15 December 2025

(10.29 am)

Lady Hallett: Mr Wright, good morning.

Mr Wright: Good morning, my Lady. I call Rishi Sunak.

The Sunak

THE RIGHT HONOURABLE RISHI SUNAK (sworn).

Lady Hallett: I’m sorry we had to call you back, Mr Sunak, but as you’ll appreciate, you were indispensable to this module.

The Witness: It’s quite all right, my Lady. Thank you for having me.

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

Mr Wright: Mr Sunak, you’ve provided a statement to this module of the Inquiry, and I’m going to give the reference number now for the record, which is INQ000661483, and you’ve provided that statement in your capacity as Chancellor of the Exchequer during the pandemic, having been appointed, as the Inquiry understands it, on 13 February of 2020.

The Sunak: Yes, that is right, and good morning, Mr Wright, good morning, my Lady. Thank you for the opportunity to provide evidence today. Of course this is all about making sure that we can be better prepared for any future pandemic, and I look forward to providing evidence in the spirit of constructive candour, as I enjoyed doing last time around.

But before we begin, I would like to extend my condolences to all those families who lost their loved ones during Covid. Remembering those we lost and all those who suffered should, of course, be the starting point for all these discussions.

And before we move on to the detailed questions, Mr Wright, if I may, I’d like to put on record my thanks and my deep gratitude to the teams at the Treasury, HMRC, and indeed all the departments that worked to devise and then deliver all the economic support programmes that were put in place. They worked tirelessly, selflessly and without complaint, and I think they demonstrated exceptional skill and professionalism throughout.

It was, to me, a very fine example of public service and I felt personally very fortunate to have both their advice and their support during what was an incredibly difficult time for the country.

Lady Hallett: Thank you very much, Mr Sunak.

On the subject of constructive dialogue and looking ahead, the terms of reference for this Inquiry require the Inquiry to identify lessons to be learned, to inform preparations for future pandemics across the United Kingdom, and so in each area of questioning I want to very much focus on your reflections and lessons learned from both what went well, and that’s important, and where you think a different approach might be beneficial in a future, potential emergency.

And over the last four weeks the Inquiry has heard a lot of evidence about what has happened during the economic response, and received a lot of statements addressing that in detail. So I don’t just want to ask you questions about what could or should be done next time, if there is a next time, but how, from a practical perspective, that might be achieved, bearing in mind it’s easy to say, well, you could do this or do that, but the real question is: how do you actually make that happen?

Can I, to assist you, Mr Sunak, and those following your evidence, just set out the basic structure that I’m going to follow in my questioning so you know the order in which we’re going to deal with the subjects, and we will work through these in the course of the six sessions of evidence that we have with you.

So first, I’m going to examine preparedness as part of the initial response, look at the scale and nature of the shock, the economic shock the country was facing, then look at some systemic and structural issues in terms of decision making and delivery.

I’d then like to move on to funding, and in particular funding for the devolved administrations; and then to explore the policy response, looking at, in particular, the Coronavirus Job Retention Scheme, first of all, then the Self-Employment Income Support Scheme, then Kickstart, then the uplifts to both Universal Credit and Working Tax Credit, then examining the Statutory Sick Pay Rebate scheme; then looking at loans as an umbrella heading, picking up different loan schemes within that; grants, as an umbrella heading, picking up different elements of grant schemes; and then I’d like to ask you some questions, Mr Sunak, about access by the voluntary, community and social enterprise sector to pan-economic measures that you introduced; then, to examine the economic impact of Long Covid, as a discrete subject; and then finally, and I’m sure you’ll be relieved it’s a finally, to come to giving you an opportunity to discuss any overarching lessons and reflections that you have, having been Chancellor during this emergency, and to look at any recommendations or thoughts for the future that you wanted to share with the Inquiry.

We obviously will pick up reflections as we move through, but I want to give you, as I have with every witness, an opportunity at the end of your evidence to make any points that you feel are important points of learning.

As I’ve said, you were appointed on 13 February 2020 as Chancellor. You’d previously been Chief Secretary to the Treasury so you had been within the Treasury, is that right, before that?

The Sunak: Yes, that is right.

Lady Hallett: And there had been a number of appointments on or about that date. We’ve heard Lord Sharma was also appointed on 13 February, and we know that the current Governor of the Bank of England came into post a month later, 16 March.

The Sunak: (Witness nodded)

Lady Hallett: And we understand that the budget, but that is a regular fiscal event, as opposed to some emergency budget, was programmed for 11 March. So, regardless of the pandemic, your first job was going to be – or your first big job – was going to be to deliver that budget on 11 March; is that right?

The Sunak: Yes, that is correct.

Lady Hallett: Yeah. And so you had been – and I’m just setting this context, really, to remind us all of the scale of the challenge that you and officials at the Treasury were facing at the time – you had been Chancellor for just over a month when, on 16 March, the Prime Minister recommended avoiding all non-essential contact and travel, and then a week later there was an announcement of lockdown that effectively put the economy into something approaching hibernation, and this was therefore a significant economic crisis unfolding that was unprecedented.

You informed the nation on 17 March, in a speech, that the coronavirus pandemic is a public health emergency, but it is also an economic emergency. And you put it, Mr Sunak, in this way: “We have never, in peacetime, faced an economic fight like this one.”

And it was an economic fight that resulted, we, the Inquiry, knows, in fiscal interventions to a value of in excess of £350 billion over the course of the pandemic.

So I’ve just set that context so we remind ourselves of where we were in February and March of 2020.

From your perspective, coming new into the job, for example, you were having to react to a situation for which there was no playbook, as it were. Nothing like this had happened before; is that right?

The Sunak: Yes, that’s – I think that’s exactly right. I mean, you mentioned I’d been in the Treasury. I’d been appointed Chief Secretary to the Treasury the previous July, so, you know, not a huge amount of time in that context. I was obviously very new to senior government, and then it was a – it was a surprise to be made Chancellor in the middle of February. And at that point I inherited a budget date which had been previously set, that the government had announced, and was being worked towards. So my immediate job was, you know, to put together a budget in the space of a few weeks, which, in ordinary course, I think would probably be what you would imagine to be the most difficult job you’d ever have to do as Chancellor. As it turned out, that was really the – one of the easier things I had to do, given what then unfolded over the next few days, weeks, months.

And at that moment things were moving very quickly, so even during the budget preparations, you know, it was clear that what was happening with the pandemic was escalating, and so I wouldn’t say we necessarily rewrote the budget, but, as well as the regular budget that we had planned, what we then ended up having to do, you know, midway through that prep was to deliver a set of Covid-specific responses in that budget which I’m sure we can go through.

So the budget itself was, you know, almost a budget that delivered largely what was in the 2019 manifesto, from an economic perspective, but then also had a set of interventions specifically designed to deal with the pandemic – as we imagined it would be at that moment; obviously we had to build on those pretty considerably, and quickly, thereafter.

So, you know, all that is to say already the budget contained some things, and then we iterated very quickly thereafter. And, to your point, there wasn’t a toolkit. There was not a playbook that you could pull off the shelf that said, well, this is how you, you know, tend to deal with pandemics, in the same way that you somewhat have with other economic shocks or financial shocks.

So, you know, we – you did have to draw on some things that we had done in the past, and we’ll get into that, with the specific interventions, but, largely, listen to the – the health and medical advice as to what was likely to happen and then do the best you could at designing economic interventions which would – which would help support the country through that period.

Lady Hallett: These may not be the words you’d use to describe it, but we’d heard from Sir Charles Roxburgh who kept a diary and caveating that, in that it was a personal diary that he shared with the Inquiry, the way he put it in an entry on 17 March which was, from his perspective as one of your senior officials looking at what you had to do, he wrote down that you were in the position of having to “pull a rabbit out of a hat” is effectively how he was looking at things in terms of the situation in which you found yourself.

And really, building on that, a lot of the schemes, and we’re talking here about fundamental significant schemes like the Coronavirus Job Retention Scheme, as you said, there was no playbook, you were having to devise those at speed, we heard from Dr Leunig, an adviser, about 55 hours of time to conceptualise and announce the furlough scheme, as it became known.

And what sort of pressure did that place you and your officials under, in terms of the need to deliver at speed?

The Sunak: I think, taking a step back, and maybe I should slightly, going back to your previous question, you know, I think there was just an enormous amount of uncertainty. I think that was the number one challenge. We were dealing with something that no one had dealt with before, and there was uncertainty about the scale, the potential duration, the behavioural response, and the wider, so macroeconomic impact of all of this, both from the NPIs and then how the economy would respond, and that’s what made it so tricky in terms of figuring out what to do.

And then, as you’ve just said, I think speed was paramount because one thing that was crystal clear that this was happening very quickly and was about to have an extraordinary impact very fast on millions of people, their livelihoods, and millions of businesses, as well.

So, you know, not only are you trying to do things that have never been done before, you know you have to do them as fast as you humanly can, and that’s why, at the opening of my evidence, I did want to put on record my thanks because I – as I felt I was new to the job, I was new to being in Cabinet having a job like this and then having, obviously, to deal with something like this and do the best job you could for the country, having the support, the advice of people around you who were working, you know, incredibly hard at particularly those first few weeks, was something that will stay with me for the rest of my professional life. It was an extraordinary effort by a whole number of people, you know, trying to serve the country in the best way they thought they could.

And maybe if it’s helpful, I can then talk a little bit about what we were trying to solve for. So, you know, when we were sitting there in these meetings – and you’ve probably heard a little bit about this from Charles’s evidence – you know, our understanding of what the virus would do, or, you know, the impact it would have on the economy, you know, what we did know is what we were trying to prevent, and that was what we call economic scarring. You know, we knew that there was going to be an economic shock, our understanding was that it would be temporary. I think our understanding at the beginning was that it would last several weeks to a few months, and what we were focused on doing is making sure that the temporary shock did not have long-term serious economic consequences, and that’s what the term “economic scarring” means.

And there are various transmission mechanisms for economic scarring, damage to aggregate labour supply, damage to the capital stock, damage to what we’ll call total factor productivity, which is how you knit things together and create things out of them. So that is what we were trying to do and I think that was the right set of objectives.

And then you talked about the “how” earlier on, you know, that then led to a few things that we were designing schemes and designing economic policy to deliver in terms of outcomes that we could be measured against. And the first was to prevent unemployment, and protect living standards –

Lady Hallett: I don’t want to cut you off but I am going to come on to those priorities –

The Sunak: Oh okay, fine.

Lady Hallett: – shortly. I just, at the moment, if we could, and if I don’t keep this promise, you can haul me up about it, but we will come on to that very soon. Just before we get there, just going back to this point about speed and there being no playbook, you referred to that, in ordinary times, if we’re talking about governance in ordinary, steady state, things like the CJRS, schemes like that, would have taken months to work up, to consult upon, to implement, in ordinary government proceedings.

How important was it, did you think – yes, there was no playbook so you couldn’t dust it off and say, “What do we do in this situation?”, but did you find that actually having an entrepreneurial approach to decision making was a benefit? In other words, being freed of the usual strictures of government systems and operations?

The Sunak: I don’t think it necessarily was strictures but I think the necessity of speed just – just meant that everyone recognised we didn’t have the luxury of time. And I think that was everyone’s driving force, really.

I can’t think that there were particular processes or structures that somehow we did away with; it was just that we had to work quickly. And as we’ll get into later, I think there was an acknowledgement from the beginning – I mean, you used the word “entrepreneurial”, I’d probably say iterative, maybe, the other way to characterise it – there was an acknowledgement early on, when I was talking to the team, that of course we weren’t going to get everything right straight away. I think it would – was – you know, that would have been, you know, surprising, given the speed at which we were operating and the scale of the interventions we were designing and – and putting in place.

So there was a recognition up front, and I, you know, encouraged the team to be comfortable with that, that that was okay. All right? We couldn’t let perfect be the enemy of the good and we were going to have to acknowledge that we would iterate as we go.

I think – there are general for policy – general lessons for policymaking, I think, in any case about that – what they’d call in the Cabinet Office a “test and learner” approach and an iterative approach to policymaking, I think that’s a good thing. I think that’s what you’d see in the private sector, for sure. I, in general, think that’s a good thing for government to try to adopt, even in – in peacetime.

It requires a recognition on everyone’s part that, you know, you are then putting things out there that are not perfect day 1 and then iterating them over time.

But I think, in the context of a pandemic, everyone was comfortable with that, or should have been, because, you know, we had to get things out fast otherwise the consequences would have been severely negative.

Lady Hallett: So, that – that iterative approach has benefits in – in all times, in your view, and so when we look at playbooks and the idea of playbooks, and this is just why I’m interested in this issue, in terms of how much planning you can ever do, you don’t want to plan to the point where you lose the ability to be agile and to – to react what’s going on, in other words, that you just follow line 1, line 2, line 3 –

The Sunak: Yeah.

Lady Hallett: – you’ve got to still be reactive?

The Sunak: Yeah. And I – look, I’ve followed some of the evidence that you’ve that during this – this module, and I think this is – this is a really interesting question: to what extent should we come out of this saying, you know, “Here’s the playbook for next time”? And I probably – and again, we’ll get into it in detail when we go through the individual interventions – my overarching reflection would be we – we have learnt an enormous amount having been through this once, and we have a set of tools that we developed, we iterated, and no doubt can be improved in the future.

But I would slightly guard against the idea that, whatever happens next time, you can pull something off the shelf and, as you said, just kind of go: right, line 1, line 2, plug it into a machine, and off you go.

Each – each economic shock, each economic crisis, is going to be slightly different, and it’s important for policymakers at – at that moment to be agile and responsive to the situation they face, and not be so mechanically thinking: okay, well, just because we did this last time, it’s the right thing to do in exactly the same way.

So – I think you used the word “agility”. I think that’s right. It’s just responsiveness to the situation you – you face, having the agility to respond to it, to be flexible, but also then to acknowledge, even next time, a willingness to be able to iterate as you go, would be my takeaways.

Having said that, all of that will be benefited from the fact that we have now developed a whole new set of tools this time around, building on some tools that we had previously, and that will help.

Lady Hallett: Yes, we heard some evidence from Dr Leunig, who – his stark evidence was, you know, he was anti-planning, but actually, in questioning, I think where he’d landed was that you can build the architecture now, you can put in place the delivery mechanisms, you can get the data streams sorted out, you can do that sort of planning, but then you need to also retain agility in terms of reacting to the particular shock.

And is that more or less where you –

The Sunak: Yeah, I would broadly agree with that characterisation.

Lady Hallett: Yeah. Okay.

So that was – you had to be agile, you had to be iterative, because you didn’t have a playbook and there weren’t these structures, so that’s the starting point.

Moving on, then, to the scale and nature of the shock, and when we’ve discussed that, then we’ll come on to the point you were making about what you were trying to do, what you were thinking about. But in terms of this pandemic, this wasn’t a shock, and Andrew Bailey spoke about this, that arose in the economic system or in the global financial markets; this was a health crisis that then had a knock-on effect in terms of an economic shock; is that right?

The Sunak: Yes, that’s right. I think normally, when you’re responding to an economic shock, part of your job is to try to stimulate economic activity. You know, here we had the almost reverse situation where the government was deliberately suppressing economic activity. So, as I say, this is why it was unprecedented, at least for modern policymakers to have to grapple with, and to figure out what the right set of economic interventions would be in that context.

Lady Hallett: And how important did you consider it to be to really understand, in the Treasury, the nature of the shock and the extent to which it was a supply-side shock and it was affecting global supply chains or a demand shock, or the interrelationship between those things?

The Sunak: No, that’s exactly what we tried to do, and I – and you’ll see it in my evidence, and indeed in my evidence in the previous Module 2, that the calls that I had, even during those budget preparations with the Chief Medical Officer, Chris Whitty, and the Chief Scientific Adviser, separate from the various COBRs and things we were at, and I spoke to them specifically with my team to try and glean as much as I could from them in those early days about what this would look like, so we in the Treasury could then do the best job we could of understanding the impact that would have on the economy and how we should think about it and then help devise the right type of responses, the first iteration of which you saw in the budget and then we built on thereafter.

Lady Hallett: Yeah. I mean ordinarily, as Chancellor of the Exchequer, you set the economic policy direction for the country and you announce measures in a budget, and so, in a sense, usually, the Treasury is in control, as much as it can be or any government department can be. But here, was the Treasury finding it had to be reactive to other events, rather than able to control those events, given the nature of the shock?

The Sunak: Well, I think, of course the Treasury and the economic response had to be responsive to, and based on, the health interventions. So, I mean – I think that’s kind of, you know, a statement of obvious in one sense. But the Treasury couldn’t drive the conversation, especially in those early – and nor should it have done – in those early days and weeks. And I went through this in some detail in my evidence in the previous module.

You know, my strong recollection of that period is largely the response being led by the Department of Health together with the medical and scientific advisers and us largely, you know, following the advice that they were putting in front of ministers and the Prime Minister and then obviously the economic policy response would be based on that. And as that changed, then we had to change the economic response, or anticipate where it might go.

Lady Hallett: And that’s really what I’m coming to, in that we know from all the other evidence the Inquiry has heard how rapidly the health position was changing?

The Sunak: Changing, yes.

Lady Hallett: So, from your perspective, did that mean that the economic position was changing just as rapidly behind the health developments?

The Sunak: Yes, that’s right, and I think perhaps maybe slightly underappreciated how – and I’m going back over all those individual meetings of that period, even I, when I went over it in preparation for the previous module and now, am struck by how much that health and medical advice was changing in those early days. I think people – even I was struck by that, re-reading it. And of course the economic response then had to keep up with that, and you saw that, because we put a set of things in place for the budget and then very quickly we had to then go and do a whole host of other things, and, you know, what we did in the budget wasn’t that it was out of date, and in fact many of those things persisted for a long period throughout the pandemic, but we had to do significantly more than that. And that is a reflection, as you said, of a rapidly evolving health situation.

Lady Hallett: And that pace, and the speed at which things were evolving, presumably, supports your view about the need to retain agility and to take this iterative approach?

The Sunak: Yes, I think that’s absolutely right. And the Treasury has a great institutional ability to, you know, deliver – and I’d say, you know, the set piece economic policy announcements because of the budget process, in what we had to do, or – in the organisation, and they responded, you know, absolutely brilliantly to that, and, you know, reflect on the time – you know, we almost had to deliver, you know, five budgets in the space of about two weeks. In terms of the scale of what was being announced, they were bigger than pretty much any budget that had ever been announced by any Chancellor, and it felt like, for a period, we were doing one of those every two days, for that first two weeks. It was an incredibly – to go back to what you were saying before – it was an incredibly intense period, those first, you know, two weeks, and, as I said, every second day, I was popping up, it felt like, doing a press conference, announcing something, and then behind all of that, there was, you know, 48 hours of nonstop work to get to that point and then after that go and make sure all the implementation was happening and then move on to the next thing.

I think, probably looking back at it, I slightly benefited from the fact that there wasn’t really time to panic, there wasn’t really time to worry. You just, certainly on my approach to it individually, was you just had to focus on the problem in front of you, run at it, solve it as best you could, get on to the next one and just keep going and not let it consume you. But the organisation, as I said, responded exceptionally well in those early couple of weeks.

And probably another thing to say is, you know, we were all new to working from home at that point, right? I think people forget. And I think Charles, in his evidence, made an observation about that, and it’s a small point but, you know, we were not set up with all the things like Teams and everything else. There wasn’t, I think, even the right set of plug sockets, I think Charles mentioned in the Chancellor’s meeting room in Number 11 Downing Street which –

Lady Hallett: No telephone socket – (overspeaking) –

The Sunak: That was it, which is why we were kind of crowding around in kind of almost a sitting room, because that was where you could plug in all the various things and have a conference call. And that was what it was like in those first couple of days.

So I think, given that, I was very grateful for the team to rising to the challenge to get me what I needed to go out and do what I had to do, which I know we’ll come on to in a second.

Lady Hallett: And in terms of what the challenge was, or became – and again, just for context, we’ve seen the very first briefing you had as Chancellor about the pandemic, and at that time there was still an expectation it might be contained even in China, that it might not reach the United Kingdom, and then a month later, the budget, that’s all consigned to history.

But in March – February, March, was there still a hope, perhaps even an expectation, that it might be capable of being a relatively short-lived economic shock?

The Sunak: Yeah, you can see that in the evolution of the various minutes coming from the SAGE meetings and the packs that were prepared for ministers in the COBR meetings. That was very clear. There was a set of things that people were working towards. And I remember clearly at that time, especially in those early conversations, a lot of what the medical and scientific community were advising us was not to go too early because they were very – with the various interventions, because they were worried about public, I think, acceptance of them and they needed to maintain a duration. And so they were quite focused on getting the timing right, and the quotes are in my evidence about, I think, the Chief Scientific Adviser at one point saying, “It’s important not to go too early because these things need to be maintained for a period of time.”

And then – and clearly, as you just said, things just kept escalating, things were put in place, and then ultimately, even at the end, that last few days, I think the Prime Minister said to people it was a voluntary social distancing, and to avoid hospitality and leisure on the basis, on the advice from the scientists, and schools were not closed at first, then the advice was that they should be closed, and that was followed immediately.

And then even at that point, there was a belief that that voluntary social distancing, together with the school closures, if there was, I think the number was 75% compliance, would be sufficient to manage the virus, to deliver the health outcomes, and then very, you know, two, three, days after that was said, it was decided that that wasn’t going to be achievable which was why you had to move to a full mandatory lockdown.

But to your point, the health and scientific advice was changing, you know, every couple of days and that’s what characterised that period, and going back to your point, there was a sense that it could be contained at the beginning, and then it would last for a, you know, a period of time, more than couple of weeks, but a period of time, and that’s what we initially designed the economic interventions to do.

Lady Hallett: And that’s why I’m really setting this ground –

The Sunak: Yeah.

Lady Hallett: – because you’re having to be reactive in the Treasury to health events, but, as Chancellor, in terms of setting the economic response to the emergency, the economic response to a short-lived emergency may be very different, in terms of its policy and implementation, to the economic response to a long-lived emergency; is that fair?

The Sunak: Yeah, I think, you know, that obviously sounds right. I mean, again, looking – looking back – and I think it’s probably better for when we get into the individual interventions, you know, it’s not – it’s not obvious what very significantly large decisions that we would have made that would be very, very different at the beginning, knowing – if you knew that it was going to be for longer than you thought.

I mean, we – you know, there might be some micro design details, but I’m not actually – as we get into it, I’m not – I’m not sure if that’s necessarily the case, and that’s – whenever it’s appropriate to get into whatever we were solving for and then to – so at least you have an understanding –

Lady Hallett: Well, let’s come on to that now.

The Sunak: Yes, because I think, as I said, like, a lot of that is slightly time agnostic, in a – in a sense.

Lady Hallett: Understood.

So, here you are, the health position is worsening. That’s having an economic effect. What was it you were having to take into account, in terms of what you were trying to prevent, what you were trying to achieve, and why?

The Sunak: I mean, I won’t repeat what I’ve said about economic scarring, but that, essentially, is the kind of economic theory underpinning what we were trying to do, and – and, as I said, just to put it simply, it’s to try to make sure that a short-term economic shock doesn’t lead to – to long-term damaging outcomes for – for the country, the economy, for people and their livelihoods.

Lady Hallett: Can I just pick up on that, then?

The Sunak: Yeah.

Lady Hallett: Does that mean that, so far as it is possible, you want to take interventions that mean that, first of all, the economy can recover quickly, and it can recover to the same level or as close to it as it was before the emergency?

The Sunak: Yes, it’s – it’s about protecting that potential output of – of the economy.

And then – so then if you go: what does that mean? Well, it means preventing mass unemployment, because obviously if you have very large-scale unemployment in the short term there can be permanent damage from that. So, you know, protecting job matches and keeping people connected to their jobs is important.

Linked to that is obviously preventing firm failure, you know, both in and of itself and because of the impact on employment, and protecting, as you describe, that potential output of the economy. So, otherwise healthy, solvent businesses, you wanted to make sure that they would still be there when – when this – when this finished, have the recovery and not lose that output.

We always had a strong eye on the most vulnerable. We knew this was going to be an incredibly serious event for the country, and you always want to make sure – I certainly wanted to make sure – and the team knew this – that, you know, the most vulnerable in society, that we were making sure that we – we had an eye on what was happening to them and could support them as appropriate.

