16 December 2025

(09.59 am)

The Sunak

THE RIGHT HONOURABLE RISHI SUNAK (continued).

Lady Hallett: Good morning.

Last session, Mr Sunak.

The Witness: Good morning, my Lady.

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

Mr Wright: Good morning, Mr Sunak.

The Sunak: Morning.

Lady Hallett: Can I just recap on where we are in the schedule of topics. We got up to, more or less, the end of my questions about Universal Credit and Working Tax Credit uplifts, just a couple of questions that I will come to that occurred to me overnight, but we’re then going to look at Statutory Sick Pay, the rebate scheme in particular, loans, grants, access by the VCSE sector to support, Long Covid, and then an opportunity for you to share any overarching reflections.

And having summarised those topics, I just make this point, which I think is a point that you were at pains to stress yesterday, that these are a selection of many hundreds of schemes that were stood up. We are obviously not, in the time available, able to look at every single scheme, and you’ve made that point that it’s important to think about all of the interventions that were taken.

And also, for the benefit of those following these hearings, this is the ninth in a series of modules, and earlier modules have looked at, in different ways, aspects of government intervention, for example the module for children, and we’re not retreading that ground. So we are not retreading, for example, Eat Out to Help Out that was picked up in Module 2. So, just to make it clear in terms of what we’re looking at and why we’re looking at those topics.

So, can I just pick up, please, two discrete issues relating to the uplift. And the first, really, is just for a matter of clarification of my understanding of your evidence. I’m going to ask that we have up on the screen your statement, paragraph 1011.

It’s INQ000661483.

And this is just to pick up a final point about legacy benefits.

You say there:

“There were also other DWP legacy benefits being provided to existing claimants who might experience a drop in incomes or unemployment. Primarily, income-based Jobseeker’s Allowance and Employment and Support Allowance. As with tax credits, these are being replaced with the [Universal Credit] system and so were closed to new claimants (who would apply for [Universal Credit]). It was the case that people who the policy was intended to target may have been in receipt of these benefits instead of [Universal Credit].”

I’m just – I don’t think you said anything inconsistent with that yesterday but we perhaps didn’t deal with it that explicitly, it’s just the point that there may have been some people, albeit a much smaller category, who were in receipt of legacy benefits who may have had a drop in income or from loss of employment.

The Sunak: I mean, as I’ve, I think, said on many occasions, in all of these schemes, when you’re trying to target millions and millions of people, of course we’re going to be able to find groups of people who didn’t benefit in some particular way, and I – we could have the same version of that conversation on every single one of these schemes.

So, I – you know, I would just caution against being, you know, so focused on that particular aspect of it. In this case, the majority of people on those legacy benefits did not have work-related conditions on them, and I haven’t got the exact figures here, and DWP would – they would provide them, but, you know, the overall approach here was to focus this extra support on those people who were seeing that change in income. The best way to get that group of people was to go through the Universal Credit.

In particular, for this subset of a subset of a subset of people, they are probably exactly the people who would have benefited from going from legacy benefit to Universal Credit. And I talked yesterday about the fact that around 70% of people on legacy benefits would actually have been better off if they transitioned to Universal Credit, as they had the opportunity to do.

And again – so, you know, there’s the first level of – or second mitigation to the point.

And then beyond that, as you acknowledge in your opening remarks, Mr Wright, there are a range of other support available, and in particular for those on the lowest incomes, you know, we did have the hardship funds which ended up totalling over – well over a billion and a half pounds, I think, to help people in the most need. We had significant funding for local authorities. We also had the local housing authority uplift again. So they may well have benefited from one or all of those other things I just mentioned.

So, in terms of trying to do a macro policy that could quickly comprehensively target millions of people and largely focus it on those whose incomes are changing, that the right way to that is Universal Credit, and as we discussed yesterday, this conversation, like the one we had yesterday, is essentially theoretical. You know, there was no practical, operational way to do this. So even if one had concluded that it was an appropriate policy response, there was no way to do it.

So just – I would remind everyone of the theoretical nature of this conversation, and especially as this won’t be an issue next time around, given that the migration from legacy benefits will have been completed by next spring.

Lady Hallett: Thank you.

The second thing I wanted to pick up, and I’m picking this up, really, as much as anything in a forward-looking sense. You’ve spoken about part of the policy rationale of all of the big schemes. So job retention, self-employed income support, and Universal Credit uplift, being that the government was making a decision about restricting people’s ability to go out to work and to earn, and therefore there was a sense in which the state had to stand behind those decisions, financially, and support people.

We’ve also heard evidence that the restrictions, the health restrictions, ‘Stay at Home’, had the potential to increase costs to some households, regardless of their ability to earn. So we’ve been talking about earning ability, but cost base. And in particular, evidence that those on the lowest incomes may have increased costs. And I just wonder, can you give us your reflections on this: was there any working assumption that essentially people would save money by being at home? In other words, their costs would decrease, because they wouldn’t be going out and spending, and do you think there was enough factoring in the potential for costs to increase?

For example, if you’re a low-income family and you’ve got to stay at home, you’ve got to heat the home all day, you’ve got to entertain and educate the children at home. Those sort of costs. And really, in a forward-looking sense, are those factors that a future chancellor making decisions ought to factor in to the support that should be provided?

The Sunak: What I would say on that, is, there wasn’t an explicit policy view that costs would come down, that’s not featured in any of the advice that you’ve seen in the Inquiry so far. You know, what we do know is that during that period, inflation in aggregate was very low, right? So, in general, the cost of goods and services in the economy during this period was lower than target for the entirety, I think, of that first 12 months, if not slightly longer.

So in an aggregate sense, now again, everyone’s lived experience of inflation is of course different, but you’re trying to make policy in aggregate as well. So we do know inflation was low. We do know, you know, we touched on this yesterday, for those on legacy benefits in particular who had not seen an increase in those benefits for four or five years, actually, for the first time in those four or five years had seen an increase in their benefits, and the Universal Credit uplift, as we discussed yesterday as well, as well as having the kind of direct link to employment and incomes, also provided just a general increase to very vulnerable people, millions of very vulnerable people, and so that helped in a much more general sense.

And we talked about that yesterday, you know, that that was an extra benefit of that policy, and very considerable, you know, billions and billions of pounds, to help with those. So that would have helped with living costs as well.

Then the last thing I would say is – and again, this goes back to the breadth of support. You know, you touched on education and in the module on education you would have heard about the extra financial support that was provided for vulnerable households, particularly as their children were being educated at home.

We haven’t touched on local government, but there was an enormous amount of funding that was provided to local government to help vulnerable families. So for those who were clinically vulnerable, shielding, with the extra support for those people, there were various support programmes announced of hundreds of millions of pounds.

Social care in the broader sense which included, you know, care for people in their homes, those who might have disabilities, all of those things. There was, I think, in total, £6 billion that was provided for local authorities, extra support to help all of those people.

Obviously for those who were homeless and rough sleeping, again, there was considerable extra funds provided, targeted at those people.

So my general view is I don’t think it’s fair to say there wasn’t attention given to groups of vulnerable people. In fact, across all the different things I’ve mentioned, and probably many more that we haven’t got time to consider, there was an enormous amount of support being put in place for different people in different ways. And then taking a step back, as I’ve said, the macro situation was that inflation during this period was low, and you probably heard that from the Governor of the Bank of England yesterday (sic) as well, and he was having to send letters to me that inflation was below target in those days.

And then, I guess the proof is in the pudding. You know, yesterday I went through the measured metrics of poverty, of deprivation, of inequality, of food insecurity, and many of those things pick up the costs side of the equation as well as the income side. And I think the overwhelming conclusion, looking at all that data, whether it’s academic, whether it’s survey, whether it’s measured, is that living standards were protected, which deals with both costs and income; poverty reduced, the number of children in poverty reduced; and food insecurity reduced.

So again, all those measures will tell you that, in aggregate, because of the various different things that we did, actually, the track record of making sure we looked after the most vulnerable is something that I certainly am proud of and I think is better than almost anyone expected it to be, going into the pandemic.

Lady Hallett: So I think, from that, acknowledging all of the matters you’ve referred to, I understand your answer to be: yes, the cost is an important consideration, it’s cost and income, but we did take account of that, and put in place measures, and therefore that’s something that should be thought about in the future; do you agree?

The Sunak: Yes, but I mean again, I wouldn’t – I would say – it wasn’t as if there was, you know, a specific analysis that was done for every types of person –

Lady Hallett: No, but –

The Sunak: – but in an aggregate sense we were aware of what was happening in the economy, what was happening to particularly vulnerable families, and actually, as I said, obviously there’s an appreciation some costs might be higher, some costs might be lower, and when you get down to that level, it’s always the thing, it does vary enormously by family circumstance, which is why I think the range of different things is important, because each person – some people will have had complex disabilities, some people will have been in receipt of social care, some people will have needed help with shielding, some people just needed general help, ie, Universal Credit.

So that’s why the suite of interventions matters in aggregate, and then you can look at the aggregate outcomes for this cohort, all of which, as I’ve said, I think are far more favourable than anyone imagined, and in absolute terms, very positive. And that’s been recognised as such.

You know, that said, of course there were always going to be people who were having a particularly tough time and that’s why the hardship funds – which I go back to, because they were the kind of last – the ultimate last resort lifeline for people, which is, you know, your local authority has a pot of money which is designed to help those who are the most vulnerable in – with whatever help they need. It was a flexible pot of funding, it was continually topped up, and it was there to help those who, for whatever reason, needed that little bit of extra help.

And that was there from the first day, actually, from the budget. I think the first iteration of that fund was announced at the budget and then continually topped up because at the back of my head I realised that no one sitting in Treasury or Downing Street was able to think about every single situation that might – you know, a family might have to grapple with during this period. And it was right that there was a flexible and discretionary pot that could help those people.

Lady Hallett: Thank you very much.

Moving on, then, to the Statutory Sick Pay Rebate Scheme, and I would like to take this fairly shortly because I want to really get on to loans and grants, which are perhaps meatier issues and things about which you will want to say more, I anticipate.

So the rebate scheme, just by way of high-level overview, announced by yourself as part of your 11 March budget, went live on 26 May 2020 but with retrospective application to claims from 13 March. And this was essentially, in terms of its objective, a measure to protect SMEs, small and medium-sized enterprises, from the increased costs of paying Statutory Sick Pay, because there was an anticipated significantly higher volume of employees who may be unwell due to the pandemic, whether they were ill or self-isolating. So taking account of both.

So that was the scheme as we understand it.

I just want to pick up a few discrete issues about design. The first is that the – and I can take you to these if it will help, but I’ll give you the information we have, and then get to the question.

The definition of an SME, you were getting advice to limit it to businesses with fewer than 50 employees. You took the decision to not limit it to that, but to actually apply the scheme to businesses with fewer than 250 employees.

So first question, what was your rationale for doing that, and including more businesses?

The Sunak: Just a sense that there were businesses between 50 and 250 that might still benefit from the help. There are various different definitions of SME that exist in and around government. You’re right, the initial advice suggested 50. I remember, I think, probably discussing it with Thérèse Coffey in this policy – again, good example of good working between DWP and the Treasury on all the SSP-related policy development.

And, just judgement, felt that actually, you know, that extra bit of generosity was manageable and was sensible in terms of achieving the objective of supporting businesses that, you know, were responsible for a lot of employment in the economy, over half probably, but still not necessarily so financially strong that they could manage without a little bit of support.

Lady Hallett: And the rationale generally, in terms of not applying that sort of support to really big business, is that you make the basic assumption that if you’re employing over 250 people, you’re likely to be a business that can stand it, really?

The Sunak: Yes. And we had different support, and for those businesses obviously the loan schemes, which we’ll come on to –

Lady Hallett: Yes.

The Sunak: – you know, would – and there were – you know, generous and subsidised loan schemes will provide that bridge, but, you know, we were expecting the larger businesses to weather some of the shock themselves, and share some of the burden with them through furlough and loan schemes as well.

But, yes, essential – again, we would talk, right at the beginning, trying to target support where you can to those who most need it, because that’s good value for money and keeps the cost down for taxpayers. And again, there’s just a judgement to make about should it be 50, 250 or large? We took 250 as a sensible place for – and, again, it’s a reasonably accepted definition that is used for small and medium-sized businesses.

Lady Hallett: And if the cost of paying Statutory Sick Pay was knocking over companies that were employing more than 250 people, then they would have been in a pretty precarious state to begin with?

The Sunak: Yes. I think also, and Thérèse made this point – the Secretary of State made this point in her written evidence, these larger companies, most – or the majority of them – offer sick pay which is in excess of Statutory Sick Pay in any case. So it would only form a portion of the costs. And that’s generally what you see with larger companies doing something beyond Statutory Sick Pay.

Lady Hallett: Thank you.

The projected costs, so when the scheme was being worked up, was about 2 billion?

The Sunak: Yes.

Lady Hallett: But in fact we know that in the region of 100 million was spent –

The Sunak: – (overspeaking) –

Lady Hallett: – so significantly less than was budgeted for. To give some sort of employer-employee context to that, 124,000 employers benefited from the scheme, covering about 675,000 employees.

In terms of understanding exactly why the take-up was low, there might be a number of different factors, but to what extent, looking back, do you think that it was, in one sense, the success of furlough and job retention that was resulting in the lower claim on this scheme?

The Sunak: I think that is almost certainly the explanation. Remember, this scheme was stood up for the budget before we got into the big interventions and that’s why, ultimately, it was superseded by furlough, which meant that demand for the scheme was, I think, much lower than originally anticipated.

You know, that said, 125,000 businesses is still a lot, and 675,000 employees is a lot, so for those businesses, I’m sure it made a meaningful difference, and, indeed, I would meet people who told me that it did, but lower than we expected because furlough essentially superseded it.

So I wouldn’t view that as a necessary policy failure; again, it’s a sensible tool to have in the toolkit for the future, and one would just need to think about that interaction with furlough, but no harm in it.

Maybe I – actually, it just remains me of something yesterday that you asked me, I think on Kickstart, where I think you said, Mr Wright, “Well, it was less than you thought, did you not then think about” –

Lady Hallett: Expanding –

The Sunak: – “expanding it” – yes. I just – a little reflection last night, and it’s the same thing here, if you’re Chancellor and you’re setting up a lot of things like this, peacetime and virus time, you have a sense, you have an estimate for how much these things are going to cost, but you do know that you’re going to be wrong almost 100% of the time, on all of them, you know, but you want to be about – approximately right. But some are going to come in higher, some are going to come in lower. And so if you get into this habit of thinking, well, whenever something has come in a bit lower than we thought, “Oh, we might as well just spend that money or broaden the scheme”, then what you’re locking in is that your overall central estimate is likely to end up being too low, because you are essentially spending all the underspends, if you see what I mean, and you – you know, but then there’s definitely going to be things that end up costing you more than you thought.

So I just think, from a kind of macro-fiscal planning perspective, it’s not a good habit to get in, whenever you see something comes in a little bit under budget, to think: oh, well, that’s free money, I can spend it. Because you are going to have things that, equally, come in over estimate, and you want, in aggregate, those things to largely net off, so you end up at – you know, if you thought in aggregate it was going to cost you X across a few different things, you roughly want to end up there, you’re less likely to do that if you, every time something comes in below, you spend it. So it was just a thought that occurred.

Lady Hallett: No, no, a very valid point. And presumably that’s why, in ordinary times, departmental spending doesn’t just roll over in the sense that, if it’s not spent, it’s not viewed as a “Well, you know, we’ve got this budget so we may as well spend it”.

The Sunak: Exactly, yes. That’s not a good way to – as I said, it applies in peacetime as well as in times like this. That’s an important function of the Treasury on behalf of, you know, the nation’s taxpayers to manage the country’s finances and public spending carefully, which is why it shouldn’t be an automatic, ever, sense that, oh, just because something is being underspent relative to what we thought, it can be spent or broadened, and we can do something else with it. That should be a discrete and separate decision.

Lady Hallett: And presumably when you’re talking about the projected cost of measures to support the economy, if all of your measures are coming in under budget, that might be an indication that the economy is performing better –

The Sunak: Yes.

Lady Hallett: – and therefore it’s a good thing?

The Sunak: That’s a good thing, yes.

Lady Hallett: In terms of this scheme, it was scheduled to close, and did close, in the September, which coincided with, really, if we look at all schemes, the original plan, if you like, that things were winding down in the autumn, so – and presumably, because there hadn’t been a massive call on the scheme, that gave you, did it, more confidence that you could wind this one down at that time, because it wasn’t in massive demand?

The Sunak: Yeah, I don’t remember there being a great controversy about that, or debate. And remember, the other substantive thing that had changed is we had vaccines. So those self-isolation requirements, by the time you got to summer 2021, were completely different to, you know, spring of 2020 when it was, I think, 14-day, whole-household isolation, I think in those early weeks. Clearly very different – and I can’t remember exactly where we ended up, but progressively getting reduced and reduced and reduced to the point where I think if you were vaccinated there were no self-isolation requirements or, you know, or it was considerably reduced. So, remember, that substantive call on people being off work for – because they had to isolate because someone in their household had Covid had essentially gone by then, so …

Lady Hallett: Okay. So just one other sort of practical question, looking forwards, we understand that a legislative power had to be taken or inserted into the Coronavirus Act to enable this scheme to be stood up. It needed primary legislation, and just an observation. It was part of the toolkit you had, because the power was taken, and going forwards, if you were Chancellor again, facing a similar emergency, presumably you’d want to have this at least in the armoury even if you decided not to deploy it. So do you think there ought to be some provision, permanent statutory provision, that would allow this just to be stood out without needing legislation in time of emergency?

The Sunak: I think that – I’d have to refresh myself on the details. So in general, that sounds like a sensible, a sensible suggestion. The only reason I pause is because I can’t quite remember the legislative fixes that were required. They were, I think, broader than just this scheme, from memory. I think they might have been also to do with it being paid from day 1, rather than day 4, and applying to self-isolation not just yourself being sick –

Lady Hallett: Yes, there are adjustments to the underlying scheme –

The Sunak: The underlying SSP scheme, which if you remember, you know, this is a cost that, absent this rebate scheme, that is a cost that is borne by businesses and therefore, has an impact on their costs and the likelihood of them employing people and I think one would just need to think about that. The rebate scheme changes that slightly but in isolation, SSP is – changing it to day 1 versus day 4 or saying it applies more broadly, ultimately, those are small businesses largely that have to bear that cost. And as we’re seeing, when you, you know, layer on cost to employing people in all its different guises on to businesses, they often respond by employing fewer people which is obviously not a great thing for the economy.

So one would just want to think through all those implications, but clearly in a period like this, particularly when you’re combining it with a rebate scheme, having the legislative tools to allow you to do that quickly is, you know, a sensible thing.

Lady Hallett: Can we move on to loans, then?

The Sunak: Yes.

Lady Hallett: And just to give some high-level figures, in terms of the collective loan schemes of Bounce Back, CBILS and CLBILS, credit was unlocked at a scale of £78 billion in guaranteed loan facilities that benefited over a quarter of all SMEs, estimates that between half a million and 2.9 million jobs could have been lost without them. CBILS launched within 12 days of announcement. And in terms of Bounce Back, 270,000 facilities approved in the first week, compared to 36,000 in total that had been approved up until that point for CBILS and CLBILS combined. So we get a sense there of the scale of both application and approval.

That’s £8.4 billion of lending, which, at that point, was 1.5 billion more than CBILS and CLBILS in total to that point. So I just set that out as a bit of context.

And Mr Sunak, I’m not overlooking the CCFF which sat above all of that, which was the facility that the Treasury and the Bank of England put in place for the most, or the largest companies. But we heard evidence from Sir Charles about that and from the Governor, to the effect that it worked extremely well, zero losses from that scheme, and so I’m sort of taking that as read. I don’t want to stop you speaking to it, but, just to put that out there in fairness to you.

