We need an honest reckoning on the Covid spiv economy
With confirmation from HMRC this week that up to 10pc of claims on the Eat Out to Help Out scheme were completely made up, it is becoming clear that the epic scale of Covid fraud is still just starting to be uncovered.
There were restaurants that reported record sales even though their staff were also on furlough. Brand new businesses were claiming cash back for dozens of workers who turned out not to exist. And flimsy shell companies were getting no questions asked loans, while even wackier start-ups were pumped up with government cash on absurd valuations that have now collapsed. Anyone who claimed money fraudulently should be tracked down and punished, and the cash recovered if necessary.
But there is a bigger issue at stake. In reality, Covid fraud created three huge problems. It practically bankrupted the British state, with consequences that are still only becoming apparent; it created a something-for-nothing culture that has permeated the whole of society; and it forced businesses to rely on subsidies and hand-outs rather than innovation and hard work.
It is now clear that the Covid giveaways created a corrupt, spiv economy. There are many different ways that lockdown shattered society. But its catastrophic impact on the economy was one of them – and we need an honest reckoning with that.
With its emergency bailouts, its support for workers and its soft loans, the Treasury’s response to the 2020 pandemic is still held up as an example of effective government, not least perhaps because the chancellor who dished out all the free money, Rishi Sunak, is now the Prime Minister. And yet we are still only just starting to learn how much of it was wasted.
Giving evidence to the Treasury select committee this week, Jim Harra, the head of HMRC, admitted the bill for fraud on the Eat Out to Help Out scheme, furlough and self-employed bailout is now estimated at £4.5bn.
On Eat Out, he estimated that fraud ran to a startling 10pc of claims, including one example of a company that claimed record sales for the month at the same time as most of its staff were on furlough (Gosh, restaurants fiddle the books – who knew!). It hardly stops there. There are already
‘Lockdown broke the link between working and getting paid, in part by normalised fraud’
estimates that at least £5bn Bounce Back loans claimed were bogus. In some cases, the money was spent on luxury cars and expensive holidays for the directors of companies that soon afterwards couldn’t pay back the loans because they were insolvent.
As for the Future Fund, which was set up to pump money into start-ups during the pandemic, at the last count 67 of its investments had already gone bust, and no doubt many more will follow as the tech industry crashes. To paraphrase the old American saying, 10billion here, 10billion there, and pretty soon you are talking about serious money. Add it all up, and the scale of the fraud, and the complete mis-management of public funds, was breathtaking. We have still not come to grips with it, or started a proper reckoning of the toll taken.
In reality, Covid fraud had changed the economy. First, the sheer cost of lockdown has virtually bankrupted the British state. If it weren’t for the massive increases in debt, and all the extra money the Bank of England was pressured into printing to pay for it all, we would not be facing a record high tax burden to pay for public services that barely function any more, while also facing the worst inflationary crisis for half a century. In effect, lockdown has created a zero-growth trap from which there is no clear escape. Fraud was just one element, but it certainly contributed to the overall cost.
Next, and perhaps more seriously, giveaways created a something-fornothing culture that still persists. Ever since we decided that it was fine to simply pay companies to close their doors, to put workers on a full salary for staying at home, and then offer everyone a half-price pizza when we finally wanted them to go out again, we have seen a dramatic decline in the work ethic. Lounging around in your PJS while pretending to pay attention to a Zoom meeting (otherwise known as WFH) has turned into a basic employment right. Four-day weeks are starting to go mainstream.
Half the public sector is striking for inflation-busting pay rises. We can’t really be surprised by any of that. During lockdown we broke the link between working and getting paid, in part by normalised fraud and deceit, so we can’t really complain when it is hard to put it back together again.
Finally, the Covid system has forced businesses to rely on hand-outs and subsidies, rather than hard work and innovation. Success or failure became all about navigating a complex maze of grants and support schemes. Fiddling the books arguably became normalised. And, as we have seen with energy prices, and perhaps soon with mortgage rates, bailouts became the expected norm, with demands for every problem to be fixed with higher state spending.
There are many different ways that lockdown shattered society. We see that in the rising death rates from cancer and all the other medical conditions that went untreated. We see that in the rise in teenage mental health issues as young people feel the effects of months on confinement in their homes instead of being allowed to grow up. And we see it in the stunted careers of graduates not able to get a foothold in the workplace.
And now its catastrophic impact on the economy should be added to the list as well. The scale of fraud during the pandemic is still being uncovered and right now we need an honest reckoning with that if we are to make a start on repairing the damage.
The Covid giveaways created a corrupt, spiv economy. Not all claims were fraudulent, even if an alarming number of them were. But two years of free money changed the way every business works, and not for the better.