Public Accounts Committee – The NEN

£5.5 BILLION lost to tax evasion could be ‘significant underestimate’, report warns

HMRC ‘not sufficiently curious on true scale of evasion, with no strategy for tackling it’

The true cost of tax evasion is likely being vastly underestimated, as loopholes in the current system make it all too easy for fraudulent behaviour to go unchecked. In a report released today, the Public Accounts Committee (PAC) is calling for a clear strategy to tackle tax evasion and increased powers for public bodies to address fraud.

HMRC estimates that tax evasion cost £5.5 billion in lost revenue in 2022-23, 81% of which could be attributed to small businesses. But the introduction of legislation in 2021 making online marketplaces liable for VAT from overseas sellers led to £1.5bn in additional taxes per year, five times greater than HMRC predicted.*

The PAC is therefore concerned HMRC may have underestimated the level of evasion occurring and is calling on HMRC to assess the reasons behind this gap. The report is concerned by the lack of curiosity shown by HMRC to investigate the issue, further noting that its inquiry heard that anywhere between 5% and 20% of UK registered companies were fraudulent in 2023.

Despite the vast sums lost, HMRC does not have a clear objective or strategy to tackle tax evasion. The issue appears to be exacerbated by a lack of collaboration to date between HMRC, Companies House and the Insolvency Service.

The PAC is calling for HMRC to set out a clear strategy for tackling evasion and deliberate non-compliance, while noting that the current planned timeline of five to ten years to tighten company registration requirements is too far in the future.

The introduction of the Economic Crime and Corporate Transparency Act 2023 granted Companies House greater powers to clean up the company register and remove fraudulent information.

With identity verification set to become mandatory by autumn 2025, it is clear steps are being taken in the right direction. But the PAC is concerned measures are not strong enough, as Companies House is still unable to verify addresses of registered companies, which the PAC fear will mean it shall remain all too easy for registrations for fraudulent means to continue.

The PAC was disappointed to learn that HMRC has continued to bombard a taxpayer in Cardiff with letters seeking unpaid tax as a result of businesses fraudulently registering their home address for VAT purposes, despite the Committee having pressed this issue for over a year.

The PAC fear this case unfortunately illustrates a wider issue of HMRC’s VAT registrations processes being far too open to abuse, with the tax authority not exploring options to tighten controls.

The number of prosecutions resulting from HMRC’s criminal investigations reduced from 749 in 2018-19 to 344 in 2023-24. During the same period, the Insolvency Service disqualified just 7 directors for phoenixism.

The PAC notes that it does not appear that the mechanisms in place bear down on tax evaders and rogue directors who flout insolvency rules are being used to their fullest extent.

Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said: “It is of deep concern that the many billions in tax rightfully meant for the public purse could just be the tip of the iceberg. Not only that, but our own tax authority has not sufficiently curious with a view to accurately diagnosing the problem.

“Though we acknowledge the inherent difficulty of the issue, it is clear that more must be done to clamp down on fraud and root out the bad actors who are taking advantage of loopholes in the current system. It is unfair on those who abide by the rules to be undercut by those that are evading their obligations. There has to be a real willingness by those in charge of Companies House to effectively use the powers they’ve been given.

“It is heartening to know that work is being done to implement a more joined up approach across public bodies. However, large roadblocks remain in place that will inevitably slow down progress, and in some cases may stall it completely.

“It is also unclear how successful any effort will be in the absence of a clear strategy with measurable outcomes to tackle tax avoidance. Government needs to get a tighter grip on this issue to prevent further tax funds being lost unnecessarily.”

Disability benefits claimants at increased risk of hardship as DWP underpayments rise

Report warns service provided to customers is a mixed bag with levels of fraud remaining unacceptably high

Disability benefits claimants receive an unacceptably poor level of service from the Department for Work and Pensions (DWP). In a report published today, the Public Accounts Committee (PAC) warns that the DWP’s understanding of vulnerable customers’ experience is not good enough, with how it provides customer service overall also falling short.

The report finds that benefit claimants received over £4bn less than they were entitled to in 2023-24. This increases the risk of financial hardship for the people losing out. This figure of underpayments has risen from £3.5bn in 2022-23. Underpayment rates are highest for disability benefits, such as Personal Independent Payment (PIP) and Employment and Support Allowance (ESA).

The inquiry heard that disabled peoples’ experiences of the benefit system are often negative due to issues with the design of the system and how DWP communicates, with evidence that 43% of claimants with complex disabilities do not have their needs met through DWP’s communications.

Not informing DWP of a change in circumstances is the most common reason for underpayments – the report notes that many claimants need to call DWP to do so, but a significant proportion of calls go unanswered.