The first thing I want to pick up very briefly about loans, and I say briefly, because the evidence we’ve heard suggests this may be more of a theoretical issue than a practical difficulty, is the point about division of responsibility for the loan schemes. And by that, I mean in the sense that you were making the overall policy decisions, quite properly, as Chancellor, through the Treasury. The Bank, British Business Bank was doing operational delivery. But BEIS was sort of sitting alongside the Treasury because it supervised the Bank, and so Accounting Officer responsibilities sat with BEIS, although Treasury is shaping policy.

And I think it’s fair to summarise the evidence that we’ve heard that yes, in terms of Parliamentary scrutiny and accountability you could say that there is some blurred lines there, but in practice, nobody has said that they thought it was a problem. Where do you sit on that, in terms of accountability?

The Sunak: I’ll just come to that, and I think your summary of it, that you’ve just said, Mr Wright, is spot on.

Just 30 seconds on – taking a step back – on the scale of what these set of interventions were, and I won’t belabour it because you highlighted it but again, you know, a quarter of all small businesses over, I think, 1.3 million businesses in total that went through these various schemes, of which there were, as you said, four different ones: CCFF, CLBILS, CBILS, and Bounce Back Loans, and all of that happening in an incredibly compressed time frame, and we’ll come on to that, in Bounce Back Loans.

So this was incredibly intense. There was an enormous amount of need. We had to iterate as we went, as we’ll get into. But, you know, the scale of what this intervention constituted was hugely significant, and, you know, it’s worth just acknowledging that. And lots of people worked very hard to make this possible, and this kind of brings me on to your question.

This is another, I think, good example of co-operative working within government departments, between Treasury, BEIS, and the British Business Bank, which I’ll come on to, but also – and this has been a theme throughout all of these things – Treasury especially, going outside to talk to the relevant stakeholders, in particular UK Finance, the banks, challenger banks, and obviously the business groups as well, and the FCA, and the Bank of England, getting all of that collective expertise, feedback and engagement into the design of these schemes, and again, it just illustrates a generally open and constructive attitude and it’s a good example of that happening.

In terms of, as you said, slightly blurred in theory; in practice it worked very well, I think was – and I would agree with that. I think you’ve heard from the Secretary of State for BEIS, his evidence that said he felt he had a good opportunity to influence policy; from the British Business Bank as well, didn’t think there was any confusion from their perspective, and I think the interesting from them, you know, the CEO said, “Having clarity and decision making through HMT I think was actually helpful”, and also he said, “When we provided our advice, you know, we felt it was taken seriously and considered.”

And I think that is indicative of the generally good relationship between these three organisations in developing this policy.

I’m not, obviously, the expert on exactly the various Civil Service Accounting Officer requirements. I’ve noticed Charles Roxburgh gave some evidence, you know, that perhaps in future someone in his position could have provided the initial set of Accounting Officer sign-offs. It seems not unreasonable to me. But from a practical perspective, from my end, and I think generally it worked well.

Lady Hallett: Thank you.

Can I just pick up with you one thought that Lord Sharma had which really stems – flows on from what you’ve just said. I mean, he said in terms of a personal working relationship, you and he had and have a good personal relationship and had a good working relationship. I think he said you were on each other’s Christmas card lists, or he thought you were. I don’t know if you think he’s on yours, but anyway.

The Sunak: He’s definitely on mine.

Lady Hallett: That’s good to hear.

But he did suggest, and it’s the point I picked up with you yesterday – I mean, there is a sense in which, you know, personalities might be different in a future emergency – he suggested there could be a very light touch memorandum of understanding for a future emergency. So just how – a bit of corporate memory, really – how those good working relationships to which you’ve spoken about could be baked into a future response, that people remember: oh, this is how we did it, and this is how the responsibility sits.

What do you think about that, as a suggestion?

The Sunak: I’m not – I’m not completely averse to it. And, as I said, I think, hopefully because the tools have now been developed, it will be quite smooth if ever it’s needed again.

But I think those three institutions do work well together on this particular topic, precisely because the set-up is one where the Treasury has overall, kind of, overarching oversight of economic policy. But particularly financial services, BEIS is the responsible department for the British Business Bank, and the British Business Bank are delivering the financial interventions. So I think even in peacetime, the Treasury will be working together with those two institutions on ordinary policy developments about access to finance in general.

So I think here, the benefit is that those relationships probably exist. Could they be formalised with an MoU? Probably not. It’s not going to be a huge problem if that happened. Is there a huge need for it? I don’t know, because, as I said, I think here, in peacetime, they are working together anyway. So it’s not as if, in a future crisis, you would be starting from scratch –

Lady Hallett: No.

The Sunak: Because they’ll probably would have all just been through a budget where they worked on some access to finance scheme all together, and so they’ll know who each other are, and they’ll work with each other. But, again, for the same reason it probably would not be a hugely burdensome thing to put that down on a piece of paper if it was felt that would make a difference.

Lady Hallett: Right.

Can I just pick up another thought that Lord Sharma shared, just to get your perspective, because, as you say, you worked closely alongside his department. And that was the idea that there should be some sort of standing panel that can be convened that can keep all of these schemes, now they are worked up, so we know things will be much smoother next time, the infrastructure is there, so this standing panel can comprise former civil servants, former ministers, so people who lived through it, so to preserve that corporate memory and could, from time to time, stress test: where are we with this? Has the IT moved on? Is it still deliverable in this way?

How does that sit with you?

The Sunak: Yes, I don’t know whether it needs to be a panel, but I think what we ended up as a legacy of all these schemes is in any case now, I think, a permanent or semi-permanent government guarantee for lending.

Now, there was one that we’ll get into, there was one, the EFG, that existed before the crisis, on which we built many of these interventions and because of these iterations there’s – I think, by the time I finished in the job it was called the Recovery Loan Scheme. So, you know, that exists.

And this goes back to what I was saying, you know, the British Business Bank in general, even in peacetime, the whole – one of the main jobs of that organisation is to help access to finance for different types of businesses in the economy, and constantly they’ll be working with the Treasury and BEIS on that.

So I don’t think it’s a bad idea to make sure that we are looking at whether these things are still able to be deployed quickly. I think, because we have a version of them in existence semi-permanently now, that in any case is happening.

The one thing would say is give some thought to making sure that all the people who want to be able to offer these schemes in an emergency are going through some kind of process where they’re accredited, because at the beginning of the scheme we benefited from a group that were already accredited, and then we took some time to accredit new people to the schemes. It’s not an unreasonable thing to say, “Look, if you want to be part of this in the future” – I don’t know how often the right timeframe is, you know, for the business, if they want to go through that accreditation process so that when the crisis comes, actually, quickly, we’ve got a bunch of people who are ready to go.

And that – yes, that’s a little bit of a burden in peacetime, but it means in – when the crisis comes, you’ll have many more people who can offer the product straight away because they’ve already been accredited and onboarded to offer it .

And that’s, I think, a choice and not a crazy thing to think about.

Lady Hallett: No. Because we’ve heard evidence that that was one of the issues that delayed getting the money out, certainly under CBILS, was – I think it was about 40 lenders to begin with?

The Sunak: Yes.

Lady Hallett: It worked up to over 100 –

The Sunak: A hundred, yeah.

Lady Hallett: Yeah.

The Sunak: And look, we’ll get into it, I’m not sure that was the biggest issue in getting the money out; I think it was a lot more of the other things that we’ll talk about, but exactly, as you said, we started up with 40, ended up with 100, so that was positive, and you just at least want to make sure there are a core of important lenders who can cover the bulk of the economy who do not need onboarding in a future crisis, that should already have been onboarded, and I think I’d want to make sure that you had a bulk that you could click your fingers and go live fast with.

Lady Hallett: Right. Okay. And I want to move on now, really getting into the schemes. But before I do that, just a few more – a bit more context, because I want to really pick up this point about the risk that was taken, however, needs to be viewed against the impact of the schemes. And just to give some statistics: in terms of CBILS, for example, 45 – this is December 2024 – 45.43% fully repaid; 43.57% on schedule to be fully repaid; 1.25% in arrears; 0.88% in default; and 8.34 settled by guarantee.

Then if you look at Bounce Back, again, same time period, 31 December ‘24: 14.64% fully repaid; 55% on schedule to be fully repaid; 4.67 in arrears; 0.8 defaulted; and 23.65 settled via government guarantee.

That’s, if you like, the – a picture of the risk side. On the impact side, the British Business Bank evaluated that in the absence of the schemes, between 10 and 34% of Bounce Back borrowers, so that’s between 146,000 and 505,000 businesses could have permanently ceased trading in 2020. And between 7 and 28% of CL or CBILS businesses, so between five and 21,000, could have ceased trading in 2020, with a potential loss of jobs of up to 2.9 million, if you take the highest estimates.

And Sir Charles Roxburgh spoke about judging schemes by their impact. And does this, those two sets of figures, on the one hand the sort of risks of not getting repayment and the government having to step in and pay the guarantee, balance against the risks of inaction, if you don’t take action?

The Sunak: Yes, unequivocally. Unequivocally. And to go back to these couple of weeks, and I use the word that I think Adam Marshall from the BCC used to describe this situation, and I applied it more broadly, but this is where he said it felt existential. I thought that was either him or the British Business Bank or, you know, one of them. And we were facing a situation where businesses – I think it actually came from the British Chambers of Commerce, I think something like half of all small and medium-sized businesses had less than a month’s cash in the bank. And so, you know, you were facing widespread, you know, business Armageddon, and that’s why there was an imperative to act at scale and at pace to prevent what would have been, I think, catastrophic loss of businesses and jobs. And, you know, the independent evaluation has suggested up to three million jobs and half a million businesses that were saved as a result of these interventions.

And it goes back to that point at the beginning about the scale of what was happening and the speed that it was happening at. It’s all very well doing furlough, and we’ve had all these conversations about scarring and keeping people in jobs, but if the businesses that employ them fundamentally just go bankrupt because they do not have the cash to get through the next few weeks, then that would have all been for naught, and the economy would have suffered enormously in the long run as a result.

So, you know, there was an imperative to get this right and to get it out and get the money to the businesses as soon as humanly possible, and you just did not that have the luxury of – quite frankly, you didn’t have the luxury of weeks, let alone months. So a business is out of cash, and it goes bankrupt, it goes bankrupt. That’s that. That’s what we were trying to avert with these various schemes. And again, and we’ll go through them, they’re all designed slightly differently, you know, where they could be more targeted; where there could be more protections, of course there were; where you could take more time to do more checks without having a catastrophic impact, we did that; and then obviously we’ll come back to Bounce Back Loans is one where, you know, we had to make a different set of judgements.

Lady Hallett: Now, in terms of CBILS, you used the EFG, so an existing framework, and effectively built onto that architecture. And in terms of whether there are alternatives, from your perspective, was that really the only show in town, in terms of something that could be stood up quickly?

The Sunak: Yeah, and thankfully we had it. So, to your point earlier, it existed, 40 lenders had been accredited on it, they were somewhat – not somewhat, they were familiar with it. Obviously it had not been used at this scale and at this speed and needed a lot of tweaking as we went, but at least we had something on the shelf that we could use as the basis for the loan scheme.

Lady Hallett: And Sir Charles reflected that, in hindsight, he wished that there’d been more rigorous testing of the EFG beforehand, but, looking forwards, the – would you say the experience of the pandemic, that has been – (overspeaking) –

The Sunak: I think that has – yes. And not just on CBILS, but across the suite. We have – we have created the tools, iterated them, and then we’ll get into the bits that we refined over time. So if this happens again, the starting point will obviously be that much better.

But, you know, there weren’t any other alternatives, yeah, at the time that we had to put these in place, no.

Lady Hallett: And so the limitations, from your perspective, were well known at the outset presumably: first of all, that there would have to be a lot of scaling up and that was going to be challenging; and, secondly, that the panel of lenders, accredited lenders, would have to be expanded to cope with volume; operational issues in terms of the bank’s ability to do that scaling up at pace.

I mean, these are all things that were known, but, again, this was the only way of delivering the scheme; is that the position?

The Sunak: Yes, absolutely right.

Lady Hallett: And from your perspective as well, you were very clear, we know from documents we’ve seen, that in that scheme, the Bank should retain, as you put it in your statement, some skin in the game?

The Sunak: Yeah.

Lady Hallett: Can you just explain why it was important that the commercial lenders who were coming through this platform retained skin in the game?

The Sunak: Well, that’s, you know, in a sense almost the best way but one of the most effective ways to help protect the taxpayer against, you know, making or providing taxpayer funded credit available to businesses that, you know, probably are unlikely to be able to pay it back because they themselves are not viable, regardless of the pandemic.

And obviously, you know, there’s no capacity or – in government to go and do all these individual credit applications, but where you are sharing that risk with the lender, they have skin in the game. You know that they are going to do a decent job of doing the diligence on the business because, as I said, their own capital is partially at risk. Not fully, and so obviously it’s going to be slightly different, but, again, they have capital at risk, they’re going to go through that diligence process. And that is helpful in ensuring that we are putting taxpayer support in a way that we hope will be effective and, for the most part, paid back, as the experience on those larger schemes shows.

Lady Hallett: Yes. And the first iteration of the scheme came in your budget of 11 March, and then it was enlarged on the 17th, and you made a statement about that to the public. This was part of what you described as really giving this reassurance that “We’re going to stand behind businesses”?

The Sunak: Yes.

Lady Hallett: But even at that stage, on 11 March certainly, and even by the 17th, there was still, presumably, some optimism that things wouldn’t be as bad as they became, and, therefore, some sense in which you hoped that the demands would not be as great as they became on CBILS; is that –

The Sunak: Yes, I think we – look, at that moment, as – you know, we knew what we knew. You know, we were doing everything we could at pace.

The point I was trying to get across in that particular press conference was the fact that we were willing to provide a very generous quantum of guaranteed finance. And that, in and on itself, and similar things, announcements, had been made in France and one other country. You know, I think that was just an important statement of – to give a kind of – you know, “We stand behind businesses at this difficult time and we will make available a large amount of funding guarantees.”

Because at that moment, when people’s expectation was – not just here but in other countries in Europe – that this was a relatively time-limited shock, giving businesses that extra liquidity, ie through loans, taxpayer-supported loans, to get thorough that tricky period, would have been a – you know, a kind of – sensible and may well have been the main intervention that you would have pursued.

As it turned out, we needed to do much more than that, but that’s why there was an emphasis on that at that moment, and – but just the statement from the government saying, “We are willing to do this at scale and at a scale that we haven’t done before” did hope – or did help to provide that little jolt of confidence at that moment.

Lady Hallett: Yes, and as the health position deteriorated, and therefore the economic conditions tightened, we know that demands on the scheme grew and grew.

And we saw some of Sir Charles Roxburgh’s diary entries, and I don’t raise them for tabloid curiosity but really so that you can explain to us your position at the time. These were essentially entries in which he described you as being on the warpath over CBILS and wanting performance stats on the banks and their lending.

So, do you accept that you became frustrated with the pace at which the banks were getting the money out to business?

The Sunak: I think – we all were. Of course we were. It – because we knew this was important. We’d announced the scheme, and it was just taking far too long. And there was a huge amount of completely fair public focus on this, Parliamentary focus on this, media focus on this, and we knew that it was not happening as quickly as we wanted it to, and we knew how important it was that it did improve.

And that’s why, over the period of those first couple of weeks in April, we did the iteration on the policy, which I’m happy to get into whenever you think it’s appropriate, because there were a series, then, of specific changes that we made which then considerably improved the situation.

Lady Hallett: And just to understand this pressure, I mean, there was, first of all, the number of lenders who were accredited. So that’s having to be expanded, and that takes time. But on the other side of this, the banks – the Consumer Credit Act applies, the banks have got to do certain checks, and the banks then have to process the applications.

So can you just explain –

The Sunak: Yeah.

Lady Hallett: – where you saw the pressures to be?

The Sunak: Yeah, I think – because you mentioned three things there, and actually, I think two of them probably don’t apply in – don’t apply – were not the main issue with CBILS which, at this point, was the only scheme, and we’ll come on to Bounce Bank Loans, I assume separately.

Lady Hallett: Yeah.

The Sunak: Look, the lenders point, I can’t recall the exact figures but I don’t think was the limiting factor at this stage. As you said, we had 40 already accredited. Good, over time, to grow it to 100, of course, but that wasn’t probably the main reason at the beginning that things were slow. It was much more about the various conditions, which I’ll come on to.

And on the Consumer Credit Act, that really applied to the very small loans, the sub £25,000 loans. And that is, therefore, part of the reason we ended up doing Bounce Bank Loans. So I’ll put that over there.

But for the core of what was CBILS, the issue – you know, the issue was there were a range of – a bit of grit in the system. Again, sensible in peacetime, you know, not appropriate for the situation that we were in or being interpreted in an overly-strict way.

So the main ones were: it was important – there were lots of people who were accessing credit for the first time, right? I mean, both in Bounce Bank Loans but also here. So just remember that. And one of the things that we wanted to do was remove personal guarantees so the banks could not ask for personal guarantees on people’s homes and, you know, and there was, you know, that only partially was implemented. It needed to also be extended to small partnerships, and sole traders, and it was not just their home, it was their car. That is, you know, people, when they think, their, understandably, their home is at risk, that really inhibits them from taking the borrowing. So we had to insist that there were no personal guarantees and then make sure that was widely and properly implemented.

Lady Hallett: Can I just jump in there –

The Sunak: Yes.

Lady Hallett: – because I think it’s relevant, and Sir Charles conceded, really, that you had been clear yourself, from a very early stage, there shouldn’t be personal guarantees. But that some officials had interpreted that as meaning something slightly different –

The Sunak: Yes.

Lady Hallett: – in terms of it should only apply to – (overspeaking) –

The Sunak: I saw Charles’ point on that, and I think, to be honest, it’s kind of by the by. You know, the team that were working on this were exceptional. I mean, they were absolutely exceptional, and all the teams at the banks and everywhere else were exceptional. They really did heroic work during this period. So if there was some confusion amongst us, it’s, you know, I’m happy to take responsibility for that, I wouldn’t want to cast any aspersions on anyone.

But, you know, this was an issue that needed fixing so we just got on and fixed it.

Then there was an issue around the portfolio cap that in the old EFG, we’re getting slightly into the weeds here, but yes, the government provided a guarantee that was quite generous on a loan-by-loan basis, but actually, if you aggregated it across the portfolio of the loans that the company or the Bank was making, there was effectively a much lower cap, so it was far less generous in aggregate than it was for an individual loan and that was a huge inhibitor, given the scale of the lending that we were talking about, to the banks really wanting to do a lot of this. So we ended up having to remove that portfolio cap which made a big difference.

There was a regulatory concern – again, we’re getting into the way the banks are regulated – and they were wondering how the PRA would, you know, would treat the capital, that they were putting up against, against these loans, and they wanted to be assured that they would get some capital relief, and so we had to just work with the PRA to get them that reassurance.

The lenders themselves, because this was so novel, generally were a bit nervous about whether, I think, we would actually stand behind the guarantee when we –

Lady Hallett: They thought you might not mean it?

The Sunak: Yeah, you know, that we might not be good for the guarantee and that we’d all kind of come and blame them afterwards. And so I, you know, which is not an unreasonable concern, given that, again, people often do want to do that with banks. So I had to make sure that I could give them that reassurance, because they really were doing something very necessary for the country at this moment.

And then perhaps – and sorry, I’ve left it until last, but probably the most kind of practical problem in the application process was this issue of a forward-looking viability test, and again, in peacetime, sensible. You wanted to only really provide taxpayer-subsidised credit to businesses which were, you know, had a, on a reasonable look, were viable, on a long-term basis. And the problem was that condition in this context was very difficult for the banks because we were just about to enter this period of total uncertainty when no one knew how long this was going to last, how serious it was. You know, they are worried about saying, “Well, how can we make that assessment, quite frankly? You tell me how long this restaurant is going to be closed for”, all of the rest of it. And therefore, it led them to be quite cautious because then they would rightly say, “Well, we’ll do the lending, you’ll come back to us down the line and say, ‘Well, clearly that business was not going to be viable’, we’re not good for our guarantee.”

