Eleventh Report - Economic impact of coronavirus: gaps in support and economic analysis

Though the structure of the UK economy makes it potentially more vulnerable to the present shock, the Committee notes that comparisons with other countries’ GDP may also be affected by differing measurement methodologies. We therefore caution against over-reliance on the UK’s GDP performance in comparison to other countries, as a measure of the impact of coronavirus on the economy.

We recommend that the Treasury and the Office for Budget Responsibility provide a commentary at the time of the Budget on GDP measurement issues and the implications that these measurement issues have for comparisons between the UK and other countries. (Paragraph 17) Gaps in support

Given the economic outlook, we believe that the Government was right to extend both the Coronavirus Job Retention Scheme and the Self-employment Income Support Scheme to the end of April 2021. However, given the extended duration of restrictions, we believe the Government was wrong not to address gaps in support.

The 2019–20 self-assessment income tax returns will provide the Government with additional information that could allow it to provide support to those who need it but have so far not received it. We therefore strongly urge the Treasury to use the data from 2019–20 tax returns to help the newly self-employed who missed out on previous support. In order to ensure that this group is helped as quickly as possible, we recommend that HMRC prioritises work on analysing the 2019–20 tax returns.

By conspicuously leaving out a large proportion of limited company directors from support altogether, we are concerned that the Government is sending out the wrong message—that it is not adequately supporting entrepreneurs and employers, who have suffered significantly from a lack of support. However, we recognise that there are administrative difficulties to overcome and fraud risks with the implementation of any scheme.

When responding to this report, the Treasury should provide an assessment of the level of fraud which it believes would arise from the implementation of the DISS scheme.

We question whether the Treasury could do more to investigate how to mitigate the fraud risks inherent in the DISS scheme and similar schemes, and whether the levels of fraud risk merit the Treasury’s position of not providing any support at all. We urge the Treasury to develop measures to support limited company directors and set these out in the Budget. (Paragraph 49) 34 Economic impact of coronavirus: gaps in support and economic analysis

Although we acknowledge the Chancellor’s intention to target the SEISS at those who are most dependent on self-employed income, not all of them would have access to the Coronavirus Job Retention Scheme, as we pointed out in our first report of this inquiry.

We believe that the Government should reconsider the 50 per cent limit in the eligibility criteria for the fourth tranche of the SEISS grant so that those who derive less than half of their income through self-employment can receive some level of support.

There is a striking inconsistency between the way the Government is treating employees earning more than £50,000 a year and those who are self-employed and have trading profits above £50,000 a year. Whereas those who are employed can receive support from the Government up to a maximum wage amount of £2,500 a month through the Coronavirus Job Retention Scheme, those who are self-employed receive nothing at all under the Self-employment Income Support Scheme. This is unfair. We believe the Government ought not to disadvantage the self-employed in this way.

We reiterate our recommendation from our first report in this inquiry that the Government must tackle the cliff edge that exists in the design of the SEISS by removing the £50,000 cap and allowing those with profits just over this cap access to some financial support up to the total monthly support cap of £2,500 (as for salaried employees).

The Treasury should in its response to this report provide: • the number of people with self-employed income as their main source of income in the 2019–20 financial year; • the proportion of the self-employed who had more than £50,000 trading profits in the 2019–20 financial year; • the median income of those above the £50,000 trading profits threshold in the 2019–20 financial year who earned the majority of their income from self- employment; and • the range of costs of applying the recommendations we have made to the SEISS.

The first version of the SEISS scheme had to be rolled out at speed in March

We recognise that it may not have been possible for the Government to help all those who have fallen through the cracks of the support schemes. However, we are disappointed that the Government has so far shown no inclination to expand or provide alternatives to the SEISS, which is providing a vital life-line to many but is not available to all those whom we believe should qualify. We recommend Economic impact of coronavirus: gaps in support and economic analysis 35 that the Government look at other models of support, including those developed by the devolved administrations with a view to extending support to people who require support and who do not currently qualify. (Paragraph 76) Economic analysis

We are disappointed at the lack of analysis provided by the Treasury, despite such analysis being referenced in the SAGE minutes. Without it, the impression is that the Government is making important decisions without proper regard to all their impacts, both on health and the economy. The lack of such analysis also prevents the public from understanding in full the basis for, and impact of, the restrictions imposed upon them.

We call on the Treasury to be more transparent about the economic analysis which it undertakes to inform Government decisions in the fight against coronavirus and to publish any such analysis in a timely manner. The House should not be asked to take a view on proposals which have far-reaching consequences for the general population, such as those involving restrictions on social interaction, education, movement and work, without the support of appropriate and comprehensive economic analysis.

We agree with the Treasury that epi-macro modelling relies on assumptions which may not be supported by extensive data sets. Nevertheless, we believe it would be a useful exercise for the Treasury to undertake epi-macro modelling to better understand the implications of Government-imposed social restrictions and to evaluate the costs and benefits of such social restrictions.

The Treasury’s analysis has been criticised for not providing modelling of the alternative to lockdowns. There is evidence to suggest that in the absence of lockdown, people would have socially distanced to a large extent through fear of viral transmission and infection. As such, while a lockdown is a significant and costly imposition by Government, that cost when compared to the alternative with voluntary social distancing, may be less than many assume.

We strongly urge the Treasury to provide rigorous analysis of future policy choices which quantifies the harms and benefits of each of the plausible range of alternative policies. It has always been considered a good practice to publish an impact assessment for every measure that the Government proposes.

While death rates from coronavirus are high, the rationale for Government decisions on social restrictions is well understood by the public. As the vaccines roll-out proceeds and death rates fall, Government decisions on whether or not to lift restrictions will become more finely balanced. We believe that economic analysis and modelling is essential to inform those decisions, alongside evidence of the other necessary infrastructure such as test, trace and isolate, and responses to new variants, being comprehensive and in place to mitigate against the need for a further lockdown. (Paragraph 105) 36 Economic impact of coronavirus: gaps in support and economic analysis

After almost a year of restrictions on social and economic activity, the general public and the business sector need confidence that the Government has as clear and as certain a route out of the crisis as possible.

We recommend that in order to provide some certainty to businesses, as well as to the general public, the forthcoming Government plan for taking the country out of lockdown should set out criteria of how and when it will lift restrictions— this could be in terms of the prevalence and R rate of the virus. We recognise that this would be a contingent plan, based on the stages only being activated after milestones are met, with the Government providing the maximum possible certainty. Alongside this plan, the Treasury should also provide the combined economic and epidemiological modelling to support it, and show how it would best optimise health and economic outcomes.

It is vital that economists work together with epidemiologists and health experts to make decisions on social restrictions, and that the output of their work should be made public. We propose that the Government use a more multi-disciplinary approach to examine the health and economic costs of social restrictions without delay, and we recommend that the Government should put more information in the public domain as to how economic and health factors have been taken into consideration regarding Government decisions on social restrictions. How the Government made decisions on social restrictions is an area that might be expected to come under further review in any future public inquiry into the Government’s effectiveness in combating coronavirus.

We strongly believe that the Treasury needs to retain greater modelling capacity outside the OBR, so that it can model the implications of different policies. It should also ensure that it has sufficient capacity to modify or use new types of modelling techniques where necessary. We recommend that the Treasury produces a policy document that sets out what its modelling capacity should be and what modelling it should be expected to carry out and publish, independently of the OBR. This is especially important in times of crisis, when the Treasury may rapidly roll out programmes without the benefit of OBR analysis. (Paragraph 114) Economic impact of coronavirus: gaps in support and economic analysis 37