The PAC is warning that DWP does not understand well enough the experience of vulnerable customers and customers with additional or complex needs, and should gather the data it needs to gain this understanding.

The DWP conceded to the PAC that, while it had been using artificial intelligence to help identify vulnerable customers at the time of the Committee’s inquiry, it did not have a system to identify such customers on the telephone.*

The report raises continuing concerns about the potential negative impact on protected groups and vulnerable customers of DWP’s use of machine learning to identify potential fraud, and seeks reassurance from Government that claimants are not being treated unfairly through its use.

Recipients of PIP and ESA, the report finds, receive an unacceptably poor service from DWP. ESA claimants have to wait an average of nearly 30 minutes for DWP to answer their calls (compared to approximately 2 minutes for Universal Credit claimants). For new PIP claimants, only half of these are processed on time (as compared to 96% of new State Pension claims).

While benefits underpayments are climbing, the report also warns that overpayments are also on the rise, with £9.5bn of benefit expenditure (excluding State Pension) overpaid in 2023-24 – up from £8.2bn in 2022-23.

The report calls out DWP’s defence of its current performance: by referring to the challenge of working against a “headwind” of an increasing propensity for fraud in society. The PAC sees this as a dangerous mindset, stressing that it is the DWP’s job to improve its defences and ensure benefit claimants receive the right amount of money.

Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said: “Our report’s disheartening findings illustrate the stark disparity of experience between claimants for disability benefit and other users of the system.

“In some cases, claimants are literally calling for help and receiving no answer, resulting in increasing risks to their financial security. The British public would be forgiven for thinking the state is AWOL just when it needs it most.

“The DWP must do more to ensure that claimants are reunited with the money to which they are entitled, as well as to understand the needs of vulnerable claimants.

“Our Committee is closely scrutinising the use of AI in Government. While this Committee would welcome the use of AI for the benefit of the public, the onus is also on the DWP to prove it is using these powerful tools in a safe and fair manner.

!We are also as concerned at the picture of growing underpayments as we are with overpayments, and have little sympathy for the DWP’s argument that this rise is driven by a growing propensity for fraud in society.

“This amounts to saying that the DWP’s job is too hard to do well – not a defence that this Committee is prepared to accept.”

Asylum accommodation and Rwanda: Little to show for money spent so far, PAC report finds

Westminster’s Public Accounts Committee (PAC) has published its report scrutinising asylum accommodation and the UK-Rwanda Partnership.

The report finds that, despite the Home Office committing significant sums of money to the Rwanda partnership and its large accommodation sites, there is little to show for the money spent so far.

Questions also remain as to what will happen to the more than 50,000 people left in limbo by the system – people who are living in the UK, with no ability to claim asylum, who are officially “pending relocation”.

On asylum accommodation, the report welcomes Government’s progress in closing asylum hotels in communities.

However, the report finds the Home Office’s assessment of the requirements for setting up alternative accommodation in large sites fell woefully short of reality and risked wasting taxpayers’ money, while the new sites will not house anywhere near as many people as initially expected, exacerbating existing accommodation issues.

Whistleblowing: Committee calls for civil service cultural change to create ‘speak up’ environment

The Public Accounts Committee (PAC) has published its report scrutinising whistleblowing in the civil service.

The report finds that it is clear the civil service has more to do to promote a culture supportive to whistleblowing, and calls for a cultural change to raise awareness and provide assurance on whistleblowing processes and create a ‘speak up’ environment.

Following the PAC’s findings in 2016 of disappointing progress from Government in improving whistleblowing arrangements, Saturday’s report finds that the Cabinet Office is still missing key metrics on whistleblowing concerns across the civil service, and lacks assurance over the completeness and consistency of data being reported by departments.

Levelling Up shambles: ‘No compelling examples of delivery so far’

Just over 10% of promised funds actually spent and making a difference on the ground
Public Accounts Committee warns of lack of transparency and waste of public resources in funding approach

The Government is unable to provide any compelling examples of what Levelling Up funding has delivered so far. In a report published today, the Public Accounts Committee (PAC) warns that councils have been able to spend just a fraction of the Government’s promised Levelling Up funding, with only just over 10% of the funds provided to reduce inequality under the Levelling Up agenda actually spent and making a difference on the ground.

The PAC’s report finds that, of £10.47bn in total funding from central government, which must be spent between 2020-21 and 2025-26, local authorities have been able to spend only £1.24bn from the Government’s three funds as of Sept 2023.

Furthermore, only £3.7bn had been given to local authorities out of the total allocation by the Department for Levelling Up, Housing and Communities (DLUHC) by December 2023.