So that had to be changed, and it ended up being, I think – I can’t remember where we ended up, but either it was watered down deliberately to be backwards looking and was the business viable pre-pandemic, which, again – kind of sensible compromise. So, you know, you needed to have been a broadly viable business before all of this happened, and we’ll just – you know, given what’s going on, that’s as much as we can assess.

So those changes were all made in April, and I met intensively with the banks during that period, and other stakeholders, to figure out what would be required to get the outcome we wanted on pace. And that set of changes really worked, and you saw, from that moment on, a huge acceleration in lending.

And, look, as people got onboarded to the system, that help – nothing you could have done about that, quite frankly, anyway. That just did take time and would have – and then we’ll get on to Bounce Bank Loans separately, but those were the changes that were necessary to get this scheme working in the way that it needed to and I wanted it to.

Lady Hallett: So, and in terms of looking to the future, then, this is the stress testing of the scheme, having happened during this pandemic –

The Sunak: It’s happened.

Lady Hallett: And therefore you know, going forwards, these are where your pinch points are –

The Sunak: Yeah.

Lady Hallett: – these are the things you need to do.

But this is relevant, isn’t it, all relevant background to Bounce Bank Loans?

The Sunak: Yes.

Lady Hallett: Because this pressure on liquidity, and getting money out, is building in particular at this time for very small businesses; is that right?

The Sunak: Yes. So if we can – so that was the story on CBILS. And then there was a minor – not minor, but, you know, addendum to that on CLBILS and CCF. That happened, that was fine.

My one reflection there, which might be helpful, is that on CLBILS, which was for the much larger loans, we did – when we increased the loan size, we put in a condition on, saying to businesses: well, whilst you’re in receipt of this taxpayer-funded support, you know, what you can’t do is make distributions to equity holders. So you can’t pay dividends, you can’t do – share buybacks.

And I think – you know, arguably, could we have done that from the beginning on the CLBILS programme? I don’t think it makes sense for the CBILS programme for various reasons but, for this larger scheme, could we have done that from the beginning? A bit like on furlough when we said you could do the disclosure from the beginning. I think that’s probably one thing you could have done from the beginning.

I don’t think it made a huge difference in reality, but probably I would – if I was doing that again, I would do that from the beginning.

And then, look, we should get on to Bounce Bank Loans then. So, look, we’ve kind of largely fixed CBILS, and – after this quite stressful couple of weeks, and intense amount of work, and then – so that is now working.

The next problem was, for the smallest businesses, there still was an issue, and there was an issue for a number of reasons. And these are businesses that needed £10,000, £20,000-type loans. These businesses, lots of them had never ever needed to borrow money from a bank before, and – it’s just not what they did. So a total unfamiliarity with all these processes. The banks did not know how to interact with them, in the same way.

And the other issue was, you know, we talked where lots of businesses didn’t have cash to survive a month, these were the ones that really barely had cash to survive weeks. So this was where the problem was most acute.

Lady Hallett: Sorry, if we just put that together, then, you’ve got people who aren’t used to engaging with commercial banks and don’t know the process, who are facing an acute – (overspeaking) –

The Sunak: The most acute crisis.

Lady Hallett: – need for cash –

The Sunak: Yes.

Lady Hallett: – and so those two things are going to come – (overspeaking) –

The Sunak: They are coming to it while they are meeting.

And then you raised this issue, which I think is a really important one, about the CCA, the Consumer Credit Act, and the FCA, our regulator, they – you know, our set-up makes it quite difficult for big banks to lend to these very small businesses. And that’s why they had very little familiarity with it.

Why? You know, because the Consumer Credit Act does what it says on the tin: it’s there to protect consumers. But we essentially treat a lot of this very small business micro-lending, £10,000, £20,000, as if it is consumer lending and subject to the same rules. And that’s why the banks don’t do it.

And, similarly, the FCA, you know, is quite tough on banks not extending credit to people who they shouldn’t really extend credit to.

And look, you know, there’s a macro debate that one could reasonably have about how much our regulatory system should be a little bit more caveat emptor versus trying to protect people from themselves, but the practical reality of it at this moment was that the banks were saying: look, we have all these regulations on us, or laws, which means that we should not be extending credit to people who shouldn’t have it, and then end up in trouble, so we are just – we can’t do this and we won’t do this.

Lady Hallett: So even if we wanted to help, we can’t?

The Sunak: Yes, because we’re going to end up being hauled in front of the regulator or being held liable under the Consumer Credit Act, the way our legal system is set up. And that’s completely reasonable from their perspective. We have a set of laws, that we can’t then say, you know, you should just ignore them and it will all be fine.

So that required them – sorry, that’s the set-up, essentially, for where we are.

Lady Hallett: But you, as government, can disapply them?

The Sunak: And that’s what we did, yeah.

Lady Hallett: Yeah.

The Sunak: And that’s what we did. So I spoke to the Shadow Chancellor at the time specifically and I think we ended up having to pass a secondary piece of legislation. So we needed to essentially say – I can’t remember the exact legal side of it, but we needed to, and I got – made sure the opposition were happy with that at the time because there was no way to do something like Bounce Bank Loans or open up credit to the sector without effectively saying, look, these peacetime rules on lending to small businesses, we need to interpret them slightly differently.

Lady Hallett: And one of the key factors, or key features, rather, I should say, of the Bounce Bank Loans, was that unlike CBILS and CLBILS where the government guaranteed 80%, this was 100% government backed. So just looking at that, that meant the government was standing behind the loan. That, presumably, was designed to free up the money –

The Sunak: (Witness nodded).

Lady Hallett: – to take the skin out of the game for the banks so that they could get the cash out quickly, but you knew, and you were advised, that that came with a risk, risk of fraud, risk of default –

The Sunak: (Witness nodded).

Lady Hallett: – but I’d just be interested if you could explain how you balance that risk against the need to –

The Sunak: Yes.

Lady Hallett: – introduce this sort of scheme.

The Sunak: And look, I think this is a really important point, so bear with me while I try and unpack this.

You know, of course I was nervous about 100% guarantees. You know, I’d talked about skin in the game previously. You know, this, to me, was not something I kind of jumped up and down to do day 1, for all the obvious reasons. So I was persuaded over a period of time that it was the only thing that would work, in order to get cash to these businesses, and avert them all going bankrupt.

Interestingly, Germany and Switzerland had done 100% guarantees. So that had just been announced. So people knew that it was possible and other countries had taken quite this unusual step. Not every country, but those two had done so. So that was an interesting development.

Lady Hallett: Can I just pause there and ask you about that. We haven’t really looked very much at international comparison –

The Sunak: No.

Lady Hallett: – but as Chancellor, you know, making these sort of decisions, when you see that other developed economies in Western nations are taking certain steps, does that give you – did it give you more comfort?

The Sunak: Oh, I spent a huge amount of time doing that. It wasn’t about comfort, it was about learning, because we were all going through it together. I spoke to, you know, German Finance Minister, Swiss Finance Minister in detail about how they were doing their schemes. I did that throughout the pandemic, so the cohort of finance ministers who all lived through this together, I would say are all still reasonably close friends because of that. So we were all constantly calling each other, talking to each other, trying to compare notes and learn from each other.

So on this, that was instructive in just how they had done it. So we spoke to them. And I think the team spoke to them as well, on some of the more practical detail.

Then you had this very kind of strong public – not pressure, but you had lots of people who you would not typically think of being in the camp for doing something like this. You had, I think, I had three former Conservative chancellors all come out saying, “You should be 100% guarantees.” You know, Andrew was careful in what he said, the Bank of England Governor, but had, you know, was supportive of doing something like this, given the extreme situation that he was seeing from all their network of people around the country.

And then, you know, again, you had the then Shadow Business Secretary, Shadow Chancellor, obviously, also all calling for it. So, you know, this was the backdrop of it. It’s not something you would want to leap to right away because it does come with cost and consequence but, you know, given the situation we faced, there was no other way, at scale, to deal with what I think, rightly, was described, as I said, as an existential issue. And without doing this, there would have been, as I said, I think an absolutely devastating impact on businesses and jobs – millions of jobs, half a million businesses.

So we had to go down this road. And then the question is, which we should get into properly, you know, what can you do to reasonably mitigate the risks particularly of fraud – which I’d like to have the opportunity to go over with you – and what would this look like next time around.

Lady Hallett: Okay. So let’s look at measures to mitigate the risk of fraud. We heard quite a bit about this from the British Business Bank. The Bank stood up the Cifas system which was looking at multiple applications, and that was stood up within about a month of the scheme going live. We heard about adding the change of director flag to that. But are there other measures that you had in mind at the outset?

The Sunak: I think – look, a couple of things. And I’m conscious of time, my Lady, so maybe – I don’t know whether we run a bit longer, or pick it up again.

Lady Hallett: Don’t worry.

The Sunak: That’s fine. I think there is a – because there’s a few misconceptions that I think are important to get on the record. There is – I keep seeing as if there was no checks done whatsoever, or that we didn’t know what we were getting ourselves into. I mean, both of those narratives are completely wrong, right? Of course we knew the risk that we were taking on, the Secretary of State in BEIS has spoken about it, I’ve spoken about it. We even had PwC consulted and engaged on that particular topic of fraud.

Now, I think reasonably one might say, “Why did you use PwC and not the Public Sector Fraud Authority?” And maybe in the future that would be fine.

Mr Wright: Well, that didn’t exist at the time – (overspeaking) –

The Sunak: Okay, fine, but – so – well, (unclear) answer on that. But the idea that we weren’t aware of this or didn’t spend time thinking about it is completely and utterly wrong. Of course we were, and we thought about it long and hard and had the estimates for it, so much so that we got an external person in to come and think through it at the same time as we were doing all the design. So we were eyes wide open about it, and made the judgement that the risks were outweighed by the need.

So that was the first point I was going to say.

And the second thing is, people have kind of said, “Oh, you had to issue a Ministerial Direction for Bounce Bank Loans”. We had to issue Ministerial Directions for almost every single economic intervention during the pandemic, including all the other loan schemes too, so people somehow put a lot of emphasis on that, which I think is slightly misplaced, given that that was what we were doing across the board.

And then, in terms of the actual checks, the banks, it’s not that they had to do nothing, they had to do the standard anti-money laundering and KYC checks.

Lady Hallett: Know your customer?

The Sunak: Yes, sorry, yes, know your customer.

Lady Hallett: Yes.

The Sunak: Right, so there’s a very kind of standard set of yes, you know, they’re not the full bells and whistles that you would do on CBILS where you had weeks and weeks of time, but it’s not as if nothing was done. And the various checks that were put in place, even at the beginning, ended up having a decent benefit.

So that’s what we could do at the beginning. And then there is just this, I think, genuine kind of, you know, hindsight view of this. Now, over time, we built in more protections. And so if this happens in the future, those protections will be there but at the moment we launched this, it was not as if we were kind of sat there and just forgot to do some things; at two, four, six weeks later we kind of scratched our heads and said, “Oh, we wish we’d done that”. That was just not the case, it was a straightforward choice: we can launch this thing now and get going with it so the money gets to businesses, or we can wait. And I think that is kind of the misunderstanding of this.

So waiting is – sure, you could have lowered the ultimate fraud levels by waiting and building some of these checks. But you have to then be confident that you were going to accept the loss of business that would result from that. And I think the most striking fact on the speed here is 40% of all the Bounce Bank Loan lending was done in the first four weeks. Just think about that. 40% of this entire one-point whatever million scheme was done in a matter of weeks. 60% of it was done in two months, eight weeks. Right?

So you did – this is my point: waiting four, five weeks to build some of these things was probably the difference between half of these people literally being there or not being there, arguably.

Now, that was just simply not a decision that I thought was the right one to take and so if you want to look back at this and say, “Oh, there was an unacceptable level of fraud”, then at the time everyone knew what a 100% guarantee meant. Everyone was clamouring for, “Get the money out as quickly as humanly possible”.

And then, kind of, X years later, to be like “Well, you should have just taken your time and put in all these fraud checks, and so what if that took, you know, four, six weeks to put in place”, I think completely is kind of looking at the situation with a misunderstanding of what it was like at the time.

Lady Hallett: And you told us earlier you were receiving information about how significant the cash reserves of these small businesses were. In other words, they were minimal. They didn’t have spare cash. They didn’t have significant reserves.

So, if we just take the Cifas checks, for example, that took about five weeks –

The Sunak: Yes.

Lady Hallett: – to stand up. The point you’re making, I think, is that, yes, you could have waited five weeks, stood up that spreadsheet and then launched it, but in those five weeks half the businesses might have folded?

The Sunak: Yes. And, look, that is a choice that someone could make, but at the time – it’s all very well now. At the time – I mean, I would make the same choice again. In the same situation I would do the same thing again. But at the time I could tell you certainly nobody was waving their hands saying, “No, no, slow it down, more checks, more form filling”; right?

Having lived through that period, all these people now, there’s not a single person that I can remember really making that point at the time. And even if they had, quite frankly, it would have been the wrong thing to have done. And I would have done exactly the same thing again in that situation.

Lady Hallett: Yes. In fairness to the point you’re making, the evidence we’ve heard about checks essentially has been that the Treasury was in favour of any checks being introduced to reduce fraud, as long as they didn’t delay the implementation of the scheme or the money going out within 24 hours, because that would have self-defeated the very – (overspeaking) –

The Sunak: The whole point of the scheme. And I really think – you know, of course nobody, not least the people in charge of trying to protect taxpayers’ money, and not have to go and – you know, I’ll have to go and raise taxes after the fact to pay for all the various public services support and everything else, you know, want to see money lost to fraud. I mean, of course they don’t. Right? So the idea that there’s some kind of complacency around this is also completely ridiculous; but at this moment in time, the priority was to save these businesses, get them the cash. And this was the only and best anyway to do it. And you had to accept that that came with some downsides and consequences.

And as I said, at the time, there was very broad public support for that approach amongst the entire business community, in Parliament, in the media in general. It’s only after the fact that – well, you’ve had all this – you’ve had all this thing, we’ve saved these businesses, and now we’re like, “Well, actually, there’s this issue.”

So I think I’m just very careful on this to think about the situation at that moment, because that – I don’t believe that there were any other choices that could have been made. And actually what this represented was an incredible success story. In standing this thing up, working with the banks, and then getting these loans out, I mean that volume in a matter of weeks, I – really is an absolutely lifeline. And lots of focus on furlough and other things, but this particular intervention made a huge difference. A huge, huge difference.

Mr Wright: Thank you.

I wonder if we could a take the break there, my Lady?

And Mr Sunak, then, after the break, I’ll give you the opportunity, because you’ve covered a lot of lessons learned already in that evidence, but any further reflections about the future for those loans we’ll pick up after the break, if that’s convenient.

The Sunak: That’s –

Lady Hallett: I shall return at 11.35.

(11.18 am)

(A short break)

(11.35 am)

Lady Hallett: Mr Wright.

Mr Wright: Thank you, my Lady.

Mr Sunak, going back, then, to Bounce Bank Loans. You would never go to a 100% government-backed loan scheme as a first choice intervention as the Chancellor of the Exchequer, I’m sure, but, looking forwards, do you think it remains important to have that in the armoury of tools you can deploy if needs demand it?

The Sunak: Yes, I absolutely think that, because, you know, hopefully no one is in that situation again but if they are, I think it is a tool that, as we saw in this pandemic, was enormously helpful and necessary.

And in terms of, you know, looking forward, there – you know, a couple of things have now been developed which will obviously be helpful. You’ve talked about Cifas and that database on duplicate checks, also we talked about Making Tax Digital. I’m going to – a couple of other legislative changes have been made. I haven’t got the name of the precise acts, but Companies House, the integrity of the Companies House director data, as a result of new legislation that we passed in government, will be that much better next time around. So that will help considerably on the fraud side.

And then also – I’ve got it scribbled down here – which I can’t remember what it stands for, but ECCTA, again, similar to Making Tax Digital, you know, will have more regular reporting of turnover from a particular group of companies. And, again, that will be helpful, because obviously with Bounce Bank Loans there was a turnover threshold, a maximum loan size based on turnover, or a maximum cap. You know, having more digital information there would enable that to be, kind of, a higher integrity check.

And then more generally, you know, what you did see was, you know, certain lenders, for whatever reason, you know, had a particular issue or exposure to one or one type of fraud versus another, so now all of that learning has happened amongst them and a dashboard was developed that compared all of them, I think those individual lenders, you know, now obviously have all got improved internal systems that they developed over the course of this that would help.

I remember one of them kind of had a way to – had a way to check where they could see if the money went into the account, and then was it transferred out very quickly somewhere else, for example. So things like that. There were lots of these things that were developed.

So, you know, as part of what we’re saying about some kind of slightly more regular assurance on people who are accredited do loan schemes, just to check that all the things that we know, with the targets for fraud from criminal gangs, are ones which the banks have got the best possible systems to examine.

So, you know, for all of those reasons, I think that trade-off between speed and fraud next time around will be less acute than it was for me. So if anyone is in this situation again, thankfully, you know, they will – even if they want to move at the same speed I did, they will benefit from the fact that fraud would be lower because of all these things that have subsequently been developed.

But, you know, all I’d say in closing is we shouldn’t ever think that there is not going to be that trade-off. There is. And commentary or focus on this point that doesn’t acknowledge that trade-off is not actually particularly helpful for the future. That trade-off will always be there.

I think probably, as a result of now the changes in iterations, that trade-off has probably been minimised to the most, you know, optimal point it can be, but it will still nonetheless exist, and that’s a judgement for someone to make at the time.

And maybe the last thing I’d say, Mr Wright, is just you’ve heard evidence from the – I think the BEIS permanent secretary and the British Business Bank that about 4% of the loan outlays have, you know, at this point been flagged or estimated as fraud. Now, let me just say this again. Every penny lost to fraud, every pound lost to fraud, is obviously wrong. It’s not something that anyone wants to see and you want that number to be as low as possible, and that’s obviously my view. That’s the view of everyone at Treasury. But I think it’s worth thinking about that 4%.

Now, obviously, the numbers in billions of pounds are large because the quantum of what we’re doing is very large. But that 4%, it’s worth just comparing it to what are the fraud levels in other government programmes, not, actually, that existed during the pandemic, this was probably on the fraud side, you know, one of the higher ones, but just in general.

So, you know, the Working Tax Credit system, legacy system, tended to have fraud rates of about 5%. Universal Credit, in the annual accounts that were published, I think a year or two ago, it was high single digits, potential fraud estimated there up around 8%. Housing Benefit, I think, when it was last looked at, was 4%. The R&D tax credit system, before I made some changes as Chancellor to improve it, was 6%.

So I think in the context of – again, none of that is acceptable, everyone wants to see those numbers lower, but in the context of a scheme that was stood up in days, you know, and then implemented over the course of weeks in a crisis, to end up with – and necessarily having, you know, a different approach to these checks – ending up with a kind of estimated fraud level of where it is at the moment at 4%, which is broadly in line with peacetime schemes elsewhere in government, I think should be seen as a sign that this is far better than I think it was expected at the time. Those numbers are much lower than all that original analysis I talked to you about with PwC and the advice, everyone assumed it would be much worse than that, it’s been better than that.

And actually, in the context of what else happens in government in general, I’m not saying that is acceptable either, but actually I think it should be seen in that context, and I think that is an important way to look at it so, you know, as I said, I think what the teams did to put this together was really exceptional work at that time.

Lady Hallett: Is the ECCTA the Economic Crime and Corporate Transparency Act?

The Sunak: Yes.

Lady Hallett: I’m not surprised if you didn’t remember it, it’s a rather clumsy title for a statute, if I may say so.

The Sunak: Thank you. And I think that – it sounds like you know this anyway, but I think that is probably the same Act that deals with the Companies House changes that have been made as well. But thank you for elucidating me on that.

And I think I remember the FSB, in evidence to you, probably put it well, as a good moment to close, for me at least. And he said: “It is almost certain that without Bounce Bank Loans, the impact on small businesses would have been devastating and this can’t be underestimated.”

I think that is absolutely right.

Mr Wright: We also heard some evidence from Lord Sharma I think that, you know, if you think about BEIS at the time, now DBT, but at the time, in general times, that was really a policy department rather than a delivery department, and so their internal anti-fraud capability I think consisted of two people, at the time, whereas that was expanded to ten, and has grown.