And then, you also wanted to design things that would allow economic activity to recover when appropriate, because, you know, long-term economic growth is a function of the efficient allocation of resources in an economy, and what you did – you needed to allow happen at the appropriate moment was for those normal forces to be able to resume.

It’s not good, long term, for an economy, you know, for things to carry on in an artificial state, if you, you know, believe, as I do, in markets, and their ability to allocate resources efficiently.

So you wanted to make sure that, you know, as appropriate, economic activity and normal economic allocation mechanisms could operate and markets could function.

And then – and then lastly, but not least, of course, was ensuring value for money for the interventions and thereby minimising the fiscal impact.

So, as a – it’s a kind of set of things, you know, four, five things there, that were always at the top of our mind and, at the beginning of the pandemic, you know, I’m sure probably they were written down somewhere. But that – that was – you know, that was a set of things that we were solving for, fitting in this overarching desire to – to avoid economic scarring best we could, or minimise it.

And – and as you’ll see, as I described those things, there’s an inherent intention between – between these things.

And – and all economic policymaking is about trade-offs, for the most part, but this in particular, yes, of course, minimising fiscal impact, ensuring value for money is incredibly important. Designing schemes that could ensure economic activity could – could resume is, of course, important.

You know, where we probably put more weight in those early days is, as I said, protecting unemployment and business failure. And there’s – as we go through, there’s an inherent tension between these things, and part of my job was to, you know, make decisions on – on where to design policies, which things to weight more or less at any given moment in time.

And again, there’s not a perfect science to that, that’s a judgement and those are judgements that I made on a regular basis throughout the pandemic. But to give people, like I said, an overarching sense of what we were aiming for, what our economic objectives were, you know, those were the economic objectives that, as I say, were important to me throughout.

And maybe one other point I’d make, is, those are all the very practical measurable economic outcomes. I probably underestimated it at the time, but I mean, I had a sense of it, but it became clearer over time. I think there’s also an incredibly important job for leaders in a situation like this to provide reassurance, and particularly in the sphere of economic policy.

I think one of your expert witnesses, Professor Brewer, I thought made an astute comment about that, you know, modern economy, modern society, depends, I think he said, enormously on confidence, and uncertainty is a dangerous thing, he said.

In a crisis like this, there was an enormous amount of anxiety and rightly so. I think people feared for their jobs, their livelihoods, their families, alongside the health anxieties they had, you know, what it would mean for their economic financial security, what it meant for their family’s security, what it meant for their house, their small business they’d built up. Were they going to keep their job? Would they have a job to go back to? Would they be able to make their mortgage or rent payments?

So, you know, my role in part was not just to get all the policy things right, which was, you know, it was early on, just to provide reassurance to the country that we would get through it, that we would do what we could to help people, and, as I said, I think that is probably an underappreciated but an important objective, certainly from the person in charge of the economic policy response. And I tried to do that early on through the various press conferences and the language I used and the interviews I gave.

But I think in the future you can’t just get the policy bits right; you do have to be able to just communicate and give people the reassurance at what I think was an incredibly anxious time, as I said, for people and their businesses.

Lady Hallett: You reference the speech you made on 17 March, I think at which you publicly made that statement of standing behind people, but can I just pick up on that in terms of reassurance, because I think it’s a point that Andrew Bailey was making in his evidence as governor when he was talking about the bank having an obligation to act, when I was putting to him the narrative of why not just do nothing and sit back and see how things unfolded. And he spoke about the need – he put it perhaps slightly more starkly than you have, going beyond the reassurance to the need to prevent disorder. And he meant that in a social sense, disorder.

But I think he was making the point about the need for the people of this country to understand that their central bank, their Chancellor, was going to stand behind them economically. Is that what you –

The Sunak: Yeah, I felt that – and as I said, it’s probably, you know, it’s easy sitting here five years later, but those early days, those early weeks, it was, you know, it was, as I said, it was an incredibly unsettling time for everybody, and we’ll get into the, as I said, later on, the individual things, but I think someone who provided evidence in one of your sessions, they were talking about, you know, the loans and helping small businesses but I think actually their comment applies more generally and they said something to the effect of it, you know, it felt existential. And I think that is actually a generally good description of the overall situation, is it felt existential.

And that’s why, I think, Andrew’s comments – which – I haven’t seen the precise paragraph that you’re referring to – I would agree with, I think he said, obviously, the Prime Minister providing overall leadership but those of us in charge of the economic response, you know, part of our job is, as I said, not just to get the policies right; it’s to give everyone in the country that reassurance and confidence that the people in charge know what they’re doing and they’re going to be able to do their best to help get the country through it. I think that is an important economic policy tool, as well as just the right thing to do from those who have that responsibility to lead at that moment.

Lady Hallett: It’s easy to think about government intervention sometimes in terms of how much money people get from the government, depending on their business or their circumstances. In terms of household incomes, and protecting household incomes would it be fair to say, when you ran through your priorities, that your priority was to protect household incomes insofar as you could through the preservation of business, preservation of jobs, retention of job matching, and in that way?

The Sunak: Yes. I think – and I was – I think in that first press conference or certainly – I was, I hope, always open – and it wasn’t going to be possible to save every single person’s job and people were going to experience economic hardship as a result of what was happening, and I thought it was important to be honest with people about that, upfront. There’s a balance. You know, you want to provide reassurance, but I think a degree of candour is also appropriate, and also again, you know, my job to get that balance right. I tried to do both things.

I think, actually, as it turned out, the impact on household incomes and living standards, particularly for the most vulnerable in society, you know – we’ll get into it in the right section I assume, so I’ll save it for then – but I think the overall results on that were stronger than I would have perhaps anticipated going into this, and I’m very proud of that. It was, you know, it was something that we had an eye on throughout, and certain policies were designed specifically with that in mind. But when you go back and look at the impact on deprivation or poverty, or disposable income for those who were the most vulnerable, as I say, the track record through the pandemic I think we’ll find is much more favourable than anyone might have thought.

But more generally, I think the living standards probably come as a, you know, as a consequence, as you said, of protecting people’s jobs and that job connection, protecting business failures, et cetera, et cetera; but obviously some policies – Universal Credit being one in particular which targeted that, as well, and furlough.

Lady Hallett: And we heard from, again, Dr Leunig about, for example, the approach taken in the United States of America where this idea, he’d termed it “helicopter money”, money delivered through welfare, rather than through job preservation, though he explained that really that wasn’t a policy choice by the US in his view, it was more a fact that they couldn’t have delivered the sort of scheme you delivered in terms of job retention because they didn’t have the systems by which to deliver it.

But it’s fair to say, is it, that you put that protection of jobs and recovery of business at the forefront of the response?

The Sunak: Yes, I – I did. And I did that because I thought that was the best way to, as I said, minimise economic scarring, the long-term damage on the economy, on people’s, you know, employment security, financial security.

And, you know, I’m glad the – when we come on to it, you know, the – so what happened to online employment was considerably better than anyone had forecasted at the early stages of the pandemic. So we were successful in preventing that – that mass unemployment. Which, going in, was the biggest fear; you know, the biggest economic fear going into this was that there was going to be mass unemployment.

That might speak to what Andrew was perhaps saying about the social disorder. You know, the scale of projections people had, about 12% unemployment rates, millions and millions of people without a job, clearly that’s not something that the country had experienced in a very, very long time, and reasonable to worry about the social impact of – of that.

So, you know, that – as I said, that was what we were – what we were particularly focused on averting. And I think there are – there are different approaches. One thing I’d say is it’s probably not that binary, in the sense that it’s not either/or. We did both. You know, we put support through the welfare system and we created the furlough scheme to protect jobs and job matches, and we did things to help business, you know, and we created hardship funds for people who might have not benefited from those or needed extra help.

So, you know, you can do a range of things. I think that’s the right thing to do. It’s probably – it’s not as binary as, “Well, it’s either this approach or that approach.”

And I think most countries, when you look at it, adopted a mixed – a mixed set of tools. And particularly with CJRS, when – you know, when we get to it, I think most countries ultimately decided that was a sensible intervention and – and many other countries did something similar.

Lady Hallett: And, as Chancellor, you were obviously authorising significant public spending. These interventions, we know, cost a lot of money. And you, as you’ve said, were trying to stand behind the country, if you like, and – and business and individuals. But were you also having to factor in that, as Chancellor, you would also have to bring all of this to an end, when, hopefully, the country recovered? In other words, this wasn’t a blank cheque that could just go on forever. So you were having to bring things in, but also you may go from hero to zero, be the person who had to end it because you had to then start – or the country had to start living within its means, effectively?

The Sunak: Yes, I – very much that was in my head throughout. I mean, I – I am, you know, by – by instinct and experience and everything else, a fiscal conservative. Right. That is what I believe. I believe in, you know, controlled government spending and a lower tax burden as a result of that. And I think a lower tax burden comes from, you know, control over government spending and borrowing.

And, you know, so this was obviously, you know, atypical in terms of my – my general view. But I said – I think probably in one of those early interventions, I said this isn’t the time for ideology. I think I might have used that exact phrase or something to that effect in one of those early press conferences.

So we had a particular situation that we were confronted with, and that meant, okay, though I might, in general, be someone who believes in a smaller state and a lower tax burden and – but this was, you know, this was a unique crisis, and – and it required a particular response where the government did have to intervene and did have to do these things which I thought would be in the long-term best interests of – of the country.

And you’re absolutely right, of course I knew that, you know, there’s no such thing as a free lunch. And – and that’s why, you know, what – where you could target things more appropriately and effectively, so that you were ensuring better value for money, reducing the fiscal impact, you would try to do those. And that happened – happened throughout.

And that’s why, you know, I think in the last budget I did as – sorry, not the last budget, I’m talking about the spring 2021 budget, I stood up and said, you know, we do now have to – to pay for these things. I didn’t leave the tab, in that sense, for – not to be picked up. I was honest with the country, that now we had to put in place some tax changes – which I, of course, hated doing, when – to your point, but it was the right thing to do.

It was the right thing to intervene and it was the right thing to ensure that our public finances were then put on a sustainable trajectory there afterwards, which is why, you know, I had – I had to, as Chancellor, deliver a tax-raising budget in the spring of 2021, precisely because these things are not free and needed to be – to be paid for.

Probably, if – just to put it in context, in terms of the scale of the – the support you mentioned, I think it’s interesting, looking at it – probably the best way to measure it is as a percentage of GDP. And actually when you look at the scale of the intervention here, I think – the IMF have probably got the best database, which looks at countries consistently – you know, we were very much in the middle of the pack, actually, at about 14% of GDP being the total scale of our – our response. And you had, you know, countries that were a bit lower than us, so: Canada, 13%; France and Italy, 12% and 13%. And then you had, you know, countries that were more than us: Japan, 15%, Australia, 17, Germany 18%, and the US, 22%.

So, in terms of the overall scale, you know, we’re kind of in the middle of the pack. Some people might say we should have been at the top end, some people might say we should have been at the bottom end, but for better or worse, we were roughly about average in terms of the overall quantum of the support.

And then that split, because again I think it’s probably underappreciated. In terms of that quantum that you talked about, you know, depending on how you measure it, about 325 billion, give or take, about half of that is what I would call purely economic support. So things like furlough, self-employment scheme, loans, grants, the things that we’re probably going to talk most about over the next day and a half.

And then about half of the response, or half of that quantum actually relates to that health response and the broader public services funding. So the funding for the NHS, for PPE, Test and Trace, vaccines, social care, education, transport, other public services.

So it’s not precise, but very roughly the way to think about it is we’ve spent broadly, on average, compared to most advanced countries, and – and what we spent was about half purely economic response and half the broader public services response, and that’s, I think, just a good – good framework for people to have in their heads when they think back over what we did.

Lady Hallett: In fairness, Mr Sunak, you make a perfectly proper point: that this module is looking at the economic response but there were other things, a lot of other things the government was doing it in addition to the purely economic response?

The Sunak: But, as you said, all of which ultimately do have a fiscal impact. And it’s not just the economic things that have a fiscal impact, all of the interventions on public services, to support the NHS, all those have a fiscal impact too, and in the round, you know, of course that, in the long run, needs to be paid for.

Lady Hallett: I hope that fairly sets the context in which all of the decisions we’re going to examine were having to be made, not just in terms of the pressure to stand things up quickly and to adapt them as you go along, but also in terms of the, ultimately, hard decision to decide when to withdraw support so it doesn’t either undermine the economic recovery or become support that just can’t be funded.

So can we move on to looking at systems and structures of the –

The Sunak: Just before we do –

Lady Hallett: – of course.

The Sunak: – Mr Wright, I think, you have summarised the context very well. I think the only thing that we didn’t touch on, just to bring to life what that early period was like was – you will have got some of this from Andrew, but I’m giving it to you from my perspective – was just what was going on in the gilt markets at that time. And, you know, if I think back to that period which, as you said, was intense and filled with anxiety, certainly for me, you know, that was particularly troubling. I mean, you know, I’d been Chancellor for, you know, it felt like five seconds, and then you could see a very material tightening in UK financial conditions. And you had bank, you know, the first thing that happened was bank CDS spreads were widening, and the CDS spreads are, I kind of think about them as the insurance premium that people can buy to insure against a bank going bankrupt, right, or defaulting on its debt. So that’s the kind of the way to think about it. So the price for that insurance, the CDS spreads were widening, which is never a great sign.

And then you had, I think on March 18, it was the single biggest one-day change in real yields or something, since bank independence. So that happened one day. And then the next day there was another move where it looked like there was a bigger move for UK gilt rates than there were for other places, which again, is never great, and then you had a failed gilt auction. And that was the first time we’d had a failed gilt auction since the financial crisis.

And so one after another, these things were happening, and I think, you know, we’ve all, over the past couple of years, seen, you know, the importance of the gilt markets to the health of the UK, its economy.

Obviously, I come from a financial background so it’s something I have some familiarity with. You know, but that was, you know, acutely stressful. In the context of having to do all these other things, you know, I was sitting there, you know, worried about the UK’s ability to fund itself, and in the end we, you know, we organised with the Bank of England something called the Ways and Means Facility which I’ve talked about in my evidence which thankfully we never needed to use, but essentially is a back-stop for the government; if it can’t raise the money it needs on the bond markets it can go to the Bank of England instead for a temporary period of time.

And it was last used, again, in the financial crisis, but it’s a pretty, you know, exceptional measure. Thankfully we didn’t need it. But I think that was all in my head, of all the things that I was kind of worried about as well as, you know, figuring out furlough over here or loans over there and everything else, was that that was happening at exactly the same time, and to your point, I’m thinking, “Gosh, are we going to be able to borrow the money we need to put all these things in place?” I needed to have that in the back of my head, as well, because that really would be a disaster if there was a problem.

Lady Hallett: No, quite right you should mention that, and I had a little note saying, “Risk to markets” and we skipped over it. But don’t worry, quite properly that you mentioned it, and as you say, Mr Bailey touched on that. He justified the bank’s actions to go big and go fast, as he described it, on that basis, that there was a real risk to the markets, that there was significant market volatility, that there was a need to take decisive action, and that that would have been a very serious threat, had it transpired.

The Sunak: Yeah.

Lady Hallett: So all of this going on, in the background of your decision making.

Can we move, then, to really pick up the sort of systems and structures around that decision making, if we could. So moving on slightly in the list of topics. And I just want to pick up some sort of high-level concepts, really. And the first of those is that – I mean, generally speaking, do you agree that if it’s possible, accepting pace, speed, the need for confidentiality in different times, accepting all of that, where possible to bring together your delivery experts at the time of formulating policy, is a good idea, particularly when responding to an emergency?

The Sunak: Yes.

Lady Hallett: Yes. I didn’t think it would be one you’d say “no” to. So far as the Treasury was concerned, there was a very good example of that, I think, in terms of its relationship with His Majesty’s Revenue & Customs, and the policy partnership that we’ve heard a lot about, which is unique to those two departments, and probably because of how they’re configured; is that right?

The Sunak: Yes. Obviously, look, actually, I’m trying to think of the exact legal link – I mean, HMRC is a body of HMT, and it has a minister that it reports into, but obviously it’s operationally independent, and essentially is the delivery mechanism, for the most part, of most of what the Treasury does. So there is an existing relationship between those two departments.

Lady Hallett: Yes.

And that meant, for example, when you were looking to stand up the CJRS, you could have the delivery experts in the room at the same time as you’re formulating the policy, and that made it all deliverable quickly?

The Sunak: Yes, it was – it would have been impossible without, I’d – I’d go as far as saying that. There was an extraordinary team at HMRC, whom I won’t embarrass by naming them all, but, you know, we had that from the beginning. I think the perm sec at HMRC described it as, you know, a shared vision and a single-team approach, and – which I really felt that it was. And, you know, it’s normally not everyone’s, you know, favourite government agency, HMRC, but I can honestly say, you know, in this period, we were lucky as a country that they were able to deliver something as effectively as they did which, let’s be candid, I think most people thought that it wouldn’t work. In fact, you know, certainly at least more than one journalist told me afterwards they were all ready to write the stories about how the whole system would fall over when it went live. I certainly had a very stressful morning talking to all the IT people that day, I remember.

And so it wasn’t just that, you know, the policy and the delivery, you know, down to the, you know, thankfully we had a brilliant guy again, I won’t embarrass him by mentioning him – you know, to literally go through the, you know, the IT to make sure that it would stand up to what was going to be millions of people claiming and not fall over, and could do all the things we needed it to do.

All of that was part of, as I’ve said, a single team, there from the beginning, involved in everything, and it worked brilliantly well. And I said, I’m very grateful that that all happened so seamlessly. As I said, I wouldn’t have been able to do it without that.

Lady Hallett: Now, it worked that well, as you’ve described. The natural reaction might be to say: right, well, every government department should work with the Treasury in that way. Having been Chancellor and Prime Minister, I assume you’re going to tell me that wouldn’t work either, because it’s just not possible. It’s not how government is configured.

The Sunak: Look, of course, of course there, you know, government is configured in departments, and departments have their equities and that tension is not necessarily a bad thing by the way. It’s a healthy thing, for having done both jobs, you know, I wasn’t, obviously, Prime Minister during this period. It was important that the Prime Minister during this period, important for me as Prime Minister, to get those different department equities in the policy-making process.

But, you know, I would say, looking back, I’m pleased that we managed to, I think in large part replicate that policy partnership, I think is the phrase that you’ve used to describe it, particularly with DWP and BEIS, as well, in the areas where we were doing policy together with them.

So, you know, it wasn’t as intense as the HMRC relationship. Well, that’s because what we were doing with them was – was probably less intense when we were doing it. And we’ll come on to loans later. That obviously was intense.

But, you know, it was still, we created these – I think we called them “cells”, for – actually, I’m not entirely sure why, but someone came up with that name, and we had these cells and – and actually I do think it requires a bit of – I tell you about lessons learned and things; you know, one thing is it’s always going to rely slightly on the relationship with the ministers, is my sense. Unless they’re told something by the Prime Minister.

I was very fortunate – and I think you’ve had evidence from both of them – I had very good personality working relationships with Alok, who was Secretary of State of BEIS, and – and Thérèse Coffey, who was Secretary of State of DWP, and I think – hopefully, I think both of them would have said the same thing when they’ve been here.

So we had a good personal working relationship. That really matters, and – because if that’s not there, then the Prime Minister has to force you to do it, and that’s probably never perfect. So thankfully that is the case.

And then – and the teams take – because the teams will take a steer from that. You know, teams in other departments, they need their Secretary of State to essentially say to them, “This is okay, you can go off and have meetings directly with Rishi as Chancellor, and I don’t need to be on every single meeting, you keep me up to date and I’ll talk to Rishi.”

But that’s very practically what needs to happen, and –

Lady Hallett: Can I just come in there, because, I mean, you might be – say, well, the problem with that is: what if you’ve got two secretaries of state who can’t stand each other?

The Sunak: Well, in which case, as I said, it would require the Prime Minister to – to lean in and –

Lady Hallett: Well, he might not like them either.

The Sunak: Well, you know. [Laughs]

Lady Hallett: What I’m really getting at is, just leaving it to personality is just slightly dangerous, isn’t it? Don’t you need to bake in that, sort of, muscle memory of cooperation?

The Sunak: Well, I – you can bake in that muscle memory, but again, in my honest reflection, you might come out of this and say, “Great, there should be this structure stood up or that structure”, but it is – in reality, you know, it is going to depend a bit on personal relationships. We might prefer that it wasn’t, and you can, kind of – I mean this in the nicest possible way – structure your way out of it or create some process out of it – (overspeaking) –

Lady Hallett: Can I just give you a different perspective –

The Sunak: Yes.

Lady Hallett: – that isn’t about structures? But I think this is a point Sir Charles Roxburgh made – I mean, he was against structure, but he was talking about the point you’ve made: it’s up to the Secretary of State to really set the – the agenda and the tone, but that in the Civil Service there can be training for civil servants that can be focusing on cooperation and cross-departmental working. It doesn’t change structures, it just – that’s what I mean by bake it in – (overspeaking) –

The Sunak: Yeah, and I – look, and I – I do agree with that. And I think, look – sort of side – sidetrack, but – but it may be helpful. You know, one thing I’ve been – sorry, not being in government now, so one thing I – I was, and I hope is the case – was always positively struck by is the Darlington Economic Campus, that I – I established as – as Chancellor. And the reason I bring it up is, you know, that’s – it’s an interesting model, where multiple departments are in one building. And that is, you know, obviously – I don’t know really unique, but rare for how government functions normally.

The senior civil servant there is a – is a Treasury person, and – and Beth Russell has done an extraordinary job of – of, you know, leading, growing that – that organisation.

But whenever I was there, both as Chancellor and as – as Prime Minister – because I continued to work out of that office as Prime Minister, and always spent the time to walk around and talk to particularly the junior officials that were there – I was struck by, to your point, there was, I think, a greater culture of collaboration and cross-working, because probably just the physical set-up of that building is such that people are there from five or six different departments.

And – and I – you know, so they’re – they’re on the same football team or running club or, you know, quiz team or whatever it is, all of which I’m proud that they now, you know, have there, which is great.

So, I – look, I think there is something to what you’re saying. You can – you can do a good job of – of trying to just say that this is a good, sensible thing. Because obviously it improves policymaking in peacetime as well, so of course I agree with that, and – and supportive of efforts to foster that collaboration.

But in something like this, I would just – like I say, you do always need the secretary of state, because ultimately those civil servants work up to their secretary of state. And it’s important that they do. Right? I mean, you do need clear lines of accountability.

And so, you know, I think it’s important for prime ministers, you know, to be aware of where that might be an issue if – if they thought it was going to be an issue.

Thankfully, in this case, I don’t think it was. I think we worked very well with DWP. They – you know, they – their officials – Thérèse’s officials would be in the meetings with me. Similar for – for Alok’s. And I think both of them have – have said that they never felt there was never any issue there.

And those were probably the two departments which we worked most closely with outside of HMRC.

Lady Hallett: Can I ask another question about structures and systems, really about consultation. And I just want to pick up on a point that Dan York-Smith made in his evidence, and I’ll just read it to you so you know the point he was making. He said.

“I think in general, on everything, more consultation is better …”

I suspect that’s not controversial?

The Sunak: More consultation is better?

Lady Hallett: Yeah, consultation is a good thing, was basically his message –

The Sunak: Yeah – I mean, yes, but again, let’s –

Lady Hallett: Can I give you the “but”?

The Sunak: Can I do the “but” or you want to do the “but”?

Lady Hallett: Well, let me tell you what he said, and then you tell me if you agree –

The Sunak: Oh, right, fine, sorry.

Lady Hallett: He said:

“… but I think the context was such that consultation comes with a cost, in terms of the time that it takes, and the people required to do it properly.”

So we’re probably giving the same “but” here?

The Sunak: The same “but”.

Lady Hallett: “And particularly in the early part of the pandemic, we had to move very, very quickly, and so had we done additional consultation, that might have delayed … [implementation].”

And was that the trade-off?

The Sunak: Of course it is. That’s common sense; right? I mean, you’ve got consultation, all else equal, fine. But things are not all else equal, and we were in a situation where, you know, you – you said – you painted a picture of what we were grappling with in those early days, you know. I – I don’t know if Tim’s number is right, but knowing Tim, Dr Leunig, I’m sure his 55 hours probably is right, if Tim has done it.

