The Impact of COVID-19 on UK Government Spending and Assessing the Cost of Fraud

We recently hosted Counter Fraud 2023. Here’s a summary of what we learned. 

The Impact of COVID-19 on UK Government Spending and Assessing the Cost of Fraud

The COVID-19 pandemic has profoundly impacted the world, and the UK government is no exception. To help with the challenges posed, the government implemented several measures to support individuals and businesses affected by the pandemic in response to the crisis.

However, these measures have also resulted in a significant increase in government spending, leading to concerns about the long-term sustainability of public finances. At the same time, fraud has also been rising, with the National Audit Office (NAO) estimating a total of £33 billion in fraud and error in 2021-2022.

So, how did the pandemic impact government spending and how has the increase in fraud further exacerbated the problem?

• The Increase in Government Spending
• Challenges and Costs
• Issues With Emergency Procurement
• Estimating the Cost of Fraud
• Putting it All Together
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The Increase in Government Spending

During the COVID-19 pandemic, the UK government implemented various measures to support businesses and individuals affected by the crisis. These measures included the furlough scheme, business grants and increased welfare spending. 

The furlough scheme was introduced in March 2020, enabling businesses to claim 80% of an employee's salary (up to a cap of £2,500 per month) if they couldn't work due to the pandemic. The scheme was initially planned to last three months but was extended until the end of September 2021.

Similarly, the government provided business grants to support companies affected by the pandemic. The grants were available to businesses in different sectors, such as retail, hospitality and leisure. The amount varied depending on the business size and the industry they operated in. 

Welfare spending also grew by increasing Universal Credit payments and temporarily suspending the minimum income floor for self-employed claimants.

As a result, government spending increased significantly, with the Department for Work and Pensions (DWP) experiencing a surge of two million additional claimants between March and June 2020. 

The total cost of the government's measures to support businesses and individuals during the pandemic is estimated at around £372 billion.

Challenges and Costs

While the government's actions were necessary to support those affected by the pandemic, they also came at a cost. 

The surge in benefit claims led to a backlog, with the DWP needing help to process claims efficiently. As a result, there was a significant increase in overpayments, with 26.6% of claims being overpaid at the height of the pandemic compared to 10.9% before the pandemic.

The DWP has already introduced several measures to address these issues, such as hiring additional staff and improving its digital infrastructure. However, the DWP must continue to work on reducing the backlog and tackling overpayments to ensure the long-term sustainability of public finances.

Issues With Emergency Procurement

The government also faced challenges in its emergency procurement of goods and services during the pandemic. While emergency procurement was necessary to respond quickly to the crisis, there were concerns about the need for more transparency and controls. 

The NAO found that some emergency procurements were not supported by appropriate evidence and there were issues with conflicts of interest.

For example, the VIP lane for procuring personal protective equipment (PPE) allowed senior officials and MPs to recommend companies for procurement, resulting in a lack of transparency and conflicts of interest. 

The government has since introduced several measures to address these issues, such as increasing transparency in its procurement processes and establishing an independent board to oversee the procurement of PPE.

Estimating the Cost of Fraud

According to the NAO, fraud is rising in the UK. The most recent audit of accounts from 2021-2022 reveals a total of £33 billion in fraud and error, including tax gap and other uncertain estimates. 

Of this, an estimated £10 billion results from tax evasion and criminal attacks, while the remaining £23 billion is driven by accounting estimates. 

However, these figures are uncertain and may be underestimated due to excluding fraud types that aren't included in accounting estimates.

The COVID-19 pandemic has also had an impact on fraud. According to the NAO, the estimated cost of fraud doesn't include the impact of the pandemic, which accounts for £379 billion in expenditure across two years. 

Comparing the two years preceding the pandemic with the two years after reveals a massive increase in recorded fraud from £5.5 billion to £21 billion.

Putting it All Together

The impact of COVID-19 on UK government spending has been significant, with emergency measures to support businesses and individuals leading to a surge in spending. 

While these measures were necessary, they also came with challenges and costs, including a backlog of benefits claims, overpayments, issues with emergency procurement and delayed financial reporting. The government must address these challenges and ensure the long-term sustainability of public finances.

Furthermore, the cost of fraud is also a significant issue that can't be ignored. The impact of COVID-19 has only exacerbated this problem, resulting in a massive increase in recorded fraud.

It's critical to invest in counter-fraud measures to reduce the financial impact of fraud on public spending. The NAO plays a crucial role in auditing and reporting government spending to ensure it's free from material misstatement and irregularity. 

Ultimately, it's the government's responsibility to take proactive steps to address these issues and ensure the proper management of public finances. Already, we’ve seen proactive measures being put in place, such as the launch of the Public Sector Fraud Authority, helping us move in the right direction. 

Join Our Next Event

Govnet has several events coming up in 2023 in the London area and we’d be delighted to have you. We host industry experts within several different sectors including healthcare, technology, education, justice and finance and procurement.