The Sunak: Yeah.

Lady Hallett: And we also heard from Mr Cheeseman who heads the now established Public Sector Fraud Authority, about the, really, cross-government effort to tackle fraud across the public sector, which has grown post-pandemic –

The Sunak: Yeah.

Lady Hallett: – and has been strengthened. So are those also things that we should be factoring in now? That those weren’t things you could draw upon, but they are things that a future chancellor would at least draw some comfort from, in terms of the capacity to tackle fraud?

The Sunak: Yes. I think that’s absolutely right, and that’s why I have confidence that, you know, should anyone be in this situation in the future, that trade-off between speed and fraud would be less acute than it was for me. As I said, I think it will still exist, and these same conversations will have to happen, and someone will have to make that judgement, but because of all of those investments, new bodies, and mainly the learning from this experience and then the development of capabilities as a result of it, mean that we are much better placed next time around.

Again, that’s great for the future, but the right moment to judge it is: at that moment that we had, you know, what was the right thing to have done, given the set of trade-offs that we faced?

Lady Hallett: I don’t have any further questions about Bounce Bank Loans.

We’ve ended with Bounce Bank Loans. I didn’t ask you if you had any other, more general, reflections on loan schemes, so from CCFF down to Bounce Back. I’m not assuming you do, but if there is anything else, it might be a convenient moment to pick that up now or we can move on to grants.

The Sunak: I think we’ve covered it through our existing exchanges on some of the reflections on the other schemes, and more generally hopefully.

Lady Hallett: Okay, thank you.

So can I, then, move on to the subject of grants. Grant schemes. So these are schemes that provided grants to business. Again, some high-level statistics. And I should say we’re talking here because of the devolved administrations. We’re talking here about schemes that were delivered in England through 340 English local authorities. That’s the focus of these questions.

4.5 million grants paid to business, with a total value of £23 billion estimated to have benefited 1.4 million businesses and 70% of the first cohort of grants, because we’ve heard there were three cohorts, paid by local authorities, provided to the businesses within four weeks of the funding landing with the local authorities.

So I just set out that bit of context.

In terms of delivery, I mean, these were – again, Treasury is leading on policy, economic policy. BEIS is responsible for management of the schemes.

The Sunak: Mm.

Lady Hallett: You’ve also got the Minister of Housing, Communities and Local Government that are effectively the voice of local authorities, and in that context, maybe a little-known fact, Mr Sunak, or a forgotten fact, that I think you were Minister for Local Government, as a junior ministerial position?

The Sunak: It was my first ministerial job, and very fond memories of my time doing it. And the relationships that I made during that time were actually very helpful during the pandemic.

Lady Hallett: Yes, just picking up on that, having done the job, not for very long but long enough to build those relationships, you understood, did you, as Chancellor, that local government was a trusted partner in terms of delivery of public services and generally?

The Sunak: Yes, I – having had that experience as Local Government minister, you know, I got to see firsthand the incredible dedication of our local councils up and down the country, but also their desire and willingness to do more for their local communities, based in large part on the correct belief that they understood their communities better than anyone sitting in Downing Street or Whitehall. And they are, you know, really motivated by public service and making sure their communities could prosper.

And so I had an enormously pleasurable and rewarding time in that job, and it informed my thinking during the pandemic, and I was in close dialogue with the people, you know, I knew from that world. And, you know, I thought it was an opportunity – it was hard, of course, because we were asking people to do lots of things very quickly that, obviously, was going to put strain on various different aspects of their organisations, but I had confidence that they would rise to the task and do it brilliantly. And they did. They really did. They were doing it, you know, house by house, street by street, neighbourhood by neighbourhood, across the country in all manner of different ways.

And I think you – instructive from my evidence, I’ve tried to put a table in there in the local government section of all the different bits of funding that went to local government, and I think the thing goes for three pages. And what’s striking about it is just the breadth, you know, the breadth of all the things that, in one way or another, they were doing and delivering on the ground. And I know it wasn’t easy, and they deserve thanks and praise for rising to the challenge.

Lady Hallett: One of the issues that’s arisen in the evidence when we’ve heard from the Chair of the Local Government Association and from individuals in particular councils, is a complaint that there wasn’t sufficient consultation, that local government weren’t brought into the process of designing grants. And the complaint wasn’t really, you know, “We should have been sat round the table with Lord Sharma and the Chancellor,” or anything like that, it was just that, you know, someone could have picked up the phone, we could have helped, in terms of delivery.

I just want to, in fairness to you, so far as you were concerned, we understand that you were keen to engage local government. I think in your statement you refer to instructing Treasury officials to engage.

Now, I’m just going to put up an example of this on the screen. This is an email thread from your Principal Private Secretary, INQ000609459. This is from 17 August 2020.

We see there as the second bullet, prefaced with “I have spoken to the Chancellor”:

“[Chancellor] is content for you to engage a few entrusted LAs, as well as relevant OGDs.”

That’s other government departments, is it? OGD?

The Sunak: Yes, yes.

Lady Hallett: “Although not sure about taskforce as this seems completely [out] their remit … please use judgement on what we need to refine policy and sort through delivery.”

So, I mean, from your perspective – and I set this out in fairness to you, given the complaint was about not being brought into the room – you seemed to there be saying to your officials “Look, go to trusted people in local government”.

Personally, could you see the benefit of wherever possible, bringing them into these discussions?

The Sunak: Yes, and of course – of course I do. And I mean, that email is hopefully evidence of that, but just more broadly, you know, we’re coming to the end of a day and a half – I think hopefully it’s been a regular repeated pattern throughout all these interventions that there has been a set of engagement with the relevant people on each of the big support schemes that we were doing. So that would, again, suggest that that was something that we were keen to do and did do.

And if, for whatever reason, people felt like that didn’t happen here, I am, candidly, a little surprised by that and saddened by it. There’s no deliberate desire for that to have happened. And the only slight pushback I might have – and I haven’t seen – I’ve seen a bit of it but I haven’t seen exactly all the comments from people, is, my understanding was that that was happening, so maybe there’s something that’s lost in translation a bit, and we can get into the detail. But even right at the beginning, my officials – and I’ve seen the emails, you know, have got messages to me or advice to me where they have spoken to MHCLG officials who would have organised, and they referred to the fact that the MHCLG officials have spoken to LAs and then they’re passing the feedback through to me and to the Treasury.

So my understanding was that that was happening, and other evidence refers, as you’ll see, to a kind of trusted LA group where this exists, and existed in MHCLG, and I’d used it in other aspects of policy in the Treasury as well, where there are a group of trusted LAs that are kind of brought, you know, behind the wall, so to speak, to be able to talk to in confidence about things in advance.

So those structures did generally exist, and my understanding was that those conversations were happening.

Lady Hallett: I just make it clear, I don’t suggest for a moment there was a deliberate decision –

The Sunak: No.

Lady Hallett: – not to consult the LAs. I’m quite sure that the hope and expectation was that they’d be brought into these conversations where they could be. But I mean, you won’t have followed the evidence of every witness, but Joanna Killian from the Local Government Association was talking about early cohorts of grants and said:

“I don’t think we were searching for days and days of consultation … And a few hours in a room, actually, could have, I think, assisted in making the schemes much more purposeful and targeted, and there’s evidence that the LGA and councils acted so quickly in responding to requests for information and advice in so many other circumstances. So I think provision could have been made to seek our advice and practical input and it wouldn’t have prejudiced the … principle of getting stuff out quickly.”

That’s her perspective. And I don’t want to get into her perspective and why she feels like that, people are entitled to feel differently about things, but I’m more interested in this, really, and trying to look forward and be positive about this. You acknowledge, having done the job, how important local authorities are, and they can be really important delivery partners for policy. And here, they were essential to getting that support to business. That’s fair.

And as you said, they know their local areas so they have an ability, don’t they, to reach out to businesses locally that central government, Whitehall, might not have?

The Sunak: Yeah – no, I don’t disagree with that. I mean, remember, while I was also talking to business group representatives who similarly represent those same businesses, you know, my sense would be what would typically happen – and I think would rightly happen – is that would happen via MHCLG. The MHCLG, as a department, would have the relationships with all the relevant local government stakeholders.

I mean, you know, I was atypical in the Treasury in having those deep relationships but I think the Treasury would rightly expect MHCLG to bring to them those views and reflect them to the Treasury as part of the MHCLG input into those policy formulations, which were, I think – and no one disputes that they weren’t happening and there’s, you know, evidence from MHCLG officials feeding in to those discussions.

So my sense is it should broadly happen in that way. That’s reasonable. And even in the first instance of that first loan scheme, and again, I don’t know the individual concerned, I don’t think, so I’m trying to put it in context, but I think the day after the cohort 1, which talked about grant schemes, were announced and I think – there had been engagement between MHCLG and Treasury officials in the formulation of that, the very next day, I think it was on March 18, from memory, the trusted LA group met together with Whitehall officials and – and not just local authorities, but actually CIPFA, which is the body which deals with all the local authority finance, and the software companies that provide all the billing software for business rates.

So actually that happened the very next day, because, as we’ve discussed, you’ve got a headline announcement and then you also need to work on the very detailed guidance to make sure this thing will operationally work, and what bits of software need to do what, and what time frame can all that happen .

So that happened the very next day, which I hope is – which is indicative of a desire to do exactly that.

Lady Hallett: You’ve made a very valid point about MHCLG, and the way I put it to one of their officials who gave evidence was that they are effectively the voice of local government –

The Sunak: Yeah.

Lady Hallett: – within national government?

The Sunak: Yes.

Lady Hallett: So there is a sense, I suppose, there that it depends on how well that voice is heard by other departments, how loud MHCLG shouts, you know, to make itself heard on behalf of local authorities. And I’m very much trying to look forward here.

If local authorities feel that their voice is not cutting through sometimes, in a future emergency, and I know there’s a reluctance to get into standing up structures for the sake of it, but how should it cut through? I mean, can you – do you think the systems are already there, if they work properly, to enable that voice to be heard? Or do you think there could be a more permanent emergency board that could be stood up to provide that advice at the front end?

The Sunak: I have a soft spot for local government, so I’m slightly nervous because I might say “Yes, that’s fine”, because I have a soft spot for local government, without – you know, there are probably five other groups that would then think that they are equally deserving of some structure and, in general, I’m not entirely sure more structures, and formal structures, are the right answer.

I think it would be pretty problematic in a government that is not functioning – well, you know, you’ve got a Prime Minister, you’ve got a Secretary of State for MHCLG, you’ve got a Chancellor, a Chief Secretary of the Treasury, who understand the importance of local government I think in all cases, for that not to be heard.

I think there’s a difference between people feeling their voice is not heard and people just not doing what they want them to do, and we should distinguish between those things. Just because someone has not done something that you want doesn’t mean that they didn’t hear it or listen to it; they just disagreed or were not able to do it.

You know, slash it may well have been that there was some consultation, just not with the person in particular that feels that they weren’t consulted. And that’s what I’m – as I said, on this question in general, I said I am generally a bit surprised. But if that’s how it felt, that obviously isn’t ideal, because they were an important delivery partner, an important part of how the country responded to the pandemic, and I would always want to make sure that they felt they had a voice.

And as I said, my experience is a bit idiosyncratic because, you know, I – the chair of the LGA is someone who I’d worked with and known, and he could always just send me a message or call me or something if he needed to talk to me, or get a meeting which he was struggling to get.

So, you know, I’m not averse to making sure their voice is heard, because it should be heard. I’m probably – sorry not to be so precise on whether there should be a formal structure for that, but, in general, yes, if people are sitting in the Cabinet Room or in Downing Street generally or in Treasury, and they’re not thinking about local government, then that would be an oversight.

Lady Hallett: I mean, we’ve picked up before that sometimes the pressure of the situation and the need for urgent intervention or decisions truncates or cuts off completely the ability to consult, and we heard some evidence about a programme board being set up to engage with local authorities moving toward the third cohort, and in fact then, when the Omicron grant, or the grant that arose from the Omicron variant was developed, the need for urgency meant that there wasn’t time to go to the board. So that might, I suppose, make your point for you in terms of structures.

The Sunak: Yes.

Lady Hallett: There was a structure.

The Sunak: Yeah.

Lady Hallett: It was meant to exist to provide that consultation, but urgency got in the way, and therefore it didn’t, and then people feel more disgruntled that we’ve got a structure and you still didn’t – (overspeaking) –

The Sunak: And it’s not used. Yes, I think that is a fair observation. And again, that’s a good example because, you know, I remember that period acutely, and I did have a set of calls, Teams meetings, Zoom meetings, from memory, because I was travelling, with all the business groups from the hospitality industry. So at least in that sense, given that they were the ones that were most impacted because of what was happening and something was said at a press conference and then they all saw a massive drop in their takings and customer footfall, and then – I think I did more than one, but I did one kind of group roundtable, virtual roundtable and engaged with all of that sector to try to get – well, tell me what’s happening on the ground because, you know, there’d been a press conference where something was said that’s obviously then caused an outcome in the real economy where people stopped going out straight away and it was pre-Christmas and they were all suffering.

So I did do that at that moment. And then to your point, we had to just then announce – you know, we announced what we did, which was helpful.

The only thing I would say on that – and again, I’m not hugely averse to the idea – is – and I read some of the commentary – I guess the thing I was asking myself: well, what was the thing that we didn’t do? Or that all the people who wanted this engagement wanted us to do differently? And that’s the bit that I couldn’t quite see in the evidence. And I might have missed it. And that’s why I’m sure, you know, people just sometimes like to be involved in the conversations, and that’s completely understandable, and often, that means that the outcome of the policy has improved and look, and in this case, I think that engagement, as I said, it happened – the day after I made the announcement on cohort 1, all the groups were meeting and delivering all the guidance.

What’s interesting to me, just reviewing this period, is the – because I saw the comments from someone saying, “Oh, we could have helped feed into the design of these schemes”, et cetera. It’s not as if the fundamental design of these schemes changed on grants. We’ll get into the targeting bit and the complication around that. But fundamentally, it’s not obvious to me that there was a big thing, that someone was like, “If you’d had me in the room, I would have told you X, and you didn’t do X, or you then did it later.” But I guess – which is my only slight pushback is, was there a specific thing that somehow was missed? Because that would be another way to argue in favour of something more formal if there was really an evidence that something somehow was really meaningful that got missed as a result of not having that extra level of forced engagement, so to speak, beyond what was anyway happening.

I might have missed it, but I couldn’t find something specific from the people who felt that they could have, you know – or felt that they should have been a part of that process. That was my only thought. And again, if I’ve missed it, I’m very happy to talk about it.

Lady Hallett: Could we move on to targeting – well, targeting, really and complexity, and I’ll introduce that as a subject with this observation: generally speaking, you have extolled the virtues of schemes that were simple, easy to understand, could be clearly communicated. You know, that was one of the great benefits of CJRS, for example, one of the great benefits of SEISS, one of the great benefits of the uplift to Universal Credit, that you can just stand up, make a reassuring statement that: here’s the scheme, this is what it’s going to do. And everybody can understand it.

Now, the flip side of that is targeting. And we come back to this in grants, as we have discussed it previously.

The Sunak: Yeah, yeah.

Lady Hallett: But you can either celebrate the virtues of it being simple or you can criticise that it’s therefore not targeted. And I just wonder, with the grants, there did become three cohorts and lots of different grants, targeted at different businesses, and so you introduced targeting, but it was at the expense of simplicity and ease of delivery, and I just –

The Sunak: Yes.

Lady Hallett: – wonder if there’s an answer to that.

The Sunak: No, and look, I’ve reviewed this entire thing, preparing for this over the past few months. I mean, the bit that really required a lot of time on my part was trying to go over this grant section. I mean, you look at these charts and what we did, and it is undeniably complex. And going over it again, I remember it being complex at the time and us having to try and figure out how to simply communicate to the public, to local authorities, to Parliamentarians, what exactly – what support was out there for whom over that autumn, autumn-ish period and beyond. And I remember it being complex then and going over this now or the last few months reminds me of just how complicated it became.

Look, all I can say is, you know, there was an attempt to be more targeted, and I can’t even remember all the different names of these things and acronyms, but, you know, again, as the economy was starting to reopen, we had the tiering system, different regions being impacted by different NPIs, businesses over here could be closed in a particular region but not over here, so we tried to adopt these grant schemes to be much more shorter term in duration. So instead of “Here’s your grant for three months, we’re all on three-month lockdown”, it’s, well, we’ll do this in, I think it was three or four-week increments at a time and then flex depending on whether your area was in this tier or that tier.

And again, I think that’s not an unreasonable thing to try to do. It was more targeted. It’s what people would say you should do, for all the reasons we’ve discussed.

And maybe it would have been fine if the health situation had been more stable and stayed in that state for a while, but the problem is, as we discussed with JSS and furlough and other things, because the health situation kept changing and deteriorating, on a kind of trajectory to another lockdown, these things just had to keep getting iterated, because, you know, they were designed on the basis of one type of health response and then, you know, a month later we – it got more serious, and then a month later it got more serious, and then you just ended up doing the same thing you did at the beginning because we’re in another one-month, then three-month national lockdown.

So that was – that was – at least that was the thesis behind why we did what we did, accepting all that complexity or accepting a degree of complexity to have better targeting. And I think there’s kind of an arguable case that that potentially would have been a worthwhile trade-off had it stayed. What clearly happened is it just became more and more complex as we had to keep up with the health response and then you end up back where you started with a simple grant lasting three months for the whole cohort.

So that, at least, is the – I hope it’s a helpful context and explanation for why those charts look the way they do.

Lady Hallett: And is there any learning from that? I mean, in terms of if you had this situation again – I mean obviously we now know what we know, but if you were in it again, would you favour retaining just a simple structure for grants, or is the targeting the important thing? And, you know, how do you – again, it’s squaring the circle – how do you find the way through this?

The Sunak: Yes. Look, again, I’m loath, because it will depend on the situation and maybe there will be a, you know, better understanding of duration of whatever pandemic.

I mean, look, clearly in hindsight it was not the right thing to do because the health situation deteriorated, so you ended up back where you started. But that is in hindsight. You know, was it a reasonable thing to do at the beginning? I think yes. And where you can target things without a hugely burdensome, kind of, delivery cost on the other side, and the speed element is slightly less critical, as it was by the time we’d got to the autumn, I don’t think that is an unreasonable thing to try to do, actually. I just – I think the caution next time around, if there is a next time around, is people having in the back of their head, you know: we think this is going to last that long, and – it’s a judgement for someone. Do we think it’s worth doing things on the basis that it’s going to last a lot longer or do we do things on the basis that hopefully it will be okay and we’re out of it and it’s once and done? And that will be a judgement for someone to make at the time.

Lady Hallett: Is there a data point here, though, that could be thought about now, in terms of – I mean, you’ve described how local authorities know businesses in – know their local areas. They hold different data to central government. That’s, in a way, why they were given the job of delivering a lot of this support, in terms of business rates relief and those sorts of things.

Is there some work that, you know, could be done now which, had it been done before this emergency, would have enabled you, as Chancellor, to make easier decisions about targeting if that data was in some way centralised, shared, analysed, looking ahead to delivery?

The Sunak: I think … look, we’ve talked about this before. The business rates system is really the only system that we have that has a set of information on businesses. But only those businesses with physical premises.

Lady Hallett: Yeah.

The Sunak: And there is – because we have, over some years, developed, in peacetime, sector reliefs for the hospitality industry, so that system does have a relatively high-level sector breakdown, which has been refined over time because we have peacetime reliefs for pubs and restaurants. Obviously right now are in the process of being removed to some extent.

But – so I think that’s there. So I’m not sure what one would do – it needs – differently to that. Look, it’s imperfect, but if you’ve got – you know, you’re trying to help people with a fixed cost, by definition those fixed costs come from the rent predominantly, and they – therefore they have physical premises. We have a sector breakdown for retail, hospitality and leisure that has been refined over time, so I think that’s probably in pretty good shape.

I don’t think that was the issue so much as the fact that we were – the grants had different values and applied to different people, depending on whether their area was open or closed. And I think that was the – and there’s really a data way, I don’t think, to resolve that issue.