But, yeah, at that – if you think about that, 55 hours, great, I mean you can, you know, take an hour to do something else, that’s quite a meaningful amount of your – you know, your time slot to get that thing done, and then you repeat that for everything else that you’re doing, so I – I agree with what Dan said, there is obviously a trade-off.

That said, you know, when we go through these things in a bit more detail one by one – I think you’ll find, and I think the evidence supports this as well, hearing and reading what everyone else has said – you know, there was a very good degree of engagement with all the relevant people in each sector, I don’t just mean industry sector, just whoever the right stakeholders were for a typical intervention, whether it was SEISS, whether it was CJRS, you know, whether it was Bounce Back Loans, whoever it – whichever it might be, whichever intervention, you know, I think there’s a whole body of evidence showing engagement with those people, and in most cases, they were all intimately involved in formulating and drafting the detailed guidance.

So it’s all very well I stand up and announce something, in broad parameters, you know, ultimately, you know, that has to then get implemented through quite detailed guidance, and all these people were involved in their various different ways in helping to draft that guidance, making sure it was workable, and sure, yeah, would some of them have liked more consultation? I’m sure. It was ever thus. And would they have liked it a bit sooner? I’m sure. But speed was of the essence and ultimately I think we got to the right balance.

Lady Hallett: Well, just in fairness to you, to, I hope, develop that with an example, if you look at SEISS, which went live on 20 April, the Inquiry knows from your statement that on 25 March, so almost a month earlier, you were having calls with the FSB, the IPSE, which is the Self-Employed Employers Group, and the TUC to discuss thinking on the design of SEISS, so this wasn’t bringing them in after it had been worked up, this was bringing them in early – (overspeaking) –

The Sunak: Yes.

Lady Hallett: Is that the sort of thing you mean; where you could, you were having those conversations?

The Sunak: Absolutely. Now, and actually – you mention the SEISS example and I remember that vividly because I think even the day before, I remember – or not the day before but the last few days as we were getting the policy exactly – we only had a few days so it probably might have been the day before, on reflection, but, you know, it was also the IOD, the Enterprise Nation and Creative Industries Federation, the Private Hire Association for taxi drivers. You know, there were several groups that I remember speaking to in the immediate days before and the team did, and it was like that on everything, you know, where, you know, where we could, where it made sense, of course, I wanted to hear from the people who were directly affected by this because ultimately there’s no point – you know, I’ve no interest in standing up and announcing things designed in an ivory tower that don’t survive contact with reality. That’s going to be self-defeating for me, right?

I not only need these people to make sure I understand about what they need, what will be most helpful, how do their businesses in particular work to make sure we can design these things properly; I want to make sure that they, you know, when you stand up and announce these things, we talked about reassurance and confidence, I want to make sure that they also say, “Thank you, great, that is going to work, and we can go and tell all our members they can breathe a little easier tonight.”

So, you know, there was simply no – you know, there’s no desire not to do that, you know, as I said, it would be self-defeating, so if it has not happened in the way someone wants it’s because, you know, we were moving at a speed that meant it wasn’t possible, not because we didn’t want to.

Lady Hallett: Can I pick up –

The Sunak: – (overspeaking) –

Lady Hallett: – a final question on that and then we’ll have to take the break, but in terms of, you’ve spoken about personalities of the secretaries of state and changed from time to time, and set the direction, but on that front, do you, having been through this, think that there is a need for formal systems and structures to ensure that consultation, or do you think it is something that has to be more organic? What do you think would be helpful? Because there’s the risk that people might drop through the cracks of consultation if there isn’t an established body of people who are talking each other in normal times?

The Sunak: Yeah, I mean I – look, I tend to think this works pretty well – or at least during my time in government, sorry, but, you know, it worked pretty well. I don’t – you know, when I look back on this time, I felt that my team in the Treasury were constantly talking to people. My advice was, and they knew I would want that, was peppered with, “We’ve spoken to this person, this person, this person” because they knew that I would ask: well, how is that person going to react? What is that person going to say?

And I was someone who, you know, quite, to use a slightly more investment term, focuses on the unit economics of things, and I don’t want to just design macro policy. If I’m doing something that impacts the hospitality industry, I wanted to make sure I understood, you know, what an average pub’s revenue and costs were, and they knew that that’s what I would want to know.

So, you know, my advice always had that information in it, and they were constantly out there talking to people, whether it was Charles having his, whatever, regular round tables with big businesses or all the team talking to all the trade associations and making sure we understood what their individual members were going through so we could get things right for them. That was very much the culture and the expectation from me.

So this is about sharing and getting consultation external to the Treasury, which I think is important.

I know there’s been some talk about, you know, economic, you know, do we have enough economic people? I always thought the economic analysis I received in the Treasury was superb, and we had a tonne of brilliant people there, and they were also very open to going out and getting the other things that they thought would be helpful for me to hear or where we didn’t have the expertise on something, they would seek it.

And then we would, you know, share that openly around Whitehall, whether it was with BEIS, whether it was feeding into Number 10’s weekly dashboard, and that all improved, and the one thing I should say, talk about structures, I think we covered this in Module 2, but clearly the creation of the Covid taskforce at the centre was a hugely welcome development, because it did kind of systematise, and meant that there was a good flow of information into one central place that could synthesize.

And then I think the Cabinet Office and Treasury ran weekly, you know, economy dashboards for the PM. We did meetings for him, monthly updates, et cetera. I think he in his evidence has said, you know, he felt the Treasury were open and transparent in sharing what he needed. His private secretary, I think in evidence, has said exactly the same thing.

So that’s my general view as to that topic and I know you’ve heard, you know, people’s perspectives on it, but my overall view was, you know, there’s a good degree of engagement and consultation, the culture, importantly, is one where they knew that that’s what I would have wanted anyway and all of them would have wanted the same because we wanted to get our things right, and then, you know, we were very open to sharing that particularly with Number 10 as they needed it, and the taskforce so they had everything they needed to advise the Prime Minister.

Mr Wright: Thank you.

My Lady, I think that’s time for the break, and then after the break I just want to finish off briefly this topic and then we’ll move on to funding for the devolved administrations.

Lady Hallett: Very well, you remember the breaks, Mr Sunak.

I shall return at midday.

(11.47 am)

(A short break)

(12.00 pm)

Lady Hallett: Mr Wright.

Mr Wright: Thank you, my Lady.

I want to move on to funding, as soon as we can, but there are two really further points I want to pick up about systems and structures. The first is about transparency and sharing of analysis, and if you bear with me, Mr Sunak, as I just give you the context to the question, really, in terms of other evidence that we’ve heard in the Inquiry.

We heard some evidence from Robert Harrison who was the head of the directorate general for analysis in the Covid-19 Taskforce. And he explained about an epi-macro model that the Treasury had, and the first he heard about this was actually, during the Inquiry when he read the evidence.

And James Benford accepted that, that the model had not been shared, describing it as a departmental position.

I just want to pick up on this. I mean, departmental position, in normal times, the Treasury, as a department, for good reason, market sensitivity, budget purdah, so on and so forth, has reason not to share its thinking. Is that reasonable, in government?

The Sunak: Yes, I mean, of course, there has to be a concern for market-sensitive information, yes.

Lady Hallett: Yes. And I’m not suggesting, but I want to check this, I mean, no one came to you and said, “Shall we not share this model with them”?

The Sunak: To be perfectly honest, I don’t quite know the specific model that you’re referring to or he’s referring to. There was an enormous amount of modelling done by lots of different people throughout the pandemic, and in any case, the primary responsibility for the modelling would have – the people who were pulling it all together was actually coming centrally from that Covid taskforce.

Lady Hallett: It was later in November, by November 2020 when Mr Harrison joined – came to the directorate general. But I’m just talking about earlier than that.

The Sunak: This model that you’re referring to presumably was after that, because I think in fact –

Lady Hallett: That model was later and the point was it wasn’t being shared and it’s just really this: you talked about, from your perspective, you were somebody who liked to see what people thought about things to get as much information as you can and to share information, and I’m just wondering if really, if you’d have been asked about this, would there have been any reason not to share it?

The Sunak: So it’s tricky just because I don’t know the precise model that you’re referring to. The epi-macro modelling that I do recall, having reviewed the notes, the Treasury, I think, to the extent that they actually had an event or a session with academics from Imperial and LSE, from memory, that was helped – partially organised by the Royal Economic Society to go through epi-macro modelling, and they had put together a kind of classic SIR model which is the epidemiological model, susceptible, infected, recovered and – I can’t remember the other, the R, and together with the NiGEM model which is the National Institute’s general economic model (sic), I think. But I think they’d actually had a full session on it, I mean, let alone not sharing it, it was done in consultation with a bunch of external academics.

So that’s all I can remember about the epi-macro modelling, I think in general, there was a lot of sharing of information, as far as I was aware, with the team at the centre, at Number 10 in particular.

Lady Hallett: I’m not suggesting, given the number of decisions you were making on a daily basis, that you would have any recollection of this or that it had even come across your desk, but really what I’m getting at is, when we are looking at a future emergency, and you’ve got – obviously analysis is important and sharing data is important. Would you encourage as much transparency as possible, in terms of data sharing, and sharing of modelling as between departments?

The Sunak: Well, I mean in general, yes, although I would – and I’m glad that was the case and I touched on this earlier and I think you’ve seen from the Prime Minister at the time, who said, in his evidence, that HMT was transparent in sharing economic analysis and his principal private secretary at Number 10, or one of them, also said the same thing. And I think you’ve heard that from the senior official at BEIS, as well. So I think that was happening.

What I would say is, you know, there’s a difference between a kind of, you know, workings and – as things are being developed and, you know, I don’t think you kind of say well, okay, here’s what we’re doing today, what we’re doing the next day, as you’re trying to figure something out. You know, whereas if you’ve got something that you think is helpful or sensible that is going to be relied on for decisions or policy making, sure. And I’m sure it would be, because why would you not want to, you know, if I’m going to go make an argument in a meeting or something about something, I’m going to base that on some analysis, I’ll want to be using it in the meeting where we have that decision.

But you work on lots of things all the time, that don’t end up getting to that point where they are useful, reliable, at which point I don’t necessarily think that every single thing that you probably worked on needs to be then given to everybody. That would be a bit odd, I think, and cumbersome.

Lady Hallett: That point is well made and accepted but I think you’ve really hit on the potential mischief of people not sharing analysis or the fact that they’ve got a basis for analysis, is that ministers, secretaries of state, will all have their own analysts who might be giving them analysis that is influencing their position on things, and others don’t know why they’re adopting that position, what’s informing that position, if things are being kept secret rather than being shared, and once they are worked up, once they’re being presented as analysis, do you – (overspeaking) –

The Sunak: The – if you think about it in practice, you’re in that situation as you describe, a minister’s got a point of view. You know, if someone said something in a meeting, and said, okay, well, if you do this then all these things will happen, I’m likely to probe it, right? And similarly, if I said something, someone is going to probe me, and I’m going to have to have the evidence or the analysis to back up my point and I would imagine the Prime Minister would say, “Okay, well, that’s interesting, that’s different to what that person is saying. I want to see that.” Or “Why isn’t that in my papers?”

So I think in practice it’s highly unlikely that anyone could get away with trying to promote some point of view or, indeed, make some decision or the Prime Minister make a decision based on something that they haven’t had the data for. So I think, in reality, I’m not entirely sure that would be a problem, as a general sense.

And look, I think there was – on modelling in general, my recollection of it, and particularly with the gentleman you mentioned, what I wanted was more the other way, because I’m someone who is comfortable with models and, you know, having spent a career before politics having to build them, interpret them, and use them to make decisions, so what I wanted was – and I think, actually, this is good reflection for the future – is: these models on these big things, you know, can’t be black boxes that are then just presented to politicians. And, you know, that was slightly my frustration, and we talked about this in Module 2, and I remember that gentleman when he was doing the thing and my strong point of view was what I wanted was to be able to understand the underlying assumptions that go into the model in the same way I would if I was analysing a company in my old life, it’s all very well projecting things to happen in the future or the model says X, the model says Y, well, that’s a function of the assumptions that have been fed into the model, and as policymakers, you know, ultimately, you know, these things are judgements. Those assumptions are judgements, and it should be for the elected politicians to be the ones that ultimately say, “Well, I want to see a base case where the assumptions are this, this, this and this” and, you know, because on each of those assumptions there will be reasonable people who can disagree, and in my view, there wasn’t enough of that earlier and that’s when my pushback – not my pushback, but my kind of desire at that point was: look, I don’t want to just be presented with a model that says this is what is going to happen; I want to be able to say, “Well, I’ve got a different point of view, which I think is reasonable on this aspect and I want to be able to – the assumptions to be reiterated and I want to see what it is.”

And I think that is an important lesson in general.

Lady Hallett: Accepting that, though, that is, isn’t it, an argument for transparency about the model that you are using? In other words, you can’t begin to probe the assumptions unless (a) you know about the model and (b) – (overspeaking) –

The Sunak: Yes, well, my point exactly is if anything, there wasn’t the transparency the other way. And that – my point was I was often presented from, you know, from the centre or you’d have a model that came out somewhere, and I don’t think it’s anyone’s particular fault but, for me, I wanted not just to be given a set of papers that said: well, here are all the projected outcomes on the path of the virus from some modelling exercise, I wanted to have had the ability to know, well, what are the underlying assumptions, and what’s the sensitivity analysis on those?

And look, that of course happened over time but as I said, I would probably have wanted more of that earlier and I think that would be helpful in the future.

Lady Hallett: Well, can I pick that up, then, because I think you’ve already said that you viewed the establishment of the Covid-19 Taskforce as being a good thing because it was a coordinating function through the Cabinet Office. We know that the directorate general for analysis was part of that, and our understanding of the directorate general is that what it was doing was exactly what you’ve said; it was bringing together all of the assumptions and models of different departments and presenting them in a sort of snapshot that said, “This is the range of opinion, this is where we are in terms of confidence” and laying that out. Did you find that a helpful approach?

The Sunak: From my recollection of it was that it needed some, you know, prodding and pushing on my end, and probably my officials, you know, because I’d asked them to, to get it to do exactly that, rather than being presented with slightly more “Here it is”.

I think it took a bit of iterating to kind of have that be the approach.

And again, as I said, that’s where the engine that was meant to pull stuff together was, but – and it was presenting the scenarios, from memory, but as I said, it took a bit of prodding to get them to adopt that type of transparent approach on all the assumptions underlying what was being – the assumptions underlying the output that was then in the slides.

Lady Hallett: If you get to the point of the roadmap, by then, things were starting to come together in that way, weren’t they, in terms of –

The Sunak: – (overspeaking) – yes, I forget the exact date that the taskforce was created but I think, not to cover too much old ground, it definitely was a helpful thing.

Lady Hallett: Right, okay.

The Sunak: I mean, not least because, again, it’s a small point, but I think Treasury is used to working with the centre, with the Cabinet Office and Number 10. I think, you know, even if there’s not a formal structure, there’s a lot of muscle memory about those three bits of government working together. You know, DH is less used to that. Probably institutionally. And that, especially, is why this taskforce function was – is so important because it properly made sure everything was getting joined up at the centre.

Lady Hallett: Okay. Thank you.

Can we move on to the next topic: funding. And in particular, devolved administrations funding.

Now, helpfully, you’ve been both Chief Secretary to the Treasury and Chancellor of the Exchequer, so you’re probably well placed to answer my first question, which is, essentially, who makes these decisions on devolved administration funding? Is it the Chief Secretary to the Treasury or the Chancellor, or is all this done in conjunction, in terms of the actual allocations?

The Sunak: I think it’s probably quite a broad – a broad question. In normal times, much of this is mechanical.

Lady Hallett: Through the Barnett formula?

The Sunak: Yes, which I, you know, which is a big – big topic –

Lady Hallett: Well, we’re not getting into that topic, so –

The Sunak: Yeah, no, but there’s a – you know, there’s a mechanical way in which funding for the devolved administrations is allocated as according to a set of formulas where, when UK Government, even in peacetime, you know, has a regular budget, that will trigger a set of funding conventions for Scotland, Wales and Northern Ireland according to this set – set formula, and that has been the case for a long time.

Typically, the Chief Secretary to the Treasury deals with the DAs on a day-to-day, week-to-week basis. That wouldn’t be the Chancellor, so I did that as CST. And that – that continued. So they’re the primary person that has meetings with the finance ministers, the quadrilateral group – it’s called Finance Ministers’ Quadrilateral, FMQs, they happen on a periodic basis. And I – again, it’s out of the scope of this, so I’m jogging my memory here, but I remember, as CST, I was having conversations with the various finance ministers about – you know, there’s always things that people are looking to tweak or improve about the various mechanisms that govern funding, borrowing between the DAs and – and UKG, so I – I remember having meetings like that on – on those issues during that time.

Lady Hallett: Now, we know and we’ve heard evidence about how the usual funding frames were developed during the pandemic, the introduction of the Barnett guarantee for the devolved administrations. I just really – I don’t want to spent time with you going over ground we’ve covered with Mr Barclay, and – and others, but I just want to, given you’ve done both jobs, just pick up your view about a future framework, please, if we can.

And essentially, the Inquiry’s expert, David Phillips, has suggested there should be essentially a combination of guarantees and/or some capacity for borrowing, additional borrowing for the devolved administrations, but for that to be determined on an ad hoc basis, depending on what the nature of the future emergency is, and how it develops. Where do those propositions sit with you, having performed both functions?

The Sunak: Again, I’m quite loath to be prescriptive, because I think every shock is – is likely to be – to be different, and require –

Lady Hallett: Pausing there, he’s not prescriptive, he’s suggesting it should be ad hoc.

The Sunak: Well, I – so I’d tend to – to agree with that – that sentiment.

I think my overall reflections are, I think certainly on the economic side, the vast majority of the economic interventions were UK-wide. So I think it’s just – you know, of all the things we’re likely to discuss today and tomorrow, with the exception of grants, all the other big economic interventions, you know, Universal Credit, furlough, self-employed, all the loan schemes, Statutory Sick Pay, rebate scheme, all of those were UK-wide interventions. So I think that – and I think that was a good thing. I think that was appreciated by the devolved administrations, and there’s lots of evidence from them about, I think, their appreciation for those and the reflection that they could not have delivered those themselves.

It reflects the benefit of the UK Government and – and having the benefit of the UK Government balance sheet at times like this, because I think that would have been probably difficult otherwise.

So that’s the first thing. So lots of the funding really relates to that other half of the spending that we talked about at the beginning that was on public services, less than it does the economic interventions, but so it’s important to have that distinction so we know what we’re talking about.

And, look, my approach is, then, and I think probably – I think the upfront guarantee is a – is a good balance between the various considerations. You know, it’s obviously helpful thing for Scotland, Wales and Northern Ireland’s governments, administrations, to have some certainty about – about funding, rather than have to wait for the announcement. Clearly, that is of benefit. I recognised that, which is why we did that the upfront guarantee, and you heard from Steve about that. We increased it multiple times.

And that balances the – the need for the UK Government, though, ultimately, to have control over UK Government borrowing and debt. All right? You know, UK Government politicians are elected, they are responsible and accountable for our (unclear) borrowing and debt levels. We – you touched on it in the previous session, ultimately I was making the decisions about what to spend and therefore borrow, and then I had to take responsibility for making sure that we paid that back and standing up and explaining why their – people’s taxes were going up after the fact.

So, that – that’s a hugely important part of democratic accountability and those are hugely important decisions. And it’s – you know, I think the UK Government at – whenever it is can’t outsource to anyone that.

So what the guarantee does is give that flex but still provide the government with, kind of, overall control over the total quantum.

And borrowing, as you said, is the other way for that to happen. Now, we did do that in the pandemic, and we increased the borrowing flexibility. We – we allowed more flexibility on what are called CDEL to RDEL switches, where devolved administrations have a budget for capital expenditure and day-to-day expenditure and normally you limit the movement between those for various reasons, but we said you can – you can do more of that, and there was more flexibility about carrying forward from one year to the next.

So it’s not just borrowing, there are – there are a few other flexibilities that UK Government can deploy, that, again, fit within the overall framework of UKG having oversight accountability for what’s happening to the balance sheet, but providing, where it can, that extra degree of flex to devolved administrations so that they can, you know, respond in – in the way that they want.

And I think – and I think your – the expert, he said – I think his general view is what we did – did allow – I think he said allowed them to respond effectively, and I – and I think that is – that’s broadly right.

So the balance we struck I think is right, and I think that would be my starting point for someone who had to do this in – in the future as well.

Lady Hallett: All right. Thank you.

Can I just pick up one other issue about devolved administration funding that really stems from your explanation, quite – quite proper explanation, that most of the big interventions here were for the UK as a whole, and you spoke about CJRS. And I think, just – the emergence of Omicron perhaps provides a basis for – for exploring this point, and there was an issue about reinstating CJRS, given the emergence of Omicron, and you had some advice about whether, if the devolved administrations mandated premises closures before the UK Government had, they should be able to access a CJRS scheme if it was re-stood up before England had moved to those restrictions. And your decision, ultimately, was no, they shouldn’t be able to access the scheme.

So the position was that if Scotland locked down two or three weeks before England, say, then employers in Scotland wouldn’t have had access to the UK-wide scheme in that period.

Now, in this pandemic, things were symmetrical, more or less –

The Sunak: More or less.

Lady Hallett: – in terms of impact, so I’m not really making this point as a critique of what happened here, but, of course, going forwards, if there was another pandemic, it might not land in that way, it might be asymmetric in its effect.

And I just wonder if you have any reflections about how you would square that circle. You know, UK-wide decisions, but what if there’s that asymmetry to the pandemic?

The Sunak: Mm.

You know, I – a couple of broader reflections, actually, just to finish up from the last one as well. It’s – one of the things that, you know, was brought up, was – you talk about asymmetric responses in – in general, we’ll come to CJRS, I – now, look, people will have different views on this, but, look, the Bar – the Barnett formula is – you know, does provide more per capita funding to the devolved administrations than for England, in the first place. Right? So it’s, you know, roughly, depending on – the IFS to have probably the best source, but I think they would say £1.25, £1.30 for each pound spent in England, Wales is about £1.15.

Now – so, in any case, there’s more funding per capita going, one might argue. Even if it’s a symmetric shock, there’s asymmetrically positive funding going. Now, the response to that would be: okay, well, base needs are potentially higher. Now, that is to open up a, you know, long-standing point of debate. Independent commissions in the past have assessed relative needs of the DAs, and although we’re obviously not reopening the Barnett formula here, it’s kind of relevant for thinking about this in the future.

Now, the general sense is – and I say this generally, and not to open up a huge can of worms – is I think generally, from what I – and again, I’m a little bit out of date – I think generally the sense is that we – we’ve put a floor in for Wales, so the funding uplift roughly matches their extra need. So that’s quite well matched.

I think, from memory, there is a sense, from the last time this was looked at, is the funding that goes to Scotland is in excess of their measured need.

Now, again, I – I haven’t got the most up to date figures, so – so whoever is in this job is – the starting position is in, you know, there is the UK – kind of, UK Government, UK balance sheet is in any case allocating more money, potentially, than need in the first place because of the Barnett formula. So that is something that will, in any case, need to be thought about in any response about asymmetry and symmetry.

Now, of course, Scotland and Wales, if they want, also have the ability to do their own tax raising. You know, we talked about borrowing, this goes to the heart of this thing. Now, I, as UK Chancellor, had to stand up and, you know, as you’ve said, make all these difficult decisions about raising taxes to pay for the pandemic support, because I thought that was the right thing to do to get our public finances back in order. I obviously didn’t – you know, I didn’t love doing that. You obviously – you know, there’s a political price that comes with these things. It is what it is. That was the right thing to do, I wanted to do it.

But you can see there where the tension is, right?

And that – and that – ultimately, if – if the UK Chancellor is the person who has to – and the UK Government is carrying the political consequences of borrowing fiscally today and then having to deal with that tomorrow, it’s quite tricky to then say: we are happy to give carte blanche to whoever it might be, you know, without thinking through that implication.

I think that’s very natural. I – and you say squaring the circle. I’m not sure there is an easy way to square that circle. There will always be a slight tension there.

