2 December 2025

(10.00 am)

Lady Hallett: Mr Wright.

Mr Wright: My Lady, can I call, please, Sir James Harra.

Sir James Harra

SIR JAMES HARRA (sworn).

Questions From Richard Wright KC, Lead Counsel to the Inquiry for Module 9

Lady Hallett: Thank you for coming along to help us, Sir James.

Mr Wright: Sir James, you’ve provided a personal statement to the Inquiry with the reference INQ000656300. And I think you’ve also signed the corporate statement of HMRC, at INQ000614156. And you’ve provided both of those statements in your former role as First Permanent Secretary and Chief Executive of HMRC; is that right?

Sir James Harra: That’s correct.

Lady Hallett: Thank you.

You have provided, dated yesterday, a short additional statement which deals with some corrections of points of detail in the corporate statement, and I’m just going to deal with those at the outset so that they are on the record, as it were.

First, I think you have corrected paragraphs 415 and 416 of the corporate statement, the paragraphs comparing combined Job Support Scheme design with the CJRS design, in this way, that at paragraph 415.1, the second sentence of the paragraph should say that:

[As read] “In the case of JSS Open, a worker would be expected to be working at usual pay for at least 20% of time (20% being the final design choice).”

Then, at paragraph 415.2:

[As read] “Under JSS Open, the final design was that government support was to be limited to a grant of 61.67% of workers’ wages for hours not worked up to a total grant cap of £1,541.75 per month. Employers had to contribute 5% of the cost of hours not worked, up to £125 per month for each worker.”

Then, at paragraph 416, the second sentence should say that:

[As read] “Employers would be unable to meet the condition of having employees work 20% of their normal hours.”

Does that represent the correction you’ve made in that statement?

Sir James Harra: Yes, that’s correct. I apologise for the error, it was – the statement was based on a near-final design of the JSS, but actually there were last-minute changes made to it and I’ve updated the statement to reflect that.

Lady Hallett: Thank you very much for that.

Now, as we’ve already touched on, you were, during the pandemic, First Permanent Secretary of Revenue and Customs and Chief Executive; is that right?

Sir James Harra: Yes, that’s correct.

Lady Hallett: And you obtained that position having worked within His Majesty’s Revenue and Customs for over 40 years?

Sir James Harra: Yes, HMRC and its predecessor department, Inland Revenue.

Lady Hallett: Thank you.

And the first topic I want to ask you about is something we’ve heard about already in evidence, the policy partnership that existed, as we understand it, between HMRC and the Treasury.

The Inquiry understands that, in terms of the labour market schemes that the Treasury implemented, a commission was received on 17 March to design a wage subsidy scheme. And did that mean that HMRC had to consider very quickly whether that was operationally feasible?

Sir James Harra: Yes, so HMRC’s primary role in policy making, whether it be tax policy making or policy making in relation to these schemes, was operational. So we provided analysis of data that we had, but we also iterated operational designs that we thought would be feasible for us and feasible for the customers who had to operate the scheme to do so.

Lady Hallett: And we know that the Coronavirus Job Retention Scheme, you received the commission on 17 March, was actually announced three days later, on 20 March?

Sir James Harra: Mm.

Lady Hallett: So that’s a scheme designed and announced at significant speed; would you agree?

Sir James Harra: Yes, that’s correct.

Lady Hallett: And HMRC’s function, and you’ve touched on this, was really to focus on the deliverability and operational options that could deliver a scheme; is that right?

Sir James Harra: Yes. So, it’s important for HMRC, in these circumstances, to understand what objectives ministers want to achieve and what the, sort of, constraints or guardrails are around that, and then we might be able to advise on different administrative options for achieving the objective but also give advice on the implications of the option that’s chosen in terms of cost of implementing it, administrative burdens for people who need to use it, error and fraud, and things like that.

Lady Hallett: And so did you have to consider how you could deliver a scheme quickly, in terms of design? How it would be operationally possible to make payments quickly, in terms of design? And also look, in terms of design and delivery, at how you could try to limit fraud and error?

Sir James Harra: Yes, at that time, I think speed of announcement and speed of implementation were key, because it was apparent that the pandemic was worsening and therefore we were facing a lockdown of the economy, but also employers were coming up against statutory deadlines for consulting on redundancies if they wished to make redundancies. So it was important that they could have certainty early, and a scheme that was perhaps more elegant but would be delivered a month later was not going to be a success.

Lady Hallett: In normal times, how long – I know it’s difficult to say with precision, but how long would you have expected it to have taken to work up a scheme like this one?

Sir James Harra: So in tax policy making, there’s a fairly regular cycle, obviously, of budgets. There’s at least one a year. Some Chancellors have had more than one a year. So it can be fairly short-term in working up the policy ideas but then there tends to be a cycle of consultation, first of all on the policy idea and options and then another round of consultation on the technical design and on the legislation. So you would usually, you know, even if there was some quick work done in the early formulation of the sort of politics, it would usually be – it could be a year or more in terms of consulting on design of schemes of this kind of scale.

Lady Hallett: So standing up a scheme in three days was significantly in contrast to usual timescales?

Sir James Harra: Absolutely, yes.

Lady Hallett: Yes. And was there any plan for this sort of scheme?

Sir James Harra: Certainly not from HMRC’s point of view. We did have a departmental pandemic plan which was based on the scenario of a flu pandemic, which we did adapt for the coronavirus, but that was very much a business continuity plan. It was about how the department could continue to administer the tax system in the event of, for example, a significant loss of staff to sickness. HMRC had no expectation, before this point, that we would be required to operate economic support schemes in the event of a shock to the economy from a pandemic or anything else. And we didn’t have any statutory function to do so to prepare for doing so.

Lady Hallett: So against that background, and in that context of a scheme that was stood up very quickly and had to be delivered very quickly, I want to explore the policy partnership and how the policy partnership enabled the delivery of this scheme at speed.

So in general terms, the policy partnership we understand is a unique partnership in government; do you agree with that?

Sir James Harra: I believe so. So it was formally constituted in 2005 when HMRC was created from the merger of Inland Revenue and HM Customs & Excise. Obviously you have, then, two departments who have an interest in advising ministers on tax policy. You’ve got the Treasury, whose primary interest is the economic and social effect of tax policies and you have HMRC whose primary interest is the administration of them, how they can be administered effectively, how much it’s going to cost, what the administration burden is going to be on taxpayers.

And those two things are interconnected because Treasury won’t achieve their economic or social objectives for a policy if it can’t be implemented effectively, if people use it for purposes that it wasn’t designed for or can’t use it for the purpose that it was.

So the policy partnership was devised to ensure that Treasury and HMRC worked jointly on providing policy advice for ministers rather than independently or sequentially, and, you know, I believe it’s been effective over the years in giving good policy advice to ministers, but also in making sure that the departments, the two departments, have a good working relationship, which they can apply day-to-day.

Lady Hallett: So this was a partnership that supported the working of the two departments in ordinary times –

Sir James Harra: Yes.

Lady Hallett: – given what they were both there to do and how they were related one to the other; is that right?

Sir James Harra: Yes, that’s correct. But I think it then created a capability which could be brought to bear on the situation that we faced in March.

Lady Hallett: So it works in ordinary times but it was particularly useful in a time of emergency?

Sir James Harra: I believe so. I think the fact that we had existing sort of governance structures and existing close relationships and familiarity with how the two departments worked together was something that was able to be, you know, given effect to very quickly, then, in relation to the new schemes.

Lady Hallett: Did it mean that people were, first of all, used to working collaboratively between the departments in ordinary times, so this was nothing new, in other words?

Sir James Harra: Yes, I mean, essentially the teams that work on policy advice for Treasury ministers between HMRC and the Treasury, they form a single team. It is a joint team, obviously they work for two different departments, but they work in a single team.

Lady Hallett: And there was an understood pre-existing expectation that both departments would be feeding in policy advice to ministers?

Sir James Harra: Yes, so the way the policy partnership works is that the two departments give joint advice to ministers. So ministers won’t receive independent advice from the two departments. It’s always open to either department to advise independently if we couldn’t agree, for example. But in reality, what happens is, different concerns from different departments are reflected in the joint advice, and in my experience, we’ve never had to do that. So it works well all the time, yeah.

Lady Hallett: Did it also mean that there was a pre-existing expectation that information would be exchanged openly between the departments, and insights shared?

Sir James Harra: Yes, so the – for the policy partnership, the key analytical function is HMRC’s knowledge, analysis and intelligence function, which was about – I think at the time, about 600 people worked in that. And that provided analytics across the policy partnership using data that HMRC had or was able to acquire. So we would – so HMRC would give analysis into the policy-making process of that data.

Lady Hallett: And therefore, before the pandemic emergency, was there already a strong culture of working together to achieve objectives?

Sir James Harra: Yes, so the policy partnership had been running for about 15 years. By, then, you know, it was well established, it ran very well. It had, you know, an oversight group that governed it, as well as the sort of personal relationships that had built up over time between officials in the two departments. And they were used to working jointly in a single team.

Lady Hallett: Looking back, do you think that the working up and delivery of the scheme in such a short time period would have been possible if you hadn’t had those established ways of joint working?

Sir James Harra: I think it conceivably it could have been difficult, if you hadn’t had that existing way of working, because whilst, you know, everyone wanted to collaborate at that time and everyone understood what the priorities were, nevertheless if you had different systems and different ways of working and you didn’t have the infrastructure in place for exchanging data and exchanging views and working together then that could well have slowed us down, for example.

Lady Hallett: Is it right, Sir James, that during the pandemic an additional body, a Joint Labour Market Board, was established?

Sir James Harra: Yes. So that ran for I think about 12 months. It was not a formal governance board but it was a means within the policy partnership by which the two departments could share intelligence about the labour market and that meant that then, when people went off into their own departments to do work, they were doing so on the basis of a common understanding of what was going on in the labour market and what the priorities were. But I wouldn’t want to over-emphasise the importance of that. It was a way of sharing joint intelligence on the labour market and making sure that everybody from the Treasury and HMRC had the same understanding.

Lady Hallett: And accepting you don’t want to overstate it as a body, does it demonstrate that you could set that up, another advantage of the policy partnership, and this established joint working? That you could adapt what you were doing before, and work together in a different way?

Sir James Harra: Yes, so that Joint Labour Market Board was a manifestation of a policy partnership ways of working. Officials were able to set that up very quickly, you know, without going through lots of protocols and things because we were already – you know, it was all done under the auspices of an existing partnership.

Lady Hallett: Thank you.

[Background noise of singing]

Mr Wright: I’ll carry on.

Lady Hallett: We seem to have a choir.

Mr Wright: I would say they seem to follow me around everywhere.

Lady Hallett: Sorry about that, Sir James. It doesn’t often happen.

Mr Wright: Yes, a lot of things seem to be happening this week that don’t ordinarily happen but anyway, there we are.

In ordinary times, just – you’ve obviously operated in a department that has this established policy partnership and that joint way of working, but have you been able to observe that other departments operated in a more siloed way so that departments are separate and don’t share that sort of common approach and working together?

Sir James Harra: I only have knowledge from the perspective of HMRC. HMRC certainly did collaborate with other departments apart from Treasury, in particular the Department for Work and Pensions, and at that time the Department for Business, Innovation and Skills, on particular issues, so we – in particular with DWP, we had longstanding arrangements for sharing data and working jointly on some welfare things because HMRC administered tax credits while DWP administered Universal Credit. But they were sort of horses for courses. You developed those relationships as you needed them. They didn’t always have the enduring nature of the Treasury/HMRC policy partnership.

But if I look at the other big cross-government initiative that the HMRC worked on at that time which was Brexit, you know, I can certainly recall that it took us quite a considerable time to build the collaborative working that came as second nature between Treasury and HMRC on tax policy.

Lady Hallett: The benefits you’ve already spoken of in terms of being able to work together quickly at pace, sharing information and so on and so forth. Do you think that the policy partnership could be replicated in terms of the relationship between the Treasury and other departments, or do you think it’s really a product of that unique relationship between the two departments of HMRC and the Treasury?

Sir James Harra: So I think the policy partnership is definitely, you know, has demonstrated that it is an excellent way of working. However, it is a – it’s a muscle that you develop through exercising it over time. So I’m not sure it’s something that you could easily artificially create if there isn’t the ongoing, enduring collaboration that backs it up. So in the case of tax policy, that’s a constant annual cycle.

So I think anything that made for collaborative relationships would be good, but in reality, I think it would be difficult to replicate the policy partnership where you don’t have an enduring, ongoing collaboration, because it’s a capability that builds up over time.

Lady Hallett: Okay, thank you very much.

Can I move on, then, to a second topic, please, which relates to the ability of HMRC to deliver CJRS and the self-employed scheme, and the statutory powers that were required in order for your department to deliver those schemes.

Now, in ordinary times, you’re a non-ministerial department; is that right?

Sir James Harra: That’s correct, yeah.

Lady Hallett: And primary function is to collect revenue, collect taxes on behalf of the government; is that fair?

Sir James Harra: Yes. I mean, I think a key thing is that HMRC is quite unusual as a government department. We’re a creature of statute and all of our, sort of, powers and responsibilities are vested not in a secretary of state but in a board of commissioners. So the commissioners can only act within their statutory functions, and then it is the commissioners who have got that statutory responsibility, not a minister.

Lady Hallett: I see. And prior to March 2020, there was no pre-existing state furlough scheme in the United Kingdom, and did it follow that you didn’t have a pre-existing statutory power to deliver that sort of scheme?

Sir James Harra: That’s correct. Our statutory function was the collection and management of tax and customs duties and some other things, like payment of child benefit and tax credits. And beyond that we didn’t have vires to operate or spend money to prepare to operate some other – some other things outside the ambit of that. That meant when we were approached with a view to operating the scheme, it was clear that we were going to need a new statutory function to enable us to do that which was provided by the Coronavirus Act.

Lady Hallett: So did the acquiring of those statutory powers have to proceed with the same sort of speed as you were delivering the scheme?

Sir James Harra: Yes. I mean, I was satisfied as the accounting officer for the department that once ministers had said that they were going to provide the statutory function then I could start work on the basis that it was going to be given to me, but we would have reached, you know, certainly in – for example, in helping with the design and policy advice, but we would have reached a point where I would have had to sort of down tools until I was given the formal power. So it was urgent that it was given quickly.

Lady Hallett: So if there was an argument that no planning was needed to – for a future emergency in terms of bringing a furlough scheme or some other scheme, would you say, from a delivery perspective, if HMRC was going to play a role in delivering a future emergency scheme, planning it would be required to give HMRC the statutory authority to deliver such a scheme?

Sir James Harra: So, you know, if we met a future economic shock, whether through a pandemic or some other event, which required HMRC to operate such a scheme, then we would need – the department would need new statutory function to enable it to do that.

You know, the situation we were in in March 2020 was that we had had no prior notice that we could be expected to do that and no function to enable us to prepare for it. I’m sure it would be better, if it was envisaged that the department was going to do that in the future, that it knew that and was able to plan for it.

Lady Hallett: And because of the movement at pace, did HMRC require its powers in what you considered to be something of a piecemeal fashion?

Sir James Harra: I don’t think we were concerned about that. You know, once we were satisfied that there was going to be legislation in the Coronavirus Act that was going to give us the additional function that we needed, then we were quite happy to get on with the design work, and we worked closely with Treasury on the drafting of the directions that we were ultimately given that provided us with the sort of detailed functions that we needed, which were in effect the rules of the schemes that we were being asked to implement.

Lady Hallett: The Coronavirus Act gave you the power to deliver the scheme, to administer the scheme?

Sir James Harra: So the Coronavirus Act gave Treasury ministers the power to provide us with functions, and those functions were then given in a series of Treasury directions.

Lady Hallett: Yes, but it didn’t give you necessarily all of the powers you would have wanted at the outset in terms of potential recovery and the tax treatment of the scheme; is that right?

Sir James Harra: That’s correct. You know, as the schemes developed and we understood more about the error and fraud risks, it became clear to us that the sort of common law powers that we would have to recover overpayments would be quite administratively burdensome and costly for us to operate. We were already familiar with a way of managing compliance in the – in the tax system, and we had people who were trained in all of that, and we felt that the best thing would be if we were able to replicate that for the purposes of these schemes as well.

Lady Hallett: Can you just expand on that in terms of what it would enable you to do. How – how your common law powers, whilst they might have actually enabled you to recover –

Sir James Harra: Yes.

Lady Hallett: – would have been more cumbersome than dealing with things through the tax system?

Sir James Harra: So if we – you know, with – absent the legislation that we got in the Finance Act of 2020, had we been determined, for example, that a furlough scheme payment had been overpaid then we could have gone to the County Court or the High Court and sought recovery of that, whereas in fact what we got was legislation that enabled us to carry out investigations and gather additional information and effectively make an equivalent of a tax assessment. And that – that then made that money recoverable unless the claimant appealed against it.

So it was a – it was, from an administrative point of view, a much slicker way of doing it.

Lady Hallett: So it would have been a more efficient way of recovering overpayments and monies?

Sir James Harra: And of investigating risks as well.

Lady Hallett: Yes. That’s why I used the term “piecemeal” earlier; that there was here – or there were here two acts that were required: first, the Coronavirus Act, which gave Treasury ministers the ability to direct HMRC; and then, later, in the Finance Act of 2020, came this fuller suite of investigative and recovery powers; is that – is that fair?

Sir James Harra: That’s – that’s correct. And the Finance Act also gave effect to – you know, when ministers announced the scheme, they said that the payments would be taxable in the hands of the recipients, and the Finance Act also made provision for that.

Lady Hallett: Can you just explain what – what that – what that means, in simple terms, and why it was important?

Sir James Harra: So these were payments being received by businesses – in the furlough scheme, employers, and in the Self-Employment Income Support Scheme, obviously self-employed people – and the principle was that they would then form part of the taxable turnover of their business, so that, to the extent that they made profits, and those profits had been contributed to by these grants, then those would – those profits would be taxable. And other grants that HMRC didn’t administer, similarly, I believe, were made taxable in that way.

So it provided a kind of clawback mechanism to the extent that businesses were profitable as a result of the – of the grants.

Lady Hallett: So it represented better value for money for the taxpayer in the sense that if a business was still making profit, those monies were part of the profit, and there would then be a corresponding tax liability, so a net cost to that –

Sir James Harra: That – that’s correct. And as a result, the net Exchequer cost of these schemes was – was less than the gross cost.

Lady Hallett: So, ideally, if there had been time, and if there had been planning or thought given to the powers that HMRC would need, both to administer the scheme and to investigate and claw back and in terms of tax treatment, you would have had all of those powers at the outset?

Sir James Harra: I’m sure that’s right that that would have been the ideal. You know, in the event, you know, I don’t think it made a material difference. It did mean that we didn’t have the investigative powers until July 2020 when the Finance Act was passed. So there was a period of a few months where we couldn’t undertake that compliance investigation work, but in practice, during those months, I don’t think there would have been a lot of that work that we would have been doing.

Lady Hallett: No, but – and accepting you were working at speed and that was what necessitated that two-step approach of two Acts of Parliament, again, I’m just really exploring this because we’ve heard some evidence yesterday from Dr Leunig that there’s no need to plan, planning is the enemy of doing good things, and – “because look at what we did with the CJRS” was effectively his evidence. It was stood up very quickly.

But had there been a plan, had there been pre-existing powers, it would have meant, wouldn’t it, that you would have had all of the legal backing that you needed, both to administer the scheme and to claw back money, and to protect the Exchequer from the outset?

Sir James Harra: Yes, so in terms of detailed plans, for example, you know, if we’d had the necessary statutory functions and legislative powers, could we have had a scheme devised and sort of in the drawer ready to be implemented? You know, I’m probably of the view that whilst you can plan for different scenarios, you don’t really know what kind of economic shock you’re going to meet and therefore you do need that agility and flexibility, and certainly, you know, it was thanks to a set of capabilities that we, the HMRC and Treasury had built for other purposes, that we were able to do so but I’m sure it would have been – it would be better, if you thought that HMRC was going to have that kind of function again in the future, that you understood the framework that was in place and you could do whatever planning you felt was sensible to do.

Lady Hallett: Right. Can I move on, then, to ask you some questions about the Job Retention Scheme itself.

Now, the scheme, as we’ve already touched on, was announced on 20 March and it was initially due to be launched, we understand, at the end of April. And I think it’s right that you were able to actually launch ahead of schedule on 20 April; is that right?

Sir James Harra: That’s correct, employers were able to start making claims from that date, and those claims obviously could be backdated to 1 March when the scheme was effective.

Lady Hallett: I want to explore, really, how that was possible, to not only conceive of a scheme as quickly as you did and announce it, but then also to deliver it, stand it up early.