That’s just a function of how favourable is that epidemiological response to the pandemic that it makes sense to have grants that are done on that basis. Because the cohort here was – I don’t think particularly controversial. You know, we talked about hard edges, I – because it’s been refined over time, we picked up the people that needed to be picked up in the industries that were being – that had been shut down.

The one reflection is something that we introduced in April, that again, in the future, someone should do from day 1, is the discretionary pot. So we ended up having – because, again, this point on hard edges, I think in this case the RHL (retail, hospitality and leisure) sector is pretty well defined, that picks up pretty much everyone you want, but it had some weird little anomalies, for example – market halls being a good example, actually. You had small retailers inside, you know, traditional market halls and market towns who didn’t show up on the business rates system because the business rates were paid by the overall market hall and then passed through to them in their rent payment.

Now, they obviously were meant to be beneficiaries of the policy. So, you know, you’re sitting in Downing Street – someone like that of course should be benefiting from this grant, and if that same shop was on the high street with the same total rent and business rates bill it would get the grant. And so there was a kind of – that was a quirk that came up. And there were a few other little things like that, which is why then we said: look, we’ll just do a discretionary pot, I think it was either 5% or 10% of your overall value that you’re getting, the local authorities, to our point before, will be able to figure out who it should go to.

And that worked really well.

And, you know, took us four weeks to get to that point from the beginning, but again, next time around, I would do that at the beginning, day 1.

Lady Hallett: Right. So that’s a point of learning, then?

The Sunak: Yes.

Lady Hallett: That having that discretionary pot –

The Sunak: Just picks up those.

Lady Hallett: Yeah. And it saved central government having to try to pick this up by happenstance or by –

The Sunak: Yeah.

Lady Hallett: – listening to complaints that might be coming in from market halls in different places around the country –

The Sunak: And there will be multiple little things like that that you can’t and shouldn’t be trying to deal with out of Downing Street. But that would be – and I think – I mean, the other thing that works, I think, well – and, look, we asked local authorities to do a lot, but we did fund them what’s called the New Burdens Funding.

So there is an established process in government for providing funds to local authorities, which I was acutely aware of when I was Local Government minister. It’s called New Burdens Funding. So you put a new burden on local government to do something, then you need to – then central government needs to give them the money to deal with it.

And I think over the course of the pandemic, almost a quarter of a billion pounds was given over, and that formula tends to work quite well, I think. It’s an important feature, because you can’t expect local government to just start picking up all these new responsibilities without recognising that that has a resource implication on them.

Lady Hallett: Can I move on to the VCSE sector –

The Sunak: Just before we do, Mr Wright, I know there was – again, just going back on our previous discussion on fraud, I noticed – interesting on the grant schemes, again, I think is a good example of this. I’ll be very brief.

Of the fraud that occurred in the grant schemes, 90% of it occurred in cohort 1. And I think that is instructive, because that is, again, where you have this acute trade-off between speed and checks. And, you know, there’s one email that summarises this that came in to my team from MHCLG, and it says, you know: “We’ve spoken to local authorities and they’ve been clear, onerous prepayment checks will delay things by four to six weeks.”

And, again, it’s just a good illustration of that trade-off. So it’s not as if we weren’t aware of it. It was an acceptance that in – the same set of circumstances we described on Bounce Back Loans applied here. We needed to get them the cash and we made a decision. And then obviously, in the fullness of time, you can see that you have the luxury of time to implement new things, people get better at it, and it’s less acute, because everything is being announced months in advance, so you can do the checks and you see the fraud things drop.

But to some extent, again, in the future, you would have that same trade-off. It would be a bit less acute because we developed some systems but fundamentally if you want people to do prepayment checks, that puts time into the system.

Lady Hallett: Okay. Thank you.

The VCSE sector, I just want to pick this up very briefly because I don’t want to run out of time, and there are some other questions.

So really this: we talked about the voice of local government. VCSE, you know, needs to have a voice in central government, I’m sure you’d accept that.

Do you think that it was cutting through to you, as Chancellor, sufficiently? The quirks, for example, in charities, things like in CBILS there was a requirement for applicants to have a 50% trading income threshold that – I mean, you changed that when it was brought to your attention, but is the point here that yes, it’s important to listen to that voice, and for it to be well represented?

The Sunak: Yes, and I, again, similar to local government, obviously that would largely come through DCMS and that’s not unreasonable. There were two changes we made, you know, one was on the trading percentage of revenue for the loans and the other one was on small business rate relief which was the – well, the grants for small organisations went to those who were eligible for small business rate relief but charities benefit from charitable business rates relief so we needed to tweak that to make sure that they got the grants that were intended for them.

So both of those things were changed.

Again, you know, we are learning as fast as we can. Next time around, obviously, both of those things could be done from the beginning. But we’re, of course, aware of incredible impact that charities were having in helping to respond to the pandemic and the impact that the pandemic was having on them, which is why I think a couple of weeks in, in early April, the first week of April, I announced three-quarters of a billion pounds of support for the charities sector, and that combined with, I think 300 million that came, that we knew was coming from the National Lottery Community Fund meant that there was over a billion pounds of specific support going to frontline charities to help them provide key services and support vulnerable people during the pandemic, and thousands of those organisations across the country did an incredible job and I know lots of people gave up their time to volunteer for them, and they were an important part of the response.

Lady Hallett: Can I move on to the final topic, Long Covid, and then I’ll give you an opportunity to share any final reflections.

But Long Covid. First question. Now, obviously at the outset of the pandemic, Long Covid was not recognised as a condition because it hadn’t been developed as a condition. But generally, were or was Treasury factoring in the risks of a novel virus having long-term health consequences that could impact the economy and economic recovery?

The Sunak: Yeah, I think, as you said, we were obviously recipients of the health advice on this topic, and I think, by about autumn, I can, you know, find various bits of advice that talk about this, in the autumn of 2020. I think, you know, at that point, you know, we have some numbers on what percentage of the population were impacted. I think it probably – although I can’t remember in precise terms – it would have contributed to the funding uplift that the NHS received for the, kind of, post-pandemic year ‘21 to ‘22, because there was an acknowledgement that there was this, you know, extra built-up demand on the NHS, and that’s why, I can’t remember the exact number, but in that settlement the NHS received billions of extra pounds, obviously to help them continue to help all the people who had various different health conditions or the backlog on the NHS arising from the pandemic.

Then, I guess more broadly, throughout the pandemic, many of the things we did, the investments we would have made in the welfare system or social care system would have helped those who had Long Covid as well. Because this was something new that we didn’t know about and obviously for the people who are suffering from it, it was awful and they deserve our compassion. And as we learn more about it, I’d like to hope that the various things we were doing would have made a difference.

Lady Hallett: Did Treasury commission any particular data or seek particular analysis of the potential longer-term impacts of Long Covid, once it had been identified as a condition –

The Sunak: I –

Lady Hallett: – on the economy, in terms of long-term scarring and the economic cost?

The Sunak: Yes, I mean, I think – I mean, there’s quite a lot of research, not necessarily commissioned by the Treasury, but there’s been a lot of independent academic and other research into economic activity arising from the pandemic. So that’s quite well documented. You know, if you read through that literature, the focus, it’s typically been more on mental health being probably the largest health factor for some of that, rather than Long Covid. But again, that’s been done by lots of other bodies, not specifically the Treasury but all expert and independent bodies have looked at that question.

Lady Hallett: I mean, one of the issues that the Governor of the Bank of England picked up in his evidence on the 11 December was an observation, he linked it – or he at least referenced Long Covid within this, that the trend post-recovery is still that there is a lot of inactivity in the labour market, and the exact causes of that are still emerging. I just wonder the extent to which the potential contribution of Long Covid to long-term – or in those figures has been factored in sufficiently, in your view?

The Sunak: I mean, I think it’s been looked at. I mean, there are a couple of bits of evidence I got, particularly from the ONS. They’ve said the largest rise in inactivity has been those with mental health conditions, and Long Covid is only a marginal contributor to the rise in activity. And then similarly, I think also from the ONS, there’s limited evidence of an increase in inactivity due to Long Covid.

So I think – I’d agree with Andrew, I don’t think we have a fully settled and formed picture of the rise in inactivity post-pandemic yet. There are some emerging themes that are coming from it where there’s a particular focus on mental health probably being the single largest explanatory factor, and as you see in the evidence that seems to be there from the ONS, is that Long Covid is, as they say, a marginal contributor to the rise and there is still a debate about early retirement and how significant a factor that is or it isn’t.

Lady Hallett: If you’re a Chancellor at any time, a rise in economic activity in the labour market is a very concerning trend. Generally speaking, whatever the cause is, do you think it’s a good idea now to really drill down into the causes of that, identify it insofar as you can, and plumb that into thinking about how you might respond in a future emergency?

The Sunak: Yes, in general, rises in inactivity are not a good thing. And in government, we started, as I said, addressing the mental health side of that because it does seem reasonably settled amongst all the people who have looked at it, that that is the single biggest explanatory variable. And you can see that through the claims on Universal Credit for ill health are disproportionately, indeed I think the vast majority of them, are citing mental health conditions.

So work had already started in my time to tackle that, but I don’t disagree, understanding economic inactivity and having policies to tackle it of course is something that’s important for, you know, the future growth and prosperity of the economy and the country.

Lady Hallett: Thank you.

Now, Mr Sunak, those are the topics that I wanted to cover. I’m sorry that time has meant that probably haven’t covered all of them in the detail you would have liked, but it’s been a full session over the last day and a half. But as I said, I would want to give you an opportunity, as I have with other witnesses, to share any reflections you have.

You were the Chancellor going into this crisis with no on-the-shelf schemes, and limited weapons in your armoury, as a result of that. A future Chancellor will obviously benefit from seeing what worked, what didn’t work, and making adjustments, but what observations would you share with your future self about another emergency?

The Sunak: I think – well, hopefully, we’ve picked up lots of the specific lessons learned as we’ve been going through, and advice for future. I think it’s probably a broader reflection is – I think the pandemic was the biggest challenge, I think, this country, our country, has faced since the Second World War, and in response, the government had to do things that it had never done in peacetime. The government was telling everyone when they could leave their house, and when they couldn’t, telling businesses when they were allowed to open and when they had to close.

And I think that unprecedented level of state intervention did require a series of novel economic tools, from furlough to business loans, all the things that we’ve been discussing.

You know, I believed then and I believe now, that, you know, those tools, unprecedented as they were, were necessary in the exceptional circumstances that we faced. But I would probably say that they shouldn’t become tools of normal economic policy making, and are there to deal with truly exceptional circumstances which the pandemic was.

In terms of the support itself, I think what we were able to achieve during this very challenging period was to save millions of people’s jobs and protect their livelihoods, and also protect, you know, hundreds of thousands if not millions of businesses from failing, and all the long-term economic and social consequences that that type of devastation would have on our country.

And, you know, I hope – and, in a sense, a lesson learned is that we do keep the tools of that toolkit that worked and not forget that, and of course refine where we need to and – as we’ve just been discussing, but just not lose sight of those tools that did work and did make a difference, which I – you know, as your video highlighted, they did in broad part.

And then maybe just to conclude is to reiterate my thanks to all those people in all the departments and different bodies that worked with me during this period. As you said, I was very new to senior government at the time. We were facing something that Ms Truly unprecedented – and that word is often overused, but in this case I think it’s a fair usage of it – and so many people around me worked incredibly hard. And I of course take responsibility and should be held accountable for the decisions that were made, and that rests with me, but I can’t fault for one second the advice and the support I received during this period from everyone who was engaged in helping the country get through this, and I won’t ever forget that. And as I said at the beginning of this hearing, I think it represents some of the finest public service that I’ve ever seen.

And maybe just to conclude, to say thank you to the Inquiry, and you, my Lady, and for everyone for their time. And hopefully over the day and a half that we’ve had, you know, we’ve – I’ve tried to approach this in the most constructive manner I could, and genuinely contribute to some reflections that enable us to learn the lessons of what happened and ensure that we can be as well prepared as possible for the future and do that in the spirit of constructive candour, and I appreciate the opportunity to have had the time to do that.

Mr Wright: Thank you very much, Mr Sunak.

Those are my questions and –

Lady Hallett: I’m afraid there are a few more questions, Mr Sunak.

Mr Jacobs will start. He’s over there.

Questions From Mr Jacobs

Mr Jacobs: Mr Sunak, questions on behalf of the Trades Union Congress.

Among the many features of the furlough scheme, which the TUC considered to be its great attribute, one aspect that it did consider to be of concern was the application of the 80% figure to those who worked at the minimum wage. You spoke yesterday about the rationale for the scheme and about how the government, having imposed restrictions on being able to go out to work and earn, was under a responsibility to provide support.

Is the minimum wage not a pretty good floor for meeting that responsibility in the sense that it would be the government saying, “You can’t go out to work and earn but we’ll ensure you can meet your basic living costs by receiving furlough at least at minimum wage level”?

The Sunak: Thanks for the question. Sorry, I didn’t catch your name.

Mr Jacobs: Mr Jacobs.

The Sunak: Jacobs. Thank you for the question.

Look, I think it’s an entirely reasonable point to raise. We thought about it at the time, and I discussed it with officials, and actually the advice, which I agreed with, was that it was a defensible position because the National Living Wage is a legal minimum for work, when people are working, and obviously, when these furlough payments were being made, those were – you know, that was by definition being given to people who were not working, and I think that is a distinction, maybe not everyone will agree with that, but that was the rationale for it.

I personally think that is not an unreasonable position to take. We’ve talked about trying to, you know, limit fiscal costs where we can, ensure targeting on the people who most need it, and in general I think, if you look at the outcomes for those on the lowest incomes, you know, as we’ve discussed, they, you know, they were far more favourable than anyone had managed in an absolute, I think we did a good job there.

So I think in the round, that feels to me a defensible position to take. I understand why people might want to take a different point of view.

Mr Jacobs: Acknowledging, Mr Sunak, that rationale, in looking for sort of criteria or levers that enable support to be best targeted – and I think, as you just said, targeting support to those who need it most – do you think, on reflection, that a minimum wage threshold would actually be quite an effective way at targeting those who are known to be particularly vulnerable economically?

So less focus on whether it’s defensible, but whether perhaps it’s optimum in terms of targeting and getting money where it’s needed.

The Sunak: I think, if you look at the round of all the different interventions that we did and, you know, CJRS was there to ensure people were connected to their place of employment, did not lose their job, and obviously did not suffer a disastrous drop in their income, and that’s obviously, you know, we took the generous end at 80%, by the way, if you look at the range of international comparisons, we were, you know, the range was probably 70 to – I forget – it’s in my evidence – 70 to 90 or something – (overspeaking) –

Mr Jacobs: I think to 100% is in your statement.

The Sunak: I mean, there are other models where people have had more permanent versions of this, which are different. But in general, what was stood up during the pandemic in most large countries, I think 80% compares pretty favourably and is on the generous end.

So I think we’re starting with that point. We did other things in Universal Credit, hardship funds, Local Housing Allowance, as we’ve discussed, there are so many different interventions. If you look at the outcomes on the most vulnerable people, as I say – I don’t need to go through them again – I think in absolute terms, they – we did a good job there and things like the flat rate in Universal Credit, again disproportionately benefits, for example, single people. Single young people who were the most impacted by the various NPIs.

So, again, I think, in the round, the support was well targeted. I think on the 80% and the National Living Wage interaction, I think the position we took was defensible.

Mr Jacobs: Thank you, Mr Sunak.

The Sunak: And just do – I said it earlier, but I thought the relationship and the constructive working between, you know, Kate and Frances – or Baroness O’Grady at the TUC during this period was something that I thought was incredibly value. I know unusual for them to spent so much time with a Conservative Chancellor at the time, but I think it made a huge difference to have a good constructive working relationship, and I’m grateful to them for that.

Mr Jacobs: I think that’s a shared reflection, Mr Sunak, so thank you.

The Witness: Thank you.

Lady Hallett: Thank you, Mr Jacobs.

Ms Hannett.

Ms Hannett is just over there, Mr Sunak.

Questions From Ms Hannett KC

Ms Hannett: Thank you, my Lady.

Mr Sunak, I appear on behalf of the Long Covid Groups. You referred in your evidence yesterday to the importance of consulting with stakeholders such as the TUC and the CBI. The Treasury did not meet with the Long Covid Groups or participate in the Department of Health and Social Care ministerial roundtables, where the Long Covid Groups shared experience of its members, including in relation to employment issues.

Should the Treasury have done more to meet with the Long Covid Groups to understand their concerns and the economic impact of Long Covid?

The Sunak: Well, first of all, my sympathies to all those who are suffering with Long Covid, because, having spoken to some, I know it is – it can be incredibly debilitating for people who are grappling with it.

I’m obviously not aware of every single interaction that the Treasury would have had with everybody, or indeed, as we’ve discussed, the engagement that bodies have with their relevant departments that they normally speak to that then gets fed into the Treasury. And I really wouldn’t underestimate that. That happens a lot, in the sense that the advice I would receive throughout the pandemic would contain various views of different stakeholders that would have been fed through different departments as well as people engaging directly with the Treasury.

I think we’ve had a long discussion about the balance of engagement and speed at particular times. You know, I think the thing I would want to make sure is, you know, are there policies that we’ve got in place that are appropriate to help people?

And I, by and large, think we do, and I think that applies to those who are suffering with Long Covid as well as those who are suffering with other health conditions as a result of the pandemic, and just more generally.

Ms Hannett KC: Mr Sunak, by way of follow-up, the members of the Long Covid Groups would say that the existing policies actually didn’t meet their needs or suit their needs, and that that position wasn’t taken on board by the Treasury. In hindsight, on reflection, do you accept it would have been preferable for your officials to meet with the members of my groups?

The Sunak: Look, I’m sure – and the easiest thing for me to say is, “Of course, yes”; right? It costs me absolutely nothing for me to say yes, they should have met with you. And there will probably be, in all honesty – and we can just do it in the spirit of reflection – lots of groups that feel they should have had an opportunity to talk to the Treasury, and the easiest thing for me to say is, yes, they should have all done so.

You know, what I would say is that there was no desire not to speak to particular people, the general culture was one of engagement and learning and trying to understand the impact of what was happening on all people, from all walks of life, across the country, and then do the best job we could to put policy in place to support them.

So, look, I’m sorry if you felt that you did not get the engagement that you wanted, and needed, and that’s all I can say. And I do believe that in general, the support that we put in place, you know, did help people in all sorts of different ways. And particularly with people suffering from health conditions, the extra support that we put into the NHS and the social care system – and you’ll be familiar with continuing healthcare – continuing healthcare and the other support that we put in place, for those that are suffering with Long Covid, they will benefit from the extra resources that have gone in.

We’ve had the discussion with Mr Wright on the economic inactivity point, because I think there was a thought that maybe it was a very significant driver of economic inactivity. It turns out, at least on the evidence that we have, that it has not been, which is a welcome development, I believe, and I’m sure you’re engaging with the current government where you think that there is ongoing policy that needs to be adjusted, in the same way that I’m sure there are, you know, different groups with different conditions, whether mental or physical health illnesses or disabilities, that want to make sure their voice is heard. Of course it should be heard, and you’re engaging within the new government as well about what’s required.

Ms Hannett: Thank you.

Lady Hallett: Ms Beattie.

Ms Beattie sits just in front of Ms Hannett.

Questions From Ms Beattie

Ms Beattie: Mr Sunak, I ask questions on behalf of national Disabled People’s Organisations.

On 5 November 2020, the Treasury and the Department for Work and Pensions were specifically commissioned by the Cabinet Office to consider and put forward a package of financial support to address the disproportionate impacts on disabled people, including but not limited to those on legacy benefits, not covered by Universal Credit.

And just, Mr Sunak, to remind you of the context, the Prime Minister and CDL had asked for a more ambitious package for disabled people, and the Cabinet Office had specified that recommendations and proposals needed to meet the scale of this ambition.

