3. Submissions on Behalf of Hm Treasury by Mr Block KC

Mr Block: Good morning, my Lady.

I appear together with Steven Gray, instructed by Robyn Smith of the Government Legal Department, on behalf of His Majesty’s Treasury.

My Lady, these closing submissions will be expanded in our written submissions. For the purposes of this module, HMT has supplied two detailed corporate witness statements, as well as statements from Sam Beckett, the current Chief Economic Adviser and second permanent secretary since May of this year, her predecessor, Clare Lombardelli, and from Sir Thomas Scholar, the permanent secretary from 2016 to 2022. The Treasury has also worked with and supported the current Prime Minister, Rishi Sunak, who was Chancellor of the Exchequer from 13 February 2020 to 5 July 2022, to facilitate the Inquiry receiving detailed written and oral evidence from him. My Lady, the roles of HMT and the Chancellor in overview. In very brief summary, HMT is the government’s economic and finance ministry, responsible for maintaining sound public finances, delivering sustainable economic growth and maintaining macroeconomic and financial stability. The Chancellor is the government’s chief financial minister and has overall responsibility for HMT and for economic and fiscal policy and the financial services sector.

The Chancellor is involved in collective Cabinet-level decision-making with a focus, as he explained, on representing economic and fiscal considerations in the decision-making process.

Throughout the pandemic, HMT officials worked to inform and advise the Chancellor and departmental ministers in order to respond to ministerial requests for briefing analysis and advice as necessary and overall to support Cabinet-level decision-making.

HMT officials used the information shared at scientific committees, including in read-outs from HMT officials who observed these meetings, to inform this briefing and advice and to inform internal policy development.

The Chancellor’s ministerial responsibility during this period, supported by HMT, was to provide economic and fiscal evidence, analysis and advice in relation to decisions and interventions in the context of the pandemic that would impact those areas for which the Treasury was responsible. This was considered by the Prime Minister and by Cabinet where appropriate, together with all other relevant evidence such as the SAGE minutes and reports.

Ministers would put forward the key considerations relevant to their individual departments for the Prime Minister to balance these in order to reach a decision as to how to proceed. Arguments would be tested and challenged and alternative options explored. In that process, the Chancellor had a specific responsibility of tailoring economic advice, policy and decision-making to the context of an international pandemic.

That responsibility, in the context of HMT’s and the Chancellor’s broader roles and responsibilities, necessarily required HMT and the Chancellor to ensure that the often grave economic consequences of the policy decisions under consideration were properly factored into decision-making. This is especially because economic consequences are not academic or theoretical concepts, they carry with them far-reaching and potentially damaging socioeconomic implications which have real impacts on people’s lives.

In this context, HMT rejects in the strongest terms possible the unfair and irresponsible characterisation of its work as “pro death”.

Whilst some have suggested that supporting the economy and protecting lives were competing objectives, HMT did not see it this way. Throughout the response, HMT were clear that the best thing for the economy was to control the virus.

I turn now to look briefly at the roles of HMT and the Chancellor in the government’s core pandemic decision-making.

As an overview, prior to the Prime Minister’s announcement on 16 March 2020 of the first social distancing measures, HMT ministers and officials contributed to cross-government decision-making through analysis of the possible economic impacts, and in particular the potential impacts on the UK economy of the proposed measures.

This analysis was focused on the ability of people and the economy to keep providing the goods and services which the population needs, the ability of businesses to stay open, and for people to do their jobs and continue to receive an income.

It’s important to recognise that this was a novel situation, with the pandemic developing very rapidly. There was limited data and there were a large number of variables. Nevertheless, HMT was nimble and quick to respond. Indeed, the spring 2020 budget announced on 11 March 2020, so before the 16 March announcement, included a £12 billion plan to provide support for public services, individuals and businesses whose finances were affected by Covid-19, which included extending statutory sick pay (SSP) for those advised to self-isolate, and for those caring for others who were required to self-isolate and support through the welfare system for those who could not claim SSP. This was an extensive package that responded to the pandemic as it was understood at that point in time.

Subsequently, from March 2020, when restrictions were in place, much of HMT’s focus was on the design, financing and implementation of economic support measures. These measures supported the public health strategy by mitigating the economic impacts of the virus and the measures necessary to control it, on jobs, incomes, businesses and the UK economy. Without these economic interventions, which were unprecedented in scale and speed of introduction, it would have been very difficult for individuals to adhere to the conditions of the lockdown without serious risk to their livelihoods.

Over the next weeks and months, HMT introduced more economic support as the impacts of the virus and the restrictions on firms and people became more apparent, and continued to tailor the measures so as to support the non-pharmaceutical interventions, the NPIs, and respond to the path of the virus as it evolved.

HMT was also heavily involved in the development of key policy at that time, contributing analysis on the economic impacts of different options, for example, the move from 2 metres to 1 metre plus, and the focus on smarter NPIs in 2020.

From late 2020 onwards, and in particular during and following the third national lockdown in early 2021, pharmaceutical interventions, for example testing and of course vaccines, were increasingly deployed to manage the virus. This gradually reduced the need for NPIs to be used to manage the virus, a gradual but significant shift in the way in which the government collectively managed the response.