Now, one of the objectives, as you’ve told us, of the scheme, was to deliver money quickly; is that right?

Sir James Harra: That’s correct. So I think the lockdown was announced on 23 March, three days after the Coronavirus Job Retention Scheme was announced. Employers were up against statutory deadlines, I think for large redundancy schemes they have to consult about 45 days in advance, so it was important that they had certainty about what kind of support they would get and when they would get it to prevent those redundancies and so speed was of the essence, both in terms of launching the scheme and then thereafter, processing the claims and getting payments to employers.

Lady Hallett: I want to ask you about two factors and how important they were in terms of speed of design and delivery. First, the fact that you had existing systems that you could use to administer the scheme. How important was that?

Sir James Harra: Yes, I think there were a set of departmental capabilities that enabled to us move fast. First of all, we had some, you know, really skilled people, whether they were in technology or in compliance management or in service design or in policy design. We had an existing set of relationships, for example the relationship with Treasury that we’ve talked about, but we also had strong, enduring relationships with, for example, the payroll sector, and we also had data in the Pay As You Earn system that we were able to access really quickly.

So there was a whole set of capabilities that had been built and strengthened over a long period of time for other purposes that we were able to bring to bear on this.

In the case of technology and the systems, for example, there were two things, primarily for the coronavirus scheme. First of all, there was the Pay As You Earn Real Time Information system which held a lot of up-to-date data about employees and employers, but we also had a really modern digital platform on which we could launch new digital services, because the scale of this scheme meant it was essential that employers were able to self-serve digitally with their claims.

Lady Hallett: Then the other factor that I’d like to ask you about, and how important that was to speed of delivery, was simplicity. Keeping it simple, putting it bluntly. How important was that?

Sir James Harra: I think it was critical. You know, the approach to the Coronavirus Job Retention Scheme was to keep it simple based on what we knew we could do. There were clearly some sort of edge issues which then got picked up afterwards and so we added little bits of complexity afterwards for parental leave and things like that, but getting it launched quickly involved simplicity and sort of clear steers and decision making.

Lady Hallett: And I want to ask you some questions, I’m going to go on to ask you some questions about particular issues that emerged in the scheme, but before we get to that, acknowledging the good, is this right: that a total 1.3 million employers and 11.7 million employments were exercised by the scheme? I’m taking these figures from your statements.

Sir James Harra: Yes, that’s correct. And so by 11.7 million employments, we mean jobs. There will obviously have been some people who had more than one job, so it doesn’t quite equate to 11.7 people. I think it’s something like 10.8 million employees.

Lady Hallett: And the scheme was accessible to and used by employers of various sizes, including those with very large number of employees?

Sir James Harra: Yes, it was open to all employers from people who just employed one person right through to very large employers. Initially, when it was launched, part of that simple design involved a bit of administrative burden for large employers, because of the clunkiness of uploading very large files but then in later iterations we improved the design for large employers to make that less burdensome for them to use.

Lady Hallett: And we’ve also heard evidence from Dr Brewer, of the Resolution Foundation, that the scheme prevented what would otherwise have been a significant increase in inequality in the labour market with support given to young people and those in sectors that were vulnerable to the pandemic, or particularly vulnerable to the pandemic, for example the food industry and hospitality, and sectors like that, and have heard about the fact the scheme was accessed by all nations of the United Kingdom, and employers across them.

I wanted to set that positive background with you, just to, however, now, turn to some groups who, if you like, missed out, those who, for various reasons, fell within gaps in the scheme. And if we can just identify some of those, and then explore how and why that happened, and what either couldn’t be done or what might be able to be done if we ever had to resort to such a scheme in the future.

Sir James Harra: Yeah.

Lady Hallett: So that’s the purpose of the questioning.

One concern that the Inquiry has heard in evidence, and that the Inquiry has a listening project, Every Story Matters, and concerns were raised by a number of contributors, that there was limited support by – for those in the gig economy, and freelancers, and some have described that as a failure of policy.

Were there particular difficulties in this scheme supporting those workers?

Sir James Harra: So I think it’s a very dynamic labour market. There are lots of different models of employment. Anyone who was in employment at the cut-off date, whether they were a gig worker or whether they were someone like me who had been an employee of the same organisation for a very long time, were within the scheme. Similarly, anyone who had recently, you know, sort of been made redundant by their employer could actually be brought back on to the payroll and brought within the furlough scheme because that was the aim, obviously it was to try and save jobs.

Similarly, it was designed to enable people who were on zero-hours contracts to benefit from the scheme based on sort of earnings from the past. But if you were a gig worker who went through sequential job contracts and you were between contracts at the point when the scheme was launched, then you wouldn’t have been able to benefit from it.

Lady Hallett: Okay. Can I just pick up one of the points you have just referred to, which is the requirement, initially in the scheme, that employees had to be on payroll by 28 February 2020. So that was effectively a cut-off date for eligibility, initially, is that right?

Sir James Harra: That’s correct, when the scheme was announced, although that date was changed – (overspeaking) –

Lady Hallett: Well, we’ll work through that, but can we just drill down into that and try to understand it. Why did there need to be a cut-off date at all, from the perspective of HMRC or the Treasury?

Sir James Harra: So in the design of these schemes there was, I think, a balance to be struck between making them as accessible to as many people as possible who were within the policy objective of the scheme, and managing the risk of error and fraud and, you know, ministers were, I think, always weighing up that balance and so they were keen, obviously, that the schemes achieved their objective, but they were also keen to protect public money from being abused. But the advantage of the cut-off date was that it related to data that HMRC already held about who employees were, how much – who they worked for, how much they earned, so that there was verifiable data that we could check claims against, and that was a significant control of the error and fraud risk.

There would have been options to bring in other people who were not on HMRC’s database, but that would have carried additional error and fraud risk, and it was a – it was really a political judgement about how much risk you were willing to take.

Lady Hallett: Now, you reference there the data that HMRC had access to, and I just want to explore that in the context of this term “on payroll”. Is it right that HMRC receives real-time information about employees?

Sir James Harra: So, we – well, we have a system called Pay As You Earn Real Time Information. That’s the name of the system. We receive data about employees every time an employer runs their payroll. So if an employer pays people monthly, when they run their monthly payroll, they download data about that payroll to HMRC’s Pay As You Earn Real Time Information system.

So there is always some lag. You know – you know, if you take today, an employer might be employing someone today but we won’t actually – HMRC wouldn’t actually receive the Pay As You Earn information until the pay date at the end of December, so it’s not daily real-time information but it’s near real-time information.

Lady Hallett: So this term “on payroll” by 28 February 2020, from your perspective did that mean, in terms of an employee to be eligible, that they had to have been paid by their employer by 28 February so that their job would show up on the system?

Sir James Harra: Yes. I mean, I think there was some loose language used at the time. So the wording that was used publicly was “on payroll”, but the design that was being worked on meant that HMRC had received a real-time information submission about that person, and so I can see how in normal usage – you know, today you might have someone who is on your payroll, but actually, in the definition of “Have we had a real-time information submission?”, they’re not. And, you know, that was one of the issues that we had to clarify and one of the reasons why we had to look again at the cut-off.

Lady Hallett: So you may have had an employee who was genuinely an employee, who’d started employment before 28 February, and so therefore may consider themselves “on payroll”, but because they hadn’t been paid by 28 February, and therefore real-time information hadn’t been shared, they would not have qualified according to that initial cut-off; is that right?

Sir James Harra: That’s correct.

Lady Hallett: Did you acknowledge that as being an issue, a problem that needed resolving?

Sir James Harra: Yes. So, you know, we gave advice to ministers about what could be done about it. And as I say, there were a range of options, but the – you know, there was an option to take a later date, which was before the announcement of the scheme – so before any fraudster, for example, would have had the opportunity to take action to abuse it – but which was a later date than 28 February, and thereby would have captured many more people who were on the payroll at 28 February or indeed were on the payroll later.

So the cut-off date was moved to 19 March, and, from memory, I think that brought in an extra 430,000 or 470,000 people in two cohorts: people who were on payroll before 28 February but actually had not been on an RTI submission by that date, but also some people who had joined employers after 28 February up to the 19 March.

Lady Hallett: Okay. And the relevance of 19 March was that that was the day before the scheme had been announced by the Chancellor?

Sir James Harra: That’s correct.

Lady Hallett: So it bought off that point you’ve made about a fraudster deciding to suddenly have lots of people on payroll on 20 March, on the day it was announced?

Sir James Harra: Yes. So, you know, we had an error and fraud – a sort of compliance risk control framework. There were two key risks. I mean, one was that – or people who were not genuine employers would get into the Pay As You Earn system either by setting up a Pay As You Earn scheme or by hijacking an existing scheme. The other risk was that genuine employers would artificially add people to their payroll. And having this cut-off date protected – was a way of controlling those risks.

You know, if the judgement had been that that’s not what the ministers wanted to do, then we would have looked at other ways of controlling the risk but they would undoubtedly have been weaker because we wouldn’t have had verifiable data.

Lady Hallett: Is there any reason why, given the announcement was on 20 March, that 19 March wasn’t chosen as the date initially?

Sir James Harra: With hindsight, no, I think not. At the time we were designing the scheme, it was, you know, 28 February, when it was clear that it was an issue. And we looked at it again. I think we concluded that you could move the date to 19 March without that materially affecting the risk.

Lady Hallett: Looking back, and, you know, hindsight, as you’ve acknowledged, is a wonderful thing, but is it likely that 28 February was chosen because most people get paid on the last day of the month and that was the last day of the month preceding the announcement?

Sir James Harra: I’m not a hundred per cent sure but I would – I would suspect so, yes.

Lady Hallett: So, accepting that issue, that was resolved fairly rapidly, but accepting that issue initially, can I just test with you one suggestion that was made yesterday, I think by Dr Leunig, which was that the system could be changed generally so that there is a requirement that workers are registered before or as they start work, rather than the first real-time information point being the first date of pay. So if that was the system, if that was the requirement, that would give you a clear picture of all those who were in employment, albeit they hadn’t been paid.

What would your reaction to that as a suggestion be?

Sir James Harra: I’m sure it would be possible to introduce that data requirement on employers. Obviously the data requirements that were there were for the purposes of administering the Pay As You Earn scheme within the tax system not for the purposes of creating an economic support scheme.

The advantage of the existing arrangements is that employers understand that when they run their payroll, you know, whether that’s weekly or monthly or whatever, they transfer the data to HMRC, and so payroll systems are set up on that cycle. Obviously it would change the administrative burden on employers if they had to make sort of daily updates of starters and leavers as – as time went on.

But obviously, whether you concluded that that burden was something worth placing on employers would depend on what you think the likelihood and importance is of having this for the future.

Lady Hallett: Generally, in terms of tax policy and tax collection, is there a general need to balance the burden on employers against the efficiency of collection of taxes?

Sir James Harra: Yes, so obviously administrative burdens on businesses generally are a key interest of, you know, successive governments and, you know, the department in the past has had targets to reduce those and there’s an admin burdens administrative board that monitors the burdens that the tax system creates on businesses and, you know, makes suggestions for how they could be relieved. So there’s always a balance to be struck between the more data HMRC has, the more we can do, whether it be to manage the tax system or to do other things when called upon, versus actually this is a burden on businesses.

And the nature of that burden changes over time, as well, because, you know, technology and development of databases and everything, you know, can lower those costs over time so it’s something that you’d, I suspect, keep under review.

Lady Hallett: So just to complete this, other than in a time of future emergency, it might enable you to design a scheme so as to exclude less people; is there any other reason to do it in ordinary times?

Sir James Harra: So I think probably not from HMRC’s point of view on the administration of tax, but if you are an economic policymaker, you want the most up-to-date information you can get about the labour market in any circumstances. So, you know, so people like Tim Leunig will always welcome having more and more up-to-date data for their analytics, for example, but someone has to provide that data and store it and pursue it where it’s not provided. There’s inevitably a cost involved.

Lady Hallett: Sorry to interrupt, can I just ask, if you had a register of people, the date they’re employed, haven’t you then got to factor in the fact that don’t a lot of employees leave quite early on in their employment?

Sir James Harra: Yes, I’m sure there are people who take up job offers and then never turn up, or who turn up on day 1 and don’t come back, unfortunately. So, you know, you would have that uncertainty. But from HMRC’s point of view, you know, we do want to know who has started and who has left, but we usually only need that information when there’s a tax liability being reported to us.

But yes, it would, I imagine, data – daily data about starters and leavers will carry that kind of inaccuracy.

Mr Wright: Thank you very much.

Can I move on to another group who it might be said were excluded or unable to access the Job Retention Scheme, and this is limited company directors. To fall within the Job Retention Scheme, is this right, you needed to receive your remuneration through PAYE?

Sir James Harra: That’s correct. So the director of a company could well be within Pay As You Earn if they receive a salary for the work they do for the company and therefore were within the scope of the scheme, and specific provision was made for them in that they were able to carry out their statutory duties as a director without that disqualifying them from the furlough scheme because they were doing some work, but it was only obviously to the extent that the company paid them by way of a salary.

Lady Hallett: So if they chose instead not to receive a salary, but to receive income from dividends paid by the company, which has a different tax treatment to salary; is that right?

Sir James Harra: Yes, so, you know, my experience is that company owner managers, so people who work for their own company, if you like, will adopt a variety of different ways of paying themselves or taking money out of the company. They will usually pay themselves a small salary, but then will often take money out in other forms. It might be by way of dividend, it might be by way of a loan, it might be by way of liquidating the capital and taking a capital distribution and then setting up a new company. So there are a whole variety of ways that people do that, often for tax planning reasons, but what that means is that the Pay As You Earn data that HMRC holds doesn’t reflect the total remuneration package that they get from their company.

Lady Hallett: So there are two issues, then, are there, at play for limited company directors: firstly, that if they receive their income in a variety of ways, so some dividends, some salary, all the scheme would have seen is the salary –

Sir James Harra: That’s correct.

Lady Hallett: – and compensated the salary element, not the dividend or other element?

Sir James Harra: That’s correct.

Lady Hallett: And if somebody chose to not receive any salary, but for tax planning reasons, to receive their income through dividends only, for example, they would be ineligible to be furloughed?

Sir James Harra: Yes, that’s correct.

Lady Hallett: Okay. Was one of the reasons, or perhaps the principal reason for the difficulty in extending the scheme to limited company directors, that the data you had as HMRC did not distinguish between dividends that might be dividends from a director’s own company, from their effective employment within their company, as opposed to dividends that might be received from unearned income, from shares or other unearned income?

Sir James Harra: Yes, shareholders, you know, directors who are also shareholders of companies, they would have returned their dividend income on their self-assessment tax return, but obviously we get that data significantly in arrears in contrast with Pay As You Earn data, and furthermore, it’s often just a global figure. So when someone shows they’ve received dividend income, we don’t know that it’s from their own company versus shares they hold in BP or whatever, and we don’t know whether it relates to work they did for the company which they’ve chosen to receive in a form other than salary, or whether it is by way of investment return.

Lady Hallett: I’m just going to ask that a document is put up on the screen, which is a submission to the Chancellor of the Exchequer that touches on this issue. Thank you.

And at paragraph 4 there we see:

“The rationale for supplementing dividend income is also not the same as for supporting wages or trading profits through other schemes. Dividends are fundamentally a distribution of profits … COM …”

Is that company owner managers?

Sir James Harra: Company owner managers, yes.

Lady Hallett: “… can choose where and how to pay them. Therefore, the level of dividends paid at any point is unlikely to reflect a company’s profitability, making a scheme design on this basis poorly targeted.”

So that’s one reason, a policy reason, that seems to be being articulated as to why you may not want to give support to that group; is that right?

Sir James Harra: Yes, so I think, throughout the life of the schemes, it was acknowledged that company owner managers, so people who worked for their own company, were people who ideally were within the policy ambit of the support, so they were people who ministers would have wanted to support if they could.

There were obviously some policy reasons, which is described here, why that could be poorly targeted, because dividend income – it’s very difficult to determine when dividend income reflects money that would otherwise have been taken in the form of remuneration, and when it doesn’t. And then, in addition, because of the lack of data, you would, when designing such a scheme, ultimately have been reliant on self-certification. So you would have carried the error and fraud risks that go with that.

But I think there’s no doubt, if you look at the way this was considered throughout the life of the schemes, it was acknowledged that, ideally, you would have wanted to bring these people within the ambit of the scheme to the extent that they were receiving remuneration.

Lady Hallett: If we look at the paragraph above, actually, paragraph 3, there’s a reference there to company owner managers as a “vocal and organised group”. It says:

“… other groups have a more compelling case for further support, such as the newly self-employed; those who changed jobs and so were not eligible for CJRS …”

And then if we could have paragraph 7, it sets out what are described as “pragmatic barriers”, “considerable pragmatic barriers”, including: no statutory or generally agreed definition for a company owner manager; and the need for more complex set of eligibility criteria.

And so, ultimately, you say that during the life of the scheme there was consideration as to whether they could be brought within scope, but they weren’t brought within scope; is that right?

Sir James Harra: Yes, they weren’t, except to the extent that they received salary. And I don’t know whether, during the life of the Coronavirus Job Retention Scheme, company owner managers changed their sort of remuneration policies about how they remunerated themselves, but, you know, a contrast between company owner managers and their dividends and jobs was we had an existing tax scheme, which was Pay As You Earn, which, you know, was able to be harnessed from the point of view of a Job Retention Scheme, whereas for these people, you had a lack of, sort of, pre-existing policies that you could latch onto, so you were going to have to come up with definitions of who you wanted to benefit and what amounts you wanted to benefit them for, as well as how you would get data about all of that.

Lady Hallett: I think you were presented with alternative options by the all-party parliamentary group; is that right?

Sir James Harra: Yes, that’s correct.

Lady Hallett: Who suggested a target income grant scheme, which was a scheme that would have supported a group of people, including the newly self-employed, limited company directors, PAYE freelancers, and those who earned less than 50% of income through self-employment. We’ll come on to that more particularly when we look at the Self-Employment Income Support Scheme. But did HMRC consider that submission?

Sir James Harra: Yes, so HMRC and Treasury looked into that, and I think other proposals that were put forward, and we did advise ministers on, you know, how you could devise a scheme which, sort of, achieved that and what the implications and issues of – of doing so would be.

Lady Hallett: But ultimately, was anything changed to extend support?

Sir James Harra: No.

Lady Hallett: And why was that?

Sir James Harra: So ministers decided that they didn’t want to do it. The – you know, from HMRC’s point of view, the key issue was the – how we would have managed the error and fraud, because we had no data about these people and their income, and therefore we would have been reliant on self-certification.

I think there was an option put forward that you could have it certified by accountants, you know, these people could pay an accountant to certify it for them, and that would obviously give some level of management of the risk, but the conclusion was that ministers didn’t want to proceed with that. You know, I would – I would imagine because, you know, they – they had decided where they wanted the balance of error and fraud risk to be put.

But there’s no doubt that, I think, you know, throughout the scheme that ministers understood that these were a group that ideally you would support, and if they – if we could have come up with a design which would have enabled that in a way that was safe, then that was something they would have considered.

Lady Hallett: So, ultimately, there were political decisions for ministers, which are not for HMRC to make those decisions; is that right?

Sir James Harra: Yes. I mean, ultimately, it was for ministers to decide: yes, we do want to do something for these people. We understand the risks and issues involved in that. Proceed.

Or: no, thank you, having looked at the risks and issues that you’ve raised, we don’t want to proceed with that.

And they took the latter approach.

Lady Hallett: And HMRC’s role in that decision making was effectively to say: well, this is how we could deliver. If you wanted to offer support, these are the limitations, these are the fraud risks, these are the data gaps.

And so on and so forth.

Sir James Harra: Correct, and as much analysis as we could give about, you know, the numbers involved and the costs and what the impacts would be.

Lady Hallett: Looking ahead to any future emergency, I think it’s right that the Finance Act of 2024 and some secondary legislation now means that data is collected about dividend income. Leaving aside the political question about whether any future government would want to offer that support, but from a practical delivery perspective, does that mean now that that sort of support could, in a future emergency, be delivered more effectively?

Sir James Harra: So I’m aware that, you know, we did consult after the pandemic on gathering more data about dividends. I believe the definition that’s been used is of close companies, which is a concept that is already recognised in the tax system. So there is now more granular data provided on self-assessment tax returns about dividends which would enable us better to identify people who are company owner managers and the amount of dividend income they receive, so that might enable, in the future, a scheme to be developed for such people.

There are, however, still, I would say, some limitations with that data, in particular the timeliness of it. It is collected under the self-assessment scheme so it invariably is not real-time data.

Lady Hallett: Of course. Thank you.