Yet the Covid-O meeting of 8 December 2020, which considered the product of that Cabinet Office commission, did not consider or agree any package of financial support for disabled people, whether on legacy benefits or otherwise, and the actions and decisions contained nothing about this.

Why did the Treasury not put forward an ambitious package or even any package of financial support specifically focused on disabled people, not limited to those on legacy benefits, but including those, despite being specifically commissioned to do so by the Cabinet Office in view of the known disproportionate financial impacts on disabled people?

The Sunak: I’m sorry, but I can’t speak to the specific meeting that you reference because I don’t have a firm recollection of it, or whether I attended, or indeed the specific commission.

Just, as a general observation, the Treasury is commissioned for things all the time. Having sat both in the Treasury and in Number 10, that happens all the time, that the Cabinet Office or the Prime Minister’s Office will commission things, want ideas on things, advice on things. So just because something has been commissioned does not mean that it will get actioned, probably a very small proportion of things that are commissioned get actioned, and government is constantly looking at these things. So again, I can’t speak to that particular commission or why it wasn’t taken forward.

Ms Beattie: Mr Sunak, I mean, we know this was the government’s attempt to look at the disproportionate impact on disabled people. The Treasury and all other departments were asked to consider this and we also know from your statement that at the very time you decided to extend furlough, at that time in late 2020, because you anticipated, you tell us in your statement, that people in businesses would need reassurance in relation to employment over the winter, that what was likely to be a second lockdown was coming.

But this was a specific request for a package of financial support for disabled people to deal with the specific discriminate secondary impacts of NPIs on disabled people who might not be in employment, who might not be furloughed, but were in greater jeopardy through debt, lack of savings, food scarcity, among other matters. Do you not remember anything being done or considered in that respect?

The Sunak: Again, I – it would be wrong for me to talk to the specific commission, because I don’t have a recollection of it, in the context of everything that was happening at the time. But I – and if it was commissioned by the Cabinet Office and Number 10 it’s probably more appropriate for them to answer as to why they didn’t take it forward, because, as I said, I can’t recall it.

But to your more general point, as we’ve discussed over the last day and a half, there was enormous consideration given to vulnerable groups in our society, and ensuring that the various different things that we did could help people in that position, not just –

Ms Beattie: Was there any –

The Sunak: – not just through Universal Credit but through all the various other investments and support schemes that were put in place. And you mentioned, you know, food security or food insecurity. I mean, the data we have from DWP’s household survey that they do every year shows that food insecurity fell during – for those households below average income. Food insecurity fell during the year of the pandemic compared to the year before, which I think is indicative of the support that we put in place helping vulnerable families, and again, tackling one of the specific things that you just raised about people’s food insecurity.

Ms Beattie: Right. So that was a household survey. Was that disaggregated in respect of disabled people? You’ve already relied on the Inquiry’s labour market expert, Dr Brewer, but accepted that aggregate figures can mask specific inequalities, and Dr Brewer in fact goes on to say that there are – that there may be hidden inequalities, hidden household financial circumstances, and that was the case for disabled people. So generalised aggregate analysis doesn’t tell you the full picture.

The Sunak: Of course it doesn’t, and that’s why we provided, you know, billions of pounds of funding to local authorities to help exactly the people that you described. Because of course I’d accept that aggregate data, aggregate schemes, are not going to capture every single person who is deserving and in need of help. It would be wrong to assume otherwise.

Which is why, from the very first announcement I made at the budget, through to the end of the pandemic, there was always a significant pot of money provided to local authorities for them to support the most vulnerable families in their communities, that they would have best knowledge of and – knowing who they were, to pick up exactly, as you said, those hidden – those hidden people, hidden families that needed help.

I’m very aware of that and made sure that there was funding made available to help exactly those people.

Lady Hallett: I think you’re off-piste, Ms Beattie.

Ms Beattie: My Lady, I shall turn to the second matter.

Mr Sunak, you tell us in your statement that the Treasury submission of 20 March 2020, relating to the initial design of furlough, considered potential equalities impacts of this measure, and there’s a further submission on 24 March about further policy decisions on that. But neither of those submissions mentioned disability or disabled people.

You further tell us that Treasury regularly conducted and published assessments on the impact of policies, for example on household incomes, but again, none of the examples you cite refer to disability or disabled people.

And of the equality assessments and analyses which have been seen and disclosed to date, analysis of impact on disabled people is sparse.

Do you agree that the Treasury’s assessment of the impact of policies was largely focused on household incomes and the poorest working households, and did not extend to the specific impact on disabled people, which may be, indeed, as it was, more specific than the aggregate analysis that you’ve already accepted doesn’t get down to that important detail?

The Sunak: No, I think, on this point, I’m not sure I entirely agree. I mean, we have a statutory framework for this, so the Public Sector Equality Duty, which is obviously in statute through the Equality Act, requires decision makers, ie ministers, to show due regard to the potential effects of policy, service or decision on those who share one or more protected characteristics under the Equality Act.

And my recollection is that that was always followed. I mean, the Treasury, like all departments, has a set of tools and a toolkit that it uses to do those assessments as part of ministerial advice. They were provided to me in submissions. I had no reason to think or believe that they weren’t accurate or complied with the statutory obligation. Other departments would have done – done the same thing.

So I think there was, in general, due regard in our obligations under the Equality Act, which is the legal provision we have to do exactly what you’re describing, worked in that sense.

Ms Beattie: But Mr Sunak, that’s the Act provision and the obligation, but in terms of the tools, none of the tools that we’ve seen contained substantive information or detail on the position of disabled people or their economic financial position. So do you agree that those tools were actually incomplete, in many cases out of date, and in fact inadequate for the purposes of conducting a meaningful analysis of the measures you were putting in place or choosing not to put in place, as the Treasury?

The Sunak: As I said, I’m not – look, I obviously don’t have a detailed recollection or understanding of the underpinning of all the individual tools that go into that assessment, and I’m sure it’s something that could be suggested to the new government if you think that the tools that are being used aren’t appropriate, or effectively accurate, but obviously, I was using – well, I was just responding to the advice that I was given, based on a set of toolkits that had been developed, and by all accounts seemed to be in compliance with the legislation that we have.

So obviously, I imagine, as a matter of law and statute, that is a reasonable position to take, but if you have suggestions for the future, I’m sure people will be open to hearing them.

Lady Hallett: Thank you, Ms Beattie.

That does complete our questions for you, Mr Sunak. You’ve obviously put a lot of time and effort into cooperating with the Inquiry, and I’m extremely grateful for your help, and to those of your former colleagues who I suspect might have given a little bit of help in making your over 300-page witness statement ready for us. So thank you very much for your help.

You’ve mentioned more than once the hard work and commitment of a number of your colleagues. The more I hear in this Inquiry, the more evidence I hear, the more I become acutely conscious of the thousands of unsung heroes across the United Kingdom, and I know that people worked long hours under extraordinary pressure to save lives, save livelihoods and keep the UK going. So I echo the praise and I’m sure whatever findings I make, I’m sure that you too deserve what I think we deserve to all our unsung heroes, which is a huge debt of gratitude.

So thank you very much indeed, and I won’t ask you what your wife thought when you told her you’d become Chancellor of the Exchequer just as Covid was hitting the United Kingdom.

The Witness: Yes.

Lady Hallett: So much for your political dreams.

The Witness: Yes.

Lady Hallett: Anyway, thank you very much indeed. I’m really grateful to you. I shall return at 1.50.

(12.53 pm)

(The Short Adjournment)

(1.51 pm)

Lady Hallett: Mr Wright.

Mr Wright: My Lady, the next witness, please, is Robert Joyce.

Mr Robert Joyce

MR ROBERT JOYCE (affirmed).

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

Lady Hallett: I hope we haven’t kept you waiting too long, Mr Joyce.

Mr Wright: Mr Joyce, you have provided an expert report to the Inquiry, and I’ll give the reference, INQ000588131. And just by way of introduction to you professionally, you’re an economist with an expertise in the microeconomics of public policy and a particular specialism in labour markets, welfare, tax policy, and economic inequality; is that right?

Mr Robert Joyce: That’s right.

Ms Beattie: And you’re a director at Alma Economics?

Mr Robert Joyce: That’s right.

Ms Beattie: And you were instructed by the Inquiry to prepare a report examining the key economic issues facing the United Kingdom during the Covid-19 pandemic, and, in particular, to explore the challenges and trade-offs that the economic policy response faced; is that right?

Mr Robert Joyce: That’s correct.

Ms Beattie: Now, we’ll come on to this a little more in the substantive questions, but you were not asked, and have not provided, a comprehensive overview and assessment of all elements of the economic response, nor an evaluation, if you like, in terms of how you rate the response; is that right?

Mr Robert Joyce: That’s correct.

Ms Beattie: So can we, first of all, as a topic, just look at the nature of the shock that was caused by Covid-19. And we’ve heard lots of evidence in the Inquiry that it was unprecedented, and I think everyone agrees about that, but what was different about this shock, in terms of the issues that it raised, and how it materialised?

Mr Robert Joyce: The main distinctive features are, first of all, that it affected so many different domains of life, and in particular of economic life, at the same time. So, in particular, it was a large shock to demand, like many recessions are, but it was also something that affected the supply side of the economy directly as well.

So, you know, essentially the avoidance of social contact is associated with a lot of reductions in different kinds of consumption, so that’s the demand side, but it also inhibits the supply side of the economy as well, because lots of production relies on social contact. And, of course, once you add in not only the effect of there being a contagious virus, but also the effects of restrictions imposed in response to it, it only makes that story clearer.

So you’ve got simultaneous shocks, both to the demand side of the economy and the supply side of the economy. That creates particular challenges because the kind of policy response that is appropriate to deal with a shock depends on what kind of shock it is, including, very importantly, whether it’s a demand or a supply side shock, and then the mix between the two.

Ms Beattie: Can I just, as an opening request, ask you to slow down a little bit. Don’t worry, I’ve asked nearly every witness to slow down. It’s just that a note is being taken in live time. And so, just a little slower.

Mr Robert Joyce: Not a problem at all.

So that’s really the first way in which this was distinctive, in that it disrupted fundamentally different parts of the economy a lot at the same time, in a way that complicated the policy response. And also, I think, put an unusual degree of strain on the machinery of government, because you have to respond to different problems in different parts of the economy.

The other distinctive feature that I think I would pull out at a high level is the interaction between the economic crisis and the public health crisis. So the – again, to trace it back, essentially the whole reason why there was an economic crisis is because the avoidance of social contact, whether voluntary or mandated, has economic implications.

The usual – some of the usual responses of a government to a recession would be to try to, for example, stimulate demand in order to mitigate the impact of the recession. But that was always a tension with reintroducing the kind of social contact that was causing the problems in the first place, or that was the concern in the first place and was the reason for some of the restrictions.

So there was this dynamic interplay between the health crisis and the economic crisis, and they could both have feedback effects on each other which made the whole problem I think much, much more complicated to understand and respond to.

Ms Beattie: We heard from Mr Sunak in his evidence that in a normal economic shock, it will occur within the economy, its origins will be within the economy and so you can respond to that by a policy response, but here, the origin was in a health crisis, and therefore the economic response had to follow the health crisis so it had to be reactionary to that. So that’s a novel feature, is it, in terms of an economic shock?

Mr Robert Joyce: It is, absolutely, and then the fact that again, then the economic response that you implement could have its own impacts on the public health crisis.

Ms Beattie: It works both ways?

Mr Robert Joyce: Yes.

Ms Beattie: Yes. As a sort of feedback loop of one affecting the other?

Mr Robert Joyce: Exactly.

Ms Beattie: And also, estimating the trajectory of the health crisis was near impossible, so therefore, does that put a strain on your ability to know what policy levers to pull and when, from an economic perspective?

Mr Robert Joyce: Yes, it can certainly complicate that picture. There are kinds of economic policy responses that might become more or less desirable, depending on how long you have to implement then for. So we might come back to this perhaps in more detail in relation to specific schemes, but, for example, the notion of trying to preserve the pre-pandemic structure of jobs of who’s in which job, which is part of what the furlough scheme was doing, is something that can become relatively less attractive the longer you have to do it for.

In addition, the – it was unclear what the long-term effects of the crisis would be on the structure of the economy itself. So would there be a– or to what extent would there be a permanent shift towards more remote working, more online retail? All of these things might mean that the post-pandemic economy would look different from the pre-pandemic economy, in a way that, again, would affect how desirable it would be to try to preserve the pre-pandemic economy as it was.

So yeah, the uncertainty over the duration of the pandemic and of its long-term effects on the economy, I think also further complicates it, how to think about what the right response was.

Ms Beattie: So you don’t want to preserve a sort of economic model that’s become redundant because behaviours have changed in response to the crisis that remain after it’s passed?

Mr Robert Joyce: Exactly. To the extent that the new – that the future looks different from the past and therefore the economy will have to change anyway, that makes it somewhat less attractive to delay that change. But of course this is all – these are all things that are very easy to say in hindsight, and we just didn’t know at the time how long it would last or what the long-term effect would be.

Ms Beattie: And Mr Sunak’s observation in evidence was that, you know, here, he was dealing with something that there was uncertainty about so many things: scale, duration, potential duration, the behavioural response and the wider macroeconomic impact. So you’ve got uncertainty everywhere you turn, in terms of trying to plan from a policy perspective.

Mr Robert Joyce: Absolutely. And in addition, households obviously face a lot of that uncertainty as well, and so part of the challenge was trying to reassure them and give them as much certainty as possible, but that was difficult when the entire environment that the government was responding to was itself so uncertain and dependent on global factors and so on.

Ms Beattie: And so, does that range of complicating factors mean that whatever any government had done would have required an element of making tough choices where you were balancing risk against potential trade-off?

Mr Robert Joyce: 100%, absolutely. And quick choices as well, which, because there was – much of the damage and much of the potential long-term damage could have been done very quickly with a lack of an effective and quick response which also further limits your ability to fine-tune certain elements of the design of policy, and again, I’m sure we may come back to this when we come back to specifics, but that also made it much, much harder.

Ms Beattie: So on the question of speed, and we will, as you say, come back to it when we look at specifics of certain policies but those who say, “Well, you could have sat back and just seen how it all developed and, you know, not rushed into this or that or the other”, the nature of this shock meant there was an absolute imperative to do something quickly, and whichever way you jumped, there were going to be trade-offs?

Mr Robert Joyce: Absolutely, yeah. I mean, I don’t know who would be arguing that we could have just sat back but, yes, absolutely, I would certainly argue against that notion that – the risks here were not symmetric in some sense. If you act too little too late, if you don’t get the right support out quickly enough, then much of the damage could be done very, very quickly in terms of – again, I come back to the specifics, but in terms of people losing jobs to which they actually were well suited and had a viable long-term future, firms going bust that would actually have had a viable long-term future, but couldn’t survive a crisis.

If you don’t act quickly enough to shore up and prevent those things from happening very early on in the crisis, it’d be very hard to undo the damage, and it could last for a very, very long time.

Ms Beattie: I think we heard the “sit back and do nothing” as an option, really, being promoted in terms of the monetary policy, the idea that the bank didn’t have to act, the bank could have just sat back and seen how things settled. That was really, in the evidence, where we’ve heard that. But the Governor’s reaction to that was, “No, we had to go big and go fast because we needed to stabilise.”

So that’s why I mention it, just for your benefit, because I’m sure you haven’t heard all of the evidence.

Now, I just want to pick this up as the next topic, really: the extent to which it’s possible to assess the overall effectiveness of any policy response.

I think you describe it as being – you know, the ability to assess that – as being very challenging. So, in the sense of what, for example, an Inquiry can or can’t do. From an expert perspective, is it near impossible to actually make that sort of qualitative assessment?

Mr Robert Joyce: In a precise way, yes. It’s essentially impossible.

I think – so, perhaps it’s useful to elucidate the main challenges that there are there, and the typical way, and in some ways the cleanest way to try to understand the impacts of an intervention or a set of interventions, would be to use some kind of counterfactual analysis, which would typically involve trying to find a group of people, say, who in some sense narrowly miss out on being eligible for some intervention, compare what happened to them with a group of people who fell on the other side of that threshold or boundary, and were eligible, and you – a comparison reveals the impact of the intervention, or the relative impact, I should say, on those two groups of people.

Which brings me to the first difficulty, which is, when you’re dealing with a sort of macro – an economy-wide shock and an economy-wide set of interventions, that will not just impact the specific people who actually, for example, benefit from the furlough scheme, but will have a macroeconomic effect, can stabilise – can help to stabilise the macroeconomy, by shoring up – by providing more certainty, by shoring up incomes and so on, well, that could be something that everyone in the country essentially could benefit from, in principle.

So, comparing one group with another is not going to reveal that the size of that kind of benefit, which is clearly a big part of what the overall response was about, you know, macro stabilisation.

Ms Beattie: So it’s not a true comparison, it’s artificial, because of all the other effects of the policies?

Mr Robert Joyce: Yeah, you’re sort of comparing – to take the example – and there were examples of this – of evaluations done of the furlough scheme, which did involve a comparison of people who narrowly missed out on being eligible for it because of when their employment started and those who just were eligible for it. What you’re really doing there is you’re comparing a group who directly benefited, and also presumably indirectly benefited, because they’re part of the macroeconomy that could have been affected by a scheme of this size, with a group who only indirectly benefited, but they both indirectly benefited, so you’re not capturing that effect; you’re kind of netting that out by comparing the two groups.

So that’s an example of how you’re not capturing those kind of macro effects which are very important.

I think the other key point is that it is even harder to compare the set of interventions that we actually implemented with other hypothetical variants of those, which in a way is the interesting question, because I think no one is suggesting that we should have done nothing. So really, what we would like to know ideally to learn lessons, is what was the effect of what we did, compared to the effect of other things that we could have done? And for that you’re relying on things like cross-country evidence, different countries took somewhat different approaches. You can perhaps take something from comparing the experience of different countries, but you’re into a much less clean setting there, because different countries differ in all sorts of other ways as well, including the dynamics of the pandemic itself, for example.

Ms Beattie: And would that, sort of, cross-country analysis also depend on factors like the state of any other country’s economy before the pandemic, the composition of another country’s economy, because different countries will have economies composed in different ways, the size of the labour market, and all of those factors that are very difficult to, sort of, what, model out into a true comparison?

Mr Robert Joyce: Absolutely. All of those. All of those factors. Yeah.

Ms Beattie: So you can broadly look and say, well, you know, take furlough scheme, the US, United States of America, didn’t have a furlough scheme, it went for welfare rather than furlough but we’ve heard why that is, but you’re comparing apples with oranges if you try and say, well, that could have meant a different outcome in the UK if you’d have followed it?

Mr Robert Joyce: Yes, certainly, if you’re trying to arrive at any kind of precise estimate of what would have happened here had we followed that path, yes. Maybe we can take some indicative broadbrush things from comparing with other countries. I think we probably can take something from the US experience in that I was quite struck in that example by the fact that the employment rate did bounce back quite quickly there, after the initial big fall. And I think that’s interesting, and we might, you know, maybe we’ll come back to what we might learn from the US or other countries.

But in terms of delivering from that a precise estimate of what would have happened to us if we’d gone down their path or the path of some other country, yeah, I don’t think that’s realistic.

Ms Beattie: And when you’re attempting any sort of evaluation of the effectiveness of government economic intervention, how important is it to consider against any risks that government was taking by a particular course or another with the impact of not doing anything, of not acting?

Mr Robert Joyce: Crucial, and there is a potentially big asymmetry between the impact of not acting can be irreversible, or very difficult to reverse, if it results in, you know, important matches between employers and employees being destroyed, which are very hard to rebuild quickly, you know, people spend a long time searching for the right job, maybe switching, going from employer to employer to employer trying to find the right job, and if they have to restart that process all over again because they – their job cannot survive what might have been a relatively short-term, you know, in the face of what – where relatively short-term help might have helped that job to survive, that’s a long-term cost potentially that’s very hard to reverse.

Plus, of course, the macroeconomic stabilisation element. If you don’t intervene quickly enough, and provide certainty, shore up incomes enough, the crisis itself could become entrenched for the reasons of – you know, we haven’t explained the multiplier effect of macro stabilisation but this is a risk if the government doesn’t intervene in a macroeconomic shock quickly that the crisis itself can become entrenched and last for longer.