Now, one way to square that circle is, as your expert said, is, well, you know, the DAs can do something, they can borrow from the UK Government, which will be cheaper, and then pay it back over a period of time, and maybe that is something that could be discussed at the time. Now, look, that maybe is an option. It’s still, you know, that would all have to be worked out, but I think that would, you know, that was not something that when I recall this period, it never felt like that – that wasn’t, I think, something that was put to me; it was more just “This should just be done.” Not “We are happy to pay for this because we want to do something differently, and this will be paid”; it was a different type of conversation.

And I think, in the future, whoever is having to deal with this will have to just think through that, think through that question.

Lady Hallett: So – and I don’t want to, for a moment, put words into your mouth, but really, I think you seem to be saying: Retain flexibility, retain an ad hoc ability to respond to the particular emergency with a number of factors on the table but you’re making the point there are – there’s a lot lying behind this that also needs to be factored in.

The Sunak: Yes, I think that’s a good summary. And, look, the UK Government always has the ability to do things asymmetrically and has done in lots of different – whether it’s a bespoke case of a business in distress or something else, the UK Government has always done that in all DAs and can do. I’d slightly differentiate between things that potentially are very open-ended, you know, open-ended financial commitments that other people are making that the UK Government is – that’s would, you know, that’s – no one in any walk of life would treat those slightly differently to something that has a fixed cost.

Lady Hallett: Right, thank you very much.

Can we move on then to the Coronavirus Job Retention Scheme as a topic, now moving into particular schemes. And just by way of context the Treasury, HMRC, final evaluation, concluded it was good value for money with a positive net benefit to society of £50 billion, the economic output would have been 1.8% lower in 2021 without the scheme, it saved 4 million employments, and 20% of employers who used the scheme, so it’s about a quarter of a million, would have closed permanently without the scheme. And I just want to give that context, for the questions that follow.

And in fairness, I’ll just ask that this is put up, INQ000588209. This is from the Inquiry’s listening exercise Every Story Matters. Page 107. This about the extension, but it’s making the point:

“I think the extension was a lifeline. It gave me peace of mind knowing I had some income coming in.”

So there has been generally positive evidence received by the Inquiry about the scheme.

Now, I think you mentioned this earlier, Mr Sunak, but there’s also evidence from our expert Mike Brewer that as a scheme, it also worked well in terms of reducing what could have been an increase in inequality because of its preservation of jobs. So we take all of that on board.

Can I ask you about engagement. I think there was heavy consultation between the Treasury and the Trades Union Congress, is that right, about this scheme and standing it up, and with business indeed?

The Sunak: Yes, not just the TUC, who, you know, we had, probably somewhat surprisingly, but we had a very good close working relationship with Frances and with Kate throughout the pandemic, particularly at this phase, but also with the CBI. And obviously those were the two big organisations representing business, representing union labour.

But beyond that, we were constantly talking to lots of other business groups, as well, whether it was the BCC, the FSB, and in particular on furlough. I think the engagement – there was a lot of engagement, which I put in the evidence but it’s important, with all the various bodies of accounting and taxation, all of whom have acronyms that don’t immediately spring to mind but Institute of Chartered Accountants and things like that, because there was a lot of technical detail to get right about the guidance and how it would work and what needed to be on the form and how people’s payroll systems would interact with it.

So, you know, that degree of detailed guidance that people don’t always see was incredibly important. So yes, of course there was TUC and CBI engagement and that gets a lot of probably the headline attention but, actually, all those expert bodies and accounting firms that helped get the mechanisms, the guidance, the execution, right, so this thing worked legally and operationally for businesses. It was equally as important.

Lady Hallett: Yes. I mean, you talked about journalists who were waiting for it to fall over, but is that the point: that it was not just devising the scheme but also making sure it worked –

The Sunak: Yes.

Lady Hallett: – operationally it worked?

The Sunak: It worked – operationally from a, kind of, IT perspective almost, but also just practically and administratively for businesses, and how, you know, the information they would need to provide, how their payroll systems worked, how HMRC could interact with everything it needed to. And so all those bits needed to, and, as I said, the kind of overall policy, once it was designed, in one sense was actually quite simple and that was one of its appeals, I think. But then it – underneath that was a lot of detail that needed to be worked on.

Lady Hallett: Can I pick up on that point about simplicity in terms of design. We heard a lot about this from Dr Tim Leunig, that one of the – he viewed one of the beauties of the scheme was that it was so simple, that that was one of its great virtues, certainly when it was introduced in March 2020, and is that how you viewed it?

The Sunak: Yes, I think this will be – it will be a recurring theme, I would imagine, of today and tomorrow. We go back to those overarching things that I talked about at the beginning, and complexity helps you target more effectively, is better value for money, better for ensuring the economic outcomes can return more rapidly and more efficiently, et cetera, better for – we’ll get into, I’m sure, fraud and other things, obviously it will help with all those things. What it doesn’t do is allow you to move quickly, and it is very much the enemy of speed and as we’ve talked about, speed was of the essence at this time.

But the other thing that simplicity has, and universality has, is to help you with what I talked about at the beginning, about the overall reassurance, and, actually, to be able to stand up and say: this is what the government is going to do, whether it’s on this or the other things that we’ll come to later, which people can just easily understand and has a simplicity and universality about them, I think is probably underappreciated benefits for providing the overall kind of macro reassurance and confidence to the country, as well as operationally just being quicker and easier to deliver at pace.

So I think that’s the other benefit of simplicity.

Lady Hallett: Does that, in a way, minimise the danger, that you announce something and then people go to it and find they actually don’t qualify, they actually can’t apply because there are all these rules and requirements –

The Sunak: Yes, I think – and obviously the simpler you can make it, and as I say, as anyone can easily understand, then the better. And what you really wouldn’t want to do is have too many situations where people hear one thing and then, actually, it’s very different. So that’s – again, that tends towards universality. If you’re trying to have a big moment, talk to the country, give them, you know, a degree of reassurance – if that, you know, if that press conference just read like a whole long list of T&Cs at the end of an advert, it would probably undermine what you are trying to achieve, so if you have too many of those T&Cs – and again, they would help you for other things but they would undermine the overall objective of just providing that reassurance and confidence, as I’ve said, as well as making it far less likely that you could deliver it quickly and effectively, and it would work.

Lady Hallett: And as you’ve told us at the outset, February, March 2020, speed was really important, and therefore standing this up in 55 hours was important. But you yourself, you’ve spoken again about the iterative approach to these things. Once it was stood up in that simple universal way, you’ve also got to wear the hat of the nation’s bank manager and make sure that you’re living within your means, and did you yourself or were you concerned to see okay, we’ve stood this up, it’s been stood up in a simple way but can we actually now refine it as it goes to see if we can do some targeting, and if we can make sure that it is targeted and therefore better value for money?

The Sunak: I – I mean, look, this is the – this one of the grey bits of kind of, in my head, you know, kind of quandaries. I, you know, we spent an inordinate amount of time over the summer iterating a more targeted version of furlough, and hours and hours of work to do exactly that, on the basis, then, that, you know, we were moving to a different phase of the pandemic, we weren’t anticipating second, third, national lockdowns, et cetera, and trying to figure out how to do a more targeted version.

Because of course, as you’ve said, you know, if there were ways to get help to the people we want, but minimise the cost and make it more economically targeted to help the recovery of economic activity, that would be preferable. And I spent an enormous amount of – you know, my kind of intellectual time on this topic with the team at the Treasury and we did develop something called JSS which never saw the light of day because we ended up in another national lockdown and –

Lady Hallett: This was the Job Support Scheme?

The Sunak: Job Support Scheme, yeah, which had a kind of open and closed version. I have heard lots of people say, well, if you had better data, you can target, and I’m genuinely not convinced that even with better data, with all reasonable better data that could now be collected, that it would be able to design an effective, targeted version of this. And –

Lady Hallett: Can we hold that thought –

The Sunak: Fine –

Lady Hallett: Because I really want to develop this –

The Sunak: Yeah, sure.

Lady Hallett: – and understand it, because I think, you know, you spent a lot of time in the Treasury thinking about this, and looking ahead, it’s important it is considered.

The Sunak: Yes.

Lady Hallett: But first of all, can we think about how you – let’s leave aside the practical difficulties and everything else, how you might think about targeting.

The Sunak: Yes.

Lady Hallett: I mean, there are lots of different ways.

The Sunak: Yeah.

Lady Hallett: You might think about, what, companies that are affected by NPIs?

The Sunak: There’s kind of three main ways. One is sectors, so you can target by sector. The second way is to target by NPI, to your point, kind of closed, open. And then the third way is by looking at impact on revenue, and there are different tunes you can play on that, to use the Treasury parlance, of whether it’s backwards looking, whether it’s concurrent, or – and things. But those are the three main ways that one could think about targeting. And there are problems with all three and advantages of all three which I’m happy to dig into, but those are the three different approaches that one could take.

Lady Hallett: Can I thrown in a fourth for your consideration?

The Sunak: Yeah.

Lady Hallett: Though you may be including it, I suspect, under businesses targeted by NPIs, and that’s geography.

The Sunak: Yes. I’m including that in – because, obviously, the – and – I mean, this was the big Module 2 discussion, and like I say, you know, the – all of the geographic – or the geographic stuff, on reflection, I did not feel like that was something that would necessarily be repeated, I don’t think. But in any case, that is, yes, I put that in the NPI bucket, yes.

Lady Hallett: Exactly –

The Sunak: If I was going to say a fourth, it’s slightly different, but those are the three what I call targeted things. What we ended up doing is a form of targeting, but it’s not quite targeting, which is what we did do is what we call tapering, which is changing the generosity of the support. So our answer to this question, having concluded – or my answer to the question, having concluded that there wasn’t a way of targeting that I felt comfortable with, that I thought was right, we ended up doing what I called tapering which is where we raised the cost to employers in a universal way of participating in the scheme, which has the indirect benefit of – for those that don’t really need it, you know, it probably on the margin makes it more likely they don’t use it as much because you’ve used – you’ve raised the cost to them.

And that, I think, broadly worked quite well, both times that we tapered out. And so that is – as I said, it means that is not – it’s still universal but it was – the generosity of the scheme was designed in a different way to just raise the cost to employers which helps target by self-selection, in a way, at the cost of some people having a burden which, you know, for them might be a bit more difficult than you would like.

Lady Hallett: Let’s just pick that up and then we’ll look at the other three principal ways that you sort of looked at and I think have settled on saying you reject, but this first point about tapering. I think this was a point that Dr Leunig made in reaction to the suggestion it wasn’t targeted, he said, “Well, no, it is targeted, furlough was always targeted, because it’s self-targeted in the sense that you assume that business wants to make money –

The Sunak: Yes.

Lady Hallett: – and it wants to make a profit, otherwise what’s the point of being in business?” So it’s in the interests of employers to bring their staff back when they can and they can be profitable, therefore it is self-targeted in a sense.

The Sunak: In effect, yes. Although, look, obviously, you are – and I think Tim would agree with this – he’s right, what you are doing is introducing something that alters the pure behaviour or response of a business because, you know, there’s this other thing that you’re doing and on the margin that probably means that someone, where the business could have absorbed a cost reasonably and just dealt with a bit of reduced demand, some of that cost has now shifted on to the taxpayer balance sheet, the business is maybe not as productive as it otherwise might have been, and that is the inevitable consequence of – but he’s not wrong, of course it is self-targeting in that case.

Lady Hallett: Yes, and I suppose it might depend on what the nature of your business is in terms of whether you’re more or less inclined to bring people back?

The Sunak: Yes.

Lady Hallett: If you’re talking about a manufacturing sort of model you need people in the factory to make widgets, therefore you bring them back when you can make money?

The Sunak: Widgets, yeah.

Lady Hallett: All right. So let’s leave that there, in terms of the extent to which it was targeted, and you’ve spoken about tapering.

But let’s look at the other options, because I really want to be forward looking here.

The Sunak: Yes, yes.

Lady Hallett: Because next time, someone else might say, “Well, could we target a scheme?”

Targeting by sector. Why was that considered and/or rejected as a prospect?

The Sunak: And I think, just to clarify what I previously said, I don’t necessarily reject them, that’s probably too strong a word. I – there is a reasonable case for all of these.

Lady Hallett: Yes.

The Sunak: And in – you know, it won’t be me doing it in the future, so whoever is there might – might choose reasonably to do something different. And fair enough. I don’t think that’s an unreasonable proposition. I – my reflection is I think someone in the same situation as me, even in the future, will probably end up doing the same thing, but – for the reasons we’ll go into.

But I – I’m not saying I necessarily think it’s a bad idea, I just think the benefits are probably not outweighed by the costs. And indeed you – you’ve heard other people use that – that phrase. That’s where I probably personally end up on it, not to say that someone couldn’t reasonably take a different point of view.

So, do you want to start with sector? Yes.

I think that we don’t have – the government doesn’t have a database that has every business attached to a sector, in the first instance. Now, you could probably develop that. Sector is quite broad. Then you need subsector, third sector, et cetera. That all gets a bit cumbersome.

So, we didn’t have anything like that, so it would have all been self-declaration anyway.

And then – and then you need to figure out, well, how are the NPIs impacting each sector. And say: this sector is in, that sector is not in.

And sure, easy, restaurants closed. Great. Well, if your sector is hospitality, subsector is restaurant, tick. Okay, you’re the person who provides the uniforms for the – the people who work in the restaurant. You know, so your subsector is something else, right? You know, textiles or, you know – and then your subsector is, you know, whatever it is. You know, are you in? Are you out?

You know, trying to figure all of that out is incredibly complicated in a modern economy.

And then no one is going to be binary. Even the restaurant is 100%, zero, lots of other things as well, “Part of my business is serving this sector, part of it is serving another sector”, part of this sector is impacted, part of it is not. I – so I just don’t know if you could ever accurately figure out: well, these sectors suffer enough economic impact from the NPI so that “These sectors, tick, tick, tick”, “These sectors, no, no, no.”

And then even if you’ve got a firm, firms operate in different sectors, and then you’ll end up with all these different problems of, “Well, half of my business is” – my workwear example, you know, “Half of my business is serving this manufacturing uniforms, they’re all still operating, half my business is serving the restaurant industry, they’re all shut. Am I in? Am I out?”

Have we captured them even in the first place because we’re focused up here on hospitality?

So, look, that – that’s the thing with sectors. So even if you had the data, which we don’t, it’s not obvious to me that you would end up knowing and getting it – you could – you could do – you could clearly do a – you know, you could do a job. You would spent all your time talking to all the businesses that were not included, is my sense, and it’s just – the complexity of doing that for a million businesses, I – I just think, in reality, is probably not one that would work –

Lady Hallett: And it –

The Sunak: – personally.

Lady Hallett: – it sounds like the answer to that is not in better data –

The Sunak: Exactly.

Lady Hallett: – because of this, sort of, supply chain issue –

The Sunak: Exactly.

Lady Hallett: – the interrelationship between all these different businesses?

The Sunak: That’s my sense, as I said. Look, we don’t have the data – or we didn’t have the data then, so someone can decide whether it’s worth doing it. My instinct is, even with the data, that’s probably not what a policymaker in the future would – would do. But, again, reasonable people could disagree on that point, and that would be fine.

Lady Hallett: Okay. Financial impact?

The Sunak: Again, for us, there’s no way to check. Right? We had no way to – for us, doing it at the time, at the beginning, we didn’t have a way to check so it would all be self-declaration.

What we did have was only for VAT-rated businesses, which have to provide that information. But for –

Lady Hallett: Just pausing there, Mr Sunak, we’ve heard some evidence, I think, that the threshold is about – somewhere in the 90,000 –

The Sunak: Yeah, 95 I think, from memory, yeah.

Lady Hallett: So a lot of businesses wouldn’t be –

The Sunak: Lots of small businesses were not registered for VAT. I think 40 – something like – it seems a high number, but a large chunk of the businesses that used furlough were not VAT registered, I think. So, again, you know, they – you had no way to verify in any way on that data. We’ll probably get into it on – on some of the future things.

Now, look, in general, I think it would be a good thing for the government to have more regular income data. We’ll get on to it for self-employed and for businesses. That is now happening through Making Tax Digital. So, again, not everybody loves that, but, you know, that’s a good starting point for having more regular revenue data collected. So you would probably have some of that.

The issue is – there’s two different things, is – one is, if it’s backwards looking or is it contemporaneous with what’s happening and then picked up in the future, it can create some quite odd behavioural incentives. So you’re saying: we’re going to give you support if your revenue is low. And then you’d have to think through whether, economically, that is a sensible thing.

Now, clearly, for some people it’s fine because you’ve shut them down, the revenue is zero, nothing you can do about it. But for the people who could, if they innovated or iterated, you’d want them to produce.

And I take Tim’s point – Tim would agree with this – we saw this improve over the pandemic. Right at the beginning everyone just hunkered down and shut down, and we then spent time saying: well, hang on, actually the rules allow you to do this type of activity, or you can – you know, you can shift your business from doing sit-in to delivery and take out.

It – like, you want that type of economic activity to happen, and – and so having things that, kind of, reward almost not having that revenue would behaviourally worry me a little bit.

And – and then, if you were setting thresholds, which – which, ultimately, you know, we did for SEISS, you know, you – you’ll inevitably get the question: well, how much revenue decline is enough to – to qualify for the thing?

Which, again, you’ll just have to pick a thing. It won’t be perfect. And people have revenue declines for NPI-related reasons, some people have revenue declines for non-NPI-related reasons, so it’s not perfect anyway. But I think – and, operationally, doing all of that is – would be fiddly. Verifying it would be fiddly and then the behavioural reaction to it would be something to – to think about.

Again, none of this is in – you could do a version of this. It would not be an unreasonable approach to take. Like, these are not binary “yes or no” things. Again, it’s just – it’s complex and it’s imperfect. So you’re – you’re just switching one degree of imperfection for – for another, and you’re losing the universality and speed, and therefore you just have to weigh those things up, and then – and then NPIs is the third thing.

Lady Hallett: Yes, NPIs is the third. But just before we come on to that, just a point that I’ll just put to you now, but also you’ve spoken about how rapidly developing this pandemic was, and changing over time. Is that an argument against targeting of the sorts we’ve discussed and we’ll go on to discuss? Because you might have to change the target – it’s a moving target, in other words?

The Sunak: It’s – well, and that was – I mean, that was our experience over the summer and the autumn, where we actually designed a targeted scheme and then, as the health situation deteriorated and we ended up anyway with a national lockdown, it didn’t – it didn’t make sense to do that, and we went back to the original CJRS.

And that goes to the third bucket actually, which is the NPI one, which is exactly to your point. The – the issue with that is, it slightly is the same set of issues we discussed with the – the sector-behaviour approach, is: okay, NPI shuts down a nightclub or it shuts down a hospitality or large event, that’s – that’s fine. But all those businesses have a supply chain behind them. And how – you know, then you end up in the same place. And it’s pretty binary there. It’s …

Which is what JSS was. It was: if you’re closed, then fine. But then we had an open version, so we had a kind of softer version. It wasn’t if you were – because – for everyone else, where – you know, that was – the supply chain business was still going to get some support but they were going to get less support than someone who was totally closed. And that – and that is where we ended up. And we never introduced that scheme. It’s the best we could do.

But even then, I tell you, the amount of hours we spent, days of trying to figure out how we would detail the guidance for what – even what business is – is closed because part of the business was closed. Garden centres, I think, were kind of case in point and – you know, the café bit of it was closed but the garden centre bit was open, and things like that.

So, even there, we were trying to work through all this detailed guidance and it was not going to be easy to deliver in practice, I don’t think. So – and on the geographic side, again, it sounds simple, but lots of businesses that were not in that geographic area that was subject to the NPIs would be impacted by them because they’ll be part of a supply chain, and trying to pick all of that up would be – well, you would lose it if it was geographically concentrated. It would work for a certain group of businesses but then it would miss lots of others too.

So again, none of these are unreasonable. We ended up developing one – so there’s – because your overall point was right, and I cared about trying to figure out if there was a better way to do this, is there a more targeted way that would save us money and help economic activity return? And so we developed one, the best we could, as I said, it’s not obvious to me the benefits of doing any of these things outweighs the costs, it’s – when you’ve got tapering as a kind of different way to do something similar.

Lady Hallett: Can I just pick up with you a few other –

The Sunak: Yes.

Lady Hallett: – potential design points, I think more for a future emergency than for Covid. Just, they’ve emerged in the evidence, and just to appreciate your reflections on them. One came from Dr Tim Leunig again, which was the proposition that you should publish from the outset a list of recipients of the furlough scheme?

The Sunak: You know, I think that is not unreasonable. We did that later on, I think in November we introduced that. And next time around, you could do that from the beginning. I mean, I’m trying to think why people might not like that but I think we did it in general because it – at least employees then knew, and it’s one way of combating fraud, which in any case in the overall scheme, you know, fraud was much lower than people thought and in line with other government programmes developed in peacetime.

But again, the employees, notifying employees that they’d been furloughed and then seeing the employer, it all just helps with that to make sure that there isn’t fraud there. So that would be not an unreasonable thing to do from the beginning.

Lady Hallett: And is there another point that it might discourage companies that don’t really need the money at all, they’re just making –

The Sunak: Yes, and I think Tim spoke about this. There were obviously a set of companies that made a decision that, you know, they were going to pay the money back because things were – turned out better for them than they thought it would be, and it’s enormously to their credit that they did that, and saying, you know, lots of people want to have a go at business lots of the times, you know, those businesses that did that deserve, you know, praise and gratitude. They didn’t have to do that. Lots didn’t, but they did and as you said, as the country’s bank manager, I’m grateful that they did.

Lady Hallett: Having part-time furlough from the outset in a future emergency?

The Sunak: I think, again, reasonable people could disagree on this. It’s quite hard to police, and I think the nervousness would be, does it incentivise people to, on the margin, have less economic activity than they probably could or should? And I think that is – it’s just a choice in a trade-off. It was, you know, I think the first lockdown in any case was so binary that it didn’t make a massive difference, I don’t think, in this case.

Maybe that will be different in the future. It’s easier – it was easier to implement it later and not worry about what I worried about because at that point you had a fixed population, so it applied to everyone who had been furloughed already. So you knew that you were not on the margin making it more likely that someone would kind of put their employees down to part-time when really they should just have to manage that in their business cost and not send that cost to the taxpayer. So it was an easier thing to do later.

It was a big ask from business especially. FSB, I think, were particularly vocal about it, and it worked well and it really helped get economic activity back up.

I don’t have a strong point of view on whether it could or should be done from the beginning. I don’t think it made a big difference in this instance, and again, it’s a trade-off, really.

Lady Hallett: This was some – an idea that emerged from the evidence of Kate Bell on behalf of the TUC. The proposition that employers should be required to provide training to employees during the period of furlough to prevent deskilling of the workforce. How does that – I’ll give you an example. If you’re a baker, or to use Dr Leunig’s example, you’re a patissier and you’re making choux buns, I think was his example, you can’t do that but you might do some health and safety training or training about hygiene in the kitchen or if you’re a barrister you can’t go to court but you might do your CPD points. What do you say about that sort of –

The Sunak: Yeah, I know that sounds fine. I mean, it depends how much of a burden on the employer it was, is my instinctive answer, and we’re getting into, kind of, micro policy development so.

I think the whole point is here businesses were under – lots of small businesses were under enormous stress. We all thought – well, we were worried that they were about to go out of business and the whole point about this thing was to ensure they didn’t have to lay off all their employers because we wanted to protect that job match and protect that business. So if you’re saying to that small restaurant or café that shut down, by the way, you still have to pay your rent, and we’re going to help you with some grants over there and a loan over there but you’ve still got a lot of cost that you’re grappling with and you’re not operating, we’ve done the furlough thing but you have to now spend – you know, that would be an extra cost, effectively, that you’re putting on the business and I think you would just have to think through that if the whole point is you’re worried about the business going out of business, then you’d probably say: let me keep you alive rather than figure out if, you know, any extra costs – although in principle clearly, you know, if you’ve got the time it feels like a sensible thing to do.

I think there has been some survey evidence that suggests that something like 40% of people – it was in your evidence somewhere or maybe it’s in my evidence – I think something like 40% of people did undertake some type of training whilst they were furloughed and obviously now with all the AI tools that we have, it’s quite easy for people to do lots of things online and free and they’d have the time to do that.

I’m not sure about putting an obligation on the business necessarily would serve the ultimate aim of trying to protect the business and the job.

