system. I think I heard Lord Agnew say in the other place that many of the issues related to two banks out of the seven. It looks to me that a lot of the concerns raised by Opposition Members—validly—relate to processes within some of the banks. Can my hon. Friend clarify whether I am right on that, and the Government’s intentions regarding that?
Mr Speaker
May I suggest that there is plenty of space if the hon. Gentleman wishes to speak? These are becoming speeches, rather than questions. I am more than happy to put him on the list if he wishes. We have plenty of room.
Michael Ellis
As Mr Speaker says, a more detailed response can be given to my hon. Friend’s question in due course, but he is quite right to focus on the point about banks. More than 75,000 people have been contacted and could face criminal prosecutions and financial penalties. HMRC has already recovered more than £500 billion through other robust measures, including: building automated controls into the digital claims process, to prevent more than 100,000 mistaken claims; blocking more than 29,000 claims through pre-payment checks based on risk and intelligence; using cut-off dates around scheme eligibility; and requiring customers to be registered for pay-as-you-earn online and self-assessment. Nor is HMRC’s work done; work to recoup fraudulently obtained funds continues. Those identified face repaying up to double the amount they actually received, plus interest; in more serious cases, they risk criminal prosecution.
The motion also refers to public procurement, another area in which the Government take our responsibility to the taxpayer extremely seriously. In the case of personal protective equipment, our focus was on saving lives and protecting our healthcare workers. That was the top priority, and I make no apologies for that. But again, that did not mean, either then or now, that we were lax in our approach to procurement. We acted swiftly to secure and deliver more than 17.5 billion pieces of PPE to the frontline. The vast majority of the PPE we ordered—in the region of 97%—was suitable for use, either in the NHS or other non-medical settings.
My right hon. Friend the Health Secretary explained in a written statement to the House that the need to procure PPE at incredible speed necessarily involved a change in risk appetite. However, I am also clear that, at all times, the principles set out in “Managing Public Money” continued to apply, even under the pressures at the time. The Health Department took decisions on the basis of sound commercial advice. All transactions were approved by the Cabinet Office and the Department of Health and Social Care clearance board. Treasury Ministers and officials made a calculated judgement that the costs of expediting normal processes were outweighed by the benefits to the health of the country. The health of our healthcare workers came first.
Importantly, as with alleged fraud relating to the covid support schemes, this is not over: the Government will pursue any contracts where there has been a technical failure or breach. I said that approximately 97% were okay, but we are pursuing those that were not, in line with the resolution process referred to in each contract.
Emma Hardy
On the issue of PPE procurement, which I have raised several times, it is frankly astonishing that the Government could not google “leading PPE equipment suppliers” and come up with the name Arco, which is a world leader in safety and PPE equipment. When it offered its services to the Government, it says that it was cold-shouldered and ignored, and that the Government went straight to those with connections to the Conservative party. It is disgraceful that the Government ignored a high-quality, world-leading company such as Arco.
Michael Ellis
I think the hon. Lady forgets that, at the time, the whole world was googling for PPE. There was a desperation for PPE. I do not know anything about the company that she mentions, but the reality is that there was a massive desperation to secure PPE for our healthcare workers.
The Government absolutely reserve the right to take legal action against suppliers where that is required, and the Treasury will continue to support the Department of Health and Social Care in doing whatever it needs to protect taxpayer money where there was a breach of contract. The House may also be interested to know that in cases where there is a significant surplus of PPE, we are passing that equipment to schools and public transport workers in this country, or we are donating it to other countries in need, alongside other efforts to sell or repurpose it.
The motion also refers specifically to defence projects. The Ministry of Defence is delivering some of the most complex and technically challenging programmes across Government. There is no doubt that defence acquisition has faced and continues to face some challenges, but we are working hard to address them. The National Audit Office has recognised that we are making progress. For example, in its March 2020 report, it noted that the MOD has reduced delays to delivering programmes over the last 10 years. We are determined to continue to build on that.
The financial settlement awarded to defence at SR20 has been a crucial opportunity for the MOD to move to a sound financial footing, and we are working hard with it to strengthen mechanisms to drive value for money, implement improvements in programme delivery and ensure that it can manage complexity, risk and the pace of technological change in a way that is rigorous and affordable.
This is not just about what we have already done; it is about constantly refining and improving the tools we have at our disposal. That is why we are committed to delivering reforms in the economic crime plan as well as those set out in the upcoming fraud action plan. The combination of last year’s spending review settlement and private sector contributions through the economic crime (anti-money laundering) levy will provide economic crime funding totalling nearly £400 million over the spending review period.
