Tackling Fraud and Preventing Government Waste

Emma Hardy Excerpts

Tuesday 1st February 2022 Commons Chamber

[Rachel Reeves]

As an hon. Member mentioned earlier today, this morning was the first we had seen of the Chancellor at the Dispatch Box since the beginning of December—perhaps we were lucky to see him today.

Disturbing reports of court cases are now emerging. They reveal how an organised crime leader, with no less than 48 previous criminal convictions, was handed £50,000 of taxpayers’ money. If only that were a one-off case. The same judge had seen, two months prior, a case where a drugs gang had been given a £25,000 Treasury bounce back loan. Well, good for them to bounce back! What about those who were excluded?

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

I thank my hon. Friend for making an incredible speech. What we cannot forget are the stories we have heard, like the one from a woman in my constituency who had set up a business as a driving instructor. The rules the Government set meant that she was entitled to no compensation and no support whatever. She was left with no income and had to rely on food banks. As my hon. Friend says, at the same time that drug barons were being given taxpayers’ money, people in my constituency were given absolutely nothing and were forced to rely on charity. It is a disgrace.

[Rachel Reeves]

My hon. Friend speaks powerfully. I would like the Minister to explain, at the Dispatch Box, why drugs gangs got tens of thousands of pounds of taxpayers’ money when my hon. Friend’s constituents could not get a penny.

The Chancellor and other Ministers were warned repeatedly about the risk of fraud. In June 2020, the Chancellor was advised by the Fraud Advisory Panel, Transparency International, Spotlight on Corruption and the former director of the Serious Fraud Office that there were

“serious weaknesses that enable fraudsters and corrupt insiders to exploit the bounce back loan scheme and the covid business interruption loan scheme.”

and that that would create a “risk to the taxpayer”. They offered to provide the Chancellor with information, advice and support to improve the control of the funds, yet it seems the Government were not interested in that advice.

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[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.

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[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.

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[Alison Thewliss]

I have a lot to get through. If the hon. Gentleman wants to make a speech later on, I am sure we will all be incredibly interested to hear what he has to say.

I have spoken at every opportunity, and Ministers have heard me at every opportunity, on the need for reform of Companies House, and it still baffles me why the Government are so lackadaisical about this clear open door to fraud. Companies House remains a repository of information, not a checking service. It is not an anti-money laundering supervisor. In answer to me at Treasury questions earlier, the Economic Secretary to the Treasury referred to the 2018 Financial Action Task Force report, but that still means four years of inactivity in this House. In 2018, as he will remember, we also had the Sanctions and Anti-Money Laundering Act 2018, a further missed opportunity to have closed this door and locked the fraudsters out.

Companies House has no connection with the UK Government’s Verify scheme, which is required for a passport, a driving licence or a tax return. For a minimal fee of only £12, someone can set up a company in the UK with no checks on who they are and what they intend to do with that company. Compare this with, for example, the £1,012 for a child to take up their right to citizenship. The money involved is absolutely baffling. Last year, in This is Money, Martin Swain, director of strategy, policy and external communications at Companies House, admitted:

“Even though, sometimes, we know that the information is incorrect or potentially fraudulent, the registrar is legally required to register it.”

The Companies House website even has a disclaimer at the top that says:

“Companies House does not verify the accuracy of the information filed”.

Why is this being allowed to continue? Even a simple drop-down menu in the registration process would stop people putting in things like “Anytown, Anywhere” rather than a place that really exists.

[Emma Hardy]

The hon. Lady is making an excellent speech and pointing out all the problems with Companies House. At the moment, as it says, it would take over 10 years, on the pace of change that we have from the Government, to see action taken on this, and all the time people are setting up these fraudulent companies.

[Alison Thewliss]

The hon. Lady is absolutely correct. The rate at which people are doing that should be causing the Government real fear, and it is not. This makes no sense at all. Every day that the Government allow it to continue, the register becomes more and more useless and more and more full of junk information and fraudulent transactions, and they should be embarrassed by that.