Lady Hallett: The scheme allowed people to take on work for another employer; so if you were furloughed you could work for another business. Do you think, which presumably is a good thing in terms of churn in the labour market, people might find a different job they’re actually better at or better suited to and they could move on. Do you think that was well enough publicised, this ability to work elsewhere?

The Sunak: To be perfectly honest, I don’t have a strong recollection of that particular policy and how we communicated it, or how it worked or how well taken up it was. You’ll have to forgive me.

Lady Hallett: No, not at all.

Can I just pick up one other thought that’s emerged, and then we’ll take the lunch break.

This came from Dr Brewer, one of the Inquiry’s experts, and has been picked up in the evidence, the idea that you could have a right to request furlough. And the point Dr Brewer was making was that whether an employee was furloughed or not was a decision for their employer. So they may not want to lose their job. They may not want to be made redundant.

If they were made redundant, then they fell into Universal Credit and – and welfare. And, comparatively, that could be quite a significant fall in income. Not their fault, is the point he was making. So that there should be a right for them not to demand that they’re kept on, but to at least request, through a process, that they be kept on through furlough.

The Sunak: I think that is – look, I’d have to think a little bit more about that. I mean, probably instinctively I’m not sure that’s what I would do, not least because, especially if you’re going to put, as we did, the tapering requirements on employers, where they would have to contribute more, then having someone kind of be able to force their employers, because then you are effectively forcing them to keep you on not full time but at a cost, that seems a bit tricky, right? Those two things then work against each other, and I think ultimately it’s, you know, the employer is the one that is making the decisions about their workforce. The government forcing them to make those decisions – I’m not – you know, that doesn’t strike me as being quite the right approach and as I said, would make any type of employer contributions and tapering much harder to defend, and make it more likely, then, that people are just let go, which I think would not be the outcome that we wanted.

Mr Wright: Thank you. Well, Mr Sunak, I’ll leave it there. After the lunch break what I want to pick up on CJRS is the approach in the autumn of 2020 when JSS was shelved and furlough was extended.

So we’ll pick that up as an issue after lunch, if we may, my Lady, and we’re not very far behind my plan, so – we’re slightly behind but that’s my fault, not yours. But we’ll make it up this afternoon.

Lady Hallett: Thank you very much. I shall return at 2.00.

(1.01 pm)

(The Short Adjournment)

(2.00 pm)

Lady Hallett: Mr Wright.

Mr Wright: My Lady.

Mr Sunak, can we pick up, as I said we would, the position in the autumn of 2020 with the decision to extend the Job Retention Scheme and not to implement Job Support Scheme, Open and Closed. We understand that the furlough scheme, Job Retention Scheme, was due to end on 31 October 2020, to give some context, and was then going to be replaced by the Job Support Scheme as part of the winding down of furlough, essentially.

That was the economic planning, if you like, working up the Job Support Scheme whilst looking to end the Job Retention Scheme, but in terms of the health picture, I think, as your statement acknowledges, in that autumn, so early September onwards, there were various contingencies being worked up in Whitehall in terms of the health position, is that right, one of which was the potential towards a further national lockdown if infection rates continued to increase?

The Sunak: Yes, I think that’s a fair summary. We went into the design process for JSS on the basis of the initial roadmap exit plan that had been developed and then I think the tiering system that was put in place. So JSS was very much designed for that world.

I think, as I alluded to in the statement, we always knew there was uncertainty around the potential spread and path of the virus so I’m sure during that period there were discussions we had knowing that that might be an option that would have to be brought back, if it went a particular way.

So that was always there, and then ultimately, as the health situation deteriorated and the tiering system went and we went back to a national lockdown, it obviously made more sense just to bring CJRS back.

Lady Hallett: Yes, thank you. Or – well, not bring it back, but just –

The Sunak: Just to extend it. I was just going to correct myself as well, just to extend it and not introduce JSS as planned.

Lady Hallett: Because I think the direction to HMRC to extend came on the day it was due to end, which was 31 October, that’s the – (overspeaking) –

The Sunak: Yes, which I think – because that was also – from memory, I’m just trying to check – I mean, I think it was – it was – was that also the day that it was decided that we would change the health restrictions and enter another lockdown, from memory. Around – the things were linked, in that sense.

Lady Hallett: Yes, that’s right. The two – the two things were coming together. But, in terms of timing, I mean it’s obviously not ideal, from a business planning perspective, to think one thing may happen and then be told another was going to happen, at short notice. That’s a slightly different issue, which I’ll come back to, to whether, operationally, there were any risks in leaving the decision that late. Or was the position that because CJRS was up and running and you knew it worked and was deliverable, that there wasn’t a great operational risk in switching to CJRS rather than bringing in JSS?

The Sunak: I don’t think there was any operational risk, from memory, at all, because, as you’ve rightly said, anyway it was already in – in operation and people were used to it.

So that – that bit was fine. If anything, you know, there – there would have been operational risk about whatever – when you do something new. So, in that sense, I have no memory that that was an issue at all. Obviously it was far from ideal that the situation had deteriorated so quickly, but – and that meant that we – we had to change what we were doing. But that was very much in response to the deteriorating health situation, which was, you know, obviously not something that we were in control over, and – and it was – I think – I still think right, for all the reasons we discussed earlier, right to have tried to develop something that could be more targeted.

And still, as I said, I think that was the right thing to have done and to have spent time on and – and, if we hadn’t ended up in that health scenario, would have introduced. And I’m sure it would not have been perfect either, but I think that was a worthwhile thing to have pursued.

But as the health situation then deteriorated very quickly, it made sense to – to stick with CJRS, and then it’s – that was it, really. There’s not much more I can probably add to that.

Lady Hallett: No. And so, from the Treasury’s perspective, the health situation is determining the economic response?

The Sunak: Yes.

Lady Hallett: We’ve already covered that ground. But does this also go back to the other responsibility you had as Chancellor, which is not to spend money where you don’t need to spend it? It’s all about withdrawing or reducing support when that’s appropriate, as well?

The Sunak: Yes, of course, and that, it goes right back to the beginning and, you know, all those different economic objectives we have: of course, value for money, you know, minimising fiscal cost, and allowing that effective recovery of the economy so that resources are allocated efficiently, to use a slightly more wonky phrase.

Yes, that is also an important set of considerations, and it makes sense to weight those considerations, especially as you’re out of the worst of the health situation and then can start to iterate policy in that direction, and that’s what the plan was. And then obviously the health situation deteriorated and therefore we had to adjust on the economic support side.

But, as I said, I don’t think it was wrong to have planned for JSS and to have done the work on it and be prepared to implement it, had the health situation carried on as originally expected. That was also the right thing to do, and if this happened again in the future, I think someone should look to do that as well at the appropriate time.

Lady Hallett: Now, I accept that this next question I want to put to you might be characterised as – you could be criticised for ending something too soon, you could be criticised for something going on too long. This is the perfection of judgement about timing. But when you look back over CJRS, it was stood up again or continued, 31 October 2020, and then eventually ended. Do you think some overreliance crept in on – to furlough, that it could have been withdrawn sooner? Or how were you making that decision?

The Sunak: You know, I think this is something where we have to be really careful about hindsight and I think, and again, with the greatest respect, obviously, to my Lady and yourself, Mr Wright, I think the right question to ask is: at that moment in time, you know, was it a reasonable judgement to make? And, you know, I believe that it was.

We were – everyone was worried, anxious about what would happen to unemployment when furlough ended. There were perfectly credible voices who wanted it to go on for longer than it did, including obviously the TUC. I think at least one if not two or three of the devolved administrations’ finance ministers and leaders, I think, the then opposition, now government, members of, and beyond. So there clearly was, as I said, a debate to be had about it.

I thought our approach was about right in that what we did do, and I think Tim alluded to this in his evidence, as well, is, because of the tapering and the necessity for employer contributions in those back end few months, you saw – I don’t have the figures to hand, but you did see, as we expected, a pretty, you know, strong decline month on month over the last few months and what we’re really talking about when someone asks this question is, it’s probably a matter of two months. Because the restrictions really only ended fully in July, at the end of July, and this went on for two more months.

So I think we’re talking about two more months where the fiscal cost, and I think if you look at it – and I’m sorry I don’t have the figures to hand – but the fiscal cost for those last two months was probably very small because the numbers were low and the employer contributions were higher.

So, you know, was it a reasonable judgement to do what we did? I think it was. I think there’s nothing you can – and, you know, hindsight, as we’ve said, sure, when it ended, there was not a big spike in unemployment that people feared, and it was fine. So maybe that argues for being able to have done something sooner. If this thing happens again, it’s not obvious to me that there’s some learning from that period that would make it easier for someone in my position to make that balance any better than they will have at the time to weigh up these various things, right? There will be a public debate, there’ll be people saying both things, they will be looking at all the different bits of data, as I was, about the decline in people on furlough, the resumption of economic activity, et cetera, all these things, taking all these inputs, and just having to make a judgement. And as, as I said, because of the employer contributions the cost was lower and that was a good thing, and in the round, we’re talking about two months.

It’s not obvious to me that there’s a specific learning, as I said, that would help someone next time around fine-tune it by a month better. But again, reasonable people can disagree.

Lady Hallett: I mean, the fact there wasn’t a big spike in unemployment, I mean, turning it on its head, might be seen as a good thing. In other words, if this was meant to preserve jobs –

The Sunak: Yes.

Lady Hallett: – then the fact that lots of people haven’t been made unemployed when it ends might – might suggest a positive?

The Sunak: No, no, but I think the point that some people would make is, because there wasn’t, therefore you may have been able to do it earlier. That is the logic.

As I said, it’s not logic that I necessarily disagree with, but (unclear) there’s – there’d be no way to test the counterfactual. And my point is I think in – I don’t think anyone would really say it should have ended whilst there were still restrictions, which – and they only finished at the end of July. So, I think what we’re talking about here is a matter of two months. And, as said, could it have ended two months – we’ll never quite know what would have happened if we did end it at the end of July. I think in the scheme of things it’s – it was kind of a reasonable judgement to make, in one general sense.

Lady Hallett: I certainly don’t want to apply any, sort of, perfect hindsight to sort of judgements, Mr Sunak, and I didn’t mean to imply –

The Sunak: No, no, and I wasn’t implying that you were, but I think it’s just … yeah.

Lady Hallett: Just to take that a bit further, I suppose one of the questions might be: is it possible to, in a future emergency, or would it have been possible in this emergency, to devise criteria that were published, known that when these things happen, it will end? Because that would be another way of looking at the end of something, to say: well, when these factors are all aligned, then we will bring it to an end.

The Sunak: I can certainly appreciate the appeal of something like that, the kind of mechanical thing. Having sat in the chair and had to make the decision, I’m not sure it can be reduced to: here are three formulas, and if X is 5 and A equals 2, then yes, it goes on, and if they’re less than that, it stays.

It’s a subjective judgement based on a range of different variables, which I’m not entirely sure could be reduced to – to a mechanical formula, is my – is my sense of it.

So – again, we did have a version of that. Obviously the Prime Minister put those tests in place for thinking about exit from roadmap. But again, they were part quantitative, part qualitative assessments. So it’s not as if, from the outside, someone could have perfect certainty about what – what it would mean. They could have reasonable understanding, but it – they were not mechanical formulas, even there.

So, again, we’re down to talking about a couple of months. Could we have – you know, could there have been some set of things we talked about we would have ended it a month or two earlier? I don’t know.

And I think the thing is, again, you’re monitoring this data, Mr Wright, day by day, as things were reopening. There were four-week gaps, four or five-week gaps between each thing. So something had to open, or we reduced – you know, released some restrictions. Then you needed to see how the economy reacted. Were businesses reopening? Were they bringing people back? How were people – were people going out and doing those activities again and spending money?

You had to watch that happen in real time.

So I’m not entirely sure if you could have done it far in advance anyway, is the other thing. Because it – you did – you know, you – this stuff was changing in front of your eyes by the day.

Lady Hallett: Just turning that proposition of criteria on its head and looking at it the other way, from a sort of business certainty and public confidence perspective, what about in a future emergency saying, “Well, while certain things are happening, it will not be withdrawn”? So turning it on its head. So, in other words, “Whilst we’re still locked down, it won’t be withdrawn”, or “Whilst we are under a certain level of restriction”, or again, do you think all the same sort of problems apply?

The Sunak: I’m just trying to think. Effectively, that was what was the case because we had run it to the end of September. The roadmap, as I said, released the restrictions at the end of July. The employer contributions and things started coming in in July, as well. So that was all telegraphed, I think in the spring, so people had lots of time to plan.

And I’m sure, I’m sure I said – I can’t quite remember – and the implicit understanding, I’m sure, was: and if things change we’ll reevaluate because we’d done that – at that point we’d done that two or three times already. So I think that was a kind of given, that if things got materially worse then we would obviously re-look at the situation.

But I think my sense is at the time then we’d given people a good amount of time to plan and we could handle a little bit of flex if the roadmap slipped to the right, which it did do, by, I think one step was delayed by four weeks, from memory. So I think that turned out to be sensible that we had erred a little bit on the side of caution because, actually, we needed some of that buffer and for it still to then be tapering off as the economy was fully open, so that was, you know, sensible, but again, you could argue if that hadn’t happened, it would have looked a little bit of a worse decision, because it, you know, it would have maybe then been a month more than one was needed.

So as I said, I think my broad thing is, I think we’re talking about a matter of weeks, at most two months, really. And for me, it’s hard to reduce it to something so formulaic. So, giving people some certainty, probably erring a little bit on the generous side to deal with any bumps in the road, having the employer contributions coming in so you’ve got that tapering and self-selection at the same time. That seemed to me to strike a reasonable balance which is what we did.

But again, I think it’s hard, without hindsight, to really know if you could have had a high conviction different view, not least, as I said, because lots of very credible people – and it’s easy to say now and after it ended – at the time, and I remember being in Parliament and all the interviews I did – I was getting a lot of pushback on the idea this was ending, and all the questions I was getting were the opposite, and, as I said, you know, from members of the then opposition and more generally, it was very much, “This is too premature and you’re just wanting to withdraw support and you’re focused on balancing the books again,” and there we go.

Lady Hallett: Understood. Can I just pick up on one more point on this, though, developing on that point: that those who say, oh, it should have carried on for longer, it could have carried on for much longer. From an economic perspective, so I’m not talking about the fiscal cost of the intervention but in terms of a longer-term cost or damage to the economy, are there reasons not to have a furlough scheme going on too long –

The Sunak: Yes.

Lady Hallett: – that are important?

The Sunak: Yes, absolutely. And I don’t think there would be an enormous amount of disagreement amongst that, at least I hope not, because markets allocate resources efficiently for the most part and that is individual, private businesses, people making those decisions. And what, you know, when government starts intervening trying to preserve things in stasis, that is fine for temporary shocks that are specific, but as that becomes more permanent – and it’s not just furlough schemes, it’s all sorts of things that governments can do – you know, what you are doing is interfering with the normal mechanism of the market and in general, you know, you’re potentially preserving businesses and jobs which in the long run aren’t actually viable or sustainable and that’s never a good long-term thing for the economy, you’re inhibiting its productive growth, and, you know, what the government should be doing is allowing that process to happen, and obviously providing the support for people with training, skills, making sure new businesses can be created easily – you know, because what you want in a dynamic economy if you want a fast-growing economy is you need that, you know, you need that process to happen – you need those businesses which, you know, sadly are not sustainable or viable, you know, to fail. You need new businesses to take their place. Investment needs to go to where it has a highest return. People need to be in jobs which actually are sustainable and can pay them a good wage, not ones that are being propped up artificially by taxpayers.

So absolutely, in the long term, that is not a sensible feature of any, you know, market-oriented economy.

Lady Hallett: So your decisions about ending these sorts of supports were not simply, what’s the fiscal cost per month of this continuing, but also, is there reaching a point where carrying on may do more harm to the economy than stopping?

The Sunak: Yes, and it goes, again, all the way back to that conversation we had at the beginning, if you just remember, I set out those four or five economic objectives. This was one of them. It was about when the time is right, allowing normal economic activity to resume and that normal, you know, normal market economy to function, because in the long run, that’s the best way to raise people’s living standards and grow an economy.

Lady Hallett: Okay, thank you.

Those are my questions about the Job Retention Scheme. I’m going to move on to the Self-Employment Income Support Scheme now. I think we’ve covered most of CJRS, I hope we have. Is there anything, before I move on, that you wish to add about the scheme, any point of learning about the scheme, or have we covered that in the questioning?

The Sunak: I think we’ve had a good comprehensive discussion on it. I think we’ve covered the reflections as we went through. So –

Lady Hallett: Okay.

The Sunak: – if anything occurs to me I’ll – (overspeaking) –

Lady Hallett: There will be an opportunity –

The Sunak: Tomorrow, yes, but I – I think that we – I think we’ve covered everything that I’ve thought through, so …

Lady Hallett: So, Self-Employment Income Support Scheme, and again, I’ll just give some high-level statistics from the evaluation that was conducted into that scheme, just to put this into context.

So this was an income replacement scheme for self-employed people. The total benefits created by the scheme were estimated to be £19.3 billion, with an accompanying social cost of £5.1 billion.

Payments were made quickly post-launch. There was an application date of 13 May. By 25 May 2020, so 12 days later, 88 per cent of claims had been paid out and 99.4% of Self-Employment Income Support Scheme claims were paid within the government’s own target of six working days from the application.

So that’s just to give some sense of the scale, and the assessment of how the scheme landed.

I’ll ask the question in the way that – I’m sorry to keep going back to Dr Leunig, he obviously made an impression, but I’ll ask the question, really founded in the way he put it, and so we can have your response to this: that there was an extent, he felt, that this scheme was really a trade-off of – between an economic case for support and a moral, political case for support. Because this was a very vocal political group lobbying for support, whereas morally, perhaps – I don’t know if “morally” is the right word, but that’s how he put it – not as deserving as the job support through CJRS.

What was your rationale for the scheme and why do you say it was necessary and important, Mr Sunak?

The Sunak: I think, taking a step back, it was, at its most simple level, you know, the government stopping people from – from working and doing what they wanted to do. And, therefore, having some responsible to, you know, support them through that period. And that applies, you know, equally to those who are self-employed as it – as it does to those in work.

And of course, you know, we’ve spoken through the economic theory of, you know, scarring and labour matches, and that’s all true, but actually, put the economic bit aside, there’s just a slightly more fundamental thing that, you know, everyone was going about their day-to-day life, trying to work hard, provide for their families, build a better life, government comes in and says, “No, sorry, we’re not going to let you do that any more”, and I just didn’t think it would be right to then not have something to say to those – those people to support them through it. And that’s really what the self-employment support scheme was about.

And it broadly – not perfectly, but broadly – was designed to give comparable support to those who were self-employed as those who were in employment.

I think Tim, in his evidence, also said that he thought it was perfectly reasonable to him as – as an economist that the self-employed and the employed should, in some loose sense, have the same level of support, and – and this is the, kind of, closest that – that we could do, and that was what he said, and I – I think that is – that’s right, in a nutshell.

And we can get into the design of it, but that was the – the, kind of, thesis behind doing it, from my perspective.

Lady Hallett: Can I interrupt, sorry?

Mr Wright: Of course, my Lady.

Lady Hallett: Does the economic scarring argument apply to the self-employed too? Because an awful lot of self-employed people – I confess I have an interest here, having been self-employed for a long time – but don’t – put me to one side – don’t a lot of self-employed people contribute to the economy, keep the – don’t you have the economic scarring argument can apply to a lot of self-employed businesses –

The Sunak: You know, I – look, not to (unclear) I think if – if Tim was here, he might say the difference, my Lady – I don’t know if I’ll make his argument for him, not mine – but I think he would say that the difference is that nothing stops you, as a self-employed individual, doing what you want to do thereafter, whereas if you’re employed and you lose your job, you can’t automatically just go back to doing what you want – were doing before. That, I think, is – not to put words in his mouth, but he might have said something to that effect when he was there. That’s what he might say, that they are different.

I tend to broadly sympathise with your perspective on it. At the end of the day, these are people who we wanted to make sure that they were still able to be economically productive and active when possible. And, therefore, providing someone support to them would make that more likely.

And I think the TUC provided some good evidence on this point, and I think Kate was quite good on this particular point: that – I think she gave the example of a self-employed salon or hairstylist or beautician who would have, you know, had a bunch of things, may have even had – paid rent in somewhere, and – and if they had not been supported, all of that would have gone, would have had to sell all of that, broken all those relationships with wherever she was, those client relationships, et cetera, and therefore would not as easily be able to bounce back. And it’s effectively like having been let go in a company.

Lady Hallett: Yes.

The Sunak: So I think Kate – Kate will give you the example of something that very much is in line with what you said, and that was my general sense. Now, I mean, you know, Tim would say that’s perfectly fair, it probably doesn’t apply to everyone in quite the same way as it did with people in jobs. But I – hopefully I’ve given you as fair as I can –

Lady Hallett: You’re very good at playing devil’s advocate.

The Sunak: Well, I try to be fair. Obviously I introduced the scheme and believe in it, so of course I think that it was the right thing to do, and I – and I would do it again if it was me, and quite candidly, I’m highly confident that if this ever happens again, whoever is in my shoes will do something very similar as well.

But I’m just, at least, trying for the sake of you having a full set of arguments. But I think – I thought Kate’s evidence on this was quite compelling as bringing it to life how someone who was self-employed actually would have the same scarring type of impact that you would have from someone who was employed.

Lady Hallett: Thank you.

Mr Wright: And as with the Job Retention Scheme was speed of delivery and simplicity an important feature of the scheme?

The Sunak: Yes, as – you know, simplicity, especially – and I think we haven’t touched on it, but just, actually, your last question of the last session. The – you know, there is an enormous amount of operational pressure that’s put on HMRC at this moment in time, and then we’ll come on to Universal Credit this afternoon, and the DWP systems. And, you know, I would think it’s easy to kind of abstract that away, particularly for people who are not used to having to deliver things on the front line, and the scale of these things is enormous. You have to remember that. 10 million people were furloughed. A million businesses were interacting with the HMRC CJRS system and then 10 million people were getting rebates through.

On SEISS, 3 million people. Again. So it’s not just a kind of simplicity for speed, a simplicity for communications and reassurance which we’ve touched on; there’s also a simplicity because, you know, what you don’t want is for the organisation to be overwhelmed, for the systems to be – to break down. They only have the capacity to do so much and you know, there’s a – actually, even in peacetime that is the case, as Chancellor afterwards, when you’re sitting down with HMRC and you’re figuring out: here are the various upgrades we can make to the tax system, if we invest here, what systems can we do? You know, it’s not as if you can do everything at once. And I had those conversations with them on Making Tax Digital, it was, well, you want us to design this over here, you want us to do that over here, and this, that, well, thanks, Chancellor, actually we can’t do all of that at once, please tell us which order you want us to do it in.

And that’s not unfair and obviously at this period that was also the reflection and they would constantly say, rightly, say: look, we can handle this. If you want us to do this, this and this, it’s going to take you that much longer or we’re just simply going to get overwhelmed and then things won’t work properly.

So I think that aspect of it I think is worth highlighting.

Lady Hallett: Yes, I mean, really, you could have promised all sorts of support but if it was actually undeliverable –

The Sunak: Yeah.

Lady Hallett: – then it wouldn’t have been support at all; it would have just been an empty promise.

The Sunak: Exactly, and that then obviously damages confidence and reassurance and all the rest of it. So – and then again, you have to trust – of course, I – and you probably heard this from other people giving evidence, I always was on the pushy end and demanding end, whether it’s with my officials in the Treasury or with HMRC, what’s the quickest timeline? Why can’t you do more? Why can’t we do it faster? But ultimately you don’t want things to fall over. I think that would be a disaster. So …

Lady Hallett: And if you look simplicity as between CJRS and SEISS, in CJRS, this was administered through the PAYE system which gave you a monthly snapshot of employment, real-time information, but – so that’s pretty good data and it’s regular. But under the Self-Employment Income Support Scheme, you were looking at Income Tax Self Assessment and there’s a time lag, isn’t there, in terms of filing?

The Sunak: Yeah.

Lady Hallett: And so did that present an immediate challenge in terms of deliverability?