So the risks of inaction, of not doing enough, can be quite immediate and quite large, and often quite hard to reverse. The risks of, perhaps, action that might be a little bit more blunt than would be ideal, if we had more time to design things in a more fine-tuned way, a little bit different. I mean, there are risks there, but you have the ability afterwards to go back and try to refine things, to fine-tune things.

Whether they did that enough in this crisis perhaps is a question, an open question.

But yeah, the risks of acting too slowly and not doing enough particularly in the immediate emergency, were potentially very, very large and I think outweigh the risks on the other side of the ledger.

Ms Beattie: Would you just briefly explain that macroeconomic multiplier effect, and how that works.

Mr Robert Joyce: Yes, so this the concept that when there is a crisis which is not just affecting specific households but is affecting a large number of households at the same time, that it can multiply.

To give an example, if there’s an initial set of economic shocks which hit the incomes of a large group of people, that reduces – they spend less because they have less income. If they spend less, then that’s potentially less consumer demand, so the firms who would have sold things to those people suffer from that.

Obviously the owners of those firms can suffer directly in terms of their incomes, but they also might have less demand, then, for labour to make the stuff that would have been bought by these people who are now buying less.

So that means fewer people or fewer – less wages for a set of workers, because of that lower demand for labour. So then you’ve got an additional group of people who are affected beyond that first round effect.

So when you’ve got an income shock affecting lots of people at the same time, it can propagate through the economy. You have these second and third round effects.

And part of the role of policy during a macroeconomic crisis, therefore, is to try to stop that propagation from happening, to cut it short by shoring up incomes when the crisis hits, in order to stop the crisis becoming more entrenched and long lasting than it would otherwise be.

So those kind of propagation effects are sometimes known as multiplier effects, which is what I referred to, I think, in my previous answer.

Ms Beattie: Okay. Can we then move on, as the next topic, to look at sort of big policy levers. And in particular, the choice – it is a binary choice, I don’t think it is necessarily – between income protection full stop and income protection through job matching, and balancing those as two concepts.

I mean, you have a situation in the pandemic where a government mandates that for health reasons you can’t go to work, you have to stay at home, affects the ability of people to go out and earn, therefore, and then, on the face of it, incomes will fall.

Options available: (1), just protect income, so just give people money; or, (2), protect income through retaining jobs and job links.

What are the advantages and disadvantages of those two policy options?

Mr Robert Joyce: So I think at this point it’s useful to introduce the concept of kind of matching, or the quality of matches that exist in the labour market, in particular between sets of employees and the employers that they work for.

So you could think of it in a normal economy, in the normal state of affairs, people are essentially shopping around in their careers. They spent some time with an employer that they think is well suited to them, they may then find that there’s another job that they want to take instead, which, almost by definition, means on some level they’re judging that that would be an even better match for them, whether because it better matches to their skills or their family circumstances, their preferences, whatever it might be. And similarly on the firm side, firms are looking for the best workers to undertake the tasks that they need doing.

So there’s this constant kind of matching process in the labour market. And, you know, on the eve of a pandemic, you’ve got an economy where a set of employers and a set of employees match to each other, and that is essentially the sort of a snapshot of the culmination of a process whereby employees of – often can spend many, many years shopping around trying to find the best employer, and the same thing on the employer’s side.

So the key point is that there’s – there is some value in the set of matches that exist at any point in time. And if you just sever them all, there is no guarantee that people will just immediately find matches – and this is true both on the employer side and on the employee side – that they will immediately find matches which are as good as they had before, which took time and effort, potentially, to find. So –

Ms Beattie: I mean, leaving aside time and effort, what effect does not having good matches have on the wider economy and that –

Mr Robert Joyce: Yeah, so essentially if people are less well matched to the jobs that they’re in, then that has implications for productivity, and therefore for the amount that we’re producing with a given amount of labour, and that affects the size of the economy and, therefore, all of us, in terms of our living standards and prosperity. So it can be an important determinant of productivity.

So the goal of job preservation, I think, a big part of it, a big part of the rationale for it, is to stop the severing of these matches.

So one analogy I find quite useful here is a ladder. So if you imagine that – you know, people’s, kind of, career trajectory, so essentially they’re on a ladder, they’re on a rung of the ladder, and occasionally they move up a rung because they see a job that they think is better for them, they’re a better match to. And you can tell the same story from the side of the employers, looking for the best workers, as well.

If you fall off the ladder, there’s no guarantee that the next rung you get onto when you get back on the ladder is as good as the one you were on before. So, as soon as you allow employer-employee matches to become severed, even if they had a viable long-term future, just because they can’t weather a short-term crisis, that can do long-term damage, because there’s no guarantee you’re going to get back quickly into a situation where people are as well matched to their jobs as they were before.

So I think that’s one key rationale for something like a job – you know, for a scheme that doesn’t just protect incomes but also tries to that to the preservation of the kind of job – of the employer and employee matches that existed at the start of the crisis.

If you weren’t worried about that, or about the – just the cost of having to go through lots of rehiring of workers after the crisis has passed, well, then you’d be more attracted to, you know, the main goal really is just income protection, which in itself doesn’t require the freezing of the set of jobs that existed before the crisis. You could do that through other means.

Ms Beattie: So this is just giving people money rather than preserving their jobs, essentially?

Mr Robert Joyce: Yeah, yeah.

Ms Beattie: Which is what happened in the United States, is that right? It was support through welfare, effectively?

Mr Robert Joyce: That’s right. They sent out, potentially sent out a lot of cheques to households that had no relation to – exactly to whether or not they were remaining attached to the employers that they had at the start of the pandemic. I think that was – I think largely or entirely explained by what they could do, what they had the administrative apparatus to do. But yes, that was a very different approach that they took.

Ms Beattie: And the balance between the two, income protection and job matching, which is preferable? Does the likely duration of an economic shock perhaps influence which way you go?

Mr Robert Joyce: Well, potentially yes. Again, I think the ladder is quite a good way of explaining this. So you’ve got people in their careers, essentially gradually climbing, climbing a ladder, moving to new rungs when they think that they’ve found a rung that’s more appealing than their current one, ie, a new job, and that happens in the normal course of events. So if you take a two-year period, for example, many people over that period in the economy will have decided for some reason or other to take a job that they think is better matched to their skills or their circumstances or their preferences. So there’s this natural churn in the economy which is essentially about – or a lot of it is about maintaining alignment between people’s skills, their preferences, and the jobs that they’re in.

What a job preservation scheme is trying to do, quite reasonably, is to stop people falling off the ladder completely and having to sort of start again or move back on to a lower rung of it.

What it is also however doing, kind of unavoidably, is it is providing less of an incentive for people who might otherwise have moved up a further rung, just in the normal course of events for some other reason: because they found a better job that they’re better matched to, from doing that, because, you know, now you’re, in the case of the furlough scheme, you can – you’re no longer comparing just a new potentially slightly more suitable job for you with your current one; you’re comparing that new job with a scenario where you can spend longer in your current one getting 80% of your wages without actually working.

So there is a – that freezing effect can have a very, very positive effect, in stopping people falling off the ladder and having to start again. But also, over time, it will be preventing more and more of the, sort of, normal churn where people would otherwise have moved up that ladder a little bit further. So the longer it goes on, the more of the latter effect you’ll be getting as well, I guess is one way of putting it.

So that can change a little bit the, sort of, calculus, and it’s something that you – I think it became quite relevant the longer this crisis and the longer this furlough scheme went on.

Ms Beattie: And so we know that in the UK, the decision was really to go for job protection and income support through that preservation of jobs and that job matching. But for those who aren’t in work, there’s obviously a requirement as well, is there, to think about – or those who lose employment, so their job is not preserved, to think about the welfare provision and for those two things to work in a complementary way?

Mr Robert Joyce: Absolutely. I think there is no world in which you wouldn’t have had, you know, an extremely strong case for just pure income protection measures as well, ones that were not tied to any job preservation scheme.

There were people who, for various reasons, fell through the cracks in terms of not being supported by the Coronavirus Job Retention Scheme, were just made redundant instead, for example, on the self-employment side of things, the newly self-employed were not eligible for the initial rounds of the scheme that supported the self-employed group.

So for lots of reasons, there are people who fall through the cracks of a job preservation scheme, including just simply people who still lose their jobs. So –

Ms Beattie: Can I just –

Mr Robert Joyce: – there was always a role for just straightforward income protection measures as well.

Ms Beattie: And in terms of those gaps and how far people fall, I mean I suppose the height of the fall, the difference between having your job preserved through furlough and making a claim for Universal Credit may be quite significant, but we do tend, then, to get into pre-existing issues about the structure of the welfare state generally, don’t we, and where levels are set and how it’s configured?

Mr Robert Joyce: We do get into those issues. So if you have – you know, people who have different views on how – on whether the pre-existing welfare system was generous enough or not, will tend to have different views on what should have happened to that system during the crisis. Although, I think there is an interesting thing to reflect on, in terms of just the balance of the measures implemented during the crisis – the precise balance, where the dial was on that continuum, between how much support was provided through the job preservation schemes versus the, sort of, more standard social security measures that were not tied. There was still the income protection but not tied to the job protection.

I think you can have a – certainly there’s a debate to be had about the precise balance between those things, which did affect this huge gap between how much people were entitled to, if they managed to get onto the furlough scheme versus if, for whatever reason, they didn’t. And that was a very, very big disparity.

Ms Beattie: If the ultimate aim is to protect the economy, or preserve it as best you can, and then try to ensure a rapid and strong recovery, there’s merit, presumably, in putting jobs first, and job retention and business preservation first, because that’s going to enable that sort of swift and strong recovery more than if you put all your focus on welfare and income protection, unlinked jobs; is that right?

Mr Robert Joyce: Yeah, that’s, I think, absolutely fair. Yeah. If you don’t have a job preservation goal as part of what you’re trying to achieve, then there are very, very big risks of that – again, I come back to the point we perhaps discussed a little bit earlier, that there are risks in terms of long-term damage you might do to productivity of the economy, because of the destruction of these matches that might have had a valuable and productive long-term future, for example, destruction of firms that had valuable capital and practices and so on that could be destroyed, that can be very difficult to undo.

So, yeah, the very, very strong focus on job preservation, and on firm preservation as well, at the beginning of the crisis was, in my view, entirely understandable and appropriate and not something that I imagine we would – that we should want to deviate from significantly if the same thing were to happen again.

I think there is an interesting debate to be had about the precise balance between the two forms of support, however, the bit that’s tied to job preservation, the bit that’s not. And perhaps, you know, how the job preservation – the furlough scheme evolved over time, which maybe again we’ll come back to.

But I think that’s where the – that’s where, for me, the real interesting debates are to be had, rather than about whether it was appropriate to have a job preservation objective in the first place.

Ms Beattie: Yes. Can I move on to another topic, then, and this is really the need for speed, as I’ve been wont to term it, as against finely tuned policy design. And this is the idea that, yes, ideally, you’d like to precisely target any public money that you spend exactly where it’s needed and nowhere else. But, here, there was existing infrastructure, and that limited options in terms of policy options, and there was this real need for speed.

Now, I’ll just, Mr Joyce, go through some of the evidence we’ve heard. Mr Sunak told us in his evidence:

“… speed was paramount because one thing that was crystal clear … this was happening very quickly … was about to have an extraordinary impact very fast on millions of people, their livelihoods, and [their] businesses …”

And he said “speed was of the essence”, and he thought that the balance between speed and fine tuning was appropriate.

We heard a similar position from James Harra, Sir James Harra, former Head of HMRC. Dan York-Smith said:

“… in the early part of the pandemic, we had to move very, very quickly …”

And he spoke about, therefore, there were trade-offs in terms of consultation being reduced.

Lord Sharma, similar perspective in terms of speed.

And Sir Charles Roxburgh, former Second Permanent Secretary of the Treasury, again, similar reflections.

So from your perspective, looking at this as an expert, in that policy response, March 2020, was it right to prioritise speed before damage was done that might have been permanent?

Mr Robert Joyce: The short answer would be yes. And, you know, again, because really the core objectives that were being pursued, they wouldn’t have been met at all if the support had been delivered too late. You know, firms would already have gone bust, people would already have letters their jobs. So none of the rest really matters if the package is delivered too late.

So, yes, speed was absolutely paramount.

And this is particularly relevant for the initial emergency response. Maybe too little, kind of – again trying to be forward looking in what lessons we can really learn, I guess the two things I would say around that would be how severe the trade-off is between speed and fine tuning depends on what you come into the crisis with, in terms of infrastructure.

So if you have existing infrastructure that allows you, for example, to target certain policies in certain ways, because of the data you have available, and the administrative systems that you have available, well, then there isn’t such a trade-off between speed and fine-tuning.

So it does depend on what you come into the crisis with, which is one reason why I think, you know, an Inquiry like this and lessons learned like this can be useful in identifying what we might go into the next crisis with that would make that trade-off a little bit less severe.

Ms Beattie: Just coming in there, we heard from Dr Tim Leunig who was an economic adviser at the Treasury that, it might have seemed at first that he was anti-planning but really what he was saying was you can plan now in terms of getting infrastructure in place and getting data streams and getting the ability to deliver in place, but retain agility in terms of how you actually respond to a particular crisis; is that where you would sit on the trade-off between absolute off-the-shelf scheme, on the one hand –

Mr Robert Joyce: Mm.

Ms Beattie: – and being able to remain agile on the other?

Mr Robert Joyce: Broadly speaking, yes. In terms of an off-the-shelf playbook that sets exactly all of the parameters of a future scheme, I’m not sure how much value there would be in that, because they could depend on the details of each crisis and, frankly, what the world looks like when we next have a pandemic, which, you know, the world in 2040, 2050, could be very different in relevant ways, whereas investing in kind of the toolkit that the government has at its disposal to use that gives it more options for how to target policy, design policy in a more fine-tuned way, that, I think, is much more clearly something we can take into the next crisis when it happens, that we can be fairly confident will be useful in a crisis.

Ms Beattie: And the approach that Mr Sunak advocated was really what he described as an iterative approach. So land the scheme, you know, give the reassuring big announcement with a simple scheme that can be stood up and is deliverable within existing systems, and then having done that, look at the rough edges if they emerge, iron out the problems over time, think about refinement over time. Does that, to you, sound like a sensible response?

Mr Robert Joyce: That sounds like a sensible response. I think that potentially, if we were to have a crisis that looked similar to the one that we experienced in 2020 again, I guess I would hope that the, perhaps the time horizon for our thinking – so you’d do an initial emergency response and then you think: right, how can we fine-tune it? My sense is that there wasn’t really much thought more than a few weeks or a couple of months or so ahead. There were things that perhaps could have been improved, if efforts had been begun to do that in, let’s say, April, May 2020, that, a year later, when we still had a lot of the support measures, could have led to some fine-tuning and improvement, so I think were not done because people were not, and policymakers were not looking that far ahead.

So it was – I think that approach is right, but I would hope that maybe next time, again, I’m not an epidemiologist, maybe there is no guarantee that a pandemic that looks like Covid in February 2020 would last for a year or 18 months or so on, but I think we’ve probably learnt that the time horizon is maybe a little bit different from how policymakers were sort of acting in the spring of 2020 where they didn’t seem to be looking that far ahead.

Ms Beattie: Just a couple of points on that. I mean, you would always hope for the best in terms of a crisis being short lived but I think what you’re really saying is yes, but there wasn’t quite enough planning for the worst, planning for the fact it might not be resolved as quickly as people are hoping it will be, and so you should start that policy work, you stand up the scheme, but don’t let inertia then creep into it. Start the policy work on longer-term refinement straight away?

Mr Robert Joyce: Exactly. I think that will be a helpful mindset shift in the next crisis, if it looks remotely similar to how this one did, yeah.

Ms Beattie: I suppose the answer to that might be: well, it didn’t actually work like that. It looks like that in hindsight but at the time it was one crisis followed by another, followed by another, followed by another, and there wasn’t really time to look at schemes, because there was another scheme that was required or another intervention required.

But presumably, looking forwards, we’ve now had that learning, so you’d bake that in at the outset. Is that the point you’re making?

Mr Robert Joyce: Yes, there is always a question, of course, of state capacity and how many things it can do at the same time, but, you know, I guess just my sense is there are things – to take an example which can be useful, things like the very blunt targeting of the Self-Employment Income Support Scheme, the fact that there was a cliff edge in that scheme at £50,000 is one example of something that I think it would not have been beyond our wit to change had we taken steps early on to figure out how to do that. I think it was something that was hard, perhaps, to have a more gradual tapering immediately, but if we’d thought in May 2020, you know what, in seven or eight months’ time, we’d like to be able to do this in a slightly more refined way, my sense is that would have been achievable. This is just one specific example.

And my sense of why that – and this is partly from reading other witness statements as well, of why that didn’t happen is because people just were not looking that far ahead and were sort of operating as though these schemes would not exist more than a couple of months ahead.

Ms Beattie: So looking at those sorts of potential changes you could make to schemes, can we start with the Job Retention Scheme. And this is a point that cropped up regularly with Mr Sunak across lots of different interventions. On the one hand, you’ve got this – or he spoke of this desire to announce simple, accessible, easy to understand, schemes. But on the other, spoke about protecting public money and targeting being desirable, if you could achieve it, but that there were trade-offs between the simplicity of a scheme and targeting, and the ability to target.

So if we sort of pick that up in the Job Retention Scheme, as a general proposition, we’ll look at how it could be done, but if it could be done, is targeting a desirable aim of a scheme like the Job Retention Scheme, from an economic perspective?

Mr Robert Joyce: I suppose I would certainly think it is – that the ability to target based on certain strong correlates of the severity of the effect of a pandemic on different parts of the economy. The ability to do that is a useful part of the toolkit. Again, just to sort of step back as to why we might want to do any of this.

There is this potential trade-off, and that’s taking the CJRS as the key example here. You want to support jobs and businesses that have a viable long-term future, that would otherwise be unable to weather the crisis. Ideally, you would also want to minimise the extent to which you’re preventing the sort of normal, healthy churn that happens in an economy where people move to a job that is somewhat better suited to them than their current one, where their skills are a better match, and so on. You’d ideally want to prevent that from happening. There’s going to be a trade-off.

And, you know, you cannot perfectly identify which firms have been, and which jobs have been most affected by the pandemic versus which are perhaps, you know, struggling for other reasons, for example.

However, there are clearly decent predictors of that, or at least the things that are correlated with it. If you look at data, and I think sector is perhaps the most contentious example here, but if you just look at macroeconomic data, it’s very, very clear that the, you know, if you look at vacancies or economic activity levels, there was a very, very strong correlation between sector and the impact of the pandemic.

So if you look at someone who, to take extreme examples, you know, someone who works in a nightclub, you know, clearly the probability that their job is being impacted by a purely short-term issue is greater than if you look at somebody in a maybe somewhat less directly affected sector.

I think the question comes – ultimately, this all comes down to how strong a correlation do you need in order to actually want to use this for policy purposes? Because clearly there are examples of people who might be in a sector that is, on average, less affected by the pandemic, but where their firm is very heavily affected because they sell to sectors that are locked down, for example.

Ms Beattie: This is the supply chain point, isn’t it? I mean, if – you know, if you look at the health restrictions, you close hospitality, so you close your restaurant. So that’s a sector that’s definitely affected, you know, you can identify that. But if you’re, you know, farming English short-horn cattle in North Yorkshire, you know, you can’t sell to the restaurants. So you’re affected as well.

Mr Robert Joyce: Yes.

Ms Beattie: Not that I am by the way, but anyway, but it’s just an example.

Lady Hallett: I like the way you chose North Yorkshire, Mr Wright.

Mr Wright: No reason, my Lady. Pure coincidence.

But if, you know – so how do you square that circle between saying, oh, we know that this business has been affected because lots of other businesses in the supply chain might have been affected? And that’s really what Mr Sunak came to: that he did want to do this and he looked at ways of doing it, but couldn’t. I mean, do you think it is achievable?