It has been a matter of public record for years that the Companies House register is utter guff. It contains names such as “Holy Jesus Christ”, whose nationality is listed as “angelic”, residence as “heaven” and profession as “creator”, and “Adolf Tooth Fairy Hitler”, listed as one of the clearly invented directors of a company calling itself Spypriest Ltd. There are also some highly precocious company directors who are only a few months old. Research by Global Witness in 2018 identified 4,000 listed beneficial owners under the age of two, including one who had yet to be born—talk about being born yesterday!— as well as five beneficial owners who controlled more than 6,000 companies. This is just not credible, and the Government know it.

During the past week, the Companies House expert Graham Barrow has been monitoring in real time the construction of a network of companies using real names but fictitious addresses. This leaves real people affected, but often unaware that their names are being abused—and difficult to contact, because the addresses are not real. It also affects the counter-fraud efforts to which the Minister referred. The people setting up those fake companies cannot be traced and chased down, and are allowed to get away with it.

It gets worse, however, because this open door at Companies House allows dirty money to be laundered through the UK. Oliver Bullough is one of many who have pointed out that kleptocrats from around the world have been abusing UK corporate structures—including Scottish limited partnerships—for years to shift their ill-gotten lucre. There are pressing implications for the current situation in Ukraine, but this is not new; it has been going on for years, completely unimpeded. The news that the National Crime Agency has today been able to seize £5.6 million from an Azerbaijani MP based in London is of course welcome, but that is short of the £15 million that the NCA wanted to seize. It is the tip of a massive iceberg. Duncan Hames of Transparency International has said that it estimates that the ruling elite of Azerbaijan own £700 million worth of property in the UK, and that about £2 billion has been shifted around Europe, some of it through our corporate structures. That makes the delaying of a registration of overseas entities Bill even more unacceptable, and even more baffling.

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[Simon Fell (Barrow and Furness) (Con)]

I am slightly surprised to be called so early in the debate, but very grateful. It is an honour to follow the hon. Member for Glasgow Central (Alison Thewliss), who spoke a lot of sense about Companies House in particular. I welcome the Opposition’s use of their time on this debate, as this is an important matter that goes to the heart of competence in what the Government are supposed to deliver: good decision making while acting prudently with the public purse. Let us be clear that fraud and waste of public funds are entirely unacceptable.

Before I continue, I should point to my entry in the Register of Members’ Financial Interests. For 10 years, before becoming an MP, I worked in fraud and financial crime, and the organisation I worked for chaired the Joint Fraud Taskforce. I should perhaps also start with an apology. I have heard the phrase “single transferrable speech” a few times in this place, and this might be my opportunity to make one. My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) and the right hon. Member for Barking (Dame Margaret Hodge) secured a debate on economic crime, and I will repeat some of the points I made in that debate, if the House will indulge me.

We would be right to be dismayed by some of the unrecovered sums from the various covid support measures, but we should not be quite so quick to jump down the Government’s throat. The recovery of such moneys, as the Minister said, takes time, and we must be realistic that the headline figure will look very different in six months’ time, let alone 12 months’ time. Having spoken to Ministers about this, I am reassured by their determination to drive down those figures further and further, and by the measures that they have already taken, but this is another reminder that we should be considering an economic crime Bill as a matter of urgency.

Here is where the single transferrable speech kicks in. I met the National Crime Agency a few years ago, and it had mapped an organised crime group and followed how it laundered the proceeds of economic crime, picking up money along the way from our constituents who had been defrauded, from people running small boats across the seas, from organised crime and from the dark web. The chain runs from telephone fraud across the channel and to the poppy fields of Afghanistan, and these groups are not rag-tag bunches of criminals; they are organised, they are not chancing their arm and they are deeply successful. They are not paying tax, and there are many of them out there.

As sure as eggs is eggs, some of the people who have been exploiting these Government schemes are connected to organised crime. They know how to manipulate the system, and they know how to avoid all the very good, robust checks that the Government mandated for the covid schemes. One of the things we need to do is tighten up the system and, again, there should be an economic crime Bill.