The Sunak: Yeah, well, it presented – well, in one sense it made things very easy because there was no other way that you could do this other than relying on the ITSA system, the Income Tax Self Assessment system. It was the only database that we had in government at HMRC that told us who was self-employed, how much had they earned, right? So there was no alternative.

So in that sense that was clarifying and made things simple, but then that meant that that came with a set of constraints, notably the data, as you alluded to, Mr Wright, is quite out of date, and that’s a feature of our self-employment assessment system where you file your tax return the following January after the tax year ends, and so lots of people who were newly self-employed in the most immediate preceding tax year to the on-set of the pandemic had not yet filed a tax return, and we had no anyway of knowing who they were, how much they earned, and it was therefore not possible to bring them into the system at the outset without taking on what I considered to be unacceptable, you know, risk on fraud.

And then, as soon as we passed the deadline for that, we were able to bring them in. But that’s why the ITSA system was used, and as I said, in one sense it was very good because it was an accurate database of people and their incomes. The flipside was it was – the data in it was out of date and I’m sure we can talk about what that would look like in the future.

Lady Hallett: Can we pick up about the data point now and come on to the point you’ve just made about appetite for risk, and fraud. In terms of the future and data, and you’ve mentioned this already, Making Tax Digital, and you’ve said that this is something HMRC was working on and it’s now working much further through the system; can you just explain what it is and how it will change potentially these sorts of judgements for a Chancellor in the future?

The Sunak: Yes, I think we are – and I – I have to confess, I’m not sure where the new government is with the roadmap, but before I left the Treasury, we’d put in place, together with the ministerial team, a new roadmap for Making Tax Digital, partly so that in the future, this type of situation would not happen.

And what that means is, HMRC will be able to collect more income data, more – or sorry – the same data more regularly.

Lady Hallett: Quarterly returns, is that right?

The Sunak: Quarterly returns exactly.

Lady Hallett: Yeah.

The Sunak: And as I say, forgive me for not remembering the precise details of who that applies to when, but the broad principle is the system will be much more up-to-date with what’s happening in people’s lives than it was when I was doing this, and that will make this easier. Fair to say, before the pandemic, when things like that had been mooted I don’t think everyone was, you know, jumping up and down and being super excited about doing that, because people would prefer to have the time and do it later, and all the impact it might have on people’s cash flow and taxes, but, you know, the pandemic showed why it was – it would be beneficial, at least from this perspective, to have that quarterly tax information from Making Tax Digital.

Lady Hallett: Okay. You didn’t have luxury of that. You had Income Tax Self Assessment, and you’ve explained why, therefore the newly self-employed weren’t eligible in the early cohorts of this support.

Can I just pick up, you referenced the risk of fraud. Now, presumably that’s because if you wanted to include the recently self-employed, you’d have to effectively self-certify or have some method of self-certifying that they were, in fact, self-employed, they did in fact have income and they were in fact eligible.

The Sunak: The whole thing would be completely – just as you described.

Lady Hallett: Yes, so that’s the first point. Is there not also – and we picked this up with Sir James Harra in his evidence – there was also a – and this touched on something you said earlier about the pressure HMRC was under – not only would there have to be self-certification but there would have to be a manual process –

The Sunak: Yes.

Lady Hallett: – of checking an accreditation which goes hand in hand with that –

The Sunak: And that goes to the point I was – I was talking about earlier, just the operational demands on HMRC. Any time that HMRC have to start doing any degree of manual verification of anything, or spot checking of any kind of scale, clearly the resource implications are significant. Which is why, when you’ve – ITSA is great, because it can all be done largely digitally. And that – that means that there isn’t a huge human – human component to that bit, so that – Jim is absolutely right to make that point.

And you see that in other areas.

Now, you make some exceptions for some very small groups of people with a particular case, and we – I think, you know, women on maternity leave and things like that, on CJRS, we made some very specific manual flexibilities, because we felt that that group of people really should not be disadvantaged in any way, and it was a small enough group of people that we could manage a manual workaround. But to Jim’s point on this, that would have been a huge undertaking.

Lady Hallett: Now, we know that, in the devolved administrations, support schemes were stood up to support the newly self-employed who weren’t eligible for the UK-wide Self-Employment Income Support Scheme, for example the Newly Self-Employed Hardship Fund in Scotland.

And I asked Kate Forbes about this when she gave evidence, and I put it to her, was it really a question of the Scottish Government had a greater appetite for risk than the UK Government? You know, it was willing to take the risk of self-certification.

But did you consider exploring that, and engaging with the devolved administrations to see if there’s any learning there, or had you made a decision that the risks and the processing obstacles were too great?

The Sunak: I can’t recall specifically on that, on that discrete intervention. But more generally on SEISS, because it had to be designed in a way with various different criteria, all of which were necessarily imperfect, there was a continual debate, discussion, re-look at policy, to see what could be tweaked, if things could be changed. Not least because there was a huge amount of incoming into the Treasury about all of these issues. So I – absolutely was not the case that, you know, stood up, announce it, off you go, done.

I think the entire time that this scheme was in place, in terms of incoming to “Please can you change this”, “Please can you change that”, “What about this?”, it’s probably the scheme where we had about the most of that, actually. And that – and that goes to the earlier question on targeting on CJRS. You know, here, this was targeted. It was imperfectly targeted because that’s all you could do, and then you spend a huge amount of time with all the people who are not captured and feel that they should be, and then trying to figure out if you can tweak the design. And so that’s kind of an interesting observation on that.

But I – I can’t remember on that specific one, but as a general point I would say that there was constant looking at all aspects of this to see if – if there are things that could be tweaked, changed, iterated, as we went through. Because, you know, by its design, it was – you know, was certainly more imperfect than CJRS was.

Lady Hallett: So if you think about the heat you got externally from the imperfect targeting of this scheme, amplify that –

The Sunak: Yeah.

Lady Hallett: – a hundred fold and think about how CJRS would have gone if you’d have tried to target it?

The Sunak: I think that is a fair – a fair reflection or takeaway.

Lady Hallett: Okay, can we just run through another couple, if you like, hard edges in the scheme. And this goes to this targeting point you’ve made.

The 50% self-employed income test, so this was – you had to have at least 50% of your income from self-employment to be eligible under the scheme, and there was no tapering. It was effectively a cliff edge.

Can you just help us with the rationale for that –

The Sunak: Yes.

Lady Hallett: – and whether you considered a taper and why it was not workable.

The Sunak: I think, it’s interesting in how you introduce the question, Mr Wright. You talk about the hard edges. I think that’s – that’s exactly it. One person’s targeting is another person’s hard edge, and those are two sides of the same – the same coin.

So, you know, an abstract discussion about targeting is all good and well from an economic theory perspective, and then here is an example where we’re going to go through, now, the various things we did to try to target it, and we end up having the conversation about the hard edges, completely reasonably. But I think it just illustrates the challenge with – with this, because there is no perfect targeting. And – and anyone who comes here and says, “Well, with this bit of data it would have been, you know, perfect”, I think is probably not being, you know, I think realistic about this in the future.

So I think you have to accept – well, I’m not avoiding your question, we’ll get into it – that you have to accept, on all these things, there’s always just going to be a trade-off. And I think I’d say reasonable people can disagree on those trade-offs but – you know, targeting is beneficial for objective 4 and 5, and – but it’s less good for 1, 2 and 3, and some people are going to feel aggrieved. So that is the nature of it.

But on the 50% criteria, again, this, you know, this was something that was suggested by officials which I agreed with. The idea here was: look, remember all we are doing here is we are – people are going to opt in. And that’s an important thing, actually, which we should come to, but people are going to opt in to saying that they need this, so that is really our only kind of check, you know, it’s not the same as someone who is putting someone on furlough. We don’t know about this person’s circumstances, really. Are they affected by the pandemic? Are they the person who is a stylist or, you know, we’ve closed down that industry, effectively, we’ve prohibited close contact, or are they someone who is happily carrying on working? We don’t know.

So it is right to try to target where we can to minimise the fiscal impact and sharpen it a bit on those who really need help.

The 50% criteria was designed to say, look, there’s lots of people who have some self-employment income but what the scheme is really there for is to help the people’s whose life largely is dependent on self-employed income, you know, who are self-employed; the self-employment activity that they carry out is really the main way that they and their family have financial security.

So, you know, in that vein, saying that your self-employment income had to be – and I think the advice recommended two options: either greater than 50% or you could have been a bit stricter and said greater than two-thirds of your overall income, you know, doesn’t seem an unreasonable approach to take. So – and that’s what this criteria, that’s what this criteria did.

And I think that the, from memory, the median kind of self-employment income from those people who were not eligible because of this criteria was, I think something like £4,000 or £5,000, right? So it was not their primary source of overall – of overall income, and we could target help on those for whom it was.

That was the thesis behind this particular threshold. And then again, you could, you know, there was certainly advice that had an option of two-thirds which would have been stricter. We went with 50% which was a little bit more broad and generous.

Lady Hallett: And in terms of 50%, two-thirds, no magic in the numbers –

The Sunak: No.

Lady Hallett: – you just had to arrive at a number –

The Sunak: We had to arrive at number and I think, reasonably, people could have done two-thirds, 50% is at least the majority of your income is coming from employment, seems a kind of minimum bar to cross, to be calling yourself self-employed or to have a scheme that’s supporting you. So that seemed probably the generous interpretation relative to 66% or two-thirds.

Lady Hallett: Now, I appreciate this next question may sound like – well, you could say – you could pick anybody who is a loser and put a scenario, but I just want to pick this up thinking about the most vulnerable, economically vulnerable. For those who, say, had a low-paid job and a small pot of self-employed income on top of that, that self-employed income might be what made the difference between the wage that they earned in their job and being able to provide for their family.

The Sunak: Yes.

Lady Hallett: They would fall in the gap in the scheme, but what would your reaction to that be, in terms of how you can design out of that, how anyone can design out of it?

The Sunak: Well, I mean, they can’t. So you will – I’m a hundred per cent sure, with everything that we did as big and as comprehensive as it was, and we talked about the scale, you will always be able to find individual people who, for whatever reason, don’t quite meet the exact criteria because of their particular circumstances. It would be wrong to pretend otherwise. Of course that was the case.

But what you can then do is make sure you’ve got lots of different types of support so that even if someone doesn’t get something over here, they will get picked up over here. And that’s why – we’ll come on to Universal Credit later this afternoon, probably the person that you’re describing would be eligible for Universal Credit and would have benefited from the changes we made there.

Similarly, we also provided the hardship fund to local authorities, which was the most discretionary of pots, which was effectively a way of saying that for people who, for whatever reason, just need some extra help who we have not been able to find through all these dozens of things that we’ve set up, they can talk to their local authority at a very local level and those people know those families and get that extra assistance from them.

And so that was a – and then we topped that up a couple of different times through the pandemic so there was always funding there. You know, I could go on. But straight away, those are two other things that probably would have helped the person that you’re describing.

Lady Hallett: So I think your principal point is, whilst I am in my questioning focusing on one scheme at a time and looking at that scheme in isolation and identifying gaps in it, you would say that this is one of many schemes that government was introducing and you have to look at the panoply of support –

The Sunak: Absolutely.

Lady Hallett: – in different ways that was available and not just look at hard edge in scheme A –

The Sunak: Yes.

Lady Hallett: – rather than …

The Sunak: Yeah.

Lady Hallett: Right. Having said that, can we just pick up one other hard edge, if you like, which is the other untapered hard edge of the £50,000 income criteria. So earn £50,001, no support. Earn £49,999, support. And in particular, I’m just interested in the consideration given to a taper, because there’d been a taper in the high-earning child benefit.

The Sunak: Child benefit charge.

Lady Hallett: And if you did consider it, why you didn’t. The rationale, please.

The Sunak: So I think first again, we’re trying to target this thing on those who most need it, and 50K just being the – as it was then, the threshold for higher rate tax. So the first thing is, this did not mean that that many people as a percentage were ineligible. I think the number was 4 or 5%, so as a result of this – I’ll get on to the taper question in a minute – so as a result of this bit of targeting, focusing the scheme on those who, you know, earn less than 50K, it meant that around 5% of people were ineligible. So it was not, in the scheme of things, a huge number, and the average income of those people was, I think, £200,000.

Just, again.

Now, that’s me sitting in the Treasury looking at the macro statistics. You absolutely could find someone who, £50,001, I’m confident of that, but in aggregate, we’re talking about 4-5% of people, average income of about £200,000. So that’s the backdrop. So given that, you know, why – you know, also then why not a taper? Look, tapers are complex. I mean, anyone who has tried to sit there with that HICBC taper will tell you that and in this particular instance there were two reasons we didn’t do it. One is, as you heard from Jim Harra, the perm sec at HMRC, it would have delayed implementation significantly by a matter of several weeks, I think, from memory but he’s been clear about that, so a taper would have delayed implementation because of the complexity of it.

And generally you do tapers because there’s a behavioural impact of them, and you’re trying to not have economic behaviour be distorted by a cliff edge, and that’s the rationale for doing tapers generally.

Now, in this instance, you know, these were, in theory, one-off payments based on an income that you had earned in the past. So there was less argument that this was going to have a behavioural impact and therefore was worth the extra time, delay and hassle of putting in a taper, especially given the – as a percentage, smaller number of people who were actually impacted by it in any case.

Lady Hallett: So a potential claimant couldn’t think: well, I’ll delay putting in that invoice because I don’t want to go over the amount, because we’re talking about a year past –

The Sunak: Well, it was a backwards-looking – (overspeaking) – it was a backwards-looking thing. You couldn’t do anything about it anyway.

Lady Hallett: No, all right.

I just want to pick up, I suppose, looking at this the other way, the other argument, there was elements that were too generous in the sense that – and this is a point that Dr Brewer picked up in his report, that you could say the lack of conditionality, it being a condition that you have lost income to a significant extent meant that some self-employed people who didn’t really need the support were being given it. And that got tightened up over time, didn’t it, in terms of the certification?

The Sunak: Yes. And again, I didn’t see one. I’m not sure that I’ve seen a way that you could have done that during this, for – I mean, we had the long conversation on targeting in CJRS, which I won’t repeat, but there is no way to do that during.

What we did do and could do – because I don’t disagree with the premise at all, of course I’d rather really focus this on people who most need it, of course I would prefer to do that – when we could, we did. And you saw – but that really took until 2021, because by then, you’d had, you know, a, kind of, year of the pandemic, and what you were able to do then for the last two grants, I think it was, in the summer and autumn of 2021, you were able to say: well, you know, we had a pandemic last year, you know, spring 2020 to spring 2021, so now we’re going to separate these grants out and it’s going to be a function of how much your revenue declined in – or your income declined or trading profits declined in the last year.

So, as soon as we could inject some degree of targeting, we did. And I think that was sensible. We – so we had two levels of grant depending on your turnover, income, or income decline.

Again, reasonable people would disagree, potentially, on where you set those thresholds, but the principle I agreed with. When we could do it, we did do it. And, you know – but I don’t know how you could have done that during the previous year very easily.

The only thing I have heard, and I think this is probably something for people to think about in the future, is – and I think actually maybe Dr Brewer mentioned this, was – was whether one might want to consider a clawback if turnover didn’t ultimately fall down. So, in that 2021 year, you could say: we’re going to give these SEISS grants; if it turns out next year when you file your tax return that you’re fine, then we’ll have that grant back.

Lady Hallett: Claw it back through self-assessment?

The Sunak: You can claw it back through self-statement.

Now, I think you need some extra legal powers to do that, from – from memory. Because I think we looked at it the following – I think you need primary legislation, from memory. But I – you know, you need – I think that would require legislation.

There’s obviously an operational complexity to that – the next year, which, you know, HMRC would be best placed to answer as to how feasible that – that is. And it would obviously have a behavioural impact on the margin, because people would then be figuring out: well, I might not bother working because I’d rather have the grant.

And, you know, again, someone would have to model that out. You know, it’s not a crazy idea, and I think someone would want to work through all of that to see if it was feasible or practical.

But absent that, I haven’t seen it a way you could do the targeting in real – real time in that first year of the pandemic.

Lady Hallett: But in terms of having a suite of policy options available, if it was deliverable and there was the legislative power to do it, something worth exploring and at least having on the table?

The Sunak: Not an unreasonable thing to explore.

I think the other thing that we did do, and which I thought was, probably underappreciated, was, you know, kind of a good amount of behavioural economics.

In – in the application forms for SEISS, there was a – you know, there was a kind of affirmation that you – which had no real legal force, but it – you know, you had to, kind of, tick something that says, you know, “I have been impacted by the pandemic”, and – or “My business has been impacted by the pandemic and therefore would like to claim this grant”, or some variation of that language or – and then it got tightened up over time into something called a reasonable belief test, or “I have a reasonable believe that I have …”, et cetera.

And as I say, I don’t think it had legal force but it had quite a good behavioural force, that just, you know, on the margin hopefully make people think: should I really be claiming this? And actually, you know what, interestingly – and I was just checking the numbers before today – given that anyone could have got this thing, right, there was no real way – you know, there was no reason that they shouldn’t get it even if they were working in reality, the first grant had an application rate of – a take-up rate of 77 per cent. So, even in that first grant, with very little of this – a quarter of the people self-selected in not claiming it when they could have. Then that went down to 69%, 65%, 58%, and by the last grant it was 38%.

So, just kind of interestingly, even when people were able to – to claim – I thought it was a good affirmation of human – human behaviour but it’s quite – you know, it’s quite good actually. And that nudge, I’m sure, making people tick that box, you know, would have contributed to – to people actually not – not taking it if they didn’t really need it. Which is a good thing. And those numbers tell a story of an improving economy through the pandemic as well, and people adjusting. But I think the nudge is worth bearing – I would certainly recommend that in general.

Lady Hallett: Those figures may be an argument against conditionality, in the sense that, again, if you assume the general economics people want to go out and earn money and make profit, then – and then when they can, they will?

The Sunak: Yeah. The flip side here is that they – they could do that and still get the grant. And that’s the great challenge of this, you see. That is different to – to CJRS and the employer discussion. And that is the challenge with this scheme, is that you could do that and still claim the grant. But that’s why we had the – the nudge, that you had to tick, which, in theory, should – should help with that, and then later on – and we had the other criteria and then, obviously, when we had the revenue information – I think we called it a financial impact test, FIT test or FID or something like that, which we introduced.

Lady Hallett: And I know this is fairly granular but I just want to pick it up briefly on the, sort of, fraud front. We understand there was an issue about being able to check across between SEISS and Universal Credit, to see if people were claiming both, and that was really a data issue?

The Sunak: Yes, I saw that in the evidence that you supplied to me last week. I must say, it’s not something that I recall –

Lady Hallett: Well, I won’t take it any further.

The Sunak: – during – as I say, during the pandemic itself. And, look, clearly if there’s – if there’s a way to do some checking that would – I don’t know who would – I don’t know who – I couldn’t quite tell who wanted the data. It felt like DWP wanted the data from HMRC, rather than the other way round. But it’s not something that I remember being ever raised with me.

Lady Hallett: No, all right.

One other particular group I just want to pick up on, just for your reflections, really, is this company owner managers. So those who essentially own companies and choose to pay themselves through dividends rather than drawing a salary, so they’re receiving their income in a different way. And, I mean, really, did the decision not to do something for that group come down to, well, if they chose to manage their tax affairs in that way, that was a matter for them? Or what’s your rationale?

The Sunak: No, it’s not that. We actually – you know, much like JSS and – as I was saying about this scheme, this was something that we kept coming back to, to look at different ways. And the team probably got tired of me going over this and over this again. And every time they thought I’d, you know, just said “Fine”, I’d then – you know, I’d come up back to it a month later because someone had said something to me or I’d thought of some new idea or someone had pitched some new idea to me about how we might fix this issue.

No, so it was not a desire not to. I mean, we spent a lot of time – and I think, you know, HMT evidence will show that we spent a lot of time and effort trying to figure out if there was a solution here.

I mean, look, in a nutshell, the ITSA system, the tax system, can’t distinguish between dividends that people receive as a return on capital and dividends that people are receiving effectively as a form of labour income; right? We have no way of knowing, looking at the HMRC system, what those – you know, dividend is dividend. It could be dividend from someone who is doing absolutely no work, as a nice equity portfolio and is clipping a dividend, and great. And over here there’s somebody who is a company owner manager and that is effectively their – their income every year. And we have no way to differentiate between those two things. And that is the challenge.

And we looked at all sorts of ways of trying to do it. There’s a closed company director tick box on forms. We went through that. But not everyone ticks it and not the right people that do tick it even do necessarily fill it in properly.

The timing of dividends is obviously very much in the gift of the director, so it’s not as predictable. And we looked at whether you could use accountants, but they still don’t eliminate the need effectively for self-certification, with obviously all the fraud that comes with that.

And there really was no – no one actually knew how many people this was. So what we did know is that about 3.3 million people file tax returns that have dividend income in there, but I think, broadly, most people thought the number of company owner managers, in the classic sense of it, probably was around about 700,000. And that’s where you can start to see the issue. So if you just took all the dividend income and said we’ll do a version of SEISS for dividend income, I think three out of every four grants that you would have handed out would have gone to people who actually dividends were just, you know, a return on their savings and not – you know, not their labour income.

And that’s – and that is a very, very tricky thing to resolve.

I think – I’d just say, I think your expert, Dr Brewer, looked at this and I think he agreed that it was very – in his words, very difficult to establish something, and there would be very large forward risk in doing something.

But, you know, we did look at it multiple times, believe you me, and just couldn’t quite find a way through.

Lady Hallett: So this wasn’t a decision not to support a group; it was a decision very much that you would have looked at something if you could; couldn’t find a way of doing it in a deliverable way that minimised unacceptable levels of fraud and so on?

The Sunak: Yeah.

Lady Hallett: And by the sound of it, you’ve come at this every which way, and there still isn’t an obvious solution that presents itself?

The Sunak: No. I don’t – I don’t think that there is, really, is my – was my reflection on it.

Again, someone in the future might decide something different. I mean, you clearly could. I mean, you could clearly just look at everyone who had dividend income and a tax return and send them the equivalent of a SEISS grant, calibrate it. You would do that with the – three-quarters of grants by volume and – and more by pounds going to people who you were not really trying to help. So I – you could accept that, but I don’t – to me, that would not seem like the right judgement to make.

Lady Hallett: Thank you very much.

I’m going to move on now from the self-employed scheme into Kickstart, and just again some context.

Now, this was part of your plan for jobs announced by the Treasury on 8 July 2020. A £2 billion fund to create hundreds of thousands of high-quality six-month work placement. It was aimed at 16 to 24-year-olds on Universal Credit deemed to be at risk of long-term unemployment. Funding covered 100% of the national minimum wage for 25 hours a week, and the associated employer National Insurance contributions, and the employer minimum automatic enrolment contributions.

And in terms of assessment, the evaluation found the majority of leavers at seven and ten months, that’s 63% and 66%, were in work, said that the skills and experience they’d gained had been important in helping them find work.

And you’ve spoken already, Mr Sunak, about your desire to support employment and jobs in the pandemic, and putting that at the forefront. This is targeting young people, in particular, and trying to get them into work. Was there particular significance in trying to target that group of young people, 16 to 24?

The Sunak: Yes, that was something that weighed on me quite heavily throughout the pandemic, was an understanding that young people were particularly at risk, and that’s because they were two and a half times more likely to work in the most affected sectors. And we also know that if young people have a bad interaction with the labour market early in their careers, if they’re not able to find stable work when they’re young, that has an impact on them for a long time to come, and it goes back to the scarring that we talked about right at the beginning.

So, you know, I was particularly worried about this cohort throughout, and, you know, obviously different modules have looked at the impact on education and those outcomes but, you know, even for those young people who were just entering the labour market, those early years are really important in getting into work habits, finding good, stable employment. That sets you up for life, and obviously what was happening with the pandemic was disrupting that.

So, you know, I had that in the back of my head and Kickstart was a way to target a job intervention programme at that group, and try and help them make sure that they have that experience of being in the labour market and being in work.

Lady Hallett: And we understand from your statement that the Treasury was particularly involved in the design of Kickstart, and – but also that you had a very keen personal interest in that scheme; is that right?

The Sunak: Yes, I mean, I saw that. I’m not entirely sure what that meant. I had a personal interest in all of these things because I needed to make sure they all worked and ultimately I was responsible and accountable for the overall economic response. But this, as an idea actually came from the TUC, and probably, you know, Frances and Kate probably won’t love me if I keep referring to them, but we had a good, productive working relationship during this period and it was something that they had called for.