Can I move on to another issue in the context of the Job Retention Scheme, and that is targeting. We’ll explore what targeting means and different ways in which it’s possible to target, theoretically, and targeting in this scheme. Generally, targeting, would you agree, is a method of ensuring that public money goes to those who need it in accordance with the objectives of any scheme?

Sir James Harra: Yes, I mean, I think the aim of targeting in this scheme would have been to ensure that the grants went to people who were within the policy objective and didn’t go to people who weren’t within the policy objective.

Lady Hallett: And generally, I suppose it might be said that the scheme was targeted, because the scheme was targeted on those employers who needed to furlough their staff because of the pandemic?

Sir James Harra: Yes, I think that’s right. I mean, obviously, the – this scheme had a broad objective which was to protect jobs by preserving job matches, and I think the reality is that employers are not going to furlough their employees if they can usefully put them to work and earn profits. And certainly in later iterations of the scheme when there was some employer contribution added, I think that was a further support to targeting because there was a financial cost to an employer for keeping a furloughed employee, so that was both an incentive for them to bring them back to work if they could, or to release them if they thought, actually, this job is not going to be viable, they need to go off and do other things.

And constantly, it was really for Treasury more than HMRC, there was sort of a balance to be struck between preserving jobs and therefore enabling a rapid economic recovery and preventing scarring, versus maintaining mobility in the labour market and making sure that labour was reallocated to where it was most economically advantageous and not sort of skewing the market by having people staying in jobs that weren’t viable.

Lady Hallett: So would your starting point be that it would be wrong to say, well, this scheme wasn’t targeted, anybody could have it? It was targeted on those who needed to furlough their employees and then later on, as it developed, with the tapering, that level of targeting was increased, in effect?

Sir James Harra: Yes, I think it was inherent within the scheme that employers were only going to select – furlough people if they couldn’t put – usefully put them to work. It was also inherent within the scheme that employees who were only going to receive 80% of their usual wages wouldn’t stay if there was a job they could go to that would pay them 100% of their wages and then over time that targeting was strengthened, mainly through the introduction of the employer contribution.

And, you know, the final sort of evaluation of the scheme shows that as the economy opened up, the numbers on furlough really dropped month on month on month, which showed that targeting sort of in real-world effect.

Lady Hallett: Notwithstanding that, the Inquiry understands that it was estimated there was about £3.3 billion of what’s termed deadweight in the scheme.

Sir James Harra: Yes.

Lady Hallett: Can I just ask you, Sir James, please, to explain what deadweight means in that context?

Sir James Harra: So in a policy context, deadweight means expenditure under the policy that is untargeted, therefore not achieving the policy objective, and that would, in this context, for example, be paying for people who are furloughed when in fact that job was not viable and the right policy outcome would have been for that employee to move on and do something else.

Lady Hallett: Okay. Thank you.

And there were other methods of targeting that could have been deployed, weren’t there, to any furlough scheme? For example, could have been focused on those employees who were most affected by the NPIs that were in place at the time, or there could be a restriction of eligibility for employers who were not considered economically to need the support. Those sorts of targeting options. Did you consider those sorts of options?

Sir James Harra: Yes, so over the lifetime of the scheme various options were looked at, for example sectoral targeting, so trying to identify those sectors that were most impacted, which was actually very problematical to design. Geographical targeting became relevant later on as it was assumed that the country would move away from national lockdowns to local lockdowns, and also, financial impact targeting.

So restricting access to the scheme to employers who were financially – could show they were financially impacted to some degree or another, but – and some of those were reflected in the design of some scheme – the scheme that we worked on for September 2020.

Lady Hallett: Can we just look at each of those in turn briefly.

In terms of sectoral targeting, you said there were problems with that. Can you just explain to us at a high level what the issues were and why that was a possibility?

Sir James Harra: Yes, I’m not sure – it did not seem to me to be viable and I’m not sure that you could make it viable in the future, because of extended supply chains and the different nature of different businesses.

So, for example, if you were to close hospitality venues, so no pubs, restaurants allowed to open, you can identify the businesses that are directly affected by that, but behind them are a whole range of suppliers, food suppliers, alcohol suppliers, cleaning companies, you name it, it was going to be very difficult to identify how those people were affected. And so an attempt to isolate sectors, sort of, quickly breaks down when you – when you try to – when you realise you need to support the supply chains that lie behind them. So that was not adopted during the lifetime of the scheme.

And, you know, sitting here today, I would say it would still be extremely problematical even if you – even if you had a lot more time to devise something.

Lady Hallett: Just on that, and problems that might arise with it, is there any uniform accepted definition of what sectors there are in the economy and what the boundaries are between those sectors and where a business might sit? So which sector it might fall in?

Sir James Harra: No, I – I don’t believe so. I mean, obviously different sectors can be regulated, so there may be some formal requirements, but in terms of the data that HMRC holds, we have a classification index, so we do ask people to identify which sector they sit in, but that’s for analytical purposes. Nothing rides on it in terms of how much tax you have possible pay or how much grant you would receive. Coming up with precise definitions that could be used for that purpose I think could be problematical.

But, as I say, I think the key issue is once you move into the second level behind the directly affected businesses.

Lady Hallett: All right.

Geographical targeting. The pandemic affected all nations of the United Kingdom, and the distribution was similar across them. A future emergency might not occur in that way. Geographical targeting, possible? Deliverable?

Sir James Harra: So I think we were preparing to effectively, we were preparing to implement that in October 2020 when it looked like the UK was going to move to tiered local lockdowns rather than national lockdowns. Once you start doing that the data that HMRC holds becomes increasingly strained in its ability to police that. So for example, if you take employees, we know what, you know, the data we hold is their private address, where they live, and the address of their employer, which might well be a head office. We don’t actually hold data about the geographical location where an employee works.

And of course there are also employees, like drivers, who can work across a variety of geographies. So I think that was always going to be – we were always going to be increasingly reliant on employers sort of effectively certifying: this employee is affected by this geographical restriction and therefore is within the scheme. And we were going to have limited opportunities to verify that by reference to data that we would have held.

Lady Hallett: And unless there was a change in the data that was held by HMRC, would that difficulty remain in any future emergency?

Sir James Harra: I imagine so, but nevertheless, we were preparing to do it. I mean, I think we had concluded that if you had local lockdowns, we were going to have to have a geographically-based system. So we were preparing to do it, and, you know, we were preparing to administer it. I’m not aware that today we’ve got any better data than we had then that would enable us to do it better.

Lady Hallett: Now, you were preparing to do it because you might need to do it –

Sir James Harra: Yes.

Lady Hallett: – but would that mean that you would be doing something that would have more rough edges, more complexity, more issues to iron out?

Sir James Harra: Yes, I mean, the key issue was that we wouldn’t have had independent – you know, data by which we could independently verify what we were being told by claimants. We would have been reliant on, to the extent that we thought there were error and fraud risks involved, for example, in checking afterwards.

Lady Hallett: Okay. Thank you.

My Lady, I think that’s time for the break.

Lady Hallett: Certainly. We take regular breaks, Sir James, but I promise you we will finish you before we break for lunch. Thank you very much.

I shall return at 11.30.

(11.14 am)

(A short break)

(11.30 am)

Lady Hallett: Mr Wright.

Mr Wright: Thank you, my Lady.

Sir James, just one final question on targeting by location. You said that work had been done and that was essentially building up the computer system capability to deliver a location-based scheme; is that right?

Sir James Harra: So it was really the job – the JSS, which was supposed to replace the Coronavirus Job Retention Scheme in October, but which was not given effect to, I don’t think we really built new IT capabilities to identify where people were working. It was just a new policy.

Lady Hallett: Right. It was a new policy. That scheme, if it had been introduced, it would have required some element of self-certification, would it, in terms of where employers were based?

Sir James Harra: Well, there would have been some clarity. So in the – although it wasn’t implemented, in its final design there were two iterations of it: there was JSS Open and JSS Closed. Open was where a business was legally entitled to operate, but in fact was having challenges because of the pandemic and was either having to furlough staff completely or put them on short hours. JSS Closed was where a local tiered lockdown meant that the premises was actually closed and the business was not permitted to operate, and in those circumstances I think we would have had, you know, quite – certainty about which premises were impacted.

But, I mean, let’s take a theoretical example. I mean, supposing there had been a closure of all shops in Dundee, you know, the local Boots would have been closed but we don’t – HMRC doesn’t know from its data which Boots employees work in the Dundee shop versus work in the Nottingham shop, so there would have been a degree of self-certification required there.

Lady Hallett: Another option for targeting, and again I think this was going to be part of the JSS, although that didn’t actually happen, was a financial impact test; is that right?

Sir James Harra: Yes, that’s – that’s correct, I think so.

Lady Hallett: How would that have worked, a financial impact test? What would employers have had to certify?

Sir James Harra: So I think in – in some other countries’ schemes, for example, there was a financial impact test where employers had to certify that their business had been impacted to a certain financial degree, so it might be a reduction in turnover or a reduction in profitability because of increased costs. And that was something that was looked at over time as a way of targeting CJRS and indeed the Self-Employment Scheme as well. But in the event it was not implemented in the CJRS.

Lady Hallett: What were the downsides to having a financial impact test over the life of CJRS?

Sir James Harra: I think from a policy point of view it would be desirable to only benefit those employers who were being significantly financially impacted. And indeed during the lifetime of the scheme, we know that some large employers who would have been eligible for furlough but felt that they could afford to pay their employees either didn’t take it up, or took it up but later actually voluntarily reimbursed the grants. So I think – I can see how it would have been desirable, but it would have been based on a self-certification. We wouldn’t necessarily have had data. And I think for larger businesses, the most up-to-date data we would have had was – would have been from VAT returns, which are generally received quarterly and would have shown impacts on turnover. But, of course, a lot of smaller employers wouldn’t necessarily have been registered for VAT.

Lady Hallett: Moving on from targeting, I just want to move on to contingency planning during the initial lifetime of the scheme, because the Inquiry understands that the scheme was due to end, and then, on the day it was due to end, it was extended. I just want to really explore what contingency planning was done by HMRC during the initial lifetime of the scheme.

Sir James Harra: So, yes, when the CJRS was first announced, I think the expectation was that it would last for three months. And that was based on the planning assumptions that we were given about what would happen in the pandemic. Once we’d sort of designed the scheme and got it launched, attention turned to: well, if it is going – if it isn’t going to be required after three months, how are we going to close it?

For example, there was the introduction of increased employer contributions towards the end of that period in August and September, I think, of 2020, but then quite quickly it became apparent that pandemic restrictions were going to be needed for longer, and so the attention moved to – we’d two schemes, one was the JSS, which we’ve just mentioned, which was to replace CJRS for a system of tiered local lockdowns, and the other was the Job Retention Bonus, which was to be paid to employers some months after the ending of CJRS as an incentive for them to keep their employees on the payroll after the support had ended, because they would get this bonus in due course for the employees that they had kept, I think, until the end of January 2021.

Lady Hallett: Both of those elements of planning for restrictions to last for longer assume that CJRS would have ended when it was said it was going to end. Was there any contingency planning that it might be necessary to extend the existing scheme?

Sir James Harra: I can’t recall – I don’t believe at the time.

During the summer, the focus was on how do we close this scheme, and how do – when it’s closed, how do we have sort of residual incentive for employers to retain these employees?

Then, by mid-October, it was: how do we replace this scheme with a new one that will work in tiered local lockdowns? But I think just over a fortnight after that was announced, the UK went back into a national lockdown, and the solution was to extend the CJRS, which was administratively quite straightforward for us to do.

Lady Hallett: Had there been any contingency planning for that scenario? So, yes, you were looking at what would happen if there were tiered restrictions or local lockdowns, but had there been consideration internally as to what would happen if we went back into a full lockdown, to the CJRS scheme?

Sir James Harra: Not that I recall, until late October, when that was – you know, really at the very end of October, when it was apparent that that was about to happen.

Lady Hallett: Did you consider that there was a risk of a spike in redundancy, given the scheme was due to end and that then there was a late change of policy, an announcement it would continue on the day it was due to end?

Sir James Harra: I mean, there was always the risk that if we didn’t have an orderly closure of the scheme and if we didn’t have suitable follow-on incentives, that you would see an unnecessary spike in redundancies which would undo some of the good work that the scheme had done. So the aim at that time sort of in the first half of October, was to make sure that we had a successor for the scheme that preserved its benefits whilst it closed down. And the key policy for that was the job retention bonus which was going to be a one-off payment to employers who retained previously furloughed employees for several months after the ending of the scheme.

Lady Hallett: Can I move on to another topic, which is monitoring and evaluation of the scheme. I think HMRC set up a dashboard that would provide timely data and enable you to monitor the data about how many people were in receipt of furlough and so on and so forth; is that right?

Sir James Harra: Yes, that’s correct. So we had a dashboard sort of pretty much in real-time of what the claims were telling us, and at one point in the scheme I think I recall that we introduced deadlines by which employers had to submit their claims so that data would be as up-to-date and accurate as possible. And then we published monthly statistics for public consumption, as well.

Lady Hallett: So you were able to monitor uptake and cost, and so on and so forth, but in terms of evaluation, what did you consider, what did HMRC consider to be success in the context of this scheme? How were you going to evaluate whether it had worked?

Sir James Harra: So I think evaluation of whether the scheme was achieving its policy objectives, I think the primary responsibility for that would have been on Treasury and Treasury officials, with HMRC supplying data and analytics to support that evaluation.

From an operational point of view, and an administrative point of view, HMRC was interested in the extent to which employers who should have been able to access the scheme were able to access and use it, so the sort of ease of use, and their satisfaction with the services that we were offering, and sort of the speed of turnaround of claims, and also the, you know, what we were seeing in our early compliance work about whether our assumptions about the levels of error and fraud were accurate or whether anything further needed to be done by that.

But in terms of assessing whether it was achieving its policy objectives in terms of supporting the labour market and preventing redundancies and unemployment, the primary responsibility for that would have been the Treasury.

Lady Hallett: So bearing in mind the policy partnership and how the scheme was developed, the Treasury formulated policy, HMRC dealing with delivery, was your evaluation based on the success or failure of the delivery mechanisms? So ease of accessibility, speed of payment, number of people enrolled and so on and so forth?

Sir James Harra: I mean, that was my primary responsibility but also I was conscious that I held all of the data and analytical capabilities to enable Treasury to monitor the part for which it was primarily responsible. So, you know, that data and analytics was put at their disposal so, together with whatever other sources they may have had, so they could monitor that.

Lady Hallett: Did you ever understand what would have been considered from a policy perspective success or failure, and what it was that the Treasury was trying evaluate?

Sir James Harra: So I think there was some fairly direct and some less direct benefits that they were aiming for. Obviously, they wanted to prevent unnecessary loss of jobs which was going to slow the economic recovery. You know, if, when restrictions were lifted, employers had in the meantime made their employees redundant then they were going to have to re-recruit those skills, and that was going to slow the recovery, so they wanted to maintain those matches so that employers could ramp up their activity quickly when they were able to do so as restrictions lifted.

But another benefit that they aimed to get from the scheme was a prevention of scarring, you know, experience in recessions tells you that when unemployment goes up for prolonged periods of time people who become unemployed actually become long-term economically inactive and there’s a persistence of that effect. So one aim was to prevent that scarring, which would have had long-term costs.

But the most direct objective was to maintain job matches and therefore enable rapid recovery, and I think the dashboard that we produced, you know, was able – gave Treasury the ability to identify how employers were taking people off furlough. As well as, you know, looking at redundancy and unemployment statistics in the market would have given them the ability to monitor that.

Lady Hallett: Thank you. Can I just move on, then, to ask you about another suggestion that the Inquiry has heard during evidence. You published a list in January 2021, is that right – HMRC published – a list of those companies that had used the furlough scheme?

Sir James Harra: That’s correct.

Lady Hallett: Do you think that that should have been sooner? So, in other words, there should have been almost a real-time list of companies who were signing up for furlough scheme, both to discourage fraudulent claims and also to really mean that companies were thinking about whether they needed to use the scheme, whether they needed to access it, and wanted it to be known that they were accessing it?

Sir James Harra: Yes, so I think when it – when it comes to error and fraud, you know, there was a view that we needed to harness the public to help us to control it. So we notified employees for whom furlough claims were being made, where if they went into their online personal tax account they could see that their employer was claiming furlough payments for them, and we opened a hotline where people could report to us if they thought that the scheme was being abused. And then, as you say, in January 2021 we started publishing the names of employers who were using the scheme.

I think from HMRC’s point of view, you know, we didn’t regard any of those things as being particularly central to our compliance strategy. We had our own ways of assessing risk and identifying cases that we thought, either prepayment or post-payment, that we needed to look into. So they all helped but they – they weren’t the key thing, I think, in terms of managing compliance risks from our point of view.

I mean, I think there is a separate argument that this is a lot of public money that these employers are receiving and, just from a general transparency point of view, don’t the public have a right to know who – who is getting this money? And that was – you know, the publication from that point helped.

Should we have done it earlier? I mean, I think, you know, given that it was the policy that it should be published, I’m pretty sure, with – with hindsight, people would say, well, you know, we should have been doing it from the start. However, it wasn’t in the initial directions and I think employers, when they were claiming under the scheme, you know, they weren’t on notice at that point that their data could be published. So I thought it was – I think it was appropriate that – when we decided to do it, that we did it from a point forward.

Lady Hallett: That explains the decision making in this scheme, but, in future, is there any good reason not to make it clear that a scheme of this sort will result in names being published from the outset?

Sir James Harra: I mean, I think that’s a policy decision, really, for – for ministers about what level of public transparency they have. I mean, from a compliance point of view, I think it helps to manage the error and fraud risk, but, as I say, I didn’t think it was critical to it.

Lady Hallett: Operationally, from your perspective, is there any reason why you wouldn’t do it?

Sir James Harra: So, operationally, there’s no – there’s no reason not to do it. There’s no difficulty in doing it. We did have to go through a bit of design work to understand precisely what it was we were going to publish, so I think we – for example, we didn’t publish precise amounts; we published within bands the amount that employers had claimed.

Lady Hallett: And before I move on to the self-employed scheme, looking ahead now, and reflecting on the scheme and acknowledging all the good which I began my questioning by setting out, are there things you, looking back, would have done differently? Wish you had been able to do?

Sir James Harra: I mean, I feel that we implemented the scheme very well. We managed the challenge of it well, so that we got money to claimants fast. We managed the error and fraud risk effectively so the ultimate level – so I think the ultimate level of error and fraud before our compliance action was 5.1% which is roughly equivalent to what we would expect in the tax system or in the benefits that we administered, and, you know, the department has since clawed back about a quarter of that. But there clearly were groups who were excluded because we didn’t have the data and sort of design parameters in place beforehand, where, if you thought you were going to implement such a scheme in the future, you would want to look at whether you can design them in from the start.

Whilst we were constrained by, “Well, this is the data we have, these are the systems we have, so this is what we can do”, actually our scheme compared pretty well, I think, with schemes internationally, you know, it was designed and in quite a similar way, and delivered as effectively. So I think, you know, I’m not sure that with hindsight that there was a great deal we would change from an administrative point of view.

But there certainly were boundaries and sort of rough edges that if you’d had more time, you could have done more about.

Lady Hallett: And looking ahead to any potential future emergency, where do you sit on the spectrum of having no planning, and we’ll just work it up when it happens, to let’s have a pre-determined scheme that can be dusted off the shelf as and when required?

Sir James Harra: I think I sit somewhere between the two. I think it is important that you recognise that you don’t know what the next shock will be like and therefore you probably can’t design to the nth degree the precise scheme that you are going to want to implement. However, there are clearly design themes, there is work you can do based on scenarios to identify the kinds of thing you might need to do and understand whether you have got all the capabilities you need to do that by moving fast, and, you know, we have seen here HMRC had some really strong capabilities that it was able to bring to bear really fast, but certainly in relation to its data, there were some gaps in that data that meant that some people were, you know, were excluded who you ideally would have wanted to include.

I think there’s also a need to compare – you know, to think about – there’s a macro impact that you want to have with this scheme, which is protecting as many jobs as possible versus, you know, every person is an individual and you want to do right by every single person. You know, the scheme that we came up with I think achieved its macro objectives, but of course there are people who, you know, understandably feel aggrieved because they personally were not within the scheme. And, you know, more work in advance hopefully would reduce that number.

Lady Hallett: Thank you.

Can I move on, then, to ask you some questions about the Self-Employment Income Support Scheme. And for context, we understand that this scheme was also stood up at pace. It was designed from 20 March onwards, and announced on 25 March, and over its lifetime it supported 2.9 million self-employed people. And this was a scheme that delivered support through a series of five cohorts of grants.

Sir James Harra: That’s correct.

