The boss of HMRC refused to sign off Rishi Sunak's £1,000 bonus scheme for firms which bring back furloughed workers amid concerns it may do little to save jobs.
In a letter to the Chancellor, Jim Harra warned that it is hard to predict the impact of one of his flagship rescue plans - both in terms of its possible cost and the positive difference the programme will make.
It came as Mr Sunak himself admitted that some taxpayer cash ploughed into the scheme will be wasted on firms which would have retained staff anyway.
The scheme is intended to persuade firms to bring back as many as possible of the 9.4m workers who were put on taxpayer life support through the furlough scheme. The subsidy - which pays up to 80pc of workers' wages - is being wound down by October and it is feared this could trigger a huge wave of job losses.
In a bid to prevent massive lay-offs, the new bonus programme will pay £1,000 for every previously furloughed staff member kept in a job until January.
It means employers who have already taken staff back on will now get an unexpected handout, while it will be hard to work out how many people will return to work who might not have otherwise.
In his letter, Mr Hara said: “I am unable to reach a view that this represents value for money.
“It has proved difficult to establish a counterfactual for this scheme, which depends on the overall cost of the scheme and the number of extra jobs it would protect, both of which are currently highly uncertain.”
The head of HMRC said he needs written instructions to go ahead from Mr Sunak because the scheme is so uncertain and risky, under Whitehall procedure typically used by mandarins when they are unable to satisfy themselves about a policy through the usual checks carried out.
These so-called ministerial directions have already been needed to push through policies at least 11 times during the Covid catastrophe because decision have been made much faster than usual due to match the rapid pace of the crisis.
Mr Hara added that “there is a sound policy rationale” for offering the payout. He said: “In order for the scheme to have the desired effect there is an urgent need to give employers certainty that it will be available.
“I consider it entirely appropriate for you to make a judgement to proceed in light of the economic impacts of Covid-19.”
The Institute for Fiscal Studies (IFS) noted that the bonus would cover more than half of the costs for employing the lowest-paid workers between the end of the furlough scheme and January. It would cover around one-quarter of these costs for the average furloughed worker.
Robert Joyce, of the IFS, said: "In a normal time that is not at all a small subsidy, but it is a lot less than we had been providing through the furlough scheme and in these times it is doubtful how many jobs that might save if labour demand continues to be very weak."
Asked whether the funds would be given to companies that would have kept staff on anyway – a so-called "dead weight cost" – the Chancellor told BBC Radio 4's Today programme: "That is absolutely a fair point and throughout this crisis I have had the decisions to make, whether to act in a broad way at scale and at speed, or to act in a more targeted and nuanced way.
"In an ideal world, you're absolutely right, you would minimise that dead weight and do everything in an incredibly targeted fashion.
"The problem is the severity of what was happening to our economy, the scale of what was happening and indeed the speed it was happening at demanded a different response."
Mr Sunak said rescue schemes such as the "eat out to help out" restaurant discount programme and a VAT cut for hospitality and leisure were targeted at the industry's 2m lower-paid workers.
He appeared to rule out a cut to employers' national insurance and a rise in the employment allowance called for by many industry groups, saying this would be a "blunt instrument". Mr Sunak also stressed that there would be no wider extension of the furlough scheme.
The Chancellor said: "We can't sustainably have a system where government-subsidised jobs are the only way that those jobs exist."
However, Labour's shadow Chancellor Anneliese Dodds called for the furlough programme to continue.
She said: "My major concern with the way government is proceeding now is that they're withdrawing the job retention scheme and the self-employed scheme at the same time, right across the whole economy.
"We all know that some sectors are being much more strongly impacted than others, the Chancellor's continuing with that one-sized fits all approach, we would urge him to look again at this, we have been continuously."
Ms Dodds added: "I do find it a little peculiar that we now have this bonus that will be paid to all employers regardless of whether their business are back operating up to full capacity or not.
"We really need to have targeted support, this is a crisis like no other where the impact is very strongly sectoral, we should have had a more sectoral approach from the Chancellor."
Meanwhile the IFS warned that the Government risks bringing some schemes in too quickly.
The restaurant discount is coming in at a time when social distancing is still keeping customers away, and they do not apply to takeaway sales which would boost companies takings without risking infections from close proximity to and between diners.
The VAT cut is due to be phased out in the new year, threatening a tax hike just as the economy might be about to get going again.
A stamp duty holiday for house buyers will end in March, similarly risking snuffing out the market recovery just as momentum builds.