Others had called for it, as well, from memory, but I distinctly remember Frances O’Grady, as she was then, Baroness O’Grady now, and Kate talking about this. It was modelled on something called the Future Jobs Fund, which was a programme that had existed in 2008, from memory, and actually, you know, I have heard it and I thought, you know, that sounds good, and we should be looking at something like that because of the concerns I had about the impact on young people, and I mentioned it to Thérèse Coffey at DWP, and as you’ve seen from her evidence, you know, they took the idea and they led it, essentially.

I mean, obviously, we worked very closely together and this is a good example of that policy partnership and the cells, and we were doing things really closely together, iterating together, yeah, but they obviously had primary responsibility for delivering this scheme and we designed it together and off they went, and did it, and Mims Davies who was the junior minister at the time, took a lot of personal ownership of it, and it was a great collaboration, and I’m – you know, I was always really, you know, lots of the things we did made a difference to people and your stories and video brings that to life, but I particularly, you know, meaning young people who because of this scheme were in a job that they may not otherwise have had and them being set up for life I thought was a particularly good and positive outcome.

Lady Hallett: Now, the timing of the implementation of Kickstart, we understand it was stood up quite quickly, announced in July, and was going live in November of 2020. Was that because, at the time it was announced, the expectation was that furlough would have ended on 31 October, and therefore there may be a spike in unemployment, and there may be a lot of young people who would need help getting into jobs?

The Sunak: Yeah, exactly as you said. It was designed in the context of the pandemic, and the restrictions are all winding down, the support schemes are winding down, we’re going to focus now on, you know, jobs and creating new jobs and getting people into jobs, and this is one that – an intervention that would be targeted particularly at young people.

Lady Hallett: Of course, had you known what you came to find out in November, the timing suddenly looks different, come November, when we’re going back into lockdown and you’re extending furlough. And did you find that frustrating, really, that the scheme had been stood up very quickly and I don’t – you might know what it means, but it was described as a minimum viable product?

The Sunak: Yes.

Lady Hallett: In other words, it was stood up as –

The Sunak: Yes.

Lady Hallett: – it could do what it said on the tin but it wasn’t particularly well worked or long worked up?

The Sunak: No. Of all the things that were frustrating to me during this period that particular one probably was not that high on the list but, of course, it was frustrating, because it, you know, it meant that this thing was not up and running in the way that we would have imagined when we announced it.

You know, that said, it’s good that we’d done the work, good that we’d got it up and running and, you know, this point about minimum viable product, the – this really is proof of the, you know, the test and learn iterative approach to policy making. And this is the thing, it’s like we were saying, you know, one person’s targeting is another person’s hard edge.

That, again, people like the sound of test and learn iterative policy making, when what that means is what you put out there straight away is, by definition, not going to be perfect, most likely, but you’re prioritising getting it out there. That’s what the minimum viable product is. We know it’s going to basically work, and we’d rather just get it out there (a) because then it can start to make a difference and we can learn as we go and adjust it as we go and do that in kind of reaction to what’s happening in reality, rather than in sitting in the meeting room. And this was a good example of that type of approach to policy making.

Again, you know, not optimally in the end able to be executed because another lockdown got in the way, which was, as you said, frustrating.

Lady Hallett: Can I pick up that point about developing as you go. I mean, it was – the indicative target was for a quarter of a million placements. Ultimately, there were 168,000 young people who had the benefit of a Kickstart place. One issue was whether the eligibility should be expanded beyond Universal Credit, and so should include young people who were receiving JSA, for example, a legacy benefit, or expanded to include people who were in receipt of a PIP, personal independence payment, disabled people.

If there wasn’t the take-up and if you were learning as you went, do you regret not expanding it to fill the places that were envisaged and expanding its reach?

The Sunak: I can’t recall the kind of micro eligibility decisions and what the exact basis for each of those was. I think part of the reason that it didn’t end up – I mean, still 150,000 young people benefited from this, and enormous credit to the team at DWP who did stand it up and deliver that because I think it made a huge difference to those young people, it was because, actually, the economic recovery was stronger than we had anticipated it would be. I don’t think that should necessarily be a sign of failure of the scheme. Actually, we didn’t see the spike in youth unemployment that everyone had predicted when furlough ended, the economy, we know, after all the revisions happened two years later, recovered far faster during this period than initially it was given credit for, and unemployment stayed relatively low.

And actually, so it’s because the – we go back to this point before – the private sector, the regular market function in the economy was happening, and jobs were being created, and so there was less need for the subsidised jobs through Kickstart in that sense.

You know, it was – you know, I don’t think – you know, you want to focus in on a group of people who really need it, that is what it was designed to do and I think it did that effectively. And again, different people might have wanted to weight different things, but I can’t recall the individual reasons for which bits of the Universal Credit system we were targeting, but I think it was particularly people who had been impacted by the pandemic or were at risk of being impacted by the pandemic, as we’ll come on to later on in the UC discussion, some of these other benefits are not linked to the labour market or work requirements in quite the same way, or their legacy benefits where people have been on for a longer period of time.

Lady Hallett: Okay.

Just so I understand, just to finish this area and then we’ll be about ready for the afternoon break, the Treasury had worked up the policy. You’d announced it in July as part of the – but the DWP was doing the delivery, effectively; is that right?

The Sunak: No, but we worked on the policy together as well.

Lady Hallett: Yes.

The Sunak: Yeah.

Lady Hallett: Sorry, I didn’t mean to imply they weren’t involved in policy –

The Sunak: Yeah.

Lady Hallett: But once you’d worked up the policy, they were responsible for delivering –

The Sunak: Yes, yeah, that’s right.

Yeah, I know – again, I know the team at the Treasury were – I – there’s probably some board that was set up, I don’t know how they do these things, and I would have wanted to keep an eye on things as well as I – same as I did when we get on to loans tomorrow, or these interventions here, you know, I would still keep an interest on them and do meetings to check in on progress, discuss with Thérèse Coffey. Because we had to iterate. You know, we were iterating as we went. We changed the application process. It was – the top criteria at the beginning was quite tight on something called the additionality test, getting technical, but, you know, we wanted to make sure that these jobs were jobs that ideally would not have existed without the support, so they were really doing something good with the taxpayer money.

You know, that test was probably too tight at the beginning and Thérèse identified where we could – we could broaden that out and just change the application process so it was quicker, and I worked through that with her. But her and her team did an exceptional job of getting this properly rolled out and getting these – these youngsters, you know, a great job that could then, hopefully, set them up for life, particularly in a difficult economic environment.

Mr Wright: Thank you.

My Lady, that completes that topic, and I’m going to move on next to the uplifts to Universal Credit and Working Tax Credit. So a minute or so early, but is that a convenient moment?

Lady Hallett: I’ll forgive you a minute or so.

Mr Wright: Thank you, my Lady. That is very kind.

Lady Hallett: I shall return at 3.30.

(3.13 pm)

(A short break)

(3.29 pm)

Lady Hallett: Mr Wright.

Mr Wright: Mr Sunak, I’d like to turn, in this final session for today, to the subject of the uplift of £20 that was applied to Universal Credit and to Working Tax Credit. This was announced on 20 March 2020, implemented from 6 April 2020, and then there was an extension to the 12-month – the initial 12-month uplift that was formally agreed at a trilateral meeting on 26 February 2021, with the extension being announced on 3 March 2021, and the uplift ending on 6 October 2021.

So that’s just to give some context. The idea, as a starting point, that there should be an uplift to those benefits, did that originate in the Treasury with you?

The Sunak: I can’t honestly recall. I would imagine the Treasury were talking already to DWP about various things, I think we’ll come on to it later, the Statutory Sick Pay, for example, those conversations were already happening. I remember them happening quite vividly on Statutory Sick Pay because there were also legislative aspects of that that we needed to implement.

So I can’t say that it necessarily came from the Treasury versus DWP or some conversation between them –

Lady Hallett: I know you had a lot of things crossing your desk. I don’t want it to be a memory test. Let me just put up INQ000588230, this is the statement of Will Quince, who was the minister in the DWP, paragraph 17.

His recollection was that a commission came from you as Chancellor, on around 17 March, to the DWP to explore an increase. So it certainly seems to have been Treasury to DWP, according to Mr Quince’s recollection.

The Sunak: Yes, well, I’ll trust Will’s recollection. I was – I was obviously doing a lot at that time and asking for lots of things in lots of different areas, but I don’t want to try to, you know, suggest that it was all from me not knowing exactly where it came from.

Lady Hallett: No, and in fairness, the evidence is slightly unclear about really who was driving the policy, and I’ll just, again, just out of fairness to you, Lady Coffey said, effectively, that the overall policy was being decided by her, but that you had to sign the cheque, effectively.

The Sunak: Yes.

Lady Hallett: Mr Quince recalled that the decisions were really made jointly by Lady Coffey and you, as Chancellor, so that was –

The Sunak: Yeah.

Lady Hallett: – how he saw it. I mean, it may not really matter but do you have a clear recollection of who was making the decision?

The Sunak: I’m sure, if the former Prime Minister were sitting here, he would probably say it was actually him – the rest of us could decide what we like, but actually the decision was left with him at the end of the day. I can’t, I honestly can’t remember. I think there was – look, economic policy was generally driven out of the Treasury, I was driving it across the board at this moment in time. There are a few particular things about DWP policy because the Secretary of State has a legal or has a statutory role in the setting of various benefit levels and has to undertake various reviews according to statute. So from a legal perspective, he or she has to be the one that formally makes the decision, potentially. So it might be some reflection of that, which I’m sure the teams can check.

But look, I, as a general sense, we – I set out those criteria at the beginning of what we were trying to achieve. I, of course, in the context of all the different things we were doing, was – would have spoken to my team about well, you know, what do we do for those who were the most vulnerable? You know, what do some of those interventions look like? Of course, I would have said something like that and that would have led to flurries of commissions in work and then start going through options.

Lady Hallett: Yes, I’m pleased you referenced that because I was going to pick that up actually, you know, looking, as you put it, the strong eye on the most vulnerable. This came at an early stage on any view, 17 March?

The Sunak: Yeah.

Lady Hallett: So it appears at an early stage you, or the Treasury was certainly thinking about recipients of Universal Credit or Working Tax Credit. I mean, but was there, effectively, a formal strategy in terms of how you were keeping that strong eye on the most vulnerable? Or was it evolving in an iterative organic way in the same way as all the other interventions were developing? But just you were keeping them in mind?

The Sunak: Well, I mean, you have to remember at this time, and, you know, 20 March, I mean, this is where every single day we were doing something, and something quite significant, and trying to tackle all the different aspects of economic policy, you know, loan guarantees over here, support for those Universal Credit. We’d already done a bunch of things in the budget for Statutory Sick Pay changes, you know, grants and business rate relief, for hospitality businesses.

So I think this is a period where you were trying to just hit everything, you know, because you knew that this was going to impact everyone pretty much in the country, and so I don’t think there was, quite frankly, the time to really sit there and spend a day designing some overall, you know, big strategy plan that you could work to. It was just the knowledge that we had to move incredibly quickly in all these different areas of which this was an important one, and that’s why the work was being done, and this is probably exactly in parallel to the work on furlough, the work on CBILS, the work on grants. I mean, all those things were happening at exactly the same time.

Lady Hallett: And from your perspective, was this about alleviating economic hardship in general, or, as with all the other interventions we’ve discussed, was this about taking steps to minimise/alleviate economic hardship arising from the pandemic?

The Sunak: The latter. The latter. And, you know, that was – none of these things are perfect, by the way, as we’ve discussed, but the general objective here was to support those who were the most financially disadvantaged or exposed as a direct result of the pandemic, especially those coming to Universal Credit for the first time, potentially, and, in doing that, wanting, as with previous discussions we’ve had, and other interventions, provide that assistance very quickly. And here in particular, the conversations we’ve had previously about things that are simple, universal, that can be delivered at scale and understood, had a particular benefit, because the reassurance part in this area was particularly important.

Lady Hallett: And so – and I don’t want to get into the background politics of the welfare state and so on and so forth, but from your perspective, and the reason I’m asking the questions is so we can look at the objective and how it was delivered, but from your perspective, this was about providing support arising from the pandemic, not to making changes generally in welfare provision in ordinary times?

The Sunak: Yeah, I think that – yes, in terms of the interventions that we were designing, yes. And by – you know, by nature, as almost everything that we’ve spoken about was – you know, was temporary. These were temporary, targeted interventions designed to deal with the particular issue that we faced.

Lady Hallett: And that’s an important qualification you’ve just made, from your perspective. When you signed off on the uplift, from your perspective this was always temporary, by which I mean linked to the economic emergency presented by the pandemic?

The Sunak: Yes. And, indeed, that was the legal position as well. It was not a permanent uplift. The mechanism for delivering it was one that it lasted for 12 months.

Lady Hallett: So, from your perspective, it was always going to end at some point. We’ll discuss the extension –

The Sunak: The extension, yeah.

Lady Hallett: – but it was always going to end, and there shouldn’t ever have been confusion about whether it was or wasn’t going to end at some point, because it was pandemic-related support?

The Sunak: Yes, yes.

And I think you can contrast it to something else we did, which – I’m trying to – I think we announced at the budget, which was also in the welfare system, and that was a permanent change and that was a significant increase to local housing allowance, the LHA, which was, from memory, about a, you know, billion-pound increase to the Welfare Bill, that benefited, you know, over a million and a half people, and increasing the level of those – of that benefit. You know, that was a permanent. It happened to come in at the same time as these things, so obviously, as a marginal change, was particularly beneficial during this pandemic period, but there was no suggestion that that was going to be unwound. That was a – we’d made that permanent change. And it started at the same time, it was incredibly helpful, it was announced at the budget. That change was designed to be permanent.

So, you know, some welfare things we did were permanent. Others, like this, were deliberately temporary.

Lady Hallett: And so you are making the point there again, as you did with self-employed income support, it’s necessary to look at all changes that were made –

The Sunak: Yes.

Lady Hallett: – not just one thing at a time?

The Sunak: Yes.

Lady Hallett: Right.

The Sunak: That’s a very important point. And actually you’ve jogged my memory, because one of the other interventions that was particularly helpful for self-employed was Time to Pay, which I should have mentioned in the previous session we had, which was announced in the budget, but this gave self-employed people and – and businesses more generally, but particularly valuable to self-employed people, an ability to delay their tax payments.

Lady Hallett: Yes.

The Sunak: And that, that actually was taken up by lots of people. We extended it. We made it particularly much more easy to access, generous terms and, you know, we know it made a difference to people. And it’s just another example of something else that was there which particularly actually ended up helping those who were self-employed.

But your broader point is absolutely right: there are so many different things going on at the same time.

Lady Hallett: I just want to focus initially about the objective of the uplift.

The Sunak: Mm.

Lady Hallett: And I preface these questions, it may seem at times that there’s an element of semantics, but it is important to identify from your perspective what the objective was because we’ve heard evidence from others about what they thought the objective was, and I just want to establish from your perspective what – why you were doing this. The way you put it in your statement, and I’ll ask for it to be put up on the screen so we can see it.

It’s INQ000661483, and it’s page 267 of Mr Sunak’s statement, please. Paragraph 1005. There we are.

You say:

“… the government’s objective was to support those most financially exposed or disadvantaged as a direct result of the pandemic. It was determined that this was best achieved through the two benefits which were both means-tested benefits and available where an individual suffered a reduction to their income as a result of reduced hours or unemployment which created or further exacerbated low income.”

And the first point to note there is the point you’ve made in your evidence: that this was, so far as you were concerned, Mr Sunak, to support those exposed or disadvantaged as a direct as a result of the pandemic.

The Sunak: Yes.

Lady Hallett: Now, I suppose that can mean lots of different things, because you might be disadvantaged as a result of the pandemic, or financially exposed, because the costs go up, for example. So you may not have lost any income but you may find that it costs more to be at home because you’ve suddenly got to pay to heat your house all day or you’ve got to educate your kids at home. But I don’t get the impression that that’s what you mean by financially exposed. Do you mean people who had lost income or employment and therefore were claiming Universal Credit, or did you mean people who generally found themselves financially impacted?

The Sunak: I mean, this was, as you described, and it says in the bottom of the highlighted bit, this is where people had an impact on their ability to work, and that would then, either because their hours were reduced or reduced to zero or made it less hard (sic) for them to get a job, because of the various restrictions in place, and that’s what this was geared to. Which is what then, you know, led to the design of this particular policy and we’ll get into why we did it the way we did, and as this says, why we chose the particular basis for the uplift that we did, because it’s, as we’ll get into, linked to those employment outcomes and that work, and targeting people for whom – people for whom earnings are a significant proportion of their overall income. And because it’s that income that is facing the biggest change because of the pandemic, and the fact that it was shutting down the economy and therefore people couldn’t work, or couldn’t find a job, or had their hours reduced, and that was the bit that it was trying to get at.

That said, a general increase in the standard allowance, you know, does just have the obvious benefit of, in general, putting more money into the welfare system in a very broad-based way, it has a macroeconomic benefit of being a pretty effective fiscal stimulus in normal times because the multiplier on that type of spending is typically very high. So, you know, there are other benefits or consequences of doing that that have a more general application, but this is what we were trying to get at, by doing it.

Lady Hallett: Right. So the objective was to support incomes of those who had either lost their job or seen a decline in income as a direct result of the pandemic. That’s why it’s focused on Universal Credit, which is a work-related –

The Sunak: Related, yes.

Lady Hallett: – benefit. But if there were additional upsides, ie that, generally speaking, all low-income households are supported by the additional money and therefore find it easier to cope with costs, or that there’s an additional advantage of some element of fiscal stimulus because people have got more money to spend, then those are – they’re not really trade-offs, they’re sort of win-wins, they’re –

The Sunak: No. And it’s not that we weren’t aware of them, right.

Lady Hallett: No.

The Sunak: Because those are not all bad things to have happen at this period either. And as I’m sure we’ll hopefully have time to get into, when you look at the various measures of household income, disposable income, inequality, poverty, deprivation, et cetera; all those things in general either were constant or improved in many cases compared to the pre-pandemic years. So clearly this did have the benefit of more generally supporting lots of vulnerable people, which was something that we obviously knew going into it that it would do.

Lady Hallett: Yes.

The Sunak: So it was nice that it was able to do both things.

Lady Hallett: I mean, I don’t want to jump ahead but you’ve made a very valid point there about those figures, and we’ve heard about those statistics in the module, but I suppose, again, it left you, as Chancellor, in a position where ultimately you’d have a hard political choice about not making it permanent. You were giving, in these times of crisis, but, from your perspective, you always knew you were going to have to take away again?

The Sunak: Mm.

Lady Hallett: Which would have that negative effect on those households?

The Sunak: Yes, although at that point that the temporary support ended, by definition, we were trying to time that with the removal of all the things that had created the negative shock in the first place. So we were just back to a status quo ante, in some sense. So, you know, shock comes. Right that we put support in to help people through the shock, and when you remove the shock – and obviously there’s a, you know, ramp-up, which we went into previously, but in general, if we’ve gone back to a status quo ante world, where that shock isn’t there, we’re not closing businesses down, people can work, everything is opening and recovering, then it’s not unreasonable for – in a general sense, for policy to return back to where it was, not least because, as we’ve discussed at the beginning, and you just alluded to, you know, all of these things have a fiscal cost.

And, you know, it was my job to make sure that we could manage that. And obviously that has an impact on future taxes, which I had to deal with, and that, you know, the – I don’t think anyone wants to, you know, pay a great deal more tax. And in the back of your head – and there’s a limit to how much we can borrow. So all of these things are reasonable things for people to think about as things returned to normal.

Lady Hallett: I don’t want to get into sort of the raw politics of it and what lies behind the welfare system, but your position, as you said earlier, you’re a fiscal conservative, and your view was: we’ll give the support while the pandemic was there; when it ends it will be withdrawn because it’s there to support during the pandemic, and we return to normal state.

The Sunak: That’s very much my approach. And that is what we did, I think, across the suite of interventions. You know, whether it’s CJRS, SEISS, we’ll get on to loans and grants tomorrow. But actually, here, actually slightly kind of different to all the others, where there are no real legacies of the pandemic intervention, this is the one area where there actually is, in a sense, a permanent change. And that was because – we’re jumping ahead to the ending of this but, you know, whilst the temporary uplift in Universal Credit ended, you know, what I did at the end was permanently change the way the welfare and tax system interact by changing what’s called the UC taper rate. And what that does is essentially reduce the rate at which your benefits are withdrawn as you earn more money.

So, in effect, it effectively acts like a tax cut for those who were moving into more work from welfare. And that’s – as I said, that’s something that lots of people had called for.

I thought that was a sensible thing to do as a permanent change to our tax and welfare system. Obviously it costs money. That was a decision I made. I think it cost £2 billion or something. And from memory at the time it helped 2 million people.

And that was – as I said, unlike all the others in this area, there was a permanent change to the area of policy. It was not the same as a permanent uplift in Universal Credit but it was a change to the Universal Credit system, but done in a way that particularly increased, you know, the incentive and therefore the reward for people who were moving into employment from welfare and making sure that they could keep more of the money that they were earning, which I thought was a good, sensible thing to do.

Lady Hallett: And again, not getting into the sort of the politics of this, but this aligns with what you said earlier about believing in supporting people through jobs and work and employment, and providing support in that way?

The Sunak: Yes, and I – particularly as the economy was open and growing, and my general view is – and actually, the Prime Minister’s view, at the end of the day, it was also the Prime Minister’s view, and I believed it, and the Prime Minister at the time believed it, and I believe it now, actually supporting people into work and giving people the security and dignity of a good job and then allowing them to keep far more of their hard-earned money rather than the state taking it in taxes is in general a good thing, and the kind of effective tax rate for people who are moving off Universal Credit into work was quite high. I think it was 60% or higher.

Think about that as a marginal tax rate and it’s quite high, and what I was able to do at the end is reduce that somewhat, quite meaningfully, which again, supports an objective of helping people into work, which is long term the best route to financial security for them and help them, you know – well, help them keep more of their money, move into work, provide financial security and resilience for them and their families and also hopefully have an impact on reducing poverty levels as well.

Lady Hallett: Well, I think we’ve dealt with, from your perspective, the policy objective. It seems to have been clear, a temporary measure, aimed at the pandemic, will be withdrawn at the end, and then you’ve talked about the other changes you made.

Can I pick up, then, against that background with the fact that the uplift – a decision was made that the uplift would not apply to legacy benefit claimants. So it would only apply to Working Tax Credits or Universal Credit. And can you help us, from your perspective, why that decision was made? Was it made for operational reasons? We’ve heard a lot about the old IT system and it took five months, I think, it was said, to plumb in every year any changes in the levels of benefit and the whole thing would fall over, or was it taken not to apply it to legacy benefits because that would be inconsistent with the overall objective, as you’ve identified it, of the uplift, ie to compensate those who were newly unemployed or seen a reduction because of the pandemic?

The Sunak: I think, first and foremost, it just simply wasn’t possible, operationally. I think as a, you know, again, I can’t remember the exact conversations at the time, and we should get into – it also would not have as cleanly supported the policy objective, but in a sense, we can have that academic, you know, discussion and go through why, but it just simply, operationally, was not doable. And I think you’ve got evidence from the officials at DWP, and the bit that stood out to me which I remember – I mean, you know, the whole point about Universal Credit was it is this new system. The old system is very creaky, very old, and it’s simply not possible, as one of them said – I forget whether it was a DG at DWP or the director of Universal Credit –

Lady Hallett: I think it was Neil Couling at – (overspeaking) –

The Sunak: Yes, you had two different ones, but I think one of them said it is just simply not possible to digitally uprate mid-year, but I think the bit that stood with me from Neil is where he said the risk of system failure was too great to go ahead with a change, that was the advice at the time. And the risk – there was a risk that benefits just stopped altogether.

So that, you know, that’s from the people and, you know, I’m not the one on the front line of grappling with these things and I haven’t worked in that department, but the very strong opinion of all the people who have to do this and make sure everyone on those systems gets the support that they’re entitled to, were all saying that this simply isn’t possible, and you risk trying to do anything here, and the whole thing might just collapse entirely.

