Burdens and Blackholes

Can the government really square cutting £10 billion from programs that support the poorest with writing off, or essentially losing, £28 billion from misspent COVID-19 aid?

On Sunday 25th July, the House of Commons Public Accounts Committee published their latest report tracking the financial cost of COVID-19 to the Treasury. The lifetime cost of the government’s Covid measures currently stands at an estimated £372 billion, of which £172 billion has already been spent.

These are eye-watering figures that bring home the financial devastation wrought by the pandemic. The government is anxious about these spiralling costs and not without good reason. UK public debt jumped from 84% of GDP in 2019 to 104% in 2020, which is the first time it has surpassed 100% since the 1950s.

The strain placed on the Treasury by the pandemic is problematic for a government which has promised a process of levelling up for the UK’s most deprived regions. However, with dwindling resources, the government has embarked upon strategic cuts to rebalance the books and potentially reallocate money towards levelling up.

The first casualty of this policy was the £4 billion cut from the foreign aid budget, followed swiftly by the decision to reverse the £20 weekly uplift in Universal Credit, equivalent to £1,040 a year, in order to save £6.6 billion.

At face value, this appears to be a momentous saving of over £10 billion, yet it accounts for just over one third of the money the Public Accounts Committee estimates will need to be written off. The report argues that bad business loans — accounting for £26 billion — combined with the £2.1 billion spent on sub-standard PPE that was unusable means that the current estimated write-off for the pandemic is at least £28 billion.

It is easy to criticise the government for what essentially amounts to wasting

£28 billion. At the same time, we must recognise that it is the responsibility of any government to take swift and extraordinary measures in a pandemic. This financial loss certainly cannot be condoned, even though it stemmed from the genuine motive to secure PPE and provide businesses with security, both of which were laudable aims in the midst of an unfolding crisis.

What is objectionable is squaring that loss with a £10 billion cut in funding which was supporting many of the most vulnerable people, both here in the UK and abroad. Just as we expect our government to take measures to resolve a crisis, we also expect them to manage the country’s finances and rein in or rebalance public expenditure. The question is not about the morality of government cuts, but the morality of writing off £28 billion whilst targeting the programmes that assist the poorest communities.

Furthermore, when looking at the question of Covid expenditure more broadly, we ought not to be ignorant of the fact that, whilst our government did gratefully secure the much-needed PPE, many suppliers of that PPE made significant profits. There is nothing inherently wrong with businesses making profits. What is worrying though is a report by Transparency International UK which claimed that one in five government Covid contracts contained red flags for corruption. This raises questions about whether contracts were awarded on merit and whether the public received value for their money.

It is unlikely these questions will ever be fully answered, and it might equally be the case that the need to secure supplies quickly meant that the normal processes of procurement had to be suspended, at least temporarily. Still, with recent cuts to public programmes supporting the most vulnerable, politicians ought not to shy away from scrutinising the actions of the past eighteen months to ask whether public money was spent responsibly.

The government has often stressed that we are all in this together, a narrative that is in danger of becoming decoupled from their actions. A better solution might be found by exploring innovative new ways to make our tax systems fairer.

Council tax, for example, is beginning to appear parochial or even feudal in the burden it places on the poor. In a recent question in the House of Lords it was criticised from all sides of the House (Council Tax — Thursday 22 July 2021 — Hansard — UK Parliament). According to the Citizens Advice Bureau, council tax is the most common cause of debt in England, with 86,000 people struggling to keep up with payments. The council tax bills in Westminster, for example, were approximately half of those in North Tyneside, despite the huge difference in property values and average income.

Addressing some of the tax inequalities inherent in the present system might help rebalance our public finances and prevent the worse cuts. At a minimum they might offset some of the burdens these cuts are placing on the UK’s poorest members.

The post-pandemic period is a unique opportunity to reset our public finances and embed more equitable principles into the system. If ‘we were all in this together’ then there is an urgent need for all parts of government, not least the Treasury, to review both the basis of our tax system and our spending priorities.