Mr Robert Joyce: Yeah, I mean, first of all, I think, you know, the experience of someone like Mr Sunak, I saw similar comments from Dr Leunig as well, you know, people who have sat for hours and hours within government at the time, looking in very concrete terms at the edge cases, the kind of people you’d be excluding from this, that counts for a lot and it’s difficult to substitute for that.

However, I mean, in the end it does – it simply comes back to how strong a predictor do you need in order to be willing to use it? I mean, the supply chain complexity is just an example of why it’s the case that the sector is not perfectly correlated, and indeed, in many cases, it’s very imperfectly correlated with the impact of the pandemic.

It’s still the case that despite that, it clearly is very strongly correlated. Again, you just see that in the macro data.

I think the way I would come down on this is again, keeping it, I guess, forward looking, would we want to be able to have this in our potential toolkit in a future pandemic? We did do this in some other areas of policy, we targeted by sector. Despite you could make similar …

Ms Beattie: So just pausing there. For example grants?

Mr Robert Joyce: Yes – (overspeaking) –

Ms Beattie: There were hospital grants, there were business rate reliefs, they were targeted.

Mr Robert Joyce: VAT, VAT cuts as well. So typically, you know, relatively narrow way. I’m not saying you would necessarily translate exactly the same definition of which sectors would be included in different, kind of, parts of policy, but yes, we used the ability to target by sector in some areas of policy, where I think it was administratively straightforward to do that, given the data available.

It doesn’t seem to me inconceivable that we might want the flexibility to do something similar at some stage of a future crisis, perhaps when we’re tapering down the scheme in order to change that ratio between the proportion of firms we’re supporting who are in that first group who are just weathering a short-term crisis, and in the second group, where actually it might be better, all things considered, that they look for new work because the issue isn’t just the short-term crisis.

So would we want the option to do that? I think probably yes. We used the option in this crisis. The thing is again, even the details, when the next pandemic hits, the details could all be different again. Changes in technology could mean that it’s a somewhat narrower set of sectors, for example, that just can’t avoid social contact. It might make this targeting easier.

It could be harder because the supply chain complexities got even more complicated. I don’t know. But I do know sector is very strongly correlated with the impact of a pandemic and it will be, because of its relationship to social contact.

So I would say I’d welcome us having the option of being able to use the sector in a fairly broad range of policy responses in a future pandemic. My understanding is that there actually would have been practical difficulties because of lack of up-to-date data in the case of the CJRS from doing this, so I would at least welcome us having resolved those difficulties so it’s there as an option.

Ms Beattie: So can I put it to you like this: are you really saying that, although those who were making the decisions in this pandemic did look at this and decided at the time that it was just not feasible, you wouldn’t take that as meaning that you shouldn’t at least, now, think ahead: well, could we get better data? Could we analyse it in a more effective way? Could we put ourselves in a position, in a future emergency, where we could achieve some element of targeting?

Because if we could – I mean, is this the point? – it’s not just it costs less public money, it’s also that it might be better for the economy, because it preserves the job churn in sectors that you don’t want to stagnate.

Mr Robert Joyce: Yeah, exactly. Potentially. It potentially could be better for the economy and enable a quicker recovery.

I mean, again, there are risks. If you leave out too many people, you may, again, have more of the lost valuable employer-employee matches than you wanted. If you get the balance wrong and leave out the wrong sectors, there are certainly risks either way. But as an option for how we might fine tune policy, it seems to me one that’s worth having in the toolkit, as we had for – in some other areas in policy, even in this crisis.

Ms Beattie: Yes.

And that’s not just, presumably, targeting by sector, but really getting as much real-time information about business, where employees are based, which sectors they work in, gathering as much data as you can so you could potentially target it in lots of different ways in a future emergency –

Mr Robert Joyce: Yeah, I mean I think – I think that’s right.

I mean, the two that spring to mind, to be honest, are location and sector. Just – you know, just the things that are most likely to be correlated with the impact of a contagious disease. You know, obviously location is, and then sector, because it does tend to correlate with dependence on social contact, notwithstanding that correlation is weakened by things like supply chain complexity and so on.

So I think, yeah, location and sector. These are things that my understanding is that even if, in principle, it had been decided it was worth having a go at targeting the CJRS by those things, I think they’re – my understanding is there wasn’t sufficient confidence in having reliable up-to-date data on those things in the relevant data system, whilst there was in some other relevant data systems where it in fact was used to target policy by sector.

Ms Beattie: I’m going to just pick up some other issues about furlough in terms of concepts we’ve heard and where you sit on them, you know, from an expert perspective.

The concept of partial furlough, so that you can partially furlough employees. Dr Leunig, I think, felt that that had been a worthwhile introduction. Where do you sit with that as a concept?

Mr Robert Joyce: Yes, I think it made sense, and it made sense at roughly the point at which it was introduced, which was around when we were – you know, there was trying to – encouragement to return to work, and at the time some loosening of restrictions were happening.

I think it made sense in a context where it may well have been that full-time work in a number of environments was still unviable or undesirable because of the public health situation, perhaps, and ongoing constraints around things like childcare, for example – there were lots of reasons why, perhaps, full-time work was still not the best option for many people, jobs, but where there was scope for a gradual return to normal.

And it would – and it would support the incomes of those returning to part-time work who – you know, they might have been able to manage with 80% of their usual earnings while on furlough, but would have struggled with, you know, 50% of their salary from working half time without extra support for the other bit. So I think it – yeah, I think it made sense to have a system like that, particularly at the kind of point that it was introduced.

To the extent that it led people to work part-time rather than remaining furloughed in – you know, at zero hours, it would have saved the government some money, as well as being probably better for those people’s careers.

It could have also had some of the opposite effect. It could have made it more attractive for some people to work part-time rather than go full-time. That was also a possibility, and I don’t think we fully know the balance of those two effects, and I’m not sure how we would do. I haven’t seen an evaluation of this of any kind.

But, in general, there was also a decent evidence base for those sorts of schemes in a European context pre-Covid as well, where, sort of, part-time work was supported. So, yeah, on balance, I think it was a sensible amendment to the scheme.

Ms Beattie: Can I – I don’t want to be timed out, but in terms of the self-employed scheme. I mean, you mentioned that earlier as a scheme in which there were some hard edges, and, again, Mr Sunak conceded that in his evidence: you know, that you either did or didn’t qualify for the scheme on different bases.

We go back, do we, to this point about speed? There was a need for speedy delivery of the scheme. You had to set the parameters somewhere, and announce it in a simplistic way. But is this is an example of a scheme where, in your view, over time, scheme inertia crept in? There were changes that could have been made and could have been thought about at the outset, if the mindset had been “This might not be over in four months, this might still be here in a year’s time”?

Mr Robert Joyce: Yeah, that is my sense. As I say, even just partly just from reading evidence, witness evidence elsewhere, in terms of what was discussed within government, that, yes, something like the lack of a tapering of support for the SEISS scheme, whereby you either – you either got it in full if you – if your trading profits in the relevant period were £50,000 or under, and none of it if they were over, that is something that I’m sure could have been addressed with requisite time put into it. And so I infer that the reason why it wasn’t is mostly because people were not thinking that far ahead.

Ms Beattie: And does the same point really arise in that there are a range of reasonable policy responses of any government, you know, things that are – the line has to be drawn somewhere, you can or you cannot make certain choices, but this is about looking forwards, getting the infrastructure in place, the basic scheme infrastructure, and the data, so that you could make these judgements in a future emergency which may have a different shape?

Mr Robert Joyce: Yes. And in the case of the SEISS scheme, I think, I mean, there are other things along those lines that would be important as well. So, you know, it was a limitation that the lack of – the lack of up-to-date data on the incomes of self-employed was also a key reason why, in the initial rounds of the SEISS scheme, people who were newly self-employed – and many, many people who were newly self-employed, going back to, I think, businesses that had started since April 29 – get this wrong now – get this – I’ll probably get this right, trying to think on my feet now, but you basically had to have been self-employed for a number of months in order to qualify, with more up-to-date data on the incomes of the self-employed in future. And there is a sort of Making Tax Digital agenda that could help with this. That is something that could be – that lag is something that could be avoided in future crises.

Even the first payment took a little while to arrive. It was made in May, I think. So somewhat later than employees. Employees basically had complete continuity through the furlough scheme in their incomes. The self-employed didn’t. They had to wait a couple of months. And, again, I think that might be something that could be sped up a little bit in a future crisis.

We did some work at the time, while I was at the Institute for Fiscal Studies at the time, looking at the self-employed people who were waiting for their first payment in the May, and it was clear that their consumption was particularly depressed in the period while they were waiting for that payment, then it sort of bounced a lot as soon as it arrived, which would suggest, if this was a meaningful – it had a meaningful impact on their living standards that they had to wait for that support as well.

So that’s another kind of rough edge, if you like, that could be smoothed out with the right preparation before the next crisis.

Ms Beattie: So, really, from your perspective, this is about looking at what did happen and thinking through: okay, how could we now think about avoiding those rough edges, albeit that there’s ultimately a policy decision to be taken next time, depending on the nature of the emergency and the policy decision available to the Chancellor?

Mr Robert Joyce: Yeah, yeah.

Ms Beattie: Okay. Universal Credit and the uplift there. I mean, I think your view is that that is an example of targeting, effectively; is that right? In terms of delivering the uplift to Universal Credit, is delivering it to people who have lost income or employment, effectively?

Mr Robert Joyce: I think it certainly embeds an important form of targeting in that it’s – first of all, it’s a change that’s targeted at those on low incomes, so it’s – compared to something like the CJRS, for example, it’s much more targeted at preventing poverty, because it’s based on, you know, your household income, like the benefits system is, and also takes more account of – although the – the £20 uplift actually did not – that was just a flat rate, so that did not take account of variations in needs and things like that, which is another issue which could be debated.

But yeah, I mean, in that sense it certainly was a targeted scheme. You could certainly make the case as well that some targeting of that form, at lower income households, also made some sense from a – potentially from a more macroeconomic perspective, if you’re trying to shore up consumer demand –

Ms Beattie: Yes, we heard that from Mr Sunak. He gave that as one of the – not the policy objective of the uplift, but one of the unintended benefits of the – or, I suppose, it could be an intended benefit, but was this stimulation of macroeconomic demand. You know, you gave people more money, they’re going to spend it, therefore that helps the economy.

Mr Robert Joyce: Yeah, yeah, you would generally expect that, at least in normal times, and there’s plenty of evidence that that is the case: that lower income households tend to consume more of any extra money that you give them.

It was pretty hard to know how people’s spending patterns were behaving during Covid because there was so much unusual about it, including restrictions on where you could spend your money. But yes, it was reasonable to expect – I agree, it’s reasonable to expect that targeted – support targeted at lower-income households is more like to be spent, yes.

Ms Beattie: Just in terms of targeting on lower-income households, one issue that has emerged in some of the evidence is this concept of how you could create a household dataset. It’s how you could actually understand the requirements of any given household, and different views have been expressed. Where do you sit on that, in terms of whether that’s feasible, whether that’s something that ought to be considered, whether it’s possible to work up a household dataset? Or is that just too many variables and too difficult to define?

Mr Robert Joyce: Yeah, it’s a difficult one. I mean, I think – so there’s two different purposes that you could use that for, first of all, to inform analysis and understanding of who is falling through the cracks in, kind of, policy provision, who is struggling most. There are all sort of reasons why just having up-to-date data that you can analyse on households, and how different kinds of households are doing, is useful and can help with the targeting the policy and so on.

Then there’s, like – then there’s data for the purposes of actually directly operationally using it to take households in that data and say: right, we’re now going to mechanically, as a result of what we see in this data, give you this support or that support.

So, for the first purpose, to inform analysis and understanding in kind of something closer to real-time in a fast-moving emergency, absolutely – first of all, yes, that’s very, very useful. Yes, I think it also was notable that that was happening in the pandemic but sort of by people in a fairly bespoke way making use of various disparate data sources from – often quite inventive ways like bank account data, and that kind of thing.

Yes, it would be nice, I think, if there were a kind of workhorse, large-scale household, dataset that could maybe not in – maybe not one that would need to be permanently, like, every month, even in normal times in the field, but that could – that was there that could be rapidly used and maybe increased as being a higher-frequency kind of – if it’s a survey, for example, I’m thinking, during a crisis.

So I think – and in a way, that happens a little bit organically through a household survey known as the UK HLS or Understanding Society, which did have some – it was a long-running survey of tens of thousands of households, and it did have some extra Covid waves to try to get more regular information during the crisis. But, you know, that was limited and there are only a few of those.

Something on a larger scale and even, you know, more fine grained in terms of frequency of measurement like that definitely could be really, really useful.

In terms of sort of an administrative dataset that covers all households that can be used directly to administer policy, I’m probably not the best person to ask, but it sounds like a very, very big job. I guess the most practical way I could think of potentially approaching that would be to essentially make more use of linkage of individuals who live together within HMRC’s tax records, which are individually based, and combining those with, perhaps, benefits data from DWP.

Ms Beattie: I think the point that some made was that no one will want to give the government that sort of data. People are naturally suspicious about giving their data to government, and wouldn’t be very happy to hand it over, particularly not to HMRC.

Mr Robert Joyce: Yes, I mean, there’s – it’s perhaps, you know, HMRC – obviously, going way back, we used to have a system of joint taxation where HMRC had to know, or at least tried to know something about who lived with whom. We do not have that now. There are some other policies that have been introduced which, for reasons we needn’t necessarily go into, sort of require kind of via the backdoor HMRC to actually have some sense of who lives with whom in a very sort of indirect, crude way in order to do things like withdraw Child Benefit from higher-income families because of the way that’s being done.

But it’s not being done by actually creating a direct link between people in HMRC’s records who live with each other, which I think is perhaps notable. Doing that sounds like a huge, maybe it’s possible, and maybe, you know – but it sounds like a huge task, but I’m probably not the best person to ask exactly how feasible it would be.

Ms Beattie: Okay. Can I pick up another topic, loans and business support. Risk against speed.

Mr Sunak this morning was very clear that to stress that yes, they knew there was a significant fraud risk with Bounce Bank Loans, but there was an absolute imperative need to deliver support quickly, because if you waited to put things in place, the companies that needed the money would have gone out of business.

And where do you sit in that?

Mr Robert Joyce: Yeah, on that, I just agree, without much caveat, really. I mean if that support had arrived too late, then it would really have been too late to achieve any of the objectives because the objectives were all about stopping businesses from going under. It’s not something that you can then easily undo if you come in too late with that first tranche of support. So it’s a very, sort of, asymmetric situation where you just need to get the support quickly.

And if that requires bluntness, then, yeah, that’s probably what needs to happen. And the risk of fraud, I mean, that obviously is a very difficult one and it was always there, it was always very clear, particularly when the – when we reverted to the Bounce Bank Loan Scheme where there was a 1005 underwrite of the loans, and it was acknowledged at the time, as well, of course, by policymakers.

So yeah, I don’t have much to add on that.

Ms Beattie: Just coming in there, you mentioned earlier the multiplier effect. And this is an area, isn’t it, where you could really see that. If you act too slowly, so the companies go out of business, it’s not just the companies as entities going out of business –

Mr Robert Joyce: Yeah.

Ms Beattie: – it’s all their employees losing their jobs?

Mr Robert Joyce: Yeah.

Ms Beattie: That income being lost. Therefore, they’re not spending their income in the economy, and this can soon, can’t it, really amplify –

Mr Robert Joyce: Yes.

Ms Beattie: – as an effect? It’s not just how many businesses might have folded in the space of five weeks; it’s what is the ripple effect of that –

Mr Robert Joyce: Yes, exactly, it’s both the macro and the micro picture. At the micro level you can have valuable capital being destroyed that would take time to rebuild, and at the macro level, if this happens on a large scale, yeah, essentially the government would then be failing to provide that kind of macro stabilisation that I think is rightly a part of its role in a crisis.

Ms Beattie: Then there’s – the final topic I really want to pick up is about duration of schemes. I mean, we’ve spoken about the need for speed to stand them up. You’ve spoken about, ideally, in a future emergency, you would look to refine and launch schemes with an eye to they might last longer than you think, so think about how you might refine them. The decision about when to withdraw is also fraught with difficulty in an uncertain emergency; do you agree?

Mr Robert Joyce: Yes, yes, and I tried to be quite clear in the report that I found it very – there’s a lot more that can be said in hindsight, perhaps, or a lot more that can be said in hindsight, and I think it was very difficult at the time to know the appropriate moment to withdraw it and how rapidly to withdraw it. But it is an important issue, of course.

Ms Beattie: And I just want to pick up on one other point that just arose in the evidence of Andrew Bailey, Governor of the Bank of England. He spoke about the state of the economy post-Covid, and the rise in economic inactivity. And he said that it still wasn’t really very clear as to why we were seeing this rise in economic activity, but it was persisting in the UK economy, and that was quite an unusual thing.

I mean, first of all, as an economist, having an increase in people who are economically inactive, so there hasn’t been a strong return to the workforce; is that of concern?

Mr Robert Joyce: Yeah, absolutely. It affects the size of the economy in a very direct way, and it’s also potentially worrying in terms of what it might say about the underlying causes of that, particularly, perhaps, around health.

So yeah, it’s a very important issue for all of us, in terms of our – in terms of the size of the economy and therefore for all of our prosperity. It places particular strain also on the finances of the government in particular areas, it seems to be related to huge increases in disability benefits spending, as well, for example.

So it’s a very important issue to try to understand what’s caused it and how it can be resolved, which I think we’re not very far along on, in that process,

frankly.

Ms Beattie: And I just pick that up really in a forward-looking

sense. We don’t actually know, is this right, what the

cause or potential causes are of that economic

inactivity? There are a number of factors, it could be

long-term health conditions that arose from the Covid

pandemic, it could be mental health, an increase in the

incidents of mental health, it could be people deciding

to retire early. There are all sorts of possible

issues, but is it important to now drill down into that

and to progress this further? I mean, Mr Bailey was

concerned about it enough to mention it so that, in

a future response, you’re thinking about that, not only

how you recover, but how you try and prevent long-term

economic activity resulting from another emergency and

your economic response to it?

Mr Robert Joyce: Yes, absolutely, it would be very valuable to understand

more about how, if at all – if so, how, it is

related – this trend is related to things that happened

during the crisis. The timing certainly looks, you

know, conspicuous. And if you look at – I’ll come back

to the rise in disability benefit claiming as

a particular sort of indicator which just really

exploded from around the summer of 2021, and has

remained at its new, much, much higher level ever since, which is obviously very concerning in terms of what it might be saying about people’s health, and it may well be related to the wider labour market issues that we’re seeing.

It’s a little – because a lot of these issues are quite distinctive to the UK, we haven’t seen the same rise in inactivity or in, as far as we can see, measures of health and health-related benefit claiming, for example, typically in most other comparable countries. So in some ways that increases the puzzle a little bit, because some explanations like Long Covid or other things that you might think directly would fall out of a pandemic, it doesn’t translate so well if we’re not seeing anything remotely similar in most other countries.

So I think that is – that adds to the puzzle. But yeah, understanding whether it was related in any way to what we did during Covid or what happened during Covid would be important. There could, for example, be some analysis done potentially, I think, of how it might relate to whether or not people were furloughed, how long they were furloughed for. That kind of thing. There’s perhaps a little bit more juice to be squeezed out of what can be done analytically to understand this.

But yeah, at the moment, I think it’s a very, very

murky picture if we don’t really know what’s going on.

Mr Wright: Thank you very much, Mr Joyce.

Those are my questions, my Lady. I don’t know if

there are any other questions? No.

Lady Hallett: No, I don’t think there are any Rule 10

questions.

Thank you very much indeed. I’m really grateful to

you. You’re obviously a great enthusiast for your

specialist subject. That came across. Thank you very

much for the help you’ve given to the Inquiry, both in

your written report and this afternoon.

The Witness: Thank you.

Lady Hallett: Very well, I think that completes the

evidence for today, and I shall return at 10.00

tomorrow.

(3.06 pm)

(The hearing adjourned until 10.00 am the following day)