Lady Hallett: And is it right that under the self-employed scheme, that there was an iterative approach to the scheme, in that with each cohort of grants, modifications were made which was based on learning from earlier iterations?

Sir James Harra: Yeah, I mean, I think there were some key changes between grants. So, first of all, the level of support, at one stage, was reduced from 80% to 70%, I believe, which mirrored what happened in the Coronavirus Job Retention Scheme. We brought in additional cohorts of self-employed people as more data became available to us. And we also tightened up the – the eligibility criteria based on the impact of the pandemic on the self-employed person’s business in different iterations of the scheme.

Lady Hallett: I just want to explore the pre-existing infrastructure that enabled you to deliver the scheme. Is it right it was based essentially on HMRC’s self-assessment system for Income Tax?

Sir James Harra: That’s correct.

Lady Hallett: And are there limitations, or were there limitations, to that scheme in the context of trying to design a support package for the self-employed?

Sir James Harra: Yes, so they – almost all self-employed people, certainly everyone, I think, who would have been within the policy objective of the Self-Employment Income Support Scheme, have to report their profits in a self-assessment return. So, in that sense, we had a universal database. However, the self-assessment IT is quite old. This was created in the mid-90s, and the self-assessment process works considerably more in arrears than Pay As You Earn. So whereas in Pay As You Earn we got up-to-date information every time an employee was paid, in the case of the self-employed we receive a self-assessment return by 31 January relating to the previous tax year, that ended the previous 5 April, and, depending on when their accounting period ended, the data could be even older than that.

So, you know, a key issue was that we didn’t have up-to-date data about their profits and we didn’t have up-to-date data about who was and was not self-employed.

Lady Hallett: And that’s in quite significant contrast, isn’t it, to the PAYE system, which provides you that monthly real-time information about employees?

Sir James Harra: Correct.

Lady Hallett: And beyond the Income Tax Self Assessment system, did you hold any further data about the self-employed as a group?

Sir James Harra: So we hold – the department held VAT data and we do get – it does get VAT data more frequently than it receives data for self-assessment. But many self-employed people are not registered for VAT. The UK has a relatively high VAT registration threshold, and – and so it’s – it’s not a universal or a complete database in the way that the self-assessment one is, but has got more up-to-date data in it.

Lady Hallett: And the threshold you said is relatively high. It’s in excess of £50,000, is it, the registration?

Sir James Harra: You’re testing my knowledge. I’m not sure.

Lady Hallett: I thought you –

Lady Hallett: I thought it was higher than that.

Mr Wright: I think it is higher than that.

Sir James Harra: It is – I mean, relative to most other countries that operate VAT it is high, and it does mean a very significant proportion of the self-employed are not registered for VAT.

Lady Hallett: No. And in looking at this scheme, a scheme that was going to provide support or capped support to those whose profits were in excess of £50,000, if you’d have taken VAT registration as a factor, that might have excluded a lot of – or a lot of the people who were registering for VAT would have been above the threshold anyway?

Sir James Harra: They wouldn’t have been relevant to the scheme.

Lady Hallett: Yes. So that wouldn’t have been a way of getting extra data?

Lady Hallett: 90.

Mr Wright: Thank you. There you go.

Lady Hallett: I thought it was much higher.

Mr Wright: So, yes, on that basis, depending on the level of profit, as opposed to turnover, a lot of people would have been earning too much money to benefit anyway.

Sir James Harra: Yes, I imagine so.

Lady Hallett: Okay. Now, one of the aims of the scheme, the self-employed scheme, as we understand it, was to provide a sort of broadly equivalent support to the self-employed to that that was provided to employees under the CJRS. But did the pre-existing infrastructure and the limitations of it frustrate your ability to deliver that broadly similar support?

Sir James Harra: So I think it was – the intention was to provide a broadly similar amount of support. So in the CJRS, it was 80% of earnings up to £2,500 a month, in the Self-Employment Income Support Scheme it was 80% of profits up to 750,000 – £7,500 over a three-month period. So that’s a broadly equivalent amount. But the way we had to devise the design of the scheme because of the data we held was obviously very different, we weren’t using, you know, current payroll data the way we were for Pay As You Earn. Were looking back at profits in previous tax years, or the average of profits over three tax years. So in design terms, it was very different.

Lady Hallett: And do you accept, Sir James, that there were consequently a number of what you might call hard edges in this scheme where people were completely excluded for a variety of different reasons?

Sir James Harra: So there were some exclusions which were policy choices. So people who earned more than – whose profits were more than £50,000 or people whose earnings from self-employment accounted for less than half of their income. Those were, you know, those weren’t constraints because of the limitations of our data or worries about error and fraud; they were policy choices that ministers made to target this scheme. But a key – but the two key limitations about data which affected people were, first of all, people who’d become self-employed more recently. We didn’t have any data about who they were or what their profit levels were. And also people who were on our database as self-employed, the data that we held about the profitability of their business was in arrears so it wasn’t – we didn’t have a picture of how much they were earning immediately before the pandemic – at least for the first few iterations of the grant.

Lady Hallett: And would that mean different things, depending on where you fell in that data gap, if you like? Some people were excluded because they were newly self-employed, so they hadn’t submitted a tax return in time?

Sir James Harra: Correct.

Lady Hallett: So that those people would be excluded from support, but looking at the other anyway, does it also mean that some people might have been eligible for support who actually didn’t need it? Because their current profits may be much higher than the profits that were declared in the return that you were working on?

Sir James Harra: It’s certainly possible that the profits that self-employed people were earning immediately before the pandemic were different from the profits that we had for the previous years which was the data that we held. It could have been higher, it could have been lower. You know, in later iterations of the grant when we could bring in a further year’s data, we did so.

Lady Hallett: Okay. But looking at the first group of people, so the newly self-employed, I think by the time of the fourth grant, those who started trading in 2019 to ‘20 became eligible?

Sir James Harra: That’s correct.

Lady Hallett: But in the earlier grants, that they weren’t. And I think the final evaluation that the department conducted showed that about, therefore, 400,000 people may have been excluded from the scheme by not having filed their self-assessment return.

Did you consider manual verification? So not using Income Tax Self Assessment but extending support to that group of people by having some means of manual verification?

Sir James Harra: So it would have been possible to apply the scheme to those people if they – you know, if you, for example, had been willing for them to self-certify what their income levels were. But obviously we didn’t have that data already and verifiable before the scheme was announced, so there was obviously an error and fraud risk from that. But it was back – so it was back to that same judgement that ministers had to make about where to strike the balance between supporting as many people as possible but not taking risks with error and fraud above their appetite.

Lady Hallett: Accepting that the scheme was stood up in five days, so didn’t exist, and it’s announced on 25 March, five days later, that might explain why there was no manual verification process at the outset. But if it took until the fourth set of grants to then extend support to that group of people, were things being done in the meantime to work up that capability, to extend it to those people?

Sir James Harra: I mean, I’m not sure what you mean by “manual verification”. There was – the data feed for the Self-Employment Income Support Scheme came from the self-assessment system. If it – if it had been decided in addition to accept self-certification by the more recently self-employed, then we would have had to have created an additional data feed into that, but I don’t think that would have been insurmountable.

But there really was no way of verifying what was going to be self-certified – was going to be certified to us other than the usual investigation approach, which would have had to have taken place after the event and would have had to have been, you know, quite resource intensive. So, you know, I don’t think there was anything – I can’t think of anything we could have done to create a manual verification process that was feasible.

Lady Hallett: Would it not have been possible for people to submit evidence of trading in the period? So, if not a tax return, they could submit evidence that they had been trading in the form of bank details, evidence of payments into accounts, evidence of invoices issued, and they could have been verified?

Sir James Harra: Well, yes. I mean, in other words, effectively certifying their trading profits outside the self-assessment scheme, that is something that could have been done from an administrative point of view. However, you know, our ability to verify and check what we were – what we were being sent would have been very limited in the – in the circumstances, because you – you’re talking about 400,000 people. I don’t think operationally it would have been easy for us to apply a, sort of, systemic approach to that. It would, in a sense, essentially have been a self-certification system. If we got that additional data we may have been able to risk assess and identify the cases that we wanted to investigate, but I can’t see that it would have been feasible to look at that number of cases individually.

Lady Hallett: Would it not have been possible to seek a statutory power that enabled you to claw back any overpayment, so “approve now, claw back later”?

Sir James Harra: Yes, I mean, that’s effectively what we had, so that – that would have been the option that was open to ministers, and that was something that was discussed, which was, you know, how could we bring in the recently self-employed. It would be for them to self-certify their profits. We would pay grants on that basis. Later on, we would risk assess and check. And if – if we found them to be wrong, we would try to get that money back.

To the extent that you are dealing with genuine people, you have got some chance of doing that. To the extent that you are dealing with, sort of, organised crime, you’ve got very little chance, however, of doing that.

Lady Hallett: All right.

Looking ahead to the future in terms of this point, that there are changes, aren’t there, to Income Tax Self Assessment that are in the works, if you like, under the umbrella of this Making Tax Digital initiative? Could you just speak to that and explain it and how it will affect the data that the HMRC receives and the timeliness of that data?

Sir James Harra: Yes, so from April 2026, cohorts of self-employed people are going to be brought within the Making Tax Digital system which means that they will have to notify HMRC of certain information about their turnover and profits quarterly rather than annually long in arrears. So HMRC will have more timely data about who is self-employed, and about the more recent level of sort of turnover and profitability of their business.

That is being implemented in phases starting in 2026 and is currently not expected to be universal, so there is a cohort whose turnover is below a certain amount, I think £20,000, who are – currently there is no plan to bring them within the scheme. But whether that changes over time, I’m not sure.

Lady Hallett: For those who are brought within the scheme, accepting there will be a period of time over which that will happen, if there was then a future emergency and you were having to deliver a self-employed support again, would the Making Tax Digital system make it easier to provide that support and, to some extent, cure the problem of extending support to the newly self-employed?

Sir James Harra: I think it’s likely that it would give us much more up-to-date data about the recently self-employed and therefore enable the department to bring them within the scheme, and also give the department existing verifiable data about the level of profitability of their businesses, and so the department would be less reliant on self-certification.

So it should, in the same scenario again, give options to bring more people within the scheme.

Lady Hallett: From your own experience, can you think of what else could be done to extend support to those who are newly self-employed if there was a future emergency?

Sir James Harra: So I think – I mean, I think what did happen is that a number of the devolved administrations devised their own income support schemes for this cohort. The decision was taken not to implement that UK-wide or in England, but, you know, I think that was a local – doing something at a local level with the infrastructure that the devolved governments had, and I’m not aware, I’ve not seen any evaluation of those schemes in terms of how many people benefited or how, you know, what levels of error and fraud or anything were in them. But I know that that’s what was devised.

Lady Hallett: Did the devolved administrations, to your knowledge, have any greater level of data than HMRC holds?

Sir James Harra: No, not that I’m aware of.

Lady Hallett: And does it, in your view, really come down to whether there’s a political appetite to assist a certain group? Is that your sense of where this issue sat?

Sir James Harra: Yes, that was a political – there were political choices made and there were different political choices in different parts of the UK.

Lady Hallett: But you obviously knew, as HMRC, that these schemes were being implemented in the devolved nations. Did HMRC reach out to the devolved nations and ask to see what architecture they were putting in place, how they were processing claims, how you could share their learning and take that forward on a UK-wide basis?

Sir James Harra: The department had regular contact with the devolved administrations but I’m not aware of what we exchanged with them in relation to those schemes.

Lady Hallett: I’m just interested, really, if it is a problem of delivery, how could we do this, then knowing that other nations are doing it, devolved nations of the United Kingdom, why not ask them, if it’s something that you wanted to do?

Sir James Harra: I mean, I don’t know whether we asked them or whether Treasury asked them. I know that we certainly did advise ministers of the existence of those schemes, and consider what the choices were either UK-wide or in relation to England, and the decision was taken not to do anything.

Lady Hallett: Can I move on to another issue, which I think you described as a policy decision. This is the 50% self-employment income rule. Can you just explain the rationale for having that rule, so far as you were aware?

Sir James Harra: So ministers wanted to target the scheme, it’s an income support scheme which has – it had different objectives from the Coronavirus Job Retention Scheme so it wasn’t about matching employees with jobs; it was really just supporting the income of self-employed people whose business had been adversely impacted by coronavirus.

The ministers wanted to target it at people who needed it the most, and one of the criteria was that the person was reliant on self-employment for the majority of their income. So if you had someone who had a self-employed business but also had pension income or had income from a job and it was a sort of side hustle, if you like, the conclusion was that the government didn’t want to pay grants to those self-employed people.

So the test was that they had to have at least 50% of their income from self-employment.

Lady Hallett: That requirement was separate to a requirement about their overall level of income, wasn’t it?

Sir James Harra: Yes, it was purely: how much is your self-employed profits? Is it more than 50% of your total income?

Lady Hallett: So you could have people who had low incomes who had some income from employment and then some self-employment making up overall a low income in any event?

Sir James Harra: I mean, I think – yes, so I mean, the scheme wasn’t a sort of welfare benefit to support people on low incomes, that was Universal Credit and tax credits for that. It was about income support for self-employed businesses that had been adversely impacted, and the decision was to targeted it at those people who were most reliant on self-employed income for their family income, or their own income. And that was hence the 50% test.

Lady Hallett: Did that risk excluding a group who were already economically vulnerable, so those that who are in the freelance marketplace, or in zero-hours contracts, gig economy, who might have a combination of sources of income, all of which could be impacted by the pandemic, but might find themselves unable to claim?

Sir James Harra: I mean, people who worked on zero-hours contracts were within the Coronavirus Job Retention Scheme and therefore could be furloughed by their employers and could be paid furlough grants based on their average earnings and in the previous reference period. So, you know, a number of those people were already within the ambit of the Coronavirus Job Retention Scheme, and, you know, the decision in terms of targeting here was to help those self-employed people who, for whom they were reliant primarily on their self-employed income.

Lady Hallett: Can I move on to a third issue in terms of hard edges, the £50,000 eligibility threshold. And I accept what you’ve already said, Sir James, that ultimately the choice of that figure, £50,000, that’s a political decision, a policy decision made by the Chancellor. So I’m not going to ask you about why that level was chosen.

But I would like to pick up this point with you: this was a complete cliff edge. So if you earned £50,000.01, you received no support at all, compared to if you earned £49,999; is that right?

Sir James Harra: That’s correct.

Lady Hallett: So what I want to pick up with you is why there was not a taper introduced into the scheme that would that have reduced the amount of support over that £50,000 threshold. Did you understand why there wasn’t a taper?

Sir James Harra: Yes, so the – so, first of all, the £50,000 limit meant that, I think, about 96% of self-employed people who got more than half their earnings from self-employment were eligible for this scheme, but it meant that about 220,000 high earners were excluded. If we had introduced a taper for the relief – for the grant above 50,000, obviously some of those 220,000 people could have been brought within the ambit of the scheme on a reducing basis.

The – it would have added a complexity to the scheme, so I’m not sure, you know, given … I’m not sure we could have implemented the scheme as quickly if we had had to have it from the outset, but nevertheless, it is something that we could realistically have done, if that had been the choice. But I think, on the basis that about 96% of people were within the ambit of the scheme, the decision was to keep it simple and not to have the taper.

Lady Hallett: I’m just going to ask if we can have up INQ000583774, please.

And this is an email from 23 March 2020.

Sir James Harra: Mm-hm.

Lady Hallett: I don’t want to assume, but the Jim, is that you?

Sir James Harra: I think it will have been, yes.

Lady Hallett: “Jim has asked if the total income threshold (?£50,000) will be a cliff edge or a taper. Perhaps we should consider a taper. When we did a taper for HICBC …”

What’s that, please?

Sir James Harra: High Income Child Benefit Charge.

Lady Hallett: “… we got such a lot of grief we subsequently introduced a taper, so that you got an increasingly higher charge as you moved from £50,000 up to £60,000. Cliff edges are unpalatable as someone with £50,001 misses out.”

Now, I think you accept the Jim is you.

Sir James Harra: Yes.

Lady Hallett: Had you asked that question out of curiosity, so will there be a taper, or have you asked it because you wanted it to be explored as to whether or not there would be or should be a taper?

Sir James Harra: I would have asked it because I wanted it to be explored and I wanted to check that people were thinking of all the things they needed to think about.

You know, at this time, obviously, people were moving incredibly fast to design something. I was watching iterations of it and intervening if I thought there’s a matter here I need to understand that you’ve considered it and thought about it. And so that’s why I would have done that.

Obviously we had experience of implementing the High Income Child Benefit Charge which claws back Child Benefit from higher earners, and there the amount of Child Benefit that is clawed back is tapered between 50,000 and 60,000, so the clawback starts at 50,000 and if you’ve got income of 60,000, at that point you will not get any Child Benefit or you will have a tax charge equivalent to your Child Benefit. And it – it grows in between those. So that was an example of where a taper was introduced in the tax system because it was seen as the fairest way of implementing the policy.

Lady Hallett: If we look at the red part after that bullet beginning “Jim”, about halfway through it we read:

“The fairness point still stands, and I assume it would [be] relatively straightforward to code a taper in? I’m wary of throwing new design features at this point – perhaps we should see how keen [the Chancellor] is on an income cap overall, and then offer a taper if that’s the route he’s going down?”

Just a couple of things. From an operational perspective, then, should we understand that had there been a desire to introduce a taper, it looks from that, as in – that’s something that’s quite straightforward: you just code it into the system?

Sir James Harra: I mean, I think – I think – first of all, I think that’s likely to be Treasury officials assuming that it would be relatively straightforward. But nevertheless, you know, I think it probably would have been. It’s – I suspect it would have been something that I would have said, “Minister, I doubt if we can do it from day 1, and if you add that complexity now you run the risk of us not implementing it by your deadline, but it is something we could work on and then implement retrospectively after the event.”

But I – you know, my instinct is that it is something that we could have done if the decision had been made to do it.

Lady Hallett: So this is not like the newly self-employed where there just wasn’t the ability to access the data, and you’d have had to do manual checks and all of those risks; this was something you could have done if the political decision had been made to do it?

Sir James Harra: Yes, we would certainly have had the data about who was earning more than 50,000 but less than whatever your taper upper limit was.

Lady Hallett: And accepting the need for speed to stand up the scheme when a minister wants it standing up, you know, it needed to happen quickly, do you have any sense that there was sometimes inertia in these schemes? So a huge push to stand them up, success in terms of speedy rollout and delivery, and then sit back, as much as anything, on the assumption that this was going to be a short-lived shock and things would return quickly?

Sir James Harra: So I think that is the case – I don’t think it was – I don’t think there was an inertia in terms of the policy officials thinking about how things could be made better, but we did have a series of short-term planning assumptions which were that this thing is going to end soon. So, you know, at the outset, there was – it was not assumed that this thing will be around for 19 months and we need to be adding bells and whistles to it and seeing it as a long-term policy.

And, you know, I think there’s little doubt that with hindsight, if the planning assumption had been: we are going to be running these support schemes for 19 months, then you would have made different decisions, either at the outset or during the life of the scheme.

Lady Hallett: And so do you think that sometimes the fact that these changes weren’t made as the schemes went along was because there was this sense of optimism that this would be short lived, and that was the basis on which everybody was proceeding?

Sir James Harra: So yes, I think so. I think there was – there were planning assumptions which proved to be optimistic, but also, over time, the reliance on the schemes was diminishing. So they were, you know, over time they did become less and less critical compared with the very early period of the pandemic.

Lady Hallett: And I accept that as you’ve said, ultimately there are a lot of political decisions in all of these schemes, and I don’t want to push you into an area that you’re not comfortable answering, but if you were looking ahead and designing a scheme again, where would you stand on whether or not it should have a taper in it that would cure some of these, or soften some of these hard edges?

Sir James Harra: I would say that would be entirely a matter for the minister and not for me. My job would be to make sure that the minister was aware of the option, and aware of the pros and cons of the arguments for and against it. But, you know, I wouldn’t have a personal view about whether we should or shouldn’t do it. But, you know, as you can tell from that first couple of sentences, you know, I was aware from our experience of administering a different policy that, you know, a taper was an element of fairness that people saw – that people preferred that to the cliff edge.

Lady Hallett: All right. Can I just pick up a slightly different issue, but related, I suppose, those who couldn’t claim the scheme, but on an unintended basis. So not policy decisions to exclude certain people but unintended gaps. And one in particular, the Inquiry understands that initially, and unintentionally, new parents and reservists were not able to claim support under the scheme; is that right?

Sir James Harra: It’s not quite right –

Lady Hallett: Would you explain?

