Source · Select Committees · Public Accounts Committee
Recommendation 17
17
Acknowledged
Mini-budget significantly increased borrowing costs and prompted OBR forecast agreement update.
Conclusion
We asked the Treasury about the impact of the announcement of the government’s September 2022 Growth Plan (or “mini-budget”) on the cost of government borrowing. The Treasury explained that in the aftermath of the mini-budget, it required the DMO to raise an additional £72 billion. It added that markets were “under a period of stress” and yields were higher in the UK compared to other countries.29 We asked the Treasury if there was more that could be done to ensure that ministerial announcements that might cause concern in the markets do not negatively impact markets and public finances in the future. The Treasury told us that “it is widely deemed to be the case” that very large fiscal events should not go ahead without being accompanied by an OBR forecast to put them into context, except in extreme circumstances. The Treasury added that it had updated its memorandum of understanding with the OBR to ensure that, in the event of any update to the DMO’s remit, the OBR would provide assurance over the government’s cash needs, known as the net cash requirement, even outside of regular fiscal events such as a Budget.30 25 Qq 15, 48 26 Qq 9, 11, 45; C&AG’s Report, para 3.14 27 C&AG’s Report, para 2.7, Figure 11 28 Qq 49, 51, 53 29 Qq 55–56 30 Q 57 14 Managing government borrowing NS&I’s Rainbow Programme
Government Response Summary
The government acknowledges the committee's findings regarding the mini-budget's market impact, stating it is committed to learning lessons from previous crisis episodes and has established projects to enhance preparedness for future financial stability events.
Government Response
Acknowledged
HM Government
Acknowledged
5.1 The government agrees with the Committee’s recommendation. Recommendation implemented 5.2 Previous crisis episodes placed extraordinary demands on the government and capturing lessons learned have helped to improve its preparedness. 5.3 Following the Review of HM Treasury's management response to the financial crisis, the Professionalising Crisis Management project was established to ensure the department is ready to effectively respond to future financial stability events. It has expanded considerably since, and the department has developed a suite of manuals and resources to support the deployment of tools in crises. 5.4 More recently, the COVID-19 pandemic posed an unprecedented challenge that required the government to revise its financing requirement outside of the normal cycle. As discussed in the government's response to recommendation 4b of the Committee's Ninth Report of Session 2023-24, HMT remains committed to learning and sharing lessons from the response to the pandemic. In respect to borrowing, HMT has since agreed with the Office for Budget Responsibility (OBR) that it will consult the OBR on any future out-of-cycle internal fiscal projections (that, for example, might be used to inform a DMO financing update). In light of market challenges at the time, there was also an increase in the planned DMO end-financial year net cash position, to provide additional day-to-day liquidity. 5.5 Generally, setting the DMO’s remit each year involves taking into account the market’s feedback to design a programme that best meets the debt management objective. This serves as an annual lessons learned process, which remained robust during the pandemic. 5.6 NS&I’s funding target was also increased materially at the time. NS&I met this by maintaining high rates on easy access variable products, which led to very high demand for their products and services. When these rates fell, customers moved quickly to withdraw funds creating further operational pressures, which, regrettably, negatively impacted customers experiences and public trust in NS&I. 5.7 The operational pressures from both high inflows and subsequent outflows were exacerbated by NS&I’s older systems. NS&I’s transformation programme will deliver the systems scalability needed to meet sudden spikes in demand and the robustness customer ‘journeys’ that enable customers to complete these online without further support.