Up to £3.5 billion of furlough money may have been paid out in wrong or fraudulent claims, according to official estimates from the government.

HMRC has calculated that between five and 10% of payments have been wrongly calculated, possibly as a result of employers abusing the scheme.

The total bill for the job retention programme, which has paid 80% of the wages of workers placed on leave due to coronavirus, currently stands at more than £35 billion. 

Speaking to MPs on Monday, HMRC’s top civil servant Jim Harra said: ‘We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between 5% and 10%.

‘That will range from deliberate fraud through to error.’

If HMRC’s working assumption is accurate it will mean that somewhere between £1.75 billion and £3.5 billion could have been paid to employers making furloughed people work.

Mr Harra said some employers may have claimed too much by accident and that HMRC would be focusing on ‘tackling abuse’.

The government is now looking into 27,000 ‘high risk’ cases where abuse or fraud is suspected.

‘What we have said in our risk assessment is we are not going to set out to try to find employers who have made legitimate mistakes in compiling their claims, because this is obviously something new that everybody had to get to grips with in a very difficult time,’ said Mr Harra.

‘Although we will expect employers to check their claims and repay any excess amount, what we will be focusing on is tackling abuse and fraud.

‘While we can’t get involved in any relationship between the employee and employer, we can certainly reclaim any grant that the employer is not entitled to, which includes grants they have not passed on in wages to their employees.’

This is the first time that the government has spoken publicly about potential fraud impacting the Coronavirus Job Retention Scheme.

Last month, a major new study found that nearly two thirds of the 9.4 million people who were furloughed from their jobs because of the coronavirus pandemic continued to work. 

Despite firms being warned that they couldn’t claim for staff who kept working during lockdown, an estimated six million employees carried on doing so, academics at the universities of Oxford, Cambridge and Zurich found. 

Meanwhile in July, think tank Policy Exchange said the government’s financial rescue scheme was vulnerable to scams because of the size of the packages and the speed at which measures were rushed through to save people and businesses from economic downturn.

The furlough scheme is being wound down and is set to be scrapped by Chancellor Rishi Sunak in October.

On Monday, Labour warned that ending financial support for all businesses this autumn threatens the future of high streets and nightlife that has been severely hit by the coronavirus crisis.

But some conservative politicians said the lost money through fraud shows why it needs to be axed.

Former Conservative leader Sir Iain Duncan Smith said: ‘This is a huge amount of money and demonstrates exactly why the scheme needs to be brought to a close.’

‘It’s rapidly being defrauded more and more because employers are making furloughed people work and telling them they can’t say anything or they’ll lose their jobs. The scheme is open to fraud and abuse and it’s hard to check where the money is actually going.

‘The sooner we bring this scheme to an end, the sooner we can stop haemorrhaging money and get the country back to work.’

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