In evidence to the PAC, DLUHC cited project-specific issues and the impact of the pandemic and inflation for a lower-than-anticipated level of spending to date. The PAC is calling for six-monthly updates from DLUHC, both on the amount of money released to and spent by councils, and on the progress of projects themselves.

The report finds that more impactful bids to funding lost out due to optimism bias in favour of so-called ‘shovel-ready’ projects. Yet, the report raises concerns that not enough was done by DLUHC to understand the readiness of schemes and the challenges facing local authorities before funds were awarded.

This also means that DLUHC has had to extend the deadline for successful bidders for earlier funds to spend their money.

Round 1 of Levelling Up Funding was awarded to ‘shovel-ready’ projects that were supposed to be completed and delivering for local people by March 2024 – but 60 out of 71 of these projects have had to extend to 2024-25, with further delays in other schemes likely.

The PAC’s inquiry also found a worrying lack of transparency in DLUHC’s approach to awarding funds, with rules for accessing funding changing while bids were still being assessed, which was also not communicated in advance to councils.

55 local authorities therefore bid under changed rules with no chance of being successful in Round 2, with an average bid for grants like Levelling Up costing around £30k.

This approach wasted scarce public resources, and the report calls on DLUHC to set out the principles it will apply and the decision-making process for awarding future Levelling Up funds.

Dame Meg Hillier MP, Chair of the Committee, said: “The levels of delay that our report finds in one of Government’s flagship policy platforms is absolutely astonishing.

“The vast majority of Levelling Up projects that were successful in early rounds of funding are now being delivered late, with further delays likely baked in. DLUHC appears to have been blinded by optimism in funding projects that were clearly anything but ‘shovel-ready’, at the expense of projects that could have made a real difference.

“We are further concerned, and surprised given the generational ambition of this agenda, that there appears to be no plan to evaluate success in the long-term.

“Our Committee is here to scrutinise value for money in the delivery of Government policy. But in the case of Levelling Up, our report finds that the Government is struggling to even get the money out of the door to begin with.

“Government has not helped the situation by changing the rules for funding mid-process, wasting time and money and hindering transparency.

“We will now be seeking to keep a close eye on DLUHC’s progress in unclogging the funding system. Citizens deserve to begin to see the results of delivery on the ground.”

PAC: Ofgem failures “come at considerable cost to energy billpayers”

“Problems in the energy supply market were apparent in 2018 – years before the unprecedented spike in prices that sparked the current crisis, and Ofgem was too slow to act.“

In a report published today Westminster’s Public Accounts Committee calls on the Department for Business, Energy and Industrial Strategy and Ofgem to say how they will make “the energy retail market work in the best interests of customers during the transition to net zero” after finding that failures at the energy regulator have come “at a considerable cost to billpayers”.

Since July 2021, 29 energy suppliers have failed, affecting around 4 million households. Customers have been left to pay the £2.7 billion cost of supplier failures. This means an extra £94 per household, a cost that will very likely increase.

The Committee found that this was due to “Ofgem’s failure to effectively regulate the energy supplier market”.

Ofgem “did not strike the right balance between promoting competition in the energy suppliers market and ensuring energy suppliers were financially resilient”.

Despite problems with the financial resilience of energy retailers emerging in 2018 Ofgem did not tighten requirements for new suppliers until 2019, and for existing suppliers until 2021. By this point wholesale gas and electricity prices increased to unprecedented levels.

The price cap “is providing only very limited protection to households from increases in the wholesale price of energy”, and Ofgem expects prices could “get significantly worse through 2023”. The Committee says BEIS and Ofgem should “review the costs and benefits of the price cap from a consumer’s perspective” to inform decisions about the future of energy price controls.

The position of vulnerable customers, who already pay higher energy prices, is “unacceptable”.

Dame Meg Hillier MP, Chair of the Public Accounts Committee, said: “ “It is true that global factors caused the unprecedented gas and electricity prices that have caused so many energy supplier failures over the last year, at such terrible cost to households. But the fact remains that we have regulators to set the framework to shore us up for the bad times.

“Problems in the energy supply market were apparent in 2018 – years before the unprecedented spike in prices that sparked the current crisis, and Ofgem was too slow to act.

“Households will pay dear, with the cost of bailouts added to record and rising bills. The PAC wants to see a plan, within six months, for how Government and Ofgem will put customers’ interests at the heart of a reformed energy market, driving the transition to Net Zero.”

State pension ‘shameful shambles’

“Shameful shambles” of DWP’s long term underpayment of state pensioners with “little interest” in consequences

The Department for Work & Pensions (DWP) estimates it has underpaid 134,000 pensioners, mostly women, over £1 billion of their State Pension entitlement, with some of the errors dating as far back as 1985.