In terms of HMT’s output, using a broad range of data and analytical techniques, as well as engagement with and challenge from external experts, HMT officials provided advice on: one, the economic support measures required to soften the impacts of the virus and NPIs on households and businesses; two, how the pandemic and proposed NPIs were affecting and how any changes might affect the economy; three, how economic activity might affect the progress of the virus; four, how government support and wider policy responses might offset these impacts or create unintended consequences; five, the relationship between the epidemiological and economic outlooks, noting that controlling the virus was essential to a healthy economy; and, six, how the government’s response, including on NPIs, compared to other countries’ responses.

HMT worked closely and constructively with other parts of government, in particular Number 10, the Cabinet Office and DHSC, throughout the pandemic. Given the unprecedented economic impacts of the pandemic, HMT seconded at least ten policy and economist officials to the Cabinet Office to provide further expertise in integrating economic inputs into decision-making and to provide additional strategic capability.

HMT and the Cabinet Office jointly ran the Prime Minister’s weekly economy update meetings to provide senior ministers and wider government with a clear picture of how the economy was being affected by the virus. The Chancellor was a member of Covid-O and Covid-S from late May 2020, when they were established, as well as smaller ministerial groups within Cabinet, such as the Quad and E-MIG, which the Chancellor chaired.

HMT officials had regular meetings with Cabinet Office counterparts – anything from weekly to daily, depending on the issues under consideration – and regularly met with officials from other departments. They attended SAGE in an observer capacity from March 2020 and sent read-outs of these meetings to relevant colleagues at HMT including members of the Chancellor’s private office.

HMT also routinely attended the Joint Biosecurity Centre, JBC, gold meetings. It actively participated in cross-government initiatives to strengthen decision-making structures and processes as the response to the pandemic evolved, for example the establishment of the Covid-19 Taskforce.

Any generalised suggestion that HMT was aloof, removed from the core decision-making structures or reluctant to accept external advice or input, is wrong.

If I may, we wish to highlight some aspects of HMT’s work which have been touched on in the Module 2 oral evidence.

Data analysis and modelling. To inform ministers in HMT and the centre of government of the impact on the virus on the economy and to assist those responsible for the core decision-making under consideration in this module, HMT produced a wide range of economic analysis and utilised a broad suite of analytical techniques and models. This included analysis and data of both what was happening in the UK and abroad. Traditional economic data was supplemented with additional data from sources such as Citymapper and OpenTable. These issues were canvassed at considerable length and, I’m afraid, in minute detail in the witness statements produced by and facilitated by HMT.

HMT also worked closely with other organisations, such as the Office for National Statistics, the Office for Budget Responsibility, the Bank of England and other bodies, to inform senior decision-makers on the impact of the pandemic.

Data analysis and modelling were highly interdependent throughout the pandemic. Modelling was used to understand and interpret the data and to help identify which data would be most useful. HMT drew on its own internal economic modelling and also used that of other public sector bodies and international institutions, for example the International Monetary Fund and the OECD, and also academic modellers. It put substantial effort into adapting and continually refining its modelling techniques, given the exceptionally high levels of uncertainty around the virus and its economic impact.

However, that uncertainty meant it was not possible to rely exclusively on economic models, and HMT’s approach therefore sought to include assessment of all available data and evidence.

In addition to its more standard economic tools, HMT explored novel techniques to analyse the unprecedented policy choices faced by ministers. The increasing data available as the pandemic progressed enabled it to develop a range of modelling and scenario-based approaches. It developed its own epi-macro analytical capabilities seeking to combine epidemiological and economic relationships to estimate how characteristics of the virus and control policies affected both transmission and economic activity.

Significant cross-government work was done in this respect, to which HMT contributed with a view to minimising longer-term economic and fiscal impact. Examples include the review of the 2-metre social distancing guidance which reported in June 2020, the 2021 roadmap, the 2021 social distancing review, and the January 2022 travel review.

External input. Throughout the pandemic, HMT and the Chancellor had regular contact with a wide range of external economic experts so as best to inform HMT’s work. The Chancellor had regular contact with the governor of the Bank of England, the chair of the OBR, and spoke to a range of external economists from academic and financial market institutions. He also regularly spoke to foreign finance ministers from around the world. In developing its analytical tools, HMT engaged with academics and external bodies such as the Royal Economic Society, think tanks and business groups.

Sharing of data and analysis. Given the response to Covid-19 was a cross-government effort, HMT shared its analysis and developed economic understanding across Whitehall as appropriate, such as with the Covid-19 Taskforce following its inception. It also engaged widely with other departments to access expertise and to make best use of data. Regard was always had to the scientific advice when formulating policy, although it was understandably not always settled, as was the case with regard to the Omicron variant, as Mr Sunak explains in his witness statement at paragraphs 502 to 540.

HMT developed cross-Whitehall assessments for ministers of the economic impacts of the virus, restrictions and policy responses. Beginning in early April 2020, Charles Roxburgh, the then second permanent secretary at the HMT, chaired a regular cross-government meeting of permanent secretaries and directors general from economic departments. HMT officials worked closely with the Cabinet Office to support their synthesis of relevant advice and analysis and to support informed decision-making.