Importantly, the Government counter-fraud function is leading a review into counter-fraud workforce and performance, delivered jointly with the Treasury. The aim of the review is to map the counter-fraud workforce and capability across central Government and selected agencies to identify current resources and how that links to each Department’s ability to prevent, detect and recover fraud and error losses.
To conclude, the purpose of the debate seems to be to try to talk down all that the Government have done on behalf of the taxpayer in the last two years, but I am afraid that the facts paint a different picture. We understand our responsibilities as a Government and will never take them lightly. We will act at all times quickly, effectively and responsibly.
The Economic Secretary to the Treasury (John Glen)
It is a privilege to close this debate on behalf of the Government. I thank the 14 Back-Bench Members who made contributions this afternoon; I listened carefully to all those speeches, and I will try to address many of their points in the next few minutes. I particularly thank my hon. Friend the Member for Broadland (Jerome Mayhew) for his thoughtful speech.
I think it is clear that we are united in our recognition of the importance of tackling the twin scourges of fraud and waste, and I start by taking this opportunity to remind the House why we consider it a matter of great importance. This Government are ambitious for this country; that is why, during the pandemic, we sprang into action to save the economy, rapidly unleashing more than £400 billion in a package of support to protect jobs and businesses.
That is also why we are opening up opportunities to all through our transformative levelling-up agenda and our plan for jobs, and why we are focused on building back better and stronger from the coronavirus. All those policies and ambitions are underpinned by a pledge we made to the British people to safeguard our nation’s finances, so I turn now to the specifics of the debate.
First, I address the matter of covid-related fraud. Our covid support schemes have safeguarded millions of jobs and livelihoods throughout the country during the most difficult of periods. Our priority during the pandemic was always to ensure that support swiftly reached the businesses and individuals who needed it most. I think back to the reality of the situation in March, April and May 2020, when the first iteration of the CBILS met with delays; it did so because banks, following the previous crisis, had been forced and indeed constituted to do affordability checks. There was an outcry of anxiety, quite reasonably, from business owners and individuals up and down this country, and from hon. Members across the House. As a consequence, the Government recognised that we needed to develop a new iteration of that particular support, involving a 100% guarantee. We had conversations with the shadow Chancellor at the time about certain measures that needed to be taken to accommodate some of the challenges in getting that scheme to work quickly. We did so in full knowledge that the speed of delivery was critical if businesses were to be protected. Indeed, I am glad that so many were. That did not involve recklessness, but know your customer, AML and anti-fraud checks.
The bounce back loans helped 1.5 million businesses through the crisis. As the Paymaster General pointed out, the sheer volume of schemes that we introduced and the speed at which they were designed and implemented meant that it was not possible to prevent every instance of fraud and error.
Peter Grant
We all vividly remember the triumphant statements from the Chancellor at the time about how much money was being made available, but can the Minister refer us to any mention in Hansard from the Chancellor at the time about the levels of fraud that were being provided for in any of those schemes?
John Glen
When we designed the schemes, it was clear that we had to put in reasonable measures around the identity of individuals and that we had to allow people to self-report their turnover. The whole conversation with the banks was designed to ensure that that money was available as quickly as possible while not being reckless with those finances. We did it on the basis that, inevitably, there would be a measure of fraud. I am grateful for the measured way in which the hon. Gentleman speaks in the House. I cannot give a specific answer to his question, but that explains the context in which the schemes were designed.
The measures that we put in place were robust and comprehensive. There was no one single point in time where we said, “We’ve got everything right”—I would never stand at this Dispatch Box and say that. Some £2.2 billion of potentially fraudulent bounce back loan applications were blocked through up-front checks and extra fraud checks were introduced in relation to the bounce back scheme at the earliest practical point. The Government categorically do not accept the suggestion, however, that those checks could have been part of the scheme at its launch.
I have spoken to officials on several occasions over the last two years about what more could have been done at the inception of those schemes. The extra checks that we put in place as quickly as we could would have delayed the start of the schemes, which were already delayed because of the circumstances I explained earlier. It would have caused further delay—in some cases, not just weeks but months—and would have led to serious harm for many SMEs at a time of what we all acknowledge was acute crisis.
Subsequently, however, we have given the Insolvency Service and Companies House new powers to prevent rogue company directors from escaping liability for their loans by winding down their businesses. We have invested £4.9 million in the National Investigation Service to probe serious fraud and it has recovered £3.1 million in the last year alone.
Alison Thewliss
The Minister has made the point about pursuing rogue company directors. Can he tell me more about how he intends to pursue them if the name given is clearly false or the address is incorrect?