Sir James Harra: So they were within – potentially within the scope of the schemes, but there was a likelihood that people who had taken parental leave or who had temporarily stopped working as self-employed while they were working as reservists, would have had artificially depressed profit levels in the past on which their grant was going to be based. There may also have been some circumstances where they simply weren’t self-employed during the reference period but it’s more likely that they would be within the ambit of the scheme but might get a depressed grant level because their profitability pre-pandemic was impacted by their leave, parental or reservist leave.

Lady Hallett: And do you think unintended gaps like that emerged because of the speed of delivery? In ordinary times you’ve told us it might have taken a year to stand this up and you would have had extensive consultation and stakeholders would have been involved and people would have come up with these ideas and noticed that, well, these sort of people might be excluded or these people might actually have a lower grant as a result?

Sir James Harra: So in normal times, I would have expected the consultation phase to flush out all of these kinds of cases, and for the time to have been taken to have resolved how we were going to deal with them before the scheme went live. In these instances, our approach had to be “We’ve got these problems with the scheme, we’re going to have to pick them up and fix them retrospectively. We can’t, we haven’t got time for them to be sorted by day 1, but we’ve clocked that there’s an issue and we’re going to resolve it.”

Lady Hallett: And that issue was resolved, I think, in time for the second cohort or the second grant; is that right?

Sir James Harra: It was fixed in time for the second grant and at that point we allowed those people to claim or adjust their claims retrospectively for the first grant as well.

Lady Hallett: Can I ask you about another group who, in ordinary times, their needs and difficulties they may face under a scheme like this one might have been expected to emerge in consultation, and those are disabled people, who it might be said their income may fluctuate significantly with periods in work and then periods of either out of work or ill health and sickness. Was that taken into account, so far as you’re aware? Was that something that was factored into scheme design or might that have also fallen into the gaps that speed created?

Sir James Harra: I mean, I’m not aware precisely of how much of an issue that is. I know that in devising the scheme, we looked at different alternative reference periods for calculating the impact on, you know, calculating the profits on which we would apply the 80% subject to the 7,500 cap. So you could look – from recollection, you could look at your trading profits in 2018/19 or the average of your profits over three years. So we did try, in the design of the scheme, to take account of people who had fluctuating profit levels for whatever reason.

Lady Hallett: Given this trade-off between speed and devising a perfect scheme that catered for everybody, looking ahead, does that not support the proposition that there should be some thinking now about how a future scheme, if it was needed, could look, and about the sort of factors that should be taken into account? Or do you still sit somewhere on that spectrum of “no planning” to “off-the-shelf” scheme?

Sir James Harra: So I think – first of all, in relation to both to have these schemes, the Treasury and HMRC have created a playbook, so learning the lessons from these schemes, the kind of things that you would need to take account of if you were designing similar schemes in the future, and in some cases obviously the government has decided preemptively to start collecting more data to make us – to put us in a better position for the future. So, you know, I’m confident that the two departments haven’t just simply forgotten the corporate learning from this but they have actually created a playbook to help future officials.

Certainly the Self-Employment Income Support Scheme was more difficult to design and implement than the Self-Employment Scheme, and, you know, its policy objectives were, sort of, different as well. And, you know, it was undoubtedly the harder of the two schemes to get round I think.

Lady Hallett: Thank you. We understand that you used a Self-Employment Income Support Scheme expert panel as the scheme was progressing. Was that effectively to gather feedback about the scheme and try to iron out difficulties as it went? What was it there to do?

Sir James Harra: Yes, and we had – we had a similar expert panel for the Coronavirus Job Retention Scheme as well. So these were people like accountants and tax agents, payroll, software providers – so people who had expertise in helping self-employed people and understanding the issues that they faced – who could help to advise us on, you know, where people might need different support or where our scheme might not be catching everybody that we wanted it to catch. And, you know, so that was invaluable to us from an administrative point of view. But it wasn’t equivalent to the kind of consultation that we would normally have had with much wider range of groups of people in normal times.

Lady Hallett: And again, looking ahead, do you think those panels played a role that it’s important to remember and preserve? Are they the sort of thing you would look to do again in any future emergency?

Sir James Harra: Yes, I would – I would think so. I mean, they were all people with whom we had existing relationships, because they were already involved in the administration of tax, supporting taxpayers or providing software to enable taxpayers to meet their obligation. So, you know, whilst these panels were set up for this specific purpose of helping us with these schemes, they weren’t really set up from scratch in the sense that we had existing relationships with these experts and were familiar with working with them.

Lady Hallett: I’d like to pick up relatively briefly the issue of deadweight in the self-employed scheme, and the Inquiry has heard evidence from Dr Mike Brewer about the self-employed scheme and he advanced the view that there was minimal verification in the scheme about the effect that the pandemic was having on the self-employed person, and so, in some cases, income might be increased above pre-pandemic levels, so providing monies to people who didn’t actually need it as a result of the pandemic.

Did you consider at the outset of the scheme whether it was possible to have some sort of targeting to ensure that those people didn’t receive more money than they actually required?

Sir James Harra: Yes, so different options were looked at, for example the option of treating this support as loans rather than grants, the option of having a clawback mechanism in the event that profits weren’t adversely affected. The conclusion was reached that these should be grants, that they should be simple, but that there should be some criteria built into the scheme that directed self-employed people to consider whether they were adversely affected and therefore should get the grant.

And that – those criteria changed over different iterations of the grant. So for the first two or three iterations, it was simply a declaration: “My business has been adversely affect by coronavirus” or “I expect my business to be adversely affected.”

Which, frankly, from a compliance point of view is not very easy to police. We were not, realistically, going to look into that, except in the most egregious cases. It gave us an opportunity to – to do that.

The – that was replaced by a reasonable test, so: “I reasonably believe that the profitability of my business will be adversely impacted.”

That is a stronger test from the point of view of enforceability. So if we met a case where we thought you could not reasonably have believed this was happening, because you were, you know, coining it in from face masks or antiseptic wipes or whatever, then we would have had some opportunity.

Then in the final iteration of the grant there was a financial impact test, which was a specific sort of arithmetical test.

So that did develop over time but, you know, I don’t think there was undue concern. I think the view was that there was a broad adverse impact across self-employed people by the pandemic and that most people’s businesses were going to be disrupted either by their turnover being reduced or by their expenses being increased, but there was obviously some tightening up over time.

There was also some clawback in the sense that if your business was profitable, then you were going to have to pay tax on your profits and included in those profits would be the grant that you had received.

Lady Hallett: If there wasn’t really a concern about this, why tighten it up over time? And looking at it the other way, why not start with the higher-level declaration from the outset?

Sir James Harra: So I think there wasn’t undue concern about it. I mean, there was concern that, you know, about the targeting of the scheme, and that’s why these criteria were introduced. How – with the exception of the final financial impact test, how real versus cosmetic the changes were during the iteration of the scheme, I’m not sure. You know, I don’t believe that there has been significant sort of finding of non-compliance with those tests by HMRC after the event.

But towards the end, there was obviously a desire to really make sure that the use of the scheme was reducing in line with what we saw in the economy, and financial impact tests which I think is something that, you know, if you could, you would design into the scheme from the outset, was what we ended up with.

Lady Hallett: Right. Thank you.

Can I move on to a separate issue now: quality considerations, and the digitally excluded. Just taking this from the corporate statement, that you identified in late 2020 that the take-up of the first grant was nearly 30% lower among groups classed as requiring extra support, for example those with mental health issues or victims of domestic violence.

I think it’s right, isn’t it, that you took steps to put in place alternative arrangements for those who were unable to engage on line, those who were digitally excluded?

Sir James Harra: Yes, I mean that support was always there. You know, I think what our research demonstrated was that, despite that support being there, there was evidence of lower access to the support.

I mean, the self-employed are – they’re a very broad group. They range from very able, capable entrepreneurs through to, frankly, people who are self-employed because, you know, an employer is not going to employ them and that’s the way they have to make their living, and – you know, with low capabilities.

When it comes to the tax system, it’s a highly intermediated market. There are lots of tax agents who support those people with their tax compliance, but this was a new – a new scheme to them, and, you know, I think the accessibility was a key issue.

I suspect it was also a factor in that test that we just discussed about the impact, because whilst, behaviourally, we wanted people not to make the claim if they didn’t need it, we also did not want to discourage people who felt uncertain, “Is someone going to come along later and say I shouldn’t have had this money, and they want it back?” We wanted to give people a degree of confidence and certainty that they, you know, that they qualified.

Lady Hallett: But you learned that the uptake had been lower, you did something about it.

Sir James Harra: Yes.

Lady Hallett: In a future – any future iteration of the similar scheme, would you support this cohort of people being thought about in advance so that the scheme lands with them as it does with anyone else?

Sir James Harra: Yes, I mean, I would expect that learning to be applied at the outset in the future.

Lady Hallett: Thank you.

I’d like to move on to the issue of fraud in the – in the scheme, and I really just want to pick up on a couple of short points about that.

Firstly, why did HMRC exclude agents as submitting claims?

Sir James Harra: So, agents were able to submit in the Coronavirus Job Retention Scheme, but they were not able to submit in the Self-Employment Income Support Scheme. And that was because the time it would have taken us to build systems to enable that would have really delayed the start of the scheme. It was just not something that was technically feasible to us. Therefore, the model that we had was that we encouraged agents to support their clients in compiling their – understanding their entitlement and compiling their claims. But, actually, their clients needed to go on themselves and make the claim them – themselves.

And there were – there were some issues that we did encounter where there were some agents who clearly had said to their clients, “You give me your credentials and I’ll go on and make this claim for you”, and a lot of those claims were blocked by our automated risking system, which was there to prevent the bulk submission of claims by organised crime. And it caught those agents who tried to circumvent this – this approach.

Lady Hallett: But generally –

Sir James Harra: It was purely a practical –

Lady Hallett: Sorry, I didn’t mean to speak over you.

Sir James Harra: Sorry, apology. It was purely a practical limitation.

Lady Hallett: But generally speaking, would you expect there to be better compliance and less fraud if you allowed accountants to submit claims on behalf of their – and this may be a better answer for the accountancy professional, I suppose, depending on how you answer it. I mean, would it be better to have accountants involved in this process?

Sir James Harra: Yes, so I don’t want to come across as a jaundiced tax inspector, but I think the data shows – the tax system shows that unrepresented taxpayers have a lower level of non-compliance than represented taxpayers. But, you know, you know, I think the general view is that professional tax agents do help people to get it right.

Lady Hallett: And why include those who had ceased trading in the scheme?

Sir James Harra: My recollection is that if you had permanently ceased trading, you were not included in the scheme, but if you had temporarily stopped trading because of the pandemic and expected to restart when the restrictions were lifted then you were included.

Apologies if I got that wrong, but that is my recollection.

Lady Hallett: Thank you.

I just want to, Sir James, turn to one final issue before I finish my questions, and that’s data sharing as between the HMRC and devolved administrations. So this is a discrete issue as between the HMRC and the devolved administrations.

Now, we’ve heard – you’ve referenced some of the schemes that the devolved administrations implemented to support, for example, the newly self-employed.

Do you accept that HMRC did not share data with the devolved administrations during the pandemic?

Sir James Harra: I believe I did – I believe we did share data with the devolved administrations, and I’m not aware that we ever sort of refused to do so. However, you know, we were not free to share our data with who we wished. You know, there were limitations, you know, under GDPR, et cetera, of what we could do.

You know, if there was an issue that meant that we could not share data that devolved administrations thought they really needed, we could have gone to ministers and looked for legislation to be changed or looked for powers to be given, but I’m not aware that it ever arose.

Lady Hallett: But if you accept the proposition that the devolved administrations can implement schemes that politically they wish to implement to support different groups of people in their nations than the United Kingdom Government chooses to do, having access to HMRC data would enable them to deliver and target those sorts of schemes as a starting point, wouldn’t it?

Sir James Harra: Yes, and I think HMRC’s position would have been, you know, if a devolved administration said “We need this data from you to enable us to implement our policy”, we would have looked at whether we had a gateway that – where we could share that data, in which case we would have done so. We had – the department had about 250 different data-sharing gateways.

If we didn’t have a gateway and it was important to the devolved administration, I’m sure we would have gone to the ministers and asked them if they wanted to do something about that, but I don’t recall it ever arising.

Lady Hallett: But, again, looking ahead to any future emergency, do you think it would be sensible to have in place a framework for data sharing going forwards that would enable the devolved administrations to access data they would need to deliver support on a local basis?

Sir James Harra: Yes. I think – I think our approach was, whilst we were implementing national schemes, we were fully aware that the devolved administrations had responsibility within their territories to, you know, have their own support. And, you know, I think if HMRC has data that is useful for that, then in the future you would look at whether you could share that.

Lady Hallett: Sorry, that’s not quite an answer to the question.

Do you think you need a framework or do you think structures are already there –

Sir James Harra: So, it – well, it’s – well, I think it’s impossible to guess what the request would be. There are 2 – about 250 data-sharing gateways in existence which enable HMRC to share identify – you know, personally-identifying data with people under the Digital Act, et cetera, but, you know, if – if it was found that none of those gateways applied and it was nevertheless important, then, you know, we would go to ministers and say, “Do you want to exercise whatever powers you have or pass legislation to enable us to do that?”

Lady Hallett: So it doesn’t sound as if you think there should be a new framework, because whatever happens at the moment can happen – would suffice?

Sir James Harra: You know, I think there has – in recent years, there’s been significant increase in the ability for HMRC to share data. We can do so probably far more than people realise, thanks to the gateways that are there, but they’re not completely comprehensive. You know, the assumption is we will not share data unless there is a gateway that enables us. So, if there is no existing gateway that fits the purpose, then you would have to create one.

Mr Wright: Thank you very much.

Those are my questions, my Lady.

Lady Hallett: Sir James, thank you very much indeed. That completes the questions that we have for you. I’m really grateful. I’m grateful to you and to your poor former colleagues who I think must have helped you prepare the nearly 350-page statement. I appreciate the demands that the Inquiry makes on individuals like you, and of course your former department. So thank you very much indeed for all your help.

The Witness: Thank you. Thank you.

Lady Hallett: Very well, I shall return at 1.45.

(12.44 pm)

(The Short Adjournment)

(1.45 pm)

Lady Hallett: Ms Nimmo.

Ms Nimmo: My Lady, the next witness is Dame Clare Moriarty.

Dame Moriarty

DAME CLARE MORIARTY (sworn).

Lady Hallett: Thank you for coming along to help us, Dame Clare.

Questions From Counsel to the Inquiry

Ms Nimmo: Dame Clare, you’ve produced a witness statement for this module with the number INQ000652346, which you signed on 7 July 2025. Is that statement true to the best of your knowledge and belief?

Dame Moriarty: Yes, it is.

Counsel Inquiry: And you’re giving evidence today in your capacity as Chief Executive Officer of Citizens Advice?

Dame Moriarty: Yes.

Counsel Inquiry: And is it the case that you took up that role in April 2021, and therefore your evidence which relates to the work of Citizens Advice prior to that date is based on documents, data and discussions with your colleagues, rather than personal experience?

Dame Moriarty: Yes, that’s correct.

Counsel Inquiry: Citizens Advice is a national charity which provides advice to the public in England, Wales and the Channel Islands on a wide range of matters, including benefits debt and employment matters, and it’s the umbrella organisation for a large number of Citizens Advice charities who provide advice locally; is that correct?

Dame Moriarty: That is correct.

Counsel Inquiry: And it provides advice to individuals through a mixture of in-person advice, telephone advice, and digital provision, which includes advice on its website. And I understand that it provides a particular service which is called Help to Claim. Can you explain to us what the purpose of that service is.

Dame Moriarty: Yes, Help to Claim is a specific service for applicable making an initial claim for Universal Credit. It supports people from the point at which they start the claim, so it helps people complete the forms, and it will support them through to the point at which they receive a first payment under the Universal Credit system.

Counsel Inquiry: So I’ll ask you some questions about the work of Citizens Advice during the pandemic and its engagement with government.

And you explain in your statement that the pandemic impacted the ways in which Citizens Advice ordinarily provides advice, because it had to move to a remote model during the pandemic rather than providing advice face-to-face. Did that have any impact on the ability of people who were digitally excluded to obtain your advice, for example in relation to matters such as benefits and debt?

Dame Moriarty: Yes, it did inevitably affect our ability. Before the pandemic, I think around 60% of the one-to-one advice that local Citizens Advice provided was in person, and obviously at the start of the pandemic that went down to zero and all advice was provided by telephone, through webchat, email, and other digital means. And that did mean that people who struggled to use – who either didn’t have access to a digital means or who struggled to use digital access, we knew that they were disadvantaged and tried to get back to means where we could support them as quickly as possible.

Counsel Inquiry: And what were the main issues on which advice was sought from Citizens Advice during the pandemic?

Dame Moriarty: Well, there are a huge range of issues on which people sought advice and they varied over the course of the pandemic. In the – in the early days, there were a lot of people who were seeking assistance on the support that they could get. We had – we had – you know, we tracked the data very – in great detail, and we’ve shared that with the Inquiry.

So you could see people wanting to know what would happen to their job, what support might be available, whether they could apply for Universal Credit. We also had lots of enquiries about things like housing, people who were at risk of eviction. So a very broad range of all of the issues that we would normally see but with additional elements specifically related to the pandemic.

Counsel Inquiry: And you explain that Citizens Advice saw a huge increase in the demand for its services, particularly at the outset of the pandemic. And that it received additional funding of 13.5 million from the UK Government, and then subsequently a further 5.9 million.

Did that money help Citizens Advice to meet that increased demand?

Dame Moriarty: Yes, it did, in a number of ways. We obviously were having to produce – actually write advice, and very quickly, because every time new regulations came out, new guidance came out, new support schemes were made available, we needed to be able to, you know, turn that into advice that was accessible to people. So, actually, just scaling up our ability to write and put online that advice.

We also used it to make sure that we could increase our capacity to support people on the phone, and to look at new ways in which we could support people. So we had a number of pilot projects for things like video access to advice. One of our local offices developed a chat bot that would make it easier for people who were accessing advice via the website to get to the right place in the system.

Part of the money was also specifically for people needing debt advice.

Counsel Inquiry: So you’ve told us a bit there about the advice which Citizens Advice was providing, but it’s also the case that it carried out research during the pandemic to identify gaps in support, and issues with economic schemes that the government had put in place. And you explain in your statement that that research drew on two main sources of data. So firstly your insights from your client data, which is based on cases where you’ve provided advice to individuals, and also website traffic; is that right?

Dame Moriarty: Yes, that’s right.

Counsel Inquiry: And secondly, there was a poll that Citizens Advice commissioned which was known internally as the Coronavirus Harms Survey, and did it ask a number of broad consistent questions across the pandemic in order to allow the impact of the pandemic and economic interventions to be measured?

Dame Moriarty: Yes.

Counsel Inquiry: So therefore you had, as an organisation, data which was relevant to economic need and the impact and gaps in the government’s economic interventions. And you go on to say in your statement at paragraph 24 that:

“At the outset of the pandemic, there was greater interest than usual from the Treasury and other government departments in how our data might be best used to inform government decision making around the pandemic …”

Can you just expand on that a bit for us. Can you tell us what data the Treasury was interested in, and what was Citizens Advice’s understanding as to how it wished to use that data to inform its decision making.

Dame Moriarty: So I don’t have a great deal more detail, because obviously I wasn’t there at the time, but the – I mean, Citizens Advice was using particularly the data that we had about the pages that people were searching for on the website, to be able to say these are issues which are of concern. We were also using data from people coming to us to understand – for example, we had a lot of people who were concerned that they were not being furloughed by their employer when they might have been.

So we built up a picture of the circumstances of – of people. Again, data on housing. And I think one of your other witnesses referred to data that they’d received from Citizens Advice which they then shared with colleagues in the Treasury.

So we were trying to make sure that as much as possible of what we understood about the circumstances that people were experiencing was being shared with the Treasury.

And as I understand it from people who were there at the time, there was, for a period, there was quite a lot of interest and people would be asking, you know, did we have data on particular issues. We didn’t have visibility of what then happened to the data and whether it influenced any of the decisions being taken.

Counsel Inquiry: You go on to say in your statement that the Treasury’s interest in the data which your organisation held was not sustained as the pandemic continued; is that the case?

Dame Moriarty: That’s my understanding: that there was an initial – you know, lots of interest, but then, as people became preoccupied with other issues, we found it a bit harder to get traction with our data.

Counsel Inquiry: You also say that a key element of Citizens Advice’s work is advocating to government decision makers about policy changes that might address root causes of people’s issues, using your frontline insights and the policy research that you’ve carried out.

During the pandemic what areas did Citizens Advice focus on in terms of seeking to influence government policy and why did it choose to focus on those areas?