In January 2021, DWP started an official exercise to correct the errors, the ninth such exercise since 2018. The errors, which mostly affect widows, divorcees and women who rely on their husband’s pension contributions for some of their pension entitlement, happened because of the Department’s use of outdated systems and heavily manual processing. Small errors that were not recognised each time added up over years to significant sums of money.

DWP will only contact pensioners when it finds through these exercises that they have been underpaid, and admits that many more are not receiving their due – these “risk missing out on significant sums”, with “little guidance for those currently claiming State Pension who are concerned that they have been underpaid” and people left “in the dark over their entitlement”.

There is currently no formal plan for contacting the next of kin where a pensioner who was underpaid is now deceased.

DWP is only paying those it has identified as having a legal entitlement to arrears, in some cases many years after the event, and has been inconsistent in paying interest. It has shown little interest in understanding the further knock-on consequences, including on social care provision, for those it underpaid.

Fixing DWP’s mistakes itself comes at great cost to the taxpayer – expected to cost £24.3 million in staff costs alone by the end of 2023. Experienced, specialised staff have been moved away from business-as-usual and as a result DWP is already experiencing backlogs in processing new applications.

The risk remains that the errors that led to underpayments in the first place will be repeated in the correction exercise, if not also in new claims.

Dame Meg Hillier MP, Chair of the Public Accounts Committee, said: “For decades DWP has relied on a State Pension payment system that is clunky and required staff to check many databases – and now some pensioners and the taxpayer are paying in spades.

“Departments that make errors through maladministration have a duty to put those it wronged back in the position they should have been. In reality DWP can never make up what people have really lost, over decades, and in many cases it’s not even trying. An unknown number of pensioners died without ever getting their due and there is no current plan to pay back their estates.

“DWP is now on its ninth go at fixing these mistakes since 2018, the specialised staff diverted to fix this mess costing tens of millions more to the taxpayer and predictable consequences of delays in new pension claims. And there is no assurance that the errors that led to these underpayments in the first place will not be repeated in the correction exercise.

“This is a shameful shambles. The PAC expects DWP to set out the step changes it will make to ensure it is among the last.”

Test and Trace: “British taxpayers cannot be treated by Government like an ATM machine”

“Unimaginable” cost of Test & Trace failed to deliver central promise of averting another lockdown

In May last year NHS Test and Trace (NHST&T) was set up with a budget of £22 billion. Since then it has been allocated £15 billion more: totalling £37 BILLION over two years.

The Department of Health & Social Care (DHSC) justified the scale of investment, in part, on the basis that an effective test and trace system would help avoid a second national lockdown – but since its creation we have had two more lockdowns.

In its report Westminster’s Public Accounts Committee says that while NHST&T clearly had to be set up and staffed at incredible speed, it must now “wean itself off its persistent reliance on consultants”; there is still no clear evidence of NHST&T’s overall effectiveness; and it’s not clear whether its contribution to reducing infection levels – as opposed to the other measures introduced to tackle the pandemic – can justify its “unimaginable” costs.

The scale of NHST&T’s activities is striking, particularly given its short life. Between May 2020 and January 2021, daily UK testing capacity for COVID-19 increased from around 100,000 to over 800,000 tests. NHST&T had also contacted over 2.5 million people testing positive for COVID-19 in England and advised more than 4.5 million of their associated contacts to self-isolate.

But the percentage of total laboratory testing capacity used in November and December 2020 remained under 65%, and even with the spare capacity, NHST&T has never met the target to turn around all tests in face-to-face settings in 24 hours. Low utilisation rates – well below the target of 50% – persisted into October last year.

A major focus for NHST&T in early 2021 was the mass roll-out of rapid testing in different community settings, but there have been particular setbacks for the roll-out to schools, after NHST&T had significantly underestimated the increase in demand for testing when schools and universities returned last September.

Meg Hillier MP, Chair of the Public Accounts Committee, said: “The £23 billion test and trace has cost us so far is about the annual budget of the Department for Transport.Test & Trace still continues to pay for consultants at £1000 a day.

“Yet despite the unimaginable resources thrown at this project Test and Trace cannot point to a measurable difference to the progress of the pandemic, and the promise on which this huge expense was justified – avoiding another lockdown – has been broken, TWICE.

“DHSC and NHST&T must rapidly turn around these fortunes and begin to demonstrate the worth and value of this staggering investment of taxpayers’ money. Not only is it essential it delivers an effective system as pupils return to school and more people return to their workplace, but for the £billions spent we need to see a top class legacy system.

“British taxpayers cannot be treated by Government like an ATM machine. We need to see a clear plan and costs better controlled.”

Test and Trace chief Baroness Dido Harding has defended the £37 billion service and said the committee report is ‘old news’.