Source · Select Committees · Public Accounts Committee
Recommendation 18
18
Acknowledged
NS&I's single provider model limited pandemic borrowing, prompting Rainbow Programme for scalability.
Conclusion
In 2020–21, during the pandemic, the Treasury required NS&I to raise £35 billion from retail savers, which was nearly a sixfold increase in its original remit for that year. Since 2003–04, NS&I has only raised more than £15 billion on one occasion, which was in 2014–15 when it raised £18.2 billion. To deliver its remit, NS&I told us it must balance the interests of savers by offering a fair return, the interests of the taxpayer by minimising finance costs, whilst also maintaining stability of the wider financial market place. NS&I was unable to meet its £35 billion remit, instead raising £23.8 billion – which was nonetheless a record amount. We asked NS&I what it would do differently in the event of a future crisis. NS&I told us that it had learned “many valuable lessons” from the pandemic, some of which will be resolved as part of its Rainbow Programme.31 NS&I currently outsources its entire back-office and customer-facing operations to a single service provider called Atos. Under the Rainbow Programme NS&I will instead outsource to multiple providers. NS&I explained that one of the key lessons from the pandemic that the Rainbow Programme will resolve was to provide “far more scalability and resilience”.32 It added that during the pandemic it received large inflows of deposits from savers, which created “pinch points” as the old, single provider model was dependent on “people, paper and physical locations”.33 NS&I explained that the new model will provide greater ‘scalability’ through better use of digital processes such as mobile apps with much more “functionality and flexibility”.34
Government Response Summary
The government acknowledges the committee's observations on NS&I's pandemic performance, stating it is learning lessons from crisis episodes and NS&I’s transformation programme will deliver the necessary systems scalability and robustness.
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.