Dame Moriarty: I think – I mean, we’ve – I think it’s set out in the evidence, but we were particularly focused on, you know, the experience of people who were coming to us. So, issues to do with Universal Credit, issues to do with people’s experience of the Coronavirus Job Retention Scheme, issues to do with housing.

There were some particular issues, when I look back at the – you know, at the range of outputs that we produced during that time. Things like, you know, the five-week wait for people moving onto Universal Credit. There were some very strong themes that we consistently returned to.

Counsel Inquiry: Thank you. And we’ll come on to deal with the five-week wait shortly.

You also say in your statement that there was no formal consultation that took place between Citizens Advice and the government in relation to its economic interventions. What benefit do you think that that consultation would have had for the economic response?

Dame Moriarty: Well, I think if you go back to that, you know, the amazingly rich picture that Citizens Advice had and has of people’s experience, just by virtue of the number of people who are coming to us, and the depth with which we explore their issues, we could probably have, you know, provided insights into what might work, what might not work, and particularly, as schemes were put in place and then, you know, over time they benefited from being adjusted in various ways, as soon as a scheme came in, we would start to see how that was playing out in practice, and those insights could have made sure that the – the schemes were developed in the best way.

Counsel Inquiry: I want to ask you about a particular paper that you say in your statement that you shared with the government, and it’s entitled “Helping people through the Covid-19 pandemic”. You say at paragraph 36 that it shared that paper with the government.

Is that the UK Government that you’re referring to there, do you know?

Dame Moriarty: That would have been the UK Government, yes.

Counsel Inquiry: And can you tell us what the analysis in that paper showed with regards to the groups that you said would be particularly vulnerable to economic effects of the pandemic?

Dame Moriarty: Yes. So my recollection is that that was a paper that was written quite early on in the pandemic before some of the support schemes were put in place, and so some of the issues that it raised were overtaken. But the particular groups that we pulled out were people in low-paid employment, so people who earned below the lower earnings limit which was at the time necessary to earn statutory sickness pay, although my recollection is that that was something that was addressed quite early on by the government. Particularly self-employed people, who didn’t have enough contributions to benefit from Employment and Support Allowance. A lot of people who were just in very low financial resilience who, you know, we knew from the data we gathered that they didn’t have enough savings to cover their outgoings for, I don’t know, a week or so if they suddenly lost their source of income.

And then we also highlighted people whose costs, for example, particularly their energy costs, would rise if they suddenly had to stay at home and self-isolate and therefore would be paying more for energy.

Counsel Inquiry: So I just want to ask you some questions now about some of those particular groups that you’ve mentioned. Firstly, low-paid workers. Did low-paid workers and those who were on zero-hours contracts face particular challenges in terms of their finances despite the economic support which was made available to them?

Dame Moriarty: Yes, they did. So if I take the two groups in turn, because the issues are slightly different. So I think particularly for low-paid workers, even if they were put on furlough, furlough was paid at 80% of people’s wages, a reduction of 20%, if you are a high earner, you know, it’s not impossible to manage, and particularly in an environment where many of the things that people normally spent their discretionary income were not available to them like, you know, nights out and holidays, whereas for people on low – low-paid workers, the margin that they have between their absolutely essential costs and their total income is very small and often that would be less than the 20% that they would lose.

So there were people for whom, even if they were on furlough, losing that 20% of income just pushed them to a point where they didn’t have enough to manage on.

We know that a lot of people who were in low-paid work, and particularly moving on to the insecure workers, people who didn’t have access to furlough, people on zero-hours contracts, a higher proportion of them than overall employed people were furloughed. But we saw that they suffered a greater loss of income and were more likely to find themselves in debt, and often, you know, just had fewer resources to fall back on.

Counsel Inquiry: I just want to pick up on one of the things you mentioned there about the furlough scheme and the 80%. You say in your statement at paragraph 114 that any future furlough scheme ought to consider whether a flat wage replacement rate is the right solution to protect those at risk of falling into severe hardship, particularly those in low-paid work.

I just wondered what policy design you consider would be more effective to protect low-paid workers in any future pandemic?

Dame Moriarty: Well, I mean, there’s various things that one could consider. One would be, you know, to set the furlough percentage at a higher level for people on low pay so that if they – if you had that kind of support scheme, it’s actually covering the whole of people’s income, if their income is already at the point where they are, you know, barely able to make ends meet. Reducing that income is much more problematic. Or having some kind of thinking about what is a sort of minimum income level for people to survive on. That’s obviously, to some extent, you know, what the benefit system is intended to do. But we know from our work during the pandemic and subsequently that a large number of people really struggle to make ends meet on the standard level of benefits.

Lady Hallett: But isn’t that a different point? I mean, if your policy objective with furlough is to maintain the link between employers and employees and all the other policy objectives we’ve heard about, your policy objective of the welfare system is separate. That’s individual support. That’s to support income. So surely, on that argument, you should be looking at improving the benefits rather than improving the furlough system? Because they’ve got different policy objectives, haven’t they?

Dame Moriarty: They have, and I think we would certainly say that there is a need to improve the benefit system, and I think one of the – one of the very difficult things about the support schemes was that there was an inevitable interaction between the furlough scheme and the benefits system, because many people would have received some element of support from both of them, and exactly as you say: they had different objectives.

Ms Nimmo: I want to ask you now about people who were self-employed and the support that was available to them. The Inquiry’s heard during its listening exercise, Every Story Matters, that cliff edges in the Self-Employment Income Support Scheme caused some difficulty for some individuals, with one contributor stating:

“I think a fairer system of self-employment support that was not a cliff edge would have dramatically reduced the worry and upset to me.”

Did Citizens Advice have any concerns about cliff edges and support in the Self-Employment Scheme?

Dame Moriarty: We did, yes. I mean, there were a number of – a number of cliff edges within the Self-Employment Income Support Scheme, one of which related to profits at £50,000.

Now, the nature of the people coming to us for help is that that was less – that was a known cliff edge, but it was less visible. The one that we were very clear was an issue where people who had newly become self-employed, and who therefore didn’t have a – they hadn’t had income from self-employment in 2018 and 2019, they therefore didn’t have a tax return completed by the time they – at the start of the pandemic. So people – anyone who had become self-employed later than April 2019 didn’t receive any benefit from the Self-Employment Income Support Scheme. And that was a – I think there were – I think we – we estimated there were 400,000 people who were affected by that, who therefore couldn’t claim from that scheme, and the only scheme available to them was Universal Credit. And some of them then couldn’t claim Universal Credit because their level of savings was too high, which in some cases was simply a level of savings which was there to make sure they could pay their tax bill when it fell due.

But there were certainly people who – you know, the cliff edges caused people to fall down the cracks, with very serious consequences for them.

Counsel Inquiry: We’ve heard some evidence this morning that data issues and concerns about the risk of fraud meant that the inclusion of that – that group in the scheme didn’t happen. Was one solution which was proposed by Citizens Advice the possibility of enabling grants to be backdated for people who had become self-employed in that recent financial year if they submitted a tax return immediately after the financial year ended?

Dame Moriarty: Yes. I mean, we saw that on – as – as the reason for ruling them out appeared to be that they hadn’t yet submitted a tax return for the 2019/2020 tax year and the last date for submitting such a tax return wasn’t until January 2021. But there was – there is nothing to stop people submitting a tax return as soon as the end of the tax year to which it relates. So it seemed, I think, to Citizens Advice at the time an obvious thing to do to say: well, once you do submit a tax return, then you can become eligible to the scheme, and the scheme can then be backdated to the start of the – of the financial year.

Counsel Inquiry: And was that change implemented?

Dame Moriarty: Not as far as I know. I think in the later – the later rounds of the Self-Employment Income Support Scheme that went right into 2021, there were some changes in relation to the newly self-employed, but I think that particular cohort of people by that time would have, in any case, submitted a tax return. So it may have been doing no more than catching up with reality.

Counsel Inquiry: Another group that you explain in your statement was disproportionately economically impacted by the pandemic was people with no recourse to public funds, and that’s people with a visa condition which means they’re not entitled to financial assistance from the state such as benefits. What was the economic impact of the pandemic on that group?

Dame Moriarty: So it was a particularly bad impact for that group.

They were able to be furloughed but there was about a three-week period when it wasn’t clear whether they would be able to be furloughed, so quite a lot of people left their jobs during that period. They did have access to furlough and to Statutory Sick Pay because those are contributory – they had access to contributory benefits but they didn’t have access to Universal Credit. So, essentially, it meant that the safety net element of the welfare system wasn’t available to them. So for example, we know that there were quite a lot of people who were made redundant when they could have been furloughed. So if you were made redundant you had the NRPF visa condition, you couldn’t apply for Universal Credit.

If you were working and your hours were reduced, so you couldn’t be furloughed because you were still working, but you were working fewer hours, receiving less money, and for many people, they could then apply for Universal Credit and have some part of that income available, so that bit of the safety net was unavailable.

And when people couldn’t – you know, if somebody was shielding because they were clinically extremely vulnerable, if they couldn’t work and their employer said, “But, you know, I want you to work”, they had a choice of either coming into work and putting themselves and potentially other people at risk, or not coming into work, receiving no income, and having no other – nowhere else to go.

So they were a group that were hugely impacted. And we saw that over quite a long period in terms of people’s, you know, the level of debt that people were in, the amount of income that they lost, and people’s inability then to get back into full-time work.

Counsel Inquiry: And Citizens Advice actually wrote to UK Government ministers in June 2020 to recommend that the no recourse to public funds restriction should be temporarily suspended; is that right?

Dame Moriarty: That is right, yes.

Counsel Inquiry: Why is it thought that that was the appropriate approach that the government should put in place?

Dame Moriarty: Well, I think we, in that letter to the Home Secretary, I think we asked for a number of things. One was for the restrictions associated with that visa condition to be lifted so that people could access, you know, the safety net at a time when it was particularly needed. There were other issues. People’s ability to request leave to remain for their spouses was dependent on meeting a minimum income threshold and somebody who had come to this country who was meeting that income threshold but saw their income fall because of the pandemic, then found that they didn’t meet that condition.

And it also had – there’s also income elements that affect the amount of time that people have to wait before they can have settled status, which again, we were arguing that that shouldn’t be extended just because people had lost income during the pandemic.

So there was a whole – there was a collection of things where we could see, through the people coming to us, the impact that the pandemic was having, and we were, you know, again, using those insights, seeking to persuade the government to make changes that would avoid people’s lives being so badly affected.

Counsel Inquiry: And is that an approach that Citizens Advice would advocate that a government in a future economic emergency puts in place to support this group?

Dame Moriarty: I think, you know, I mean, this is group who are, you know, they are disproportionately affected by a lot of things. They are also highly represented in, you know, sectors like health and care which are actually absolutely critical to a pandemic. So, you know, it makes sense from every point of view to ensure that they are properly supported. So having, you know, having arrangements in place in any future pandemic or similar crisis would be really important.

Counsel Inquiry: So I want to ask you now some questions about issues relating to Universal Credit claims during the pandemic. You say in your statement that Citizens Advice supported the uplift which was made to Universal Credit. What did Citizens Advice understand the purpose of the uplift to be?

Dame Moriarty: So, to the best of my knowledge, we simply understood it to be, you know, a recognition of the fact that people were under financial pressure, and it was bringing Universal Credit up to a level which people could actually – were closer to being able to live on. I mean, I now know, from having followed some of the other evidence that’s been given to this Inquiry, that there was quite a lot of debate about who it should be – you know, who the DWP would have liked it to be supporting, and whether there were other people who benefited, you know, because, for operational reasons, you couldn’t target it.

But I think, at the time, none of that was visible to Citizens Advice. We – we simply, you know, understood that the government had decided to uplift Universal Credit.

Counsel Inquiry: And the Inquiry heard evidence last week that in the weeks around the first lockdown there was a surge in Universal Credit claims. And you’ve also explained that Citizens Advice experienced an increase in demand for its advice around Universal Credit at that time.

You say at paragraph 63 that it shared headline analysis of issues which its clients were facing with Universal Credit at the start of the pandemic directly with government stakeholders in April 2020.

And if I could have that analysis on the screen, it’s INQ – great, thank you.

And this is the paper here. Do you know if that paper was shared with the Department for Work and Pensions?

Dame Moriarty: I don’t know directly but I would be very surprised if it hadn’t been in some form or other.

Counsel Inquiry: So if we could turn to page 2, we can see there a list of the top ten issues which clients making an initial claim for Universal Credit needed help with between the end of March and the start of April 2020. And eligibility is the top issue on that list.

Can you explain what those eligibility issues related to?

Dame Moriarty: To be honest, there is not a great deal I can add, not having been around at the time, but it will have – I mean, the issues generally that relate to Universal Credit will be things like whether people have got savings at a level that are too high, you know, and their overall level of income – because there’s a – there is a tapering process, that if your income is between two different levels, it – the amount of Universal Credit you receive reduces gradually, and then you become ineligible.

So there will have been questions to do with people’s income level, their savings level, and then, I imagine also, the no recourse to public funds issues as well.

Counsel Inquiry: We can also see that the eighth issue on that list is “Access to internet/digital literacy”. What difficulties did people trying to make a Universal Credit claim encounter during the pandemic as a result of a lack of digital access?

Dame Moriarty: Well, again, I imagine that it will have been – you know, the – the main route for claiming Universal Credit will have been a digital route, because I think Jobcentres were mostly closed at the start of the pandemic. And so there is an – there is an online process for application. Almost by definition, if people were coming through to us, they had therefore found a telephone route, that would help them complete their claims, but certainly needing – needing to be able to get online, have a reliable connection and to be able to, you know, manage the process of digital application is, we – you know, we know, in 2025 as well as 2020, is quite an issue for some people needing to claim Universal Credit.

Counsel Inquiry: Do you think that there was adequate support in place during the pandemic for people that needed that support?

Dame Moriarty: Well, the – I mean, the Help to Claim service, I mean, that – that’s what it’s – that’s what it’s there for. It is there to provide people with a route to – to claim – make their claim for Universal Credit which doesn’t rely on being able to do everything themselves. I mean, I think, you know, in normal times people do go to Jobcentres, and a Jobcentre will – you know, will – will provide – will help somebody with an initial application, although there’s still – there’s a question of ongoing – ongoing management.

But the ability of people to deal with digital, you know, people who were not used to dealing with things digitally suddenly to be in a world where it’s much, much harder to operate. You know, that is – that’s an area that would need thinking about in any future occasion to make sure there is enough support.

Counsel Inquiry: Do you think there is anything that could be done at this point to ensure that support is in place for a future emergency?

Dame Moriarty: Well, proper funding of the right kind of advice. So making sure that advice is available in a variety of different channels. There are some – there is some – there’s some support which is available, you know, face-to-face, and at the time, the Help to Claim service, bar the pandemic, the Help to Claim service was available to people both face-to-face and over the phone. When it was recommissioned in a slightly different form, it then became a telephone and digital-only service.

So that whole question of how you make services available to people and, you know, particularly for people who really struggle with anything other than face-to-face, I mean, that is a broader issue in relation to advice provision.

Counsel Inquiry: Thank you.

We can see that the third and fourth issues on that list there relate to advance payments and the initial wait for payment. Did Citizens Advice see any evidence of people encountering financial difficulties as a result of the five-week wait for the first payment during the pandemic?

Dame Moriarty: Yes, a huge amount.

Counsel Inquiry: Citizens Advice wrote to the Chancellor on 9 March 2020 and also to the Chief Secretary to the Treasury on 6 May 2020, and if we could have that letter on the screen from May 2020, and it’s INQ000641803.

Can you just tell us a bit about what those difficulties were that people were encountering?

Dame Moriarty: So the consequence of the five-week wait is that people who are starting a claim for Universal Credit don’t receive any income for the first five weeks. It is a very fundamental design element of Universal Credit and it relies on the fact that people have enough, they either have a final pay packet or they have enough savings to be able to sustain themselves for that five weeks until they get a first payment for Universal Credit.

But we know from, you know, huge numbers of people coming to us, that for many people that just isn’t the case and they struggle to be able to, you know, just meet their basic day-to-day costs until they receive a first payment.

The government’s response tends to be that you can apply for an advance payment and certainly, you know, that was the – generally the response during the pandemic when we and others raised the issue of the five-week wait, was that people can apply for an advance payment. The problem with an advance payment is that it is then recovered through deductions from people’s subsequent Universal Credit payments over, you know, a period of months until it’s all been paid back.

And the Universal Credit standard allowance is set at a rate which will allow you to buy food. It won’t allow you to, broadly speaking, buy a new pair of shoes because it’s not designed to do that. And if you then are taking, you know, a chunk of that money out every month to repay the advance loan, then very quickly it just forms another thing that’s driving people into debt. Or they can’t make their budgets add up.

Some people are so worried – and we certainly had examples of people who were so worried about getting into debt that they didn’t want to take out the advance payment, so they would, you know, absolutely pare things back to the bone in order not to have to take out an advance payment.

But it is a huge problem and throughout the pandemic, you know, in this letter, but in many other, you know, research outputs that we put out, we were calling for those loans to be replaced by grants so that people would, you know, I think, from a kind of administration of the social security system point of view, it would be the same process of you would give people the money, they have the ability to upfront the money. It would just mean that that was a grant and therefore the repayments weren’t put into the system.

Counsel Inquiry: Yes, and if we can see from this letter here, to Steve Barclay, the Chief Secretary to the Treasury, if we go to page 2, that that is in fact what Citizens Advice suggest: that the advance payment is made in the form of ground rather than a loan.

Was there something specific to the circumstances of the pandemic that meant Citizens Advice thought it was important that it should be provided in the form of a grant?

Dame Moriarty: Well, people’s – I mean, you know, the debate about the five-week wait goes on and, you know, whether or not it is – whether or not giving people a loan and then immediately, as soon as they start having Universal Credit claim, immediately taking a bite out of that to repay a loan, that is an issue which we continue to press on to the present day. But I think the particular circumstances of the pandemic was people’s ability to flex anything in their lives was very, very limited.

So, you know, there was no capacity to, you know, do a little bit more work. There was very little capacity for people to change any of their circumstances. You know, they couldn’t – people were essentially just, you know, surviving in very small spaces. So, you know – and their ability not just in those five weeks but over the succeeding months to be able to change any of their circumstances was so limited that it felt as if it was a – you know, you could do as a contained measure that wouldn’t necessarily carry on the precedent risk of, “Well, now we’ve done that we can’t go back”, to have – for that period, to have the five – the advance payments as grants rather than loans, where people needed them, would have made a huge difference.

Counsel Inquiry: We also heard evidence last week that, unlike Universal Credit, legacy benefits were not uplifted during the pandemic. And Citizens Advice published a paper in May 2020 – thank you, we can bring that letter down now – where it identified a number of changes which it said should be made to the benefit system during the pandemic, which included a recommendation that legacy benefits should be uplifted.

Why did Citizens Advice believe that people on legacy benefits should also receive that uplift?

Dame Moriarty: Well, the costs that people were experiencing, there were material additional costs that we saw people experiencing during the pandemic: energy, because people were staying at home more; telecommunications, because so much of people’s lives had to be lived online; you know, housing costs just went up.

And so people had a lot of additional costs. Those costs were not confined to people who were on Universal Credit. People who were on legacy benefits, who I think on average were more likely to be disabled and for whom those costs were often higher and their circumstances were worse, there was no logical reason, in what we understood of the purpose of the £20 uplift, why you would uplift – why you would give some additional money to people on Universal Credit and not to people on legacy benefits.

Counsel Inquiry: Thank you.

Just some questions now about the end of the uplift. In the experience of Citizens Advice, how important is it for people claiming benefits to receive sufficient notice of any changes to the amount of benefits that they will receive in order to assist with financial planning?

Dame Moriarty: It’s very important that people have enough time. I think, in this case, the – the impact of the £20 uplift was, you know, hugely beneficial for people. You could see how that – how that showed up in, you know, a smaller number of people with what we call negative budgets, where their income doesn’t meet their essential outgoings, you know, lower demand for food banks. So, notice was – you know, notice was helpful, but actually what would have been much more helpful would have been to keep the – not to lose the uplift in the first place.

Counsel Inquiry: Do Citizens Advice have a view on whether sufficient notice was given of the extension, the six-month extension, of the uplift or indeed the end of the uplift to claimants?

Dame Moriarty: I don’t think we had – it’s not something that I’ve found a lot of – of evidence of. I think there was quite a lot of notice of the end of uplift. There was also, you know, a very concerted campaign by, you know, a range of organisations, including ourselves, and we – we’d hoped that we might be able to reverse the decision to end the – end the uplift, but I think there was – I don’t think there was a – certainly for the – for the actual end of it, there was quite a lot of notice. I don’t – to be honest, I can’t remember what the timeline was for the extension.