John Glen
I pay tribute to the hon. Lady’s work to highlight the inadequacies, which she reflected in her amusing but serious speech about Companies House reform. She knows my view, which I have stated numerous times, including at Treasury questions earlier today, that the reform of Companies House is an urgent priority. That is why, in the last spending review, the Treasury gave an extra just over £60 million to start that process. More needs to be done and legislation will be required to fulfil that process.
I will now address the motion’s claim that the Treasury has written off £4.3 billion in the furlough scheme and other HMRC-delivered covid support schemes, which could not be further from the truth. As the Chancellor has previously said, no, we are not ignoring that money and no, we are definitely not writing it off. We are taking decisive action to recoup it. We have invested more than £100 million in a taxpayer protection taskforce, which has over 1,200 HMRC staff focused on combating fraud. Make no mistake: this is one of the biggest and swiftest responses to a fraud risk ever made by HMRC. In fact, over 13,000 one-to-one inquiries were set up in the last tax year, and already the taskforce has contacted over 75,000 people, some of whom could face criminal prosecutions. Meanwhile, HMRC has already recovered over £500 million through a host of other robust measures, and I know that it will continue to consider every avenue when it comes to recouping money lost through fraud and error.
The motion refers to an NCA investigation. I stress that we have not prevented the NCA from investigating fraud associated with covid-19 support schemes. The NCA has investigated cases of fraud against the schemes and contributed to 13 arrests in relation to bounce back scheme fraud. The Treasury has worked closely with the Home Office on the law enforcement response to fraud, and I agree that the NCA should continue to pursue cases of serious fraud against bounce back loan schemes. As part of the 2020 spending review, the Government committed a further £63 million to the Home Office to tackle economic crime, including fraud.
I now want to address some of the points raised on procurement; the motion talks about public procurement. As my right hon. and learned Friend the Paymaster General said, we take our duty extremely seriously. On personal protective equipment, our focus during the crisis—rightly—was on saving lives and protecting our healthcare workers. However, as has been mentioned today, the pace of this roll-out involved a change in risk appetite, and meant that Treasury Ministers and officials had to make calculated judgments on how to apply that spending control. It was not business as usual. None the less, at all times, the principles set out in “Managing Public Money” continued to apply, DHSC took decisions on the basis of sound advice and all transactions were approved by the Cabinet Office and the DHSC clearance board. We will continue to combat fraud in that area. We will pursue any contracts where there has been a technical failure or other breach, and we will not hesitate to take legal action against suppliers where needed.
I will finish on some of the other aspects included in the motion, starting with defence. As somebody who was a member of the Defence Committee for a couple of years and attended the Royal College of Defence Studies course, I take a great interest in these matters personally. My hon. Friend the Member for Barrow and Furness (Simon Fell) mentioned the complexity of some of the procurements and the evolving scope of individual projects—sometimes, at the inception of these capabilities, their formation is not fully known, so it is a particularly challenging element of Government spending. However, the National Audit Office has noted the progress that we have made so far. The financial settlement of the 2020 spending review is helping the Ministry of Defence to move to a sound financial footing and we are focused on driving improvements that will result in greater value for money.
Equally, we are sharpening our tools to deal with the scourge of economic crime. We are committed to delivering reforms through the economic crime plan and the forthcoming fraud action plan and, thanks to the spending review settlement and private sector contributions, as has been mentioned, we have an additional £400 million to tackle such crime over the next spending review period.
I repeat my thanks to Members across the House for participating today. I have listened very carefully to their remarks and will reflect carefully on them. There can be no doubt that fraud and waste hamper a Government’s efforts to change lives and transform a country for the better. That is why we are focused on combating those threats to our national wellbeing, while working hard at boosting efficiency across every part of Government. We are right to take this action to fulfil that enduring commitment to the economy, to the country and to every citizen.
Question put and agreed to.
Resolved,
That this House agrees with the remarks of Lord Agnew of Oulton in his resignation letter that the Government’s record on tackling fraud is lamentable; recognises the vast amount of taxpayers’ money that has been lost to waste and fraud since the start of the coronavirus pandemic, including the estimated £4.3 billion recently written off from Treasury-backed Covid business support schemes; notes the Government’s unacceptable record of poor procurement over the last decade, including £13 billion wasted on defence projects; further notes the warnings the Chancellor received in 2020 regarding the serious weaknesses allowing for public funds to be diverted to criminal enterprises; calls on the Government to set out a strategy to recover all taxpayers’ money obtained by criminal groups and to fully engage with a thorough National Crime Agency investigation into all issues related to the fraudulent exploitation of the covid-19 support schemes; and further calls on the Chancellor of the Exchequer to make a statement to this House before 31 March 2022 detailing how much taxpayers’ money has been successfully retrieved.