Up to £3.5 billion could have been paid out in wrong or fraudulent claims for the furlough scheme, the government suspects.
Jim Harra, the top civil servant at HMRC, said that his staff believe between five per cent and 10 per cent of furlough cash might have been directed to the wrong places.
“We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between five per cent and 10 per cent,” the permanent secretary told MPs on the Public Accounts Committee.
The Government has so far paid out £35.4 billion in furlough cash, according to the latest figures. Mr Harra said that an academic study has estimated that the level of fraud and error might be even higher than 10 per cent.
It means that somewhere between £1.75 billion and £3.5 billion could have been distributed incorrectly.
“That will range from deliberate fraud through to error,” he added.
“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.
“Although we will expect employers to check their claims and repay any excess amount, but what we will be focusing on is tackling abuse and fraud.”
It is the first time HMRC has spoken about potential fraud linked to the job retention scheme, which covered up to 80 per cent of an employee’s salary while they were on furlough.
Many experts said a certain amount of fraud was inevitable because of the speed the benefit was introduced.
Furlough is now winding down and is expected to end for good next month, however businesses who bring staff back from furlough will receive another £1,000 if the employee is still in work by the end of January.
By August 16 this year, 9.6 million people had been put on Government-supported furlough, with 1.2 million employers claiming the support. Meanwhile, around 2.7 million self-employed people have claimed around £7.8 billion in support from the Government.