[Emma Hardy]

The hon. Gentleman is making an incredibly thoughtful speech, and so far I agree with all of it. Does he share my concern that the cut in Government aid means the National Crime Agency has had to put on ice its plan to grow the international corruption unit to look at this international form of organised crime?

[Simon Fell]

I do not know enough of the detail to answer that question responsibly, but what would unlock the power of the NCA is far more access to data and data sharing. If we can get people sharing robust, high-quality information from the public sector and the private sector, the NCA could draw down on some of this economic crime with the tools it already has.

Some of the people responsible for misusing and misappropriating Government funds are engaged in high-level economic crime, but we need to consider the circumstances of the time. These support schemes, as has been said, were set up in very quick order, and they were designed to help people and businesses that were facing a very imminent precipice. I think we all acknowledge that furlough and income support saved thousands of jobs and helped to aid the recovery and the buoyant economy we are now seeing as we leave the pandemic.

The Chancellor has been clear that he will do everything he can to get that money back and to go after those who took advantage of the pandemic, and the taxpayer protection taskforce, which has had a £100 million investment, is a welcome measure. It is a good demonstration that the Government are working together and pulling together.

We should also consider what has already been achieved. Last year, the Government stopped or recovered nearly £2.2 billion-worth of potential fraud in bounce back loans and £743 million in overclaimed furlough grants, but we cannot afford to take our eye off the ball. Fraud is the No. 1 volume crime in the UK. It is an epidemic that is out of control, and we simply do not have enough of a grip on it. I will repeat myself: we need an economic crime Bill to give law enforcement the tools they need to collaborate better with the private sector.

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[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

It is a pleasure to speak in this debate and to follow the hon. Member for Glenrothes (Peter Grant). It has been a really interesting debate. It is a shame that the hon. Member for Thirsk and Malton (Kevin Hollinrake) is not in his place, because, like the hon. Member for Glenrothes, I thought his comments on whistleblowing were really important. The importance of protecting those who call out economic crime is not often raised in this place.

Since 2019, economic crime has increased. Action Fraud has talked about a 36% increase in fraud offences for the year ending June 2021, compared with the year ending June 2020, and a 51% increase in financial investment fraud. I cannot remember who said it, but an earlier speaker in the debate pointed out the emotional upset that comes with fraud. It is worth contemplating for a moment that people who are defrauded can feel incredibly, personally hurt by it. It has a huge impact on them.

We need to look at a system that is fairer. One of the things that we like to say about this country when asked to describe it is that it is generally a fair and just country, but the system we have at the moment does not feel fair or just. It has been mentioned many times that the fraud relating to bounce back loans amounted to around £4.9 billion. When we include the coronavirus job retention scheme, the self-employment scheme and eat out to help out, we are looking at a total of £5.8 billion in overall fraud losses. It is worth remembering the comments made by Lord Agnew in his article in the Financial Times on 25 January. What he said was important, because it was not just about the loans introduced because of the coronavirus pandemic. He said:

“Fraud in government is rampant. Public estimates sit at just under £30 billion a year. There is a complete lack of focus on the cost to society, or indeed the taxpayer.”

Those are the words of the Government Minister who has just resigned in the Lords. It was not just a comment on the bounce back loans or coronavirus. He said that

“fraud in government is rampant”,

and as the anti-fraud Minister, surely he should know. In the same article he went on to say:

“The government machine has failed spectacularly both in the business department in its weak oversight of the British Business Bank and in the Treasury for allowing such dysfunctionality to continue on such a colossal scale.”

One of the Government’s own Ministers is making those comments about the level of fraud we have in government. That is absolutely shocking.