Counsel Inquiry: So you’ve told us that Citizens Advice obviously wanted the uplift to become a permanent feature. But notwithstanding that, did it have any concerns about the timing of the end of the uplift in October 2021?

Dame Moriarty: We were very concerned about the impact that it was going to have on people’s finances. I think we did some – we did some research and, you know, 38% of people on Universal Credit did not have the slack in their budget to be able to absorb the loss of the – loss of the uplift. And we were – by that time, we were starting to see the energy prices rising. So energy prices started their – you know, there was quite a big jump in the energy price cap in October 2021. We were starting to see – we were starting to see energy companies failing and having to be absorbed by other companies. So, there were the – you know, the straws in the wind of what turned out to be a very, very challenging 2022 were already there at the time, so it felt like a particularly difficult point to be withdrawing the uplift. But I mean, to be honest, to withdraw it at any time would have been very problematic.

Counsel Inquiry: Finally, in your statement you set out some recommendations as to how the economic response in a future emergency might be improved and I just want to ask you about a few of them.

Firstly, you propose that a clear protocol for how the government will communicate with, and harness the voluntary and charitable sector in future pandemics should be established. Why do you think that’s necessary and how do you think it would assist any future economic response?

Dame Moriarty: So just looking at it from the perspective of Citizens Advice, I think, you know, we had very, very good data, and as we’ve talked about in the early, you know, there was a brief period when there was a lot of interest in it, but our data could have, you know, beneficially informed the various iterations over time of the support schemes that they – the government put in place, and we could indeed, because we were in touch with so many people, you know, we could have used our channels to find out a lot more about what was happening to people’s financial circumstances, if the government had come to us and said, “Could you just ask these questions of people coming to you for help”.

So I think that’s one area.

There were, as you said at the start, we were running the Help to Claim service and I know one of your other witnesses has said, well, could that not have been used as a means to get information out to people? And I think the answer is yes, it certainly could have done, but the focus was on managing that as a contract, or, you know, performance managing a grant agreement. So I think the, you know, the integration, thinking completely across the system about how the knowledge and the insights that the voluntary sector has, or Citizens Advice specifically has, the channels that we have to put people out – to put things out to people.

We are also, you know, we are a source of advice for the country. The government very, very regularly and very properly signposts people to Citizens Advice. But we weren’t getting information any more quickly than the public. So we would find out that, you know, a piece of guidance had gone out or a new support scheme was available or the rules had been changed, you know, from the news the same way that other people did, which meant that we were always a few days behind in terms of how we could update our advice.

And I think, you know, one of my reflections is that if the government had felt able to, you know, trust an organisation like Citizens Advice, and help us, you know, bring us into the thinking, you know, even 24 hours, 48 hours earlier, we could have been better able to help the government in turn support people in, you know, navigating and accessing systems.

Counsel Inquiry: Thank you. We heard some evidence yesterday about the existence of a Civil Society Covenant. Is that something you’re aware of and if so, do you think that it might provide an appropriate framework for the sort of engagement during a pandemic that you’re proposing?

Dame Moriarty: I am aware of the Civil Society Covenant. I think it is very well meaning, but the reality is – I mean, it’s all about what you do and not what you say. And I think what we haven’t yet seen is the covenant moving from being some very well-intentioned statements to a real sense of engagement. The government doesn’t engage with the – with civil society with anything like the regularity that it does with the business sector, and particularly economic departments. There was a piece of research done by an organisation recently which showed that, you know, of ministerial and senior official contact with the six big economic departments, I think, roughly, I don’t have the exact figures, but it was something like 80% of it is with business and 6% of it is with civil society.

Civil society is, you know, has so much potential. Because we are in touch with people, we see the problems, we understand the problems, but there is a tendency to want civil society to be a, sometimes be a broadcast messenger. So, you know, when the government thinks about resilience, it wants to work with the voluntary sector but mainly to say, “Can you now tell people X”, you know, whereas it needs to be a much, much more integrated process. And I think the jury is still out on whether or not the Civil Society Covenant is going to deliver that.

Counsel Inquiry: On the topic of data, you suggest that improved data matching between government departments would help economic support to be better targeted in a future economic response.

Can you just elaborate on what you mean by that and how you think it would be beneficial.

Dame Moriarty: Yes, so one of the – one of the things that government has great difficulty doing is targeting people, and we saw that – I mean, I think we probably saw that during Covid, but we’ve seen it also more recently in – with things like cost of living support, where – you know, it’s possible to do measures for the whole of the population, and it’s possible to target things onto people who are in receipt of means-tested benefits, because the government has all of their details. It’s really difficult to target groups which are larger than means-tested benefits or different to means-tested benefits but smaller than the entire population.

And the way to do it is by matching the data that HMRC holds about people’s income with data that, for example, you know, DWP holds or, you know, the Department for Energy Security and Net Zero holds, that is something which the government finds difficult, and – but the ability to make sure that the right support gets to people. So, for example, you know, how do you get the right energy support to people? You do need to join up data from different – different sources, and then be able to proactively target people, make sure they’re aware of what they might be entitled to, how they might be helped.

Ms Nimmo: Thank you.

My Lady, those are my questions.

Lady Hallett: Thank you very much indeed, Ms Nimmo. I don’t think there are any other questions.

Thank you very much indeed then, Dame Clare, I am really grateful to you. Very enlightening, and obviously the CAB have a lot of experience and information to share. So, thank you for all that you and your colleagues did to try to help people during such a difficult time and for your help with the Inquiry.

The Witness: Thank you.

Lady Hallett: Thank you.

Mr Wright.

Mr Wright: Thank you, my Lady. The next witness is Steve Barclay.

Mr Steve Barclay

MR STEVE BARCLAY (sworn).

Questions From Richard Wright KC, Lead Counsel to the Inquiry for Module 9

Lady Hallett: Thank you for coming back to help, Mr Barclay. I hope we haven’t kept you waiting too long.

The Witness: Not at all.

Mr Wright: Mr Barclay, you’ve provided two statements to the Inquiry. I’m just going to give the reference numbers which are INQ000659744, and then INQ000659745.

And your statements, one of them in particular, is focused – or both of them focus on your time as Chief Secretary to the Treasury, but one of them on funding issues and including funding issues as between the UK Government and the devolved administrations. And that’s the focus of my questioning of you this afternoon.

Just by way of general background, and so we can understand, in ordinary times, there are a number of different mechanisms by which the devolved administrations can receive or raise funds of their own volition; is that right?

Mr Steve Barclay: That’s correct.

Counsel Inquiry: There is taxation, so the devolved administrations possess some tax-raising powers, but you wouldn’t normally think about taxation as a means of raising emergency funding in a time of crisis, would you?

Mr Steve Barclay: Correct.

Counsel Inquiry: Okay.

Borrowing. There is some limited borrowing power as the Inquiry understands it; is that right?

Mr Steve Barclay: It varies between the DAs but they have borrowing options, yes.

Counsel Inquiry: And they can borrow either for capital expenditure or for resource borrowing; is that right?

Mr Steve Barclay: Correct.

Counsel Inquiry: Scotland and Wales have a reserve, albeit that is in a restricted amount. Is that right? An emergency reserve, effectively?

Mr Steve Barclay: That also correct, yes.

Counsel Inquiry: Okay. And then there is also, is this right, the United Kingdom reserve, so an emergency UK-wide reserve. Is that, effectively, a reserve of last resort?

Mr Steve Barclay: It’s for UK-wide issues, yes.

Counsel Inquiry: Okay. But can the devolved administrations make a claim on the UK reserve, to your knowledge?

Mr Steve Barclay: Well, they can make requests to the UK Government but that would be looked at on a UK-wide basis.

Counsel Inquiry: Okay. And by far the largest source of funding in terms of budgets, the block grant and Barnett formula consequentials; is that right?

Mr Steve Barclay: That is correct, yes.

Counsel Inquiry: On the UK Reserve, just before we move on, did any of the devolved administrations make a claim on the UK Reserve, to your knowledge, during the pandemic?

Mr Steve Barclay: There was a whole range of discussions at official level in terms of how the UK Government could work very constructively with the devolved administrations. I couldn’t second guess every – nature of that discussion, but it was, I think, reported by all parties that it was very constructive in their engagement. I think that is reflected, my Lady, in the witness statements that we’ve had. And within that it was looking at what the levels of support could be.

Counsel Inquiry: Yes, but were you aware of a successful claim by any devolved administration on the UK Reserve?

Mr Steve Barclay: Well, I think before they would do that, they would probably use their very own borrowing and reserve powers, and I don’t think they had done so. So they would do that before they would come to the UK.

Counsel Inquiry: Understood. Thank you.

So, in terms of the block grant and consequentials, funding is allocated. And is this the position: that where further emergency funding is allocated to England, an additional proportion is provided to the devolved administrations by way of the Barnett consequential formula?

Mr Steve Barclay: Well, that is in terms of where funding is provided for things that are reserves. So if money goes to an English department in terms of English spending, then the Barnett consequential would be paid in respect of that amount for the devolved administrations.

Counsel Inquiry: So is it right that the level of consequential funding is contingent on the funding in England?

Mr Steve Barclay: Largely, that is what it’s shaped by, yes. Not entirely, but that is largely what it’s shaped by.

Counsel Inquiry: And if there was no funding decision for England, would that result in no consequential funding to the devolved administrations? So one follows the other. Or is that not always the case?

Mr Steve Barclay: No, because some funding is UK wide and also some funding is dealt with specifically, such as AME funding, which is separate to the Barnett consequentials. So one can’t just say that if there wasn’t Barnett consequentials there would be no financial support for the DAs.

Counsel Inquiry: Now, I’d like to focus on why, really, emergency funding arrangements were required for the devolved administrations during the pandemic. Was one of the issues that arose around concerns that the devolved administrations had about the uncertainty in their levels of funding at the outset of the pandemic?

Mr Steve Barclay: Well, I think that was common to all parts of the UK Government, so English departments and the devolved administrations.

Counsel Inquiry: Yes, so did the devolved administrations in particular raise with you concerns about the certainty of their funding? I’m trying to –

Mr Steve Barclay: Yes.

Counsel Inquiry: – concentrate on them, not the situation in England. And was that because they didn’t really know the size of, if you like, the pot of money they’d get until funding was announced or decided by the UK Government?

Mr Steve Barclay: Well, first and foremost, I think no one knew the full size of the risks. Obviously the pandemic was evolving at huge pace and the level of health interventions was unclear, and as a consequence, the level of financial intervention was also unclear.

Counsel Inquiry: Do you agree, as a general proposition, that the longer it’s left for the UK Government to announce its spending plans, the harder it is for the devolved administrations to know about the size of the pot that they’re going to receive, and for the Treasury and the devolved administrations, therefore, to plan accordingly?

Mr Steve Barclay: I think it depends on which risks. So if you’re – my Lady, when I last gave evidence we spoke about the very rapid increase in Department of Health funding, from 100 million to over 15 billion, in a matter of just, I think, five or six weeks from late March to early May. Now, that funding would then be for procurement, for example, on things that were UK wide. And obviously it wouldn’t be logical for all the DAs to compete with each other to procure certain areas. It made sense to do some of that collectively.

But within the question, it is also the case that where there was money to an English department, there was a risk of a delay for the DAs in terms of knowing what the final agreement with that department was, vis à vis what the money would be available from Barnett consequentials. And that’s why, as we may come on to, we agreed a guarantee in the summer.

Counsel Inquiry: We will indeed come on to the guarantee, but before that, do you accept that there was, therefore, a difficulty for the devolved administrations in terms of their planning, planning expenditure, and therefore response?

Mr Steve Barclay: Well, I think, firstly, that difficulty was probably less than it was for English departments.

Counsel Inquiry: Would you just pick it up and explain that.

Mr Steve Barclay: Well, the reason being is, firstly, the starting point as a result of the Barnett formula was more advantageous to the devolved administrations. So the block grant gave Scotland 129%, Wales 121%, and Northern Ireland 129% funding, compared to England. So, for each £100 allocated to an English department, Scotland would get £129.

That beneficial had increased since 2010. There are various things that shaped that, such as population growth, which was higher in England, so it was, again, more beneficial to the devolved administrations. And then there’s other factors. So, for example, if I take Northern Ireland, my Lady, the Confidence and Supply Agreement had allocated additional funding to Northern Ireland on top of the advantageous Barnett funding. And I think that took them, from memory, to 137 per cent, so they had £137 for each £100 in England.

So there was a better starting point in the devolved administrations than would have been the case for English departments grappling with the same uncertainty that DA colleagues were grappling with.

Counsel Inquiry: So a better starting point in cash per head of population, essentially?

Mr Steve Barclay: Yes.

Counsel Inquiry: Because – is that the point you were making about the population in England having changed: that there’s therefore a lower amount per head in England than there was in Scotland, Wales and Northern Ireland?

Mr Steve Barclay: Well, the formula was more generous to start with. I think the, again, academic research suggested the truer assessment of Scotland’s need was around 5%. So the starting point was more generous. But what I think it’s also very fair to say is the devolved administrations were grappling with the same uncertainty that English departments were also grappling with.

Counsel Inquiry: Same uncertainty, but a better starting point from which to manage that uncertainty; is that right?

Mr Steve Barclay: Yes.

Counsel Inquiry: I understand.

So accepting that there was uncertainty, did you and the Treasury consider how you could manage and minimise that uncertainty with the devolved governments and their funding?

Mr Steve Barclay: We did.

Counsel Inquiry: And what did you consider as the range of options that would have been potentially available to manage that?

Mr Steve Barclay: Well, firstly, as ministers, we gave very clear steer for there to be very close engagement at official level. And again, I think the witness statements bear out, particularly in the early months, that there was very good engagement, and within that, all variations carried risk but we looked at what were the ways of giving more certainty to the devolved administrations so that they could make decisions before having to wait for a final funding settlement with an English department.

Counsel Inquiry: Now, there are a number of different ways in which you could have offered certainty. Can I just ask about one option that I think the devolved administrations were very keen on, which was that you granted them an increase in their borrowing powers. That was certainly a suggestion that was coming from the devolved administrations; is that right?

Mr Steve Barclay: It was. I think the point is that the UK Government can borrow more quickly and more cheaply. It also has the expertise, in terms of that borrowing. So it would have meant changing the mechanism at very short notice, and also the UK Government bore many of the risks associated with that borrowing. So, for example, VAT, National Insurance, Corporation Tax would sit with the UK Government. So it was both more prudent for the UK Government to make that borrowing from a scale, efficiency and an expertise point of view, but it also better reflected where the incentives lay around that borrowing.

Counsel Inquiry: So you considered it, and considered it as an option, but effectively rejected it as a policy option for those reasons; is that right?

Mr Steve Barclay: On advice from Treasury officials –

Counsel Inquiry: Yes.

Mr Steve Barclay: – which I agreed with.

Counsel Inquiry: Of course, but you were ultimately one of the decision makers?

Mr Steve Barclay: Indeed.

Counsel Inquiry: Yeah, okay.

And is it – was this a factor: that you also wanted to provide or manage uncertainty and minimise it where you could, but against the background of the pre-existing funding arrangement? In other words, not to make long-term changes to that funding arrangement? This was about emergency funding and managing risk in that emergency?

Mr Steve Barclay: Well, look, again, at a time of huge uncertainty and a desire for pace, there was a logic in using existing mechanisms where they had a degree of flexibility, and where the starting point of those existing practices were not disadvantageous to the devolved administrations.

Counsel Inquiry: Right. And was it from those objectives that the Barnett guarantee emerged as an option?

Mr Steve Barclay: It emerged not least at the request of the devolved administrations. So you will have seen, for example, in Rebecca Evans’s evidence that she wrote to me requesting that a guarantee be given. We were working very constructively with the DAs and in part, that was something they had requested. We could see the challenge in terms of uncertainty whilst final decisions were taken with English departments, and therefore there was a benefit in giving that certainty so that the DAs could press ahead with some of the decisions they themselves needed to take.

Counsel Inquiry: So it was something that the devolved administrations themselves were seeking?

Mr Steve Barclay: Yes.

Counsel Inquiry: And it was something that you thought managed the risk and uncertainty, minimised it as far as you could?

Mr Steve Barclay: Correct.

Counsel Inquiry: Okay. And can you just explain in simple terms how that Barnett guarantee worked, what it was intended to do, how it operated?

Mr Steve Barclay: It worked really by anticipating the trajectory of spend. So we could see, not least in the discussions that we were already taking with English departments, that it was likely we would allocate funding to those departments for the pressures they faced, but we were still discussing precisely what the level of that funding needed to be. And so there would be data being passed between the departments, discussions being had between respected officials to try to quantify what impact there would be on DCMS from sports grounds being closed, for example.

Whilst working that out, we wanted the Scottish Government, the Welsh Government, the Northern Ireland Assembly, to be able to make decisions without the fear that if they committed spending and then we decided a lower quantum with an English department, that money would be recalled or part of that money recalled. So what it did was anticipate it was likely the trajectory was going to continue, as a result, let’s give some early confidence to the DAs and the fact that that was then adjusted upwards three times shows why we had confidence that the trajectory was on an upward track.

Counsel Inquiry: So it provides a level of certainty about funding that, as you say, enables the devolved administrations to make decisions and to plan on that basis that they have that certainty?

Mr Steve Barclay: Correct.

Counsel Inquiry: Okay. And that was the policy approach that you took. Was it welcomed by the devolved administrations, so far as you were concerned?

Mr Steve Barclay: It was.

Counsel Inquiry: Okay. And as you said, the guarantee was uplifted, I think on three occasions in total: 9 October 2020, to 14 billion, 16 billion on 5 November 2020, and 16.8 billion on 24 December 2020. So it went up by those increments on those dates.

The pandemic as it affected the United Kingdom, generally speaking, it had an even distribution throughout the United Kingdom. Do you think that the mechanism, looking ahead, this is, you saw how it operated, how do you think the mechanism would sit in a pandemic that didn’t affect the United Kingdom or parts of it equally? So an asymmetric pandemic?

Mr Steve Barclay: I think it’s a much more complex question, because it goes to the nature, which we may come on to, around information sharing and quality of data. How much one wants to determine from a UK Government level and how much one wants to devolve. But it opens many similar questions as would apply to, for example, the mayor of Manchester. Or the mayor of Birmingham. And I think one of the political questions in the discussion between – and it’s been going on for 30, 40 years – the discussion between a Barnett formula and a more needs-based UK-wide allocation is firstly how is one fair across the United Kingdom including to England, and second, as the last week’s budget coverage has shown, people’s assessment of need varies greatly.

So if I just take Scotland as an example, it might be people would say in Scotland that the needs of Glasgow, and an inner city area, are particularly acute. But I suspect if one was talking to Members of Parliament from the Highlands of Scotland, they would say their needs are particularly acute because of low density, and services are very stretched.

And so it’s quite difficult, as a political question, to look at the needs based. What we were dealing with during the Covid pandemic was something that largely was symmetrical across the UK and I’m sure we may again some on to second and third waves but, actually, it was something that tended to hit more across the UK as a whole.

Counsel Inquiry: So taking that into account and the points you’ve just made, generally speaking, in a time of a future emergency, it not being known how that emergency will develop and whether it will affect the United Kingdom equally or not, would you be in favour of there being fixed principles for emergency funding, that are pre-determined, or do you favour an ad hoc approach that can be formulated depending on the nature of the emergency that’s being faced?

Mr Steve Barclay: I think, generally speaking, it’s quite difficult to write the formula that anticipates the precise nature of a future crisis, in one in which there will be a commonality of the view of what the needs respectively are. And therefore schemes that allow a degree of flexibility and discretion often are more effective.

So to give you an example, one of the things we found actually worked rather better with local authorities was where we gave a discretionary fund for them to allocate locally, based on local need. When we tried to allocate for a set purpose, then you would find one area saying that they either had that issue in greater abundance, or another area feeling that they had been left out unfairly when they should have had support for something else which was acute to them and so it’s quite hard, from the centre, sometimes, to be overly-prescriptive.

Counsel Inquiry: So a fixed set of quantitative rules, then, that are determined from the centre made it not be the answer, rather than looking at the nature of the emergency and then developing policy accordingly, is that –

Mr Steve Barclay: Well, we have some rules, there is, for example –

Counsel Inquiry: Of course.

Mr Steve Barclay: – a Scotland fiscal framework and indeed, there were some amendments made after my time in the Treasury, on that. So there are principles and some rules already in place. What I am saying is, in an environment where (a) data is always a challenge and (b) even with perfect data, people’s interpretation of that data will vary, it’s quite hard to anticipate a future crisis and write the precise formula for that.

