Source · Select Committees · Public Accounts Committee
Recommendation 2
2
There is an apparent lack of ownership by the Treasury of the analysis and scenario...
Conclusion
There is an apparent lack of ownership by the Treasury of the analysis and scenario planning activities necessary to manage the impact of COVID-19 on government finances. The scale of the likely increase in government borrowing to fund government’s response to COVID-19 is a significant new challenge to the Treasury’s objective to place the public finances on a sustainable footing. While the Office for Budget Responsibility is responsible for producing economic forecasts and analysis of the public finances, it is a matter for government to determine how that information is used to make policy decisions. The Treasury has not explained how the current and future impact of COVID-19 would affect planned or committed investments, projects and programmes, and how these would be prioritised should decisions be needed on which to delay or cancel. When it comes to future spending decisions, it is important for the Treasury to have a detailed plan in order to make strategic decisions about where planned funding can be cut or re-deployed to meet changing priorities. However, the Treasury has not conducted scenario analysis on how the economic impact of COVID-19 might affect decisions to set aside projects and investments, and plans to only undertake such scenario planning as part of the next spending review. The Treasury has also not undertaken analysis of how increases in the UK’s ratio of debt to GDP as a result of COVID-19 may impact the country’s credit rating or analysed how long the country can continue to borrow at the current rate. 6 Whole of Government Accounts 2018–19 Recommendation: The Treasury should write to the committee setting out what specific analysis it is currently undertaking as it manages the economic impacts of COVID-19.
Government Response
Acknowledged
HM Government
Acknowledged
2: PAC conclusion: There is an apparent lack of ownership by the Treasury of the analysis and scenario planning activities necessary to manage the impact of COVID-19 on government finances. 2: PAC recommendation: The Treasury should write to the committee setting out what specific analysis it is currently undertaking as it manages the economic impacts of COVID-19. 2.1 The government agrees with the Committee’s recommendation. Recommendation implemented 2.2 Since the onset of the pandemic, HM Treasury has provided ministers with advice on the impact on the economy and the public finances. To inform this, it has brought together the economic data published by the Office for National Statistics (ONS), forecasts and projections prepared by the OBR, the Bank of England and others, academic literature and real-time information such as mobility data. In considering the impact on particular sectors or regions we have considered the non-pharmaceutical restrictions (NPIs) in force or under consideration; the extent of Gross Value Added (GVA) accounted for by the sectors directly affected; the employment accounted for by those sectors; regional variations in NPIs, and the resultant impacts on factors such as supply chains and ability to travel to work; and the vulnerability of the labour market and firms, using the information provided by survey data. We have used a range of analytical tools to bring together this information and to assess the interaction between the different factors. This analytical work has generated advice to ministers on the possible range of impacts, although inevitably those are subject to a high degree of uncertainty. 2.3 In November 2020, the government published an Analysis of the health, economic and social effects of COVID-19 and the approach to tiering which drew together some of this analysis. It also set out the data that are most helpful to look at when considering the regional or sectoral impact of measures of the NPIs. 2.4 In February 2021, the government published the Roadmap out of lockdown which built on this and set out the health, social and economic analysis that underpinned the steps announced. For the economy, this included the impacts on GVA and jobs in those sectors affected by restrictions over the last year, as well as information about the distribution of those impacts. 2.5 The March 2021 Budget document provided further detail on different ways that HM Treasury has assessed the impact that the tiered system of restrictions and lockdowns had on the economy last year. 2.6 The OBR, in their Budget forecast, have formed their own assessment of how the economy will evolve under the Roadmap. In its central forecast, the OBR expect that gross domestic product (GDP) will grow by 4.0% in 2021 and it assumes some long-term scarring in the economy of around 3% of GDP. 2.7 HM Treasury will continue to incorporate economic analysis into policy advice to ministers, using all the information set out above, as well as previous experience at earlier stages in the pandemic.