As I said in an earlier intervention, I am concerned that some of these problems are long-lying, not immediate or concerned just with the recent coronavirus pandemic. The National Crime Agency is unable to grow its international corruption unit because of cuts to the UK aid budget. One part of the Government is making changes such as cuts to UK aid—I still cannot understand the justification for that—and that will impact on our ability to tackle international fraud. We know that tackling fraud is under-resourced and under-invested. One third of all reported crime is fraud, but tackling it has only 1% of police resources. Of course we need an economic crime Bill, and we also need the Online Safety Bill. Had the Government not been so tied up in desperately trying to save the Prime Minister, we might be seeing some concrete action on the things that really matter.

The Economic Secretary to the Treasury has been before the Treasury Committee, of which I am a member, and he spoke about Companies House. The hon. Member for Glasgow Central (Alison Thewliss) made a good speech, detailing all the difficulties and concerns about Companies House, but again, we have known about that since 2014—it is not new. The Government’s defence that, “Oh, we had to do things quickly because of the coronavirus pandemic, and this is why we have problems”, simply does not wash. We know there has been under-investment in tackling fraud because we do not have the resources the police need, and we know that the international aspect of that is under-invested in further because of cuts to UK foreign aid. We know there have been problems in Companies House since 2014, which the Government keep talking about and failing to take action on.

Reform of Companies House is essential. We cannot allow UK companies to be used to launder money and conduct economic crime. The pace of change is too slow, and if we continue with our current speed, we will not see the action needed for another 10 years. Transparency International UK has identified 929 UK companies involved in 89 cases of corruption and money laundering. That equals—I think this will shock most Members present—£137 billion in economic damage. That is not a small amount of money. We are talking about huge amounts of cash.

The three consultations launched by the Department for Business, Energy and Industrial Strategy, which were looking at Companies House, closed on 3 February 2021. Since then we have seen nothing; two years later, nothing. Where is the legislation to bring the changes and funding that we need to reform Companies House? This goes back to the point I made at the beginning of my speech: this is a question of fairness and justice. It is not just about the pandemic. I understand why the Government want to blame all the mistakes on the pandemic and the need for urgent action, but the problems are much deeper than that.

When we think again about what we could have spent that money on, that is where it becomes quite difficult. I have been contacted by many of the excluded community, who are really upset about the lack of support they have been given, the bankruptcy they faced, the need to go to food banks or claim benefits for the first time, and how unfair they think that is when they see how much money went out in fraud. It is not just them, because we have seen the same with social care. I have mentioned in the House on a number of occasions the Conservative-led East Riding of Yorkshire Council, of which my constituency is small part. It has a desperate need for money to deal with the number of elderly people who need care. It has a deficit of £1.4 million for the current year, and it needs more to offer competitive wages. We have people in the East Riding of Yorkshire not getting the care they need because the local council does not have the money it needs to fund it properly.

We cannot talk about this issue without relating it back to normal life. If we are talking about wasting £4.3 billion, that is £4.3 billion that is desperately needed by other people across our country—people struggling with the cost of living, excluded members of the community and people not getting the care and support they need. It is ludicrous, as others have said, that we have a Prime Minister who spent £900,000—it is hilarious—employing a consultant to tell him that he could not build a bridge from Scotland to Ireland. My goodness me. I am sure someone out there has a tin of tartan paint that they could sell to the Prime Minister for around £900,000. If not, I am sure someone in my constituency could make the same offer. Or perhaps a ladder to the moon could be the next scheme the Government would like to invest in. I could offer myself as a consultant to look into the matter for him.

What we need, seriously, is an economic crime Bill, and we need it now. There is time in the parliamentary timetable to look at it. We need to a register of overseas interests. That was promised under David Cameron and by successive Conservative Prime Ministers, but we still have not seen it. We need reform of Companies House, and we need that to be accelerated. I have respect for the Minister. I am sure he wants to reform Companies House, too, and I urge him to make that change urgently—sooner rather than later. I also ask him to include the investigative arm in the resourcing of Companies House, so that it is not just about filing companies’ details but could look into the legitimacy of some of the companies that want to register. Finally, we need the implementation of all the recommendations of the Russia report from 2020.