Counsel Inquiry: Do you have any view – I asked you some questions about borrowing and borrowing flexibility. Do you have any view, looking ahead, this is, as to whether there ought to at least be the option of borrowing flexibility or more borrowing flexibility for the devolved administrations in an emergency situation?

Mr Steve Barclay: I think it’s about balance. So where there should be flexibility, one needs to ensure that the incentives are aligned. If the cost of the flexibility is borne by the UK Government but the benefit is borne by the devolved administration, then I think that creates a tension. So I think the question then is how can you align with greater flexibility the liability for any decisions that are taken?

Counsel Inquiry: Can I just ask you to give your observations about an amendment or an adjustment potentially to the Barnett guarantee sort of mechanism, which would be to actually reduce the size of the guarantee to a lower notional figure until the full sums had been calculated. So there’s a set lower figure, rather than have – even than the process of having to calculate the amount?

Mr Steve Barclay: Sorry, can you clarify, that we should have allocated less –

Counsel Inquiry: Yes, so as an alternative mechanism in the future to have a lower level of certainty with the option then to calculate precise figures later, so reducing the –

Mr Steve Barclay: I think the risk – and obviously it’s not for me to speculate on what other witnesses would say, but I fear the Treasury would have been criticised for restricting the public health response had it involved administrations if we’d been too hawkish in the guarantee. And the balance, again, that we were striking was between the liabilities that sat with UK Government but the fair issue raised by the devolved administrations which was their public health responsibilities, and there was a balance to be struck between those two.

Mr Wright: All right. I’m about to move on to another topic, so I don’t know if that’s – it’s time for the break, I think.

Lady Hallett: – (overspeaking) – remember that we take regular breaks, but I promise you we will finish your evidence this afternoon, Mr Barclay.

I shall return at 3.15.

(2.58 pm)

(A short break)

(3.14 pm)

Lady Hallett: Mr Wright.

Mr Wright: Thank you, my Lady.

We were going to move on to fiscal flexibility in a pandemic. Now the devolved administrations have to balance their budgets, is that right, in accordance with fiscal frameworks?

Mr Steve Barclay: Yes.

Counsel Inquiry: Right. And Scotland and Wales, as we understand it, can make use of limited reserves to carry over capital and resource funding; is that right?

Mr Steve Barclay: That’s correct.

Counsel Inquiry: And in Northern Ireland, there’s a limited ability to carry forward underspend from one year to the next, but up to a predefined limit; is that the background position?

Mr Steve Barclay: Yes(?).

Counsel Inquiry: Now that’s all part, isn’t it, of the usual operation of the Barnett formula?

Mr Steve Barclay: It is.

Counsel Inquiry: Okay.

Do you accept that the notification of significant consequentials late in the financial year can present a challenge, either if they’re negative or positive, that money may have to be clawed back by the Treasury, and that can affect the ability of the devolved nations to plan accordingly?

Mr Steve Barclay: Yes, I do.

Counsel Inquiry: Yes, right.

In the pandemic, is this the position: that the usual Barnett formula arrangement that you’ve just confirmed was altered so that the devolved governments were given the flexibility to carry forward about £2.1 billion of funding from 2021 into 2021/2022? It’s from paragraph 30 of your statement.

Mr Steve Barclay: It was, and Scotland was allowed to carry forward 1.1 billion, Wales 650 million, and Northern Ireland 300 million.

Counsel Inquiry: And that was in addition to any existing reserves that they had?

Mr Steve Barclay: I would have to check whether it’s additional or whether that was the total quantum, but that’s what they were allowed to carry forward.

Counsel Inquiry: Yes. What was the rationale for allowing them to carry forward that sum of money?

Mr Steve Barclay: The rationale was there was significant volatility because, as we have already covered, there was very significant increases over the course of year from what the original budgets had been when they were set before Covid to what, over the course of the year, they had been increased to as a result of dealing with the pandemic. And so the budgets had gone up very significantly for, for example, the Department of Health or the Department of Transport or – name your pick, all departments had seen significant increases.

That had then led to Barnett consequentials for the Scotland government. As we got to SUPs, supplementary estimates, and the final assessment was made of what had been spent, that would have led to very significant changes for the devolved administrations, and we therefore tried to smooth that, again as part of our constructive working with the DAs.

Counsel Inquiry: And was that decision to allow them to carry forward that funding taken as a one-off decision in consultation with them for that year?

Mr Steve Barclay: Yes.

Counsel Inquiry: Looking ahead, did you consider, in a time of future emergency, that there ought to be an automatic ability for the devolved administrations to carry forward funding, given you can anticipate all of the things you’ve just dealt with, in terms of uncertainty and additional spending, might arise again?

Mr Steve Barclay: Well, the justification was because of the very large volatility and the significant increases. That doesn’t apply in the same way to business as usual. And I think it’s important to point out, my Lady, that English departments did not get that same flexibility. And so, again, there is a point of fairness in that, as part of our constructive working with the devolved administrations, we allowed them to carry forward underspends in a way that English departments weren’t able to do so.

Counsel Inquiry: So, just so we all understand that, if we’re an English department, there isn’t an ability to carry forward underspend, so money that isn’t spent effectively is clawed back by the centre, but you made an arrangement with the devolved administrations to allow them to carry forward that money.

Now, that was a one-off. My question really was: that was a negotiation, or a discussion, and you allowed them to carry forwards. In a future time of emergency, would there be a reason for saying, “Well, we’ll cross that bridge if and when we come to it”, or, so that people know, “You’ll be able to carry it forward”, so it’s an automatic ability to carry it forward?

Mr Steve Barclay: So at a future time of emergency I would expect Treasury ministers to look at advice and receive similar advice perhaps to the advice that we received, because of the size of the sums and the late adjustments, and the recognition was these were very late-in-the-year adjustments of very large sums.

But I think it is important to point out, in terms of fairness and whether this should be applied as business as usual, it did mean that the devolved administrations received significantly more in 2021/22, than the equivalent English departments did. So to put that in context, I think David Phillips, page 31 of his report, suggests that it equated to around £200 per person in Scotland and Wales, and around £150 per person higher in Northern Ireland. And that is because the underspends in England came back to the Treasury and again, I think taxpayers would expect us to do that. We allocated funds to allow the response to the pandemic, but if those funds haven’t been spent, you would expect, from a taxpayer point of view, those to come back to the Treasury. But we recognise they were very late adjustments for the devolved administrations, which is why we allowed a degree of more flexibility.

Counsel Inquiry: So was it a timing point, then, that meant you allowed that flexibility? It was because they were late adjustments; is that the point?

Mr Steve Barclay: It was both timing and quantum.

Counsel Inquiry: I’m sorry you’ll have to explain what you mean by quantum?

Mr Steve Barclay: The – so SUPs is February, just going towards the end of the financial year, and also these were very large adjustments. So we’d allocated the funding to departments who said they needed it, because they were responding at pace. Where they hadn’t spent that money, it would have led to very significant adjustments to the devolved administrations, who would have said that, well, they had taken decisions in the expectation of that money and then if we turned around and said we’re clawing it back, that financial year, that would have created volatility for them. And that’s why there was flexibility in terms of carryovers.

Counsel Inquiry: Does that same problem not apply to English departments that would have it clawed back?

Mr Steve Barclay: Well, we had – the discussion and the data is much clearer with English departments in terms of their underspends. We don’t have that data in terms of, for example, Scottish local authorities.

Counsel Inquiry: Is it right that additional flexibility was sought by the Scottish and Welsh governments, in particular capital to resource switching? So, switching monies from one budget to another and increasing the carry-forward ability of reserves?

Mr Steve Barclay: Well, the DAs, perfectly understandably, always would seek more flexibilities, and CDEL to RDEL switches is a common request, not just from the DAs.

Counsel Inquiry: I’m going to ask that a document is put up from – this is from Rebecca Evans’s statement.

INQ000652754. Paragraph 53, 54, 55.

And she says at paragraph 55:

“I wrote to the Chief Secretary on 24 March 2021 … to inform him that our plans for 2020/21, as laid out in our third supplementary budget, included a switch from revenue DEL to capital DEL of £501 million. I did not receive a response to this letter. As things turned out, we were actually able to increase capital investment by more than expected at the time of the 24 March letter, which required a bigger revenue to capital switch. However, following lengthy discussions between Welsh Treasury officials and HM Treasury officials, we were denied the flexibility to switch additional revenue to capital. This is despite being given to understand that the revenue and capital imbalance could be managed after the year-end via an outturn adjustment – a correction to the final figures to reflect the actual, rather than the expected amounts.”

Do you recall receiving that letter that she refers to? And if you do, did you respond to it?

Mr Steve Barclay: Well, five years on, I can’t recall a – individual letter at the peak of the pandemic response, but what I would draw your attention to is if one looks at the same statement at paragraph 68, Rebecca Evans says, and I quote:

“… I do not think I would have done anything differently to prepare the initial economic response to the pandemic from a financial portfolio perspective.”

And indeed, we covered a little while before the break, earlier, the guarantee. Rebecca Evans wrote to me requesting the guarantee, which we then put in place three weeks later.

So we were responding to her letters. The guarantee and the quick response to that illustrates that. And also, if one looks at my readout from my private office of 18 March 2020, you will see that a theme of that readout from me to my officials was emphasised in the importance of close working with the DAs.

Counsel Inquiry: You might not remember the letter, but do you remember the request to switch £501 million in that way?

Mr Steve Barclay: Well, there are very regular requests for CDEL to RDEL switches. In fact, as a former Health Secretary, one of the major criticisms of the previous Conservative government was too often it made CDEL to RDEL switches in order, quite often, to respond to industrial action A respond to any requests or increasing staff, which is sometimes at the expense of capital.

And indeed, the first budget of this government, I note that they switched 600 million CDEL to RDEL in Health as well. So it is a common request.

What we tried to do with both the guarantee and with the carryforward was give the devolved administrations sufficient flexibility.

And if I could just point to the expert report from David Phillips, what he says in page – para 10 is:

“… my judgement is that overall with these changes, the funding arrangements for the devolved and local governments allowed them to respond effectively to the Covid-19 pandemic.”

So there’s a range of requests. The measures we took gave, in my view, sufficient flexibility for the DAs to respond effectively. And if one doesn’t accept my view on that, that is also the view – and we can go to the statements – of various statements from the DA finance ministers.

Counsel Inquiry: I don’t think, with respect, that answers my question as to whether you remember this request or not, which is what I asked you.

But notwithstanding the answer, why would you have refused that request? Why would the Treasury?

I’m just trying to rationale for the Treasury refusing requests like that in a circumstance of pandemic emergency.

Mr Steve Barclay: Well, they’re two different things. I mean, one is paying for buildings, IT, and things that are important from a value for money perspective in the medium term, not least if one opens up a wider discussion around value for money and productivity, then that pertains to the capital budget. The revenue budget is dealing with pay, with staff numbers, with immediate pressures in terms of staff costs, and that should be looked at on its own merits. And that’s what we were doing with English departments, and the same applied to the DAs.

Counsel Inquiry: And I think in 2020/2021, the Welsh Government returned 155 million to the Treasury, in part because of the decision not to allow them to switch in that way. Do you accept that?

Mr Steve Barclay: Yes, but the reduction was several-fold less than that of English departments. So I think, from memory, the reduced underspend in Wales was £50 per person. In England, it was £450. So, again, I just point to the balance between fairness for English departments and those of the DAs.

Counsel Inquiry: So I’m just trying to understand your perspective and reasoning in making these decisions. Is it that essentially, yes, you accept that that might have been something that reduced an element of flexibility for the Welsh Government, but, as Chief Secretary to the Treasury, you had an obligation to the United Kingdom, all nations, and were trying ensure that there was equality in terms of spend across them. Is that effectively the position?

Mr Steve Barclay: Well, I think I’m saying more than that. I’m saying first there’s a balance of fairness between the DAs and England-only departments, but second, more directly to your question, if, taken as an example, building work has slowed in Wales because of the pandemic, and therefore some of the capital budget hasn’t been spent, but staff costs have increased or revenue costs have increased, then it’s a balanced approach to say: as we give more money to deal with the revenue, we should use some of the underspends that have accrued on the capital. Otherwise you’re saying: I want more for part of my budget where the costs have increased, but I want to keep the entirety of another bit of the budget where the costs have decreased.

And so those are perfectly common discussions one has with the department. We were having exactly the same discussions with the devolved administrations. But notwithstanding that, the DAs in 2021/2, were in a much more preferential position, because of the carryforward per head of funding compared to English departments.

Counsel Inquiry: Thank you. So it’s about matching funding with the need at the time, essentially?

Mr Steve Barclay: Yes, and I suspect if we didn’t do that, the Treasury would be criticised on value-for-money grounds.

Counsel Inquiry: Can I move on to another subject, please, which is communication and engagement with the devolved administrations.

As Chief Secretary to the Treasury, presumably there were various methods of communicating announcements between Treasury and the devolved administrations? Was one of the forums the former Finance Ministers’ Quadrilateral meetings?

Mr Steve Barclay: It was.

Counsel Inquiry: Now, pre-pandemic, they’d happen how many times a year? Not precisely, but on average?

Mr Steve Barclay: It’s a long time ago but I think it was couple of times a year. It may have been quarterly but not very frequently.

Counsel Inquiry: And during the pandemic did that frequency significantly increase?

Mr Steve Barclay: It did.

Counsel Inquiry: And did you think that was a beneficial forum for you to meet with counterparts?

Mr Steve Barclay: It was one of a number. So I think it was useful in terms of information sharing, but it sat alongside discussions by the Quad with the First Minister. It sat alongside the then Chancellor Duchy of Lancaster, that led on union engagement because it was led from the Cabinet Office, not from the Treasury. So it was part of a range of communication channels, but also, probably the most important, actually, wasn’t at ministerial level it was at official level, and that’s where there was very extensive communication and that’s where, I would say, it was probably most effective.

Counsel Inquiry: But why do you think that is that it’s at that level that communication is more effective?

Mr Steve Barclay: Well, I think because there’s political differences at the political level, and sometimes information can enter the public domain in a way that one hopes is less so at official level.

Counsel Inquiry: Did the pace of the response to the pandemic, the speed at which government was having to react, present challenges in terms of keeping the devolved administrations up to speed with funding announcements that were going to be made and levels of funding?

Mr Steve Barclay: Yes, it did.

Counsel Inquiry: I mean, just to take an example that comes from Kate Forbes, the Scottish Government, she gives an example. I’ll just give you the example. 11 March 2020, a £30 billion package of economic support, so there would be consequential Scottish Government funding. 14 March, Scottish government announced how they’d spend the money. 17 March, the UK Government has increased that package to 330 billion. So that gives you a sense of the speed at which things were happening, and the scale of developments?

I don’t raise that as a complaint but just really for your view. Is there anything you can do about that in the context of a pandemic emergency, or any fast-paced emergency?

Mr Steve Barclay: Well, firstly, English departments were also often dealing with a fast move. So again, I wouldn’t say this is a particular issue to the DAs. And secondly, you cited Kate Forbes, you know, I just referenced paragraph 15 of her statement in which she particularly talks about the constructive relationship she had with both chief secretaries. So there was a very strong desire, certainly on my part, and I think on my successor’s part, to work closely with the devolved administrations, and Ms Forbes cites that in her statement, as does Conor Murphy who says the relationship was productive as, indeed, does Rebecca Evans.

Counsel Inquiry: Please don’t misunderstand my question. I’m not suggesting for a moment there wasn’t constructive engagement. What I’m asking you is really, given the speed at which the pandemic was developing, people may point out these sorts of difficulties but was there anything that you could practically have done about it?

Mr Steve Barclay: Well, as I mentioned in my first evidence session, it was not uncommon for Treasury officials to be working through the night, given the pace at which decisions were required, and so obviously, when teams within the Treasury are under that time pressure, the amount of time between resolving a course of action and communicating that gets truncated.

Counsel Inquiry: I’m just going to ask that an observation of your successor, I think Simon Clarke, could be put up, please, INQ00057359, paragraph 88. This is on the issue of engagement. His reflection is:

“… we could have potentially better managed the relationship by having had more meetings where we worked at a ministerial level, perhaps a few days or hours earlier, to try and discuss the contours of the support packages which were available. Though this would not have changed the Treasury’s decisions, it is something that could have been done purely to manage the relationship.”

And he goes on:

“There was a relentless pressure on time, so managing relationships simply could not always be the first priority during a crisis like the Covid Pandemic.”

Picking up that last point, this obviously was an extremely pressured time. Do you share his reflection that there could have been more engagement or do you – and you’ve, to a sense, touched on this – take the view that there simply wasn’t time for further engagement and that it wasn’t actually that productive, given the speed at which things were developing.

Mr Steve Barclay: Well, firstly, I think there’s different phases of the pandemic and different circumstances. I think, you know, David Phillips, for example notes there was very good engagement in the early phase of the pandemic but suggests where that became more strained was not because of a lack of engagement but because of a difference of view, in terms of what the public health measures should be.

As I say, the Treasury engagement was one of a number of forums in which discussions would be held with the DAs, so for example, through COBR, there would be discussions. And there were also balances in terms of particularly market-sensitive information, and we saw that, if I just take this week’s coverage of the Budget in which the front page of The Times suggested members of the Cabinet may not have been cited on aspects of the latest Budget. So there are always challenges around market-sensitive information.

I think at official level, there was very good engagement between the Treasury and their counterparts in the devolved administrations, and certainly on a personal level it’s something I put significant value on. But often, the timing was tight because of the pressures and the deadlines people were working to.

Counsel Inquiry: Thank you.

In 2022, we understand that there was a review of intergovernmental relations with the devolved governments, and the Finance Ministers’ Quadrilateral was replaced by a new organisation, the Interministerial Standing Committee. Now, I’m not sure if you had left your role by then.

Mr Steve Barclay: I wasn’t in the Treasury then.

Counsel Inquiry: No, exactly, are you familiar with that new committee and how it operates?

Mr Steve Barclay: No.

Counsel Inquiry: Or – if you’re not I won’t ask you anything about it.

Mr Steve Barclay: No.

Counsel Inquiry: No, all right, I’ll leave it there.

Just one question, then, about official-level engagement, I just want to give you an opportunity to comment on this, given you’ve raised official-level engagement.

Could we have up, please, INQ000653414. This is part of Kate Forbes’ statement, paragraph 15.

I think this is the paragraph you referred to. And there we are:

“The one observation that I would make, which I mentioned in my oral evidence in Module 2A, was that the devolved finance officials were very seldom sighted on what the UK Government might be about to do financially. So, in meetings they would give us their

best evidence, and they would speak honestly and

truthfully when they said no further funding would be

provided. Then, sometimes as quickly as 24 hours later,

additional funding would be announced. This was largely

because officials did not know, rather … It was down

to a breakdown in communication between UK Government

and the Treasury Devolved officials rather than

a breakdown between Treasury Devolved Officials and the

Scottish Government”.

Do you recognise that problem and accept it or not?

Mr Steve Barclay: No, I don’t. And, as I say, I think one can look at

specific examples of very good close working. So one

example was the legislation, the Covid Response Bill, in

which I think there was evidence of very close working

across the DAs and the UK Government. I pointed to the

independent findings of David Phillips, who has comment

on the:

“Both the UK Government and the [DAs] highlighted

improved inter-governmental communications in the early

stages of the Covid-19 pandemic …”

That’s at his page 12 of his report.

So I think there are a number of areas where one can

point to good working relations, as you mentioned, in

Ms Forbes’s own statement she says that, but so does

Conor Murphy, so does other finance ministers.

But of course, it was a time when people were working at significant pace and challenge, and I’m sure, if one were to speak to secretaries of state of English departments, they would also have often liked more notice on decisions, but the Quad itself was taking evidence in real time based on the scientific evidence that they were receiving. So there was a pressure on time.

Counsel Inquiry: Thank you.

Mr Barclay, those are the topics I wanted to cover with you, but to give you an opportunity, do you have any observations or reflections, having managed these relationships, that could be carried forward in terms of any future emergency, or have we covered the learning that you think there is to – to be drawn from what happened in the pandemic?

Mr Steve Barclay: I think you have covered them extremely effectively.

Mr Wright: Right.

Thank you, those are my questions. Thank you very much. I don’t think there are any other questions.

Lady Hallett: There are no other questions.

Mr Barclay, thank you very much indeed. That completes the questions we have for you.

I know that it’s a burden to ask witnesses to come once, let alone to come more than once, like you’ve had

to do. So thank you very much for the help you have

given to the Inquiry.

The Witness: Thank you.

Lady Hallett: Very well, is that it for today?

Mr Wright: It is, thank you.

Lady Hallett: 10.00 tomorrow, please.

(3.41 pm)

(The hearing adjourned until 10.00 am the following day)