So first and foremost, I just think that they were so unequivocal about that, that – and we should get into the policy discussion in a second, and I’m very happy to have that, but I think I just would be – there was no ambiguity. It wasn’t “Well, if you’re happy to take some risk maybe it’s fine, and use your risk judgement.” It was pretty binary. It was “You cannot do this, it won’t work, we can’t do it. If you try and make it happen, the thing will most likely just completely collapse.”

That was very much my recollection of it at the time and re-reading the evidence from everyone and the advice, that kind of aligns with my memory of it.

Lady Hallett: So this goes further than, for example, the discussion we were having earlier about HMRC –

The Sunak: Yes.

Lady Hallett: – and the pressures they were under? That was operational pressure, but this was actually a stark warning that the whole thing would fall over?

The Sunak: Yes, yes, I think, actually, it’s a helpful distinction. There were things, as we were saying with Jim, he could do a workaround, he could do a manual thing and he would say, “Fine, it will delay all these other things” or “It will mean we can do it, it will take two months.” There was none – of those, I don’t think, that we’ve discussed were “The whole thing will collapse”, or “It’s just simply not possible.” This was in that category, and I think that was a consistent view from the ministers who were there, Will Quince, and Thérèse Coffey, I think agreed with that view. Obviously, they were best placed, not me, to diligence that view. But that was very much the consistent view across DWP amongst the officials and the ministers. And –

Lady Hallett: And what about – sorry.

The Sunak: That’s a helpful distinction that you’ve made between some of the HMRC operational things which were, as I’ve said, as you’ve highlighted rightly, are different.

Lady Hallett: Yes. Sorry, I didn’t mean to talk across you.

The Sunak: No, no, no, no, sorry –

Lady Hallett: And so far as the policy debate, if you like, about whether providing the uplift to claimants of legacy benefits was consistent with the policy, where did you stand on that?

The Sunak: Yeah, I think, as I’ve said, it’s important that this is a theoretical debate, because it, in any case –

Lady Hallett: Couldn’t be done –

The Sunak: – it was not doable, but I think from a policy perspective, there’s a number of reasons why targeting these legacy benefits was, you know, was not in keeping with the main policy objective. I mean, first and foremost, was that the majority of the claimants, you know, for example on Employment and Support Allowance, you know, were not required to carry out work or they didn’t have work requirements built into their eligibility. So by definition, the – you know, you might suffer a drop in income or not be able to get any income, it was irrelevant to your benefit eligibility and what you would receive, and I think child tax credits, by definition, were not working enough to qualify for Working Tax Credits, again. So that would be in that category.

I think your expert, Dr Brewer, talked about some of the other legacy benefits in there, and I think maybe Carer’s Allowance and PIP, but just please bear with me because my memory of each precise benefit at the time might not be precise but I think he also said, look, many of those legacy benefits were not, you know, were not designed to provide income protection and when people lost hours or work that, you know, they were there regardless of that, which is why they didn’t meet the policy objective.

And that I think is first and foremost the reason.

I think secondly, because, by definition, they were legacy benefits, and they were quite old, anyone who was new to the welfare system, and therefore directly impacted by the pandemic in that sense, would be on the Universal Credit system. They wouldn’t be on the – they wouldn’t be going onto these legacy benefits. Right? The people on these systems would have been there for a while, whereas anyone newly affected by the pandemic would go on to Universal Credit. They wouldn’t come to these benefits, so you wouldn’t be capturing anyone directly newly affected who’s moved onto welfare.

And then probably the last couple of things are, it was always possible for people, if they wanted to, to move onto Universal Credit if they, you know, if they so chose. Now, you know, people will say well, they might be worse off, and for some people, that might have been true, for sure. But I think the numbers at the time were, for the vast majority – maybe as much as 70%, I think, as someone has put in the evidence – it would have been actually financially better off had they made the move.

Now, that was never an explicit policy objective of any of this, but it was just something to know, that for at least 70% of people on legacy benefits would be better off going on to UC anyway, so that was available for them.

And maybe – I mean, lastly I think in the budget, not that this was particularly relevant, but it – for this conversation, but it’s just context, legacy benefits had been frozen, from memory, for four, five years, and the spring budget, that budget that I did in 2020, I think we uprated them in line with inflation and removed the benefits freeze, so they were actually getting an uplift for the first time in some time as compared to the last few years as well.

So those were a range of reasons why it didn’t, as I said, fully align with the policy objective, or there was a mitigation that was in place that may have helped.

Lady Hallett: Well, thank you for that full answer, but – so it comes back to this: you couldn’t do it anyway, even if you’d want to, but if you had been able to, operationally, those were all reasons why it didn’t align with the –

The Sunak: Yeah.

Lady Hallett: – policy objective?

Thinking about the most vulnerable, economically and otherwise vulnerable, do you accept the counterpoint that, particularly those in receipt of disability benefits, PIP payments and others, that by not applying the uplift to legacy benefits, they were disproportionately going to be impacted? Disabled people in particular?

The Sunak: Well, I think we – there was some gateway that had prevented, previously, disability claimants from transitioning onto UC. That was removed at some point. So that, again, for those group of legacy benefits would enable them to move onto UC. And then, you know, so, more broadly, it goes back to what we’re trying to achieve, because those benefits hadn’t changed, and for those people who would – were not working and would not have seen a change to their incomes as a result – because my memory of what the benefits that they received was designed to do was to support them with living costs. So it’s a totally different benefit. And so that’s why the policy objectives are slightly different.

And obviously there was a regular increase in those benefits, as I said, because the uplift happened at that budget and then came into force in April as it was.

Lady Hallett: I turn this argument on its head and look at it the other way in terms of applying the uplift to Universal Credit, to all Universal Credit claimants. Looking at the other way, with public money in mind, did it mean that some people were getting an uplift that they were not intended to receive, if it was intended to be applied to those who were new claimants and/or had seen a drop in income? In other words, those that had been claiming Universal Credit for some time.

The Sunak: By – and obviously by definition, yes – I mean yes. You know, the same as we’ve discussed in all of these things. That’s the downside in universality.

Lady Hallett: Was there a way of avoiding that, though, and targeting, therefore, only new claimants? The reason I ask is, if the objective is to support people who have lost their income because they’ve lost their job, and therefore they’re having to have recourse to benefit, if you could have only helped those people you might have been able to help them proportionately more?

The Sunak: But you have to remember it’s not as simple as that, because as well as brand new people coming onto the system, there’s also people who were already on the system whose hours are reduced as a result of the pandemic that would still fall into that same category. And then – so then you would have to capture those people, as you rightly should, and then you’re into a question of, well, whose hours are being reduced because of the pandemic, whose hours are reduced because they’re doing something themselves? Or whatever it is. So you quite quickly end up in, I think, probably an uneasy place to start differentiating between all these people.

And my understanding, again, is that – and it’s in the evidence – and I think you heard this from Will – it goes back to the operational complexity.

Again, we sit here now and it was all fine. Universal Credit saw something like a 3 million, you know, increase in claims. I mean, a more than doubling of claims to Universal Credit in a matter of weeks. Let’s be clear, if that had happened before Universal Credit, the system would have fallen down. Right? So all the people, as before – and I can’t take any credit for that – all the people who preceded me who designed that system, implemented that system, probably with lots of people telling them it was a waste of time or they were doing something wrong, they all deserve an enormous amount of praise, because had we not had the brand new Universal Credit system and had it embedded for the years that we had before the pandemic came along, it would have been awful for millions of incredibly vulnerable people. The old system would have just not coped at all with that volume of new claimants coming to it.

So we were also conscious of that. You know, there’s – we needed to make sure that whatever we did was operationally going to be deliverable and not collapse, particularly because we’re dealing with really vulnerable people who need this support in a timely fashion. And that’s what also pushed us towards the simplicity of a flat rate change to the standard allowance without any microtargeting beyond that. Because there’s multiple different versions of what you just said, Mr Wright. You know, you could vary the amount for different groups of people, you could target these people over here who are new, but not everyone before. There’s all sorts of targeting you could have done. But – and I think the – again, from the official, he said, you know, this avoided, obviously, the complications, and the director of UC has put in evidence that they simply don’t believe the department could have implemented a more targeted approach in the desired timeframe, and I think Will Quince in his evidence specifically says it just – you know, that talk of targeting fails to appreciate the pace of events and the complexity of the systems and the high risk of inequity that this could create.

So, you know, is a flat rate universal standard allowance increase perfectly targeted? Of course it isn’t, but for delivering what we needed it to do, being able to be done without collapsing the system, and to be able to be communicated very simply with that universality to provide a broader reassurance to a very vulnerable group of people and provide those broader benefits that we talked about, you know, I thought it was a sensible and right policy to pursue.

Lady Hallett: So we’re seeing the same sort of problems across all of the three big, simple interventions, if you like: Job Retention Scheme, self-employed scheme, uplift, which is that targeting sounds great but when you start to try and do it, you either have hard edges, cliff edges that leave lots of people shouting “What about me?”, or it becomes operationally impossible?

The Sunak: Yes, and – or then – and undermines the benefit you get from a simple message that everyone can understand and take some confidence and reassurance from. And look, I would say, just because people, you know, shout at you and get upset at you is not a reason not to do it, right? Like, we’re in the business of – well, at least I certainly – you try and be in the business of trying to do the right thing for the country, and it’s not always easy, and people do get upset with you and you like them to, you know, generally come along with you on the journey but sometimes they don’t, but that’s life. But I did that on the self-employment scheme and did get all that criticism, but I just thought it was the right thing to do, and was happy to justify it. And similarly, when I had that budget in spring ‘21 and, you know, raised taxes to start paying back this money, again, I did it because it was the right thing to do. And of course people were upset about that.

So, you know, just that in and of itself is not a great reason, but let’s be honest, you know, we’re talking about politics and people are responsive to public opinion, so we should be conscious about that and, you know, recommendations and other things, have to be, I think, realistic about what is possible and what is not, and it also goes to what you were saying before: it is not as easy to withdraw these things, you know, it’s all very well putting them in place, you know, when you say, “Okay, that temporary thing is finished and now we’re not going to do this anymore and now you have to start paying it back”, it’s not as if everyone says, “Ooh, you know what? You did tell us that and it’s all fine”? Of course, they don’t, right, and you wish it were so.

But that said, on this particular thing, I actually think there wasn’t an appropriate targeting that could have been done. It wasn’t that people would have been upset with me or not, I just didn’t think it was the right thing to do for what this intervention was, or it would have risked an enormous amount of complexity which would then have undermined the policy objective.

Lady Hallett: I’m going to come on now to look at the extension, because –

The Sunak: Yes. Just before that, Mr Wright, I just want to finish off on legacy because obviously we’re forward looking as well, I know obviously, my Lady, you will want to think about forward, this debate on the legacy, in any case, is one where it is firmly in the rearview mirror because the transition, I think will be completed by next spring, from memory. So, you know, this is one where, you know, look, I did what I did and together with the other ministers will take responsibility and accountability for that.

It wasn’t possible in any case, so I don’t think there’s, you know – having said there’s an academic discussion, but this, thankfully, won’t be relevant in the future, if it ever comes up again, because everyone will be on the Universal Credit system.

Lady Hallett: Yes, with its enhanced IT capability –

The Sunak: Which – and we now know it can cope with something that is – as I said – I’m glad I’ve remembered that, because I really would say all the people who did that deserve a lot of thanks, because it was – I think it went from 2.5 million claimants to 5.7, 5.8, in a matter of weeks. You know (unclear) this is – going back to our previous thing, we’ve got 3 million people claiming for SEISS, we’ve got a million businesses, 10 million people at HMRC, we’ve got an extra, you know, 3-plus million people accessing the Universal Credit system. These are huge numbers that we’re talking about, and happening in days and weeks.

Lady Hallett: Did that also feed into your assessment as to whether to provide a flat rate or to change the rate depending on the composition of households?

The Sunak: – (overspeaking) –

Lady Hallett: Because that was certainly discussed.

The Sunak: And the decision, and again, I think we’d do the same again, was the flat rate, for all the reasons we’ve just discussed, did exactly what we needed it to do.

Lady Hallett: Simple, easy to communicate, and easy to stand up?

The Sunak: And deliverable.

Lady Hallett: So when it came to the extension of the uplift, I mean, these benefits were uprated for a year, until 2021. That’s the endpoint, unless something is done. It’s not a question of withdrawing it; it’s just it’s been a one-year uprating?

The Sunak: Yes.

Lady Hallett: But there became a discussion about the extension, and the discussion presumably became necessary because of the health position in the nation and restrictions continuing, and so on and so forth.

There was some disagreement, wasn’t there, between DWP and the Treasury as to how (a) whether there should be an extension, (b) if there was an extension, how it should be configured, the Secretary of State for DWP was arguing for splitting it, reducing the – one part to £10 then £10 for a child. Or – also you were exploring the possibility of a one-off lump-sum payment as an alternative.

So can you, from your perspective, explain to us where you sat with, first of all, whether there should be an extension, initially, and then how that should be delivered: whether a lump sum or retaining a flat rate?

The Sunak: Yes, so I think probably – I think this is actually a good example of Cabinet decision making, working quite well, I think, actually. There was completely good-natured constructive discussions between Thérèse, me, and the then Prime Minister, about this issue, lots of good meetings, lots of going through the options. To your point earlier, everyone working from the same set of shared facts, figures, analysis, from DWP and HMT about the options. I think the thinking evolved, we started discussing this probably in the autumn and obviously the health situation then was changing, but between then and when we ended up making the final decisions going into the spring budget.

So I think my thinking may well have evolved during that period.

And I think where we ended up was what I, you know, I think was, again, why did we do it? It aligned with the other things we were doing. You know, we’re going to go through all the different interventions. They broadly align – or the economic interventions, if you look at how they were all phased out, they all broadly align with the health restrictions phasing out. If you put a chart up, we had it in one of the bits of evidence, you know, we thought about it across the piece, the loan schemes, the grants, SEISS, or the last SEISS grant, CJRS, Universal Credit, it wasn’t as if one thing was ending here, one thing was ending there, one thing was ending there. They were all, actually, if you look at them, being done in a pretty consistent and coherent manner, and again, all of that was driven by the changing health picture.

So, you know, this ending at the end of September at the same time that SEISS ended, that CJRS ended, that the grants ended, again, you will see a kind of similarity amongst all of these things. So that’s kind of where we settled on.

I think it’s not unfair that there’s a bit of disagreement about the – about that, you know, the Secretary of State for Work and Pensions arguing for, you know, more money for the welfare system, it was ever thus, and I’m sure it will always be ever thus in general.

Lady Hallett: Can I pick that point up? I mean, Mr Quince was quite candid in his evidence about this in that he took the view, well, we’ve got the money in the system now, let’s try and make it permanent, really, let’s try and land it permanently.

The Sunak: Yes.

Lady Hallett: Now, this is, would you say, you going back to your ordinary state as Chancellor of the Exchequer, which is a responsibility to overall government spending and budgets, and was this the point at which you’d been looking at this as an economic intervention related to the pandemic. That’s how it had come in. That’s still how you were looking at it, but the DWP was moving on to thinking about it in terms of: can we bank this going forward?

The Sunak: I think, Will, if you asked him, would probably not disagree with your characterisation of it. And I think if you look at his evidence, you know, I think he said, “I can’t say I disagree with the final decision made by the Chancellor, competing fiscal priorities, complex trade-offs”, you know, totally reasonable for him to make the case, and at the end of the day, you know, the Secretary of State, myself, the PM, we sat through, actually, very constructively went through the options, settled on the extension, the one-off payment was for Working Tax Credits because it could only operationally be done that way, the way that that system worked. It was either a one-off payment or 12 months, from memory.

There’s a – there’s a debate amongst the people that spent time on this about one-off, whether large lump-sum payments are necessarily great or not great for people.

Lady Hallett: Just jumping in there, I think the Treasury was really saying to the DWP – you were pointing out to them there’s actually some evidence the other way, that people cope perfectly well with lump-sum payments?

The Sunak: I think, you know, there’s a reasonable debate about that amongst people. In the end I’m not sure it was ever – whether it was possible or not for Universal Credit. I don’t know. It might have been. But it was also – we did do the six months. I think that’s fine. Working Tax Credits, it had to be done in that way, because the system is not able to do six months’ worth of payments. So we did it that way for Working Tax Credits, operate – it was an operationally-driven decision rather than a policy decision. And if we did have the choice on Universal Credit, which I can’t remember, we clearly decided to do it six months.

And so that was – you know, that’s where we settled. And, as I said, I think it was entirely reasonable, given everything else we were doing. And then, as we discussed earlier, what happened at the end of that was a permanent change to the Universal Credit system, which made it more generous for, as people moved into employment and worked, and essentially, as I said, reduced the tax rate on them for working more.

Lady Hallett: Can I just pick up the point about lump sum payments in the context of legacy benefits.

Accepting what you’ve said about, for operational reasons, you just couldn’t deliver the uplift to legacy benefits, we have now moved on quite a long time in the pandemic by the time of the extension. Had other work been done to see whether it would be – or an uplift to legacy benefits would be deliverable, payable by a lump sum, if the policy objective had shifted, so that you could do something about that?

The Sunak: I can’t recall. I do – I remember early in the pandemic, it was certainly the case – and I think you’ve had evidence on this point – that it certainly – it simply wasn’t possible to do one-off payments for legacy benefits. I think the quote in the evidence is, you know, they’d never tested the emergency payments system at that scale, and that they would need at least six months to go through all of that.

And I don’t recall, you know, when all that work started. Given all the other demands on DWP’s time, that – I’m not sure where that was. Thankfully, it was in place by the time of, you know, spring 2022, when we were responding to the energy bill shock, and we were able to use that emergency payment system that had, at that point, been improved or whatever it was that needed to happen to it so we could use it to deliver effective lump-sum payments.

So, again, in terms of the future, that has now been done, but I think legacy payments in the future won’t be an issue, so –

Lady Hallett: Because everyone will be on Universal Credit –

The Sunak: On Universal Credit anyway. But in any case, it had been done by spring 2022, which was good, because we used it to respond to the energy shock.

Lady Hallett: I’m sorry to get into what you might consider to be the weeds of details at 4.20, but just on the – when the decision to uplift was actually made, I just wonder if you can help us with this. There seemed to be a few meetings, key meetings, in February of 2021. There was one on 4 February where the Secretary of State, the Prime Minister and yourself had a trilateral. You had a bilateral meeting with the Prime Minister on 8 February where we know that Universal Credit was discussed, and you say in your statement you agreed to proceed on 17 February 2021.

And then there’s a further trilateral meeting on 26 February.

Can you help us at all with, if you – I mean, your statement says 17 February you agreed to proceed. Was it likely at the bilateral with the Prime Minister on 8 February, do you think, or was it a sort of continuing dialogue?

The Sunak: I honestly can’t remember, but the budget was on 3 March, and it was announced at the budget. And this is something that – everyone is a bit more intimately familiar with OBR processes now, but that was something – you know, is the kind of thing that you would need to have communicated to the OBR, you know, some period of time before 3 March, maybe. And I tended not to do things last minute, so that, I would imagine, would have been towards the end of February, maybe the 20th or something.

So that feels about right to me, but I can’t honestly remember beyond what I’ve put in my statement as to where it was.

But, look, the Prime Minister was intimately involved in all of this, and, you know, would have signed off on the final decisions, as he would because of – all the budget decisions he would go through with me and sign off on them, and this was something that he’d had the meetings with Thérèse and me on and ultimately took the final decision.

Lady Hallett: In terms of, then, the uplift ending – and again, it wasn’t that a decision was taken to end it; it was just that it had been extended –

The Sunak: Mm.

Lady Hallett: – and so it then came to its end, and that’s probably the right way of looking at it.

The Sunak: Yes.

Lady Hallett: It’s not a new decision not to end it. But looking back, and you having been very clear about what your objectives were and why you were doing this, and accepting that the DWP, in terms of extension, were pushing to try to land it permanently, as a – do you think that public communication could have been clearer, should have been clearer, that – from the very outset: “Don’t get used to this”, putting it bluntly, “This is a temporary measure. That’s all it’s ever going to be”?

The Sunak: Look, I can’t recall each individual instance that I was asked. I can’t imagine that I was ambiguous on that point. And, again, it’s the same as all of the interventions. You know, we’ll go over the others tomorrow, but all the ones we’ve been through today all had a – and most of it was all announced at the spring budget, you know, in that – 3 March, where there were roadmaps for CJRS, for SEISS, business grants, et cetera, Universal Credit, Working Tax Credit. All of that was announced: here’s the plan, here’s the exit roadmap from the pandemic, here’s how the economic support is going to taper off over the next six months.

And look, there’s always people who would want to create and lobby and create news and talk to people to try to get energy around the idea it should be extended. Of course that’s going to happen, but I guess the person who’s doing that job, whether it was me then or someone in the future, they can’t stop people from agitating or lobbying for it to be made permanent and suggesting there are reasons it should be. That’s always going to happen. And I would have been consistent, I would imagine throughout the – you know, we’d set out a set of taperings or finality to these schemes, and that’s what we’re doing.

Lady Hallett: Yeah. We understand that the DWP itself didn’t do any monitoring or evaluation of the uplift in terms of that very narrow intended target group. I accept the wider point you’ve made about, if you like, the unintended benefits to everybody who received it, in terms of poverty and living standards and so on. But in terms of its actual economic objective, of cushioning the blow of those who lost their jobs or lost income, are you aware of whether the Treasury did any evaluation or not? And if not, isn’t that important, if you’re spending money in that way, to evaluate it?

The Sunak: Yes, I mean, we – look, we do know a range of things, and I think it’s worth, just in the time we have, because this was something that, as I said at the beginning, was an objective of mine: to support the most vulnerable. And I’m proud of what the government did, and everyone who worked on this achieved. And like everything, nothing is perfect. But I think you’ve heard evidence from lots of people, including the expert witnesses, you know, who have been clear that, you know, what we did made a considerable difference to those low-income households, so much so that, you know, according to Dr Brewer, you know, deprivation and poverty didn’t actually seem to increase during this period, given – which is surprising, given the economic turmoil, and actually the official data shows that the number of – the proportion of households living in relative poverty actually fell from 22% to 20% during this period of time.

The number of children in poverty fell, according to the Child Poverty Action Group, and some of the academic research that has been done by Blundell and others showed that income inequality fell during the pandemic. And then DWP do do a survey, the HBAI survey, the Households Below Average Income survey, and we have some data from that which shows that the proportion of people facing food insecurity was lower in this pandemic year than it was the year before. Disposable incomes of the poorest fifth were higher and, actually, material deprivation, because we’ve talked about costs previously as well, were lower.

So even if there wasn’t a formal DWP evaluation done, which is obviously a question for them and maybe it can be done, there’s an enormous amount of official data, academic research, survey data and the Treasury published distribution analysis at all the events showing all these things that I’ve described, demonstrating that in aggregate, the policy objectives supporting the most vulnerable people in society, you know, by and large, did a good job of delivering on that, and all of the data that I’ve just been through would demonstrate that.

And again, of course it’s not perfect, but – and that’s why we had the Hardship Fund, you know, which would pick up anyone who was really in need, the local housing authority uplift we talked about, and others, but, you know, by and large, these interventions targeted at this group of people worked, and averted what the Resolution Foundation said could have been a, you know, living standards disaster, and actually helped cushion that considerably and protect people.

So, you know, I think I’m – as I say, I’m grateful to all the teams who worked on it. I thought they did an excellent job.

Lady Hallett: Mr Sunak, I can’t promise I’ve finished questions on Working Tax Credit, so I’m going to ask you to keep your finger in the page, as it were, overnight, just because we’ve covered a lot of ground in a relatively short period of time and I want to go back over my notes overnight just to check there’s nothing else I want to ask you about.

But, my Lady, I wonder if that’s a convenient moment for now?

Lady Hallett: It is. It’s been a long day both for Mr Sunak and, I’m sure, for you, Mr Wright.

I’m sorry we’ve got to ask you to come back tomorrow, Mr Sunak, but the team are very conscious that you have to get away by lunchtime, and I promise you that you will be leaving here before we break for lunch tomorrow.

The Witness: Thank you very much.

Lady Hallett: So I shall return for 10.00 tomorrow morning.

(4.28 pm)

(The hearing adjourned until 10.00 am the following day)