The government’s flagship test-and-trace system has failed to achieve “its main objective” to cut infection levels and help Britain return to normal despite being handed an “eye-watering” GBP37bn in taxpayers’ cash, the Commons spending watchdog has warned.

NHS test and trace was set up in May last year as the UK emerged from the first lockdown. It was led by Dido Harding, a Conservative peer and businesswoman who previously worked for Tesco and TalkTalk. She was appointed by the then health secretary, Matt Hancock, who praised her “brilliant” work on the pandemic.

In a damning report, the public accounts committee concluded that NHS test and trace “has not achieved its main objective to help break chains of Covid-19 transmission and enable people to return towards a more normal way of life” despite receiving about 20% of the NHS’s entire annual budget – GBP37 bn – over two years.

Instead, the report said, since the end of October 2020 “the country has had two more national lockdowns and case numbers have risen dramatically”. At the time of its launch, Boris Johnson claimed NHS test and trace would be “world-beating”. However, the 26-page report found that its aims had been “overstated or not achieved”.

The timing of the report’s conclusions is hugely embarrassing for the government as it continues to resist introducing measures to stem the rise in Covid cases. NHS test and trace is a key pillar of its “plan A” approach to autumn and winter, which ministers say is sufficient to avoid a crisis.

Even now, uptake of NHS test and trace is still “variable” as some vulnerable people are much less likely to take a test than others, the report says. Urgent improvements are needed in public outreach, with more than 60% of people who experience Covid-19 symptoms reporting that they have not been tested, and certain groups, such as older people, men, and some ethnic minorities, less likely to engage with the service.

The programme is also “still not flexible enough to meet changing demand and risks wasting public money”, the report adds. MPs on the cross-party committee warned that NHS test and trace desperately needs a “proper long-term strategy”.

The report also criticised the handling of the cash awarded to NHS test and trace. It said the programme has still not managed to cut the number of expensive contractors paid an average of GBP1,100 a day. Some have been paid rates of more than GBP6,000 a day.

Dame Meg Hillier, chair of the committee, said: “The national test-and-trace programme was allocated eye-watering sums of taxpayers’ money in the midst of a global health and economic crisis. It set out bold ambitions but has failed to achieve them despite the vast sums thrown at it.

“Only 14% of 691m lateral flow tests sent out had results reported, and who knows how many took the necessary action based on the results they got, or how many were never used. The continued reliance on the over-priced consultants who ‘delivered’ this state of affairs will by itself cost the taxpayer hundreds of millions of pounds.”

Dr Simon Clarke, associate professor in cellular microbiology at the University of Reading, said the MPs’ report exposed “a great many shortcomings in the NHS test and trace service”.

“Harding previously boasted that the operation was [the] size of Tesco, without conceding that the supermarket chain actually works,” he said. “Greater attention seems to have been paid to headline-grabbing initiatives to build up the system than to ensuring it actually did its job.”

He added: “Failure to cut infections could mean that we suffered more sickness and death, and longer time spent living under restrictions than would otherwise have been the case.”

Michael Hopkins, professor of innovation management at the University of Sussex business school, warned that the report “comes at a crucial time, with Covid cases and scepticism of NHS test and trace both rising”.

A government spokesperson said: “We have rightly drawn on the extensive expertise of a number of public and private sector partners who have been invaluable in helping us tackle the virus.

“We have built a testing network from scratch that can process millions of tests a day – more than any European country – providing a free LFD (lateral flow device) or PCR test to anybody who needs one.

“The new UK Health Security Agency will consolidate the knowledge that now exists across our health system to help us tackle future pandemics and threats.”