The government has been slow to recover losses of £1.1 billion from fraud and error in Covid grant schemes, according to MPs in the Public Accounts Committee (PAC).

The latest PAC report found that after spending £22.6 billion on business support schemes during the pandemic, the government had only recovered £20.9 million of the estimated £1.1 billion in fraud and error losses by May 2023.

The Department for Business and Trade (DBT) said it would take until the end of 2025 to recover the losses from fraudulent claims and estimated that it would be ‘very expensive’ to check the veracity of every claim.

The Covid grant scheme ran for two years from March 2020 to March 2022, and local authorities handled applications from businesses.

PAC Chair, Dame Meg Hillier MP, said:

‘The government must not wait for the conclusions of the Covid inquiry to learn the lessons laid out in this report. Never again should a national emergency find policy being written as we go along, without firm planning and good local data, with local authorities not properly funded to work in partnership on the support required.

‘The next emergency must find the government rigorously prepared with an understanding of the optimal means to support businesses through difficult times.

‘The lack of planning from government also meant that a door was left wide open in these schemes to fraudsters who took shameful financial advantage of schemes that were designed with national solidarity in mind.’

Internet link: Parliament website

The frozen Savings Allowance combined with rising interest rates will push over one million taxpayers into paying tax on their savings this tax year, according to research by investment platform AJ Bell.

In the 2023/24 tax year it is estimated that over 2.7 million individuals will pay tax on interest, up by a million in a year.

This year’s predicted total includes nearly 1.4 million basic rate taxpayers, a figure which has quadrupled in just four years, AJ Bell’s research found.

Individuals pay tax on interest they earn on savings that exceeds the personal Savings Allowance, which currently stands at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get no exemption and pay tax on all interest they receive.

Laura Suter, Head of Personal Finance at AJ Bell, said:

‘These figures highlight just how many taxpayers are facing a tax bill for their savings interest this year – a huge leap when compared to last year. The combination of higher interest rates and people having shunned ISA accounts in recent years means that the number paying tax on their savings has more than tripled in the past four years.

‘Rising rates and a frozen personal Savings Allowance means some individuals are being taxed despite having relatively modest pots of cash set aside for a rainy day. To add insult to injury, because inflation is so high, they aren’t even making a real return on their money – yet they are still being taxed.’

HMRC should increase the rewards it pays out to whistleblowers in line with the US system, according to law firm RPC.

The tax authority paid out over £509,000 to individuals providing evidence about tax fraud over the past year, RPC’s research found.

That figure is up from £495,000 in 2021/22 and a 75% increase from the £290,000 paid five years ago, the law firm added.

However, it is just 1.7% of the sum paid to informants by the US Internal Revenue Service (IRS).

The IRS pays whistleblowers 15-30% of the additional tax collected through investigations instigated as a consequence of information received. In 2022, $37.8 million was paid by the IRS to 132 whistleblowers – 58 times the amount paid to UK whistleblowers.

Adam Craggs, Partner and Head of RPC’s Tax, Financial Crime and Regulatory team, said:

‘More individuals, with evidence of serious tax fraud, would come forward if they knew they could be in line for a life-changing amount of money.

‘Paying a proportionate amount for high quality information that helps secure criminal convictions and the recovery of substantial amounts for the Exchequer would be a sensible step. HMRC has been making payments for information on an ad hoc basis for many years and would benefit from improving the system and placing it on a more formal basis.’

Internet link: RPC website

The UK’s interest rate has been raised to 5.25% by the Bank of England, as it continues to try and bring inflation under control.

The Bank’s Monetary Policy Committee increased the rate by 0.25% from 5% – the 14th increase in a row.

It is a 15-year high for the base rate, which was last at this level in April 2008.

Vicky Pryce, Economic Advisory Council member at the British Chambers of Commerce (BCC), said:

‘Businesses across the UK will be fervently hoping that today’s rise in interest rates is the last they will see.

‘While many firms will have already factored this increase into their plans, it is clear from the recent rise in insolvencies that the economic environment is becoming stacked against smaller firms. They are the ones with less cash reserves in the bank and greater exposure to finance.

‘And there is now a real danger that the economy could be pushed into recession as it takes 18 months for changes in interest rate rises to filter through. With all the cumulative pressure of past rises yet to come, business will be watching closely for any further indications on the Bank’s plans.’

Internet link: Bank of England website BCC website

HMRC has increased interest rates with late payment bills charged 7.5% from 11 July, the highest rate since 2001.

The move follows the Bank of England’s June increase in the base rate with HMRC also increasing the rate paid on repayments of tax.

The Bank increased the base rate to 5% from 4.5% on 22 June, the 13th consecutive rise.

The late payment and repayment interest rates follow this rise and are applied to the main taxes and duties that HMRC currently charges and pays interest.

The late payment interest rate has increased by 0.5% to 7.5% from 11 July.

Late payment interest is payable on late tax bills covering income tax, national insurance contributions (NICs), Capital Gains Tax (CGT), corporation tax pay and file, Stamp Duty Land Tax (SDLT), stamp duty and stamp duty reserve tax.

Repayment interest was also increased from the current 3.5% rate to 4%.

Internet link: GOV.UK