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COVID: financial risk to taxpayers ‘will run for 20 years’

Author: ICAEW Insights

Published: 04 Aug 2021

The Public Accounts Committee has published the final report from their COVID-19 Cost Tracker Update inquiry, finding substantial risk levied to taxpayer finances through government response.

In its report, the Public Accounts Committee (PAC) cautioned that the government's response to the pandemic has exposed the taxpayer to significant financial risk for the foreseeable future and that while departments faced difficulties in responding quickly to the pandemic, these risks did not always achieve good value for money. 

PAC highlighted the NAO’s COVID-19 cost tracker, which shows how actions taken across the whole of government and their estimated costs can be identified and presented in one place, enabling the full picture to be understood. 

This will be vital in helping the government prepare for future crises or any large cross-government programme, to enable the government to make well-informed and rapid financial decisions, for example with decision-making to achieve net-zero greenhouse gases by 2050.

The committee highlighted government-backed loans as an example of COVID response programmes with a high level of risk, reporting an estimated £26bn of credit and fraud losses in the Bounce Back Loan Scheme. In May 2021, the NAO’s tracker revealed that the total cost of the government’s measures was estimated to be £372bn, with £172bn reported spent. The total value of loans guaranteed by the government was estimated to be £92bn.

Commenting on its launch, Dame Meg Hillier MP, Chair of the Committee, stated: “With eye-watering sums of money spent on COVID measures so far the government needs to be clear, now, how this will be managed going forward, and over what period. 

“The ongoing risk to the taxpayer will run for 20 years on things like arts and culture recovery loans, let alone the other new risks that departments across government must quickly learn to manage,” continued Hillier. “If coronavirus is with us for a long time, the financial hangover could leave future generations with a big headache”.

Conclusions and recommendations from the report include:

  • The NAO’s COVID-19 cost tracker shows the importance and value of capturing, sharing and presenting timely data on the government’s actions and costs during a crisis. HM Treasury should develop a closer partnership with the NAO to produce the next, and future, updates to the cost tracker, through sharing its COVID/non-COVID categorised data and the reconciliation to its own data. By the end of the year, the government should write to the Committee and explain how it will monitor the costs of other large cross-government programmes that would benefit from an approach similar to the cost tracker. For example, the drive to achieve net-zero greenhouse emissions and the ongoing costs of EU exit.
  • The value of the cost tracker is lessened by poor data from some government departments and functions. To support the next iteration of the cost tracker, and in advance of the autumn Spending Review, HM Treasury should continue working with departments to develop robust methodologies for identifying and capturing the full cost of COVID-19, including economic impacts and the extent of displaced activity, to have a clear basis for future fiscal decisions and recovery plans.
  • The COVID-19 response means the government will be exposed to significant financial risks for decades to come. HM Treasury should develop a single cross-government framework for monitoring and managing the risks to public finances stemming from the government's COVID-19 response. HM Treasury should then explain in the autumn Spending Review how it plans to manage these risks and any fiscal trade-offs that will need to be made.
  • Achieving value for money from government expenditure during COVID-19 is being compromised by poor quality impact assessments and Accounting Officer assessments. HM Treasury should report back to this Committee by the end of 2021 on its progress improving the quality of impact assessments and Accounting Officer assessments, and its rollout of training on Managing public money, so that proper emphasis on achieving value for money is restored. HM Treasury should review major COVID-related spending decisions to identify cases where decisions made during the pandemic have resulted in poor value for money. It should report its findings back to the Committee by the end of 2021, and use the lessons learnt to produce guidance to minimise the risk of this happening in the future.
  • The total value of government-backed loans had increased greatly during the crisis. Through the autumn Spending Review, HM Treasury should set out how it is managing the significant expansion of the value of government loan guarantees and the associated risk of write-offs, and the steps being taking to reclaim the taxpayer’s investment.
  • It will become increasingly important to distinguish between spending that is aimed at economic and societal recovery from COVID-19, from spending in direct response to COVID-19. Government should, through the autumn Spending Review, set out a fully costed plan for recovering from the COVID-19 pandemic and returning to ‘business as usual’.

Alison Ring, director for public sector at ICAEW, commented: “By showing the costs of dealing with the pandemic in one place the NAO has highlighted the impact across the whole of government. Getting this big picture gives us clarity over what spending there has been and what outcomes have been achieved, to help us identify if measures taken achieve value for money. Other large cross-government programmes would benefit from a similar approach and it would be good if we could see this replicated for the costs of achieving net zero.”

The full report was published on 19 July 2021: COVID-19 Cost Tracker Update

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