Business support schemes during the COVID pandemic were prone to fraud and error because of a rushed timetable and a lack of shared plans between local and national government, according to the official spending watchdog.

In its latest annual report, the National Audit Office (NAO) says £1.1bn of Government money was lost through fraud and error when eight separate grant schemes for businesses, administered by local authorities, were hastily developed and launched.

Only 1% of the lost money has been recovered so far, the NAO says.

It notes that the business department was only asked by the Treasury in late February 2020 to examine how such a system might work.

The first version began from March 2020 with a second only days later. By mid-April, the report says, local authorities had made 484,000 payments totalling £6bn, more than 50% of the total handed out in what was the biggest such support programme beyond the furlough scheme.

The rushed timetable resulted in an initial wave of fraud and error, while later versions of the grants not only used prepayment checks but also had access to much more accurate local information about businesses.

In the report the NAO calls for Government departments to work with councils to draw up contingency plans for financial support in a future national emergency.

Gareth Davies, head of the NAO, said the business department and local government deserve credit for working quickly to set up and distribute grants to businesses.

But he said the full impact of the ‘error and fraud’ remained unclear.

‘The Government does not yet know the impact of these grants – in terms of maintaining jobs or how much support might have been given to businesses which did not need it,’ he said.

‘Without such an assessment, an overall judgement about the value for money of the schemes remains open.

‘The Government’s experience of working at speed with local authorities to channel financial support during the pandemic offers important lessons should similar crises occur.

‘The new Department for Business and Trade can now use these lessons to improve contingency planning and to build Government resilience for responding to future national emergencies.’