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HomeCOVID-19Tragedy of the Chancellor who couldn’t say No

Tragedy of the Chancellor who couldn’t say No

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THE lockdown seems to be coming to an end, thank God. This site through numerous articles has brilliantly and bravely highlighted the absurdities which such a needless policy caused. At last it is good to hear an insider’s view, with Lord Frost agreeing that lockdown was a grave mistake. What is critical, though, is that we learn the lessons and never repeat such an illiberal and counter-productive exercise. 

The negative effects of lockdown are almost too many to mention but one area which has largely escaped sufficient scrutiny is the performance of the Treasury. Listen to the BBC and others and one might believe that ‘the Government was slow to impose lockdown and didn’t do as much as it might’. Virtually all the media scrutiny has been about focusing on alleged injustice rather than asking the more important and wider questions of was it necessary, well spent and with sufficient controls?

A good starting place is the National Audit Office (NAO) Covid spending tracker. Its latest analysis, to the end of September 2021, can be read here. 

The first observation is that lockdown has been enormously expensive; £370billion and counting. Indeed one can almost certainly add at least £40billion to cover the last quarter of 2021. Moreover, even if lockdown fully ended today, the aftershock will remain with us for many years, so great was the upheaval to business. 

There are some winners, for sure, and there will be some productivity benefits from companies who have used lockdown to re-engineer the way they operate, but there are also very many stories of distress as pre-lockdown business models struggle in the new environment. 

The big dichotomy, however, is the way the private sector has largely adapted under force majeure while the public sector has largely closed down and put up barriers to service. This is the scandal that must be addressed.

Now the Government is accustomed to throwing huge sums around but what does £370billion actually mean? Well, for £370billion you could feed each and every Briton three square meals a day for over three years. Or you could abolish income tax entirely for over 20 months. Or you could fund the armed forces for eight years.

It’s no surprise that it costs a lot of money to close down an economy. Certainly the decision to declare lockdown created enormous challenges. Never in peacetime have whole sections of an economy been forcefully closed, or at best forced to do business rather differently. 

Given that the Government, by force of law, took people’s livelihoods away, there is of course an argument for compensation, albeit no economic or fiscal analysis that I am aware of was conducted on what cost such a policy might have, let alone the social, cultural, educational and medical impact. Instead a near-blank cheque was offered.

Analysing the NAO Covid spending, £154billion was spent on ‘business support,’ £84billion on health and social care, £67billion on ‘emergency response’ and other public services, £60billion to individuals and £5billion elsewhere. Each line of expenditure is eye-watering, but it has barely been challenged. 

Let’s look at this spending more closely. Of the money spent on business support this was largely split between ‘bounce-back loans’, small business grants and wider more general support. If we look at one aspect of this, the so-called bounce-back loans, £47billion was lent. 

The NAO’s analysis into the loan book is staggering. Of the £47billion lent, £2billion has been paid back with £28billion described as ‘recoverable’. Worse, £12billion, or one quarter of what was lent, is expected to end up as a bad debt; even more disappointingly, fraud is estimated at £5billion, or 10 per cent of the book. 

In other words over one third of lending is either fraudulent or bad and lost to the taxpayer. This is in sharp contrast to the UK commercial banking sector which saw very low ‘impairments’ on its books over the last couple of years. 

Any commercial bank with bad debt ratios that the Treasury authorised would go bankrupt. What safeguards did the Treasury put in place to protect taxpayers’ money? What criteria for lending were used other than a very lax one? What lessons have been learned and who is accountable for this? I think we know the answer to that. The underlying analysis can be read here.

A further £60billion of Covid spending went directly to individuals. This can largely be accounted for by the furlough scheme. Most economists now accept that this was way too generous and went on for far too long, but even if you accept the premise behind it, paying people not to work is plainly a luxury, to put it politely. 

It almost certainly affected productivity and reduced working incentives. Again there is no analysis of its impact or discussion of the costs and benefits in a wider context. Why has the Chancellor not initiated a full inquiry into the controls, the requirement and effectiveness of this spending? Perhaps in time he will; we will see.

The truth is this Government was bounced into lockdown based on highly questionable scientific assumptions. Then vested interests kicked in. Lockdown was cosy or even beneficial for some. But the buck stops with the Treasury and the Chancellor. The bang for the buck has been horrendous, accountability dreadfully weak and spending profligate. Tragically, all for almost no tangible benefit.

Now the Chancellor hints at his tax-cutting, small-state credentials. It’s a shame those credentials were not displayed when it really mattered, by saying: ‘No, there can be no more spending for little benefit with weak accountability.’ 

Instead the Government buckled under the permanent bureaucracy and media pressure for lockdown and profligate, purposeless spend. The Treasury are doubtless feeling smug, arguing that they saved the day providing the cash to keep the show on the road. 

The reality is rather different. Their profligate response has harmed the wealth-creating private sector while rewarding the failing state sector. This is potentially disastrous for our prosperity in the long term. The tragedy is the Chancellor did not have the courage to say No. 

This also appeared in Brexit Watch on January 24, 2022, and is republished by kind permission.

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Ewen Stewart
Ewen Stewart
Ewen Stewart is a City economist who runs the consultancy Walbrook Economics. He is director of the think tank Global Britain and his work is widely published in economics and political journals.

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