HMT’s focus during the pandemic was on undertaking comprehensive economic analysis that best informed decision-making in the fast changing circumstances. It is the OBR’s responsibility to publish independent economic forecasts. You’ll recall the reference to “the Treasury doesn’t mark its own homework”.

HMT analysis was published during the pandemic, but there are sensitivities around much of HMT’s analysis which do not pertain to scientific analysis. Much of HMT’s policy advice related to the economic and fiscal outlook which can be market sensitive.

My Lady, I’m going to turn to look at two further matters. The first is an economic SAGE. Is that a good alternative? I start by saying HMT welcomes an open debate as to how to improve the way it operates, particularly in a crisis. However, it has significant reservations about the headline suggestion that an economic equivalent of SAGE should be established essentially for the same reasons that Mr Sunak gave in his evidence.

First, HMT already performs this function and the previous Prime Minister also confirmed that. In contrast to DHSC, HMT has the expertise to provide expert economic advice to assist government decision-making. It already brings together statistics, forecasts, modelling and analysis by the ONS, OBR, and Bank of England, independent institutions which in turn engage with the wider economic community. It also engages with other expert bodies when beneficial to do so. The principal issue faced by HMT during the pandemic was not a lack of expertise, but rather the huge and unprecedented uncertainty which attached to any analysis.

Secondly, whilst HMT recognises there is a legitimate debate to be had about how much economic analysis HMT can or should publish, which will ultimately be a matter for the Chancellor; the sensitivities around HMT data and projections limit the extent to which they can freely be shared.

We do say with hindsight that HMT could have benefitted from a more systematic approach to external engagement. Indeed, the Economic Advisory Council established by the Chancellor and in place between October last year and November this year to advise the government in an independent capacity on UK and international economies and financial markets, is an example of a more systematic approach since the pandemic.

I turn now to briefly look at core decision-making regarding economic policy during the pandemic, including the Eat Out to Help Out scheme.

My Lady, the government’s specific business and financial responses to the pandemic is a substantial topic and will be the subject of detailed consideration in a future module. An unprecedented set of comprehensive policies and schemes was devised by HMT during the course of the pandemic to seek to protect individuals, businesses and the UK economy at large. CJRS (the furlough scheme), SEISS (the Self-Employment Income Support Scheme), business rates relief, business grants, increases in Universal Credit, tax deferrals, VAT cuts, various loans schemes on general terms for individuals and businesses, and protection from eviction schemes, are just some examples.

As Mr Sunak explained, in response to questions from the non-state core participants, proper regard was had to the need to support those required to self-isolate, and significant steps were taken to do so at various stages during the pandemic.

My Lady, there has been particular focus placed during this module, hearings, on the Eat Out to Help Out scheme, albeit that the scheme represents only a small part of the work HMT undertook to seek to protect the economy during the pandemic.

The scheme is addressed in detail in the HMT corporate witness evidence and the witness statement from Mr Sunak. Mr Sunak also provided very clear and detailed oral evidence on this subject. However, given the focus on Eat Out to Help Out during this module, often we say without appropriate context, HMT highlights the following points in relation to it.

One, consumption is the largest component of GDP in the UK economy and vital to the performance of the macroeconomy. The hospitality and leisure sectors in particular are very employment-intensive, with employees tending to be younger, on lower incomes, and extremely vulnerable to unemployment. As a result of the first 2020 lockdown, the viability of many such businesses was threatened. 75% were not trading by June 2020, and there was, of course, no working from home option available in that sector. 83% of workers had been furloughed by June 2020.

On 10 May 2020, this is the second point, the Prime Minister announced a timetable for the easing of NPIs imposed in England. Under that roadmap, which was the subject of detailed scientific and public health advice, pubs and restaurants were to re-open on 4 July 2020. It was in that context that the HMT focused significantly on how best, within that framework of safe opening, to support the economy and stimulate consumption, including by reference to international comparisons. A huge amount of HMT work went into analysing how to stimulate consumption, and the development of the Eat Out to Help Out scheme was intended to achieve that. The formulation of the policy also incorporated a detailed public sector equalities assessment.

Third, on 8 July 2020 the Chancellor announced the Plan for Jobs economic aid package, that package was developed in consultation with the Prime Minister before being presented to the Cabinet by the Chancellor. That briefing included the Eat Out to Help Out scheme specifically. The purpose of the package was to provide targeted temporary support to employment as the country sought to recover from the initial lockdown and to minimise structural damage to the economy and public finances.

Fourth, the Plan for Jobs emphasised the importance of the work that had been done to support businesses to re-open safely, such as in connection with cleaning, social distancing, which of course itself meant reduced customer numbers, and recording customers and visitors for the purposes of contact tracing.

Regarding how businesses could re-open in a Covid secure way that reduced the risk of transmission of the virus, various government departments had significant engagement with their sectors, and Mr Sunak also described the very detailed sector-specific written guidance that related to hospitality re-opening.

Fifth, it was in that context, the assessment by broader government having received scientific advice that NPIs could be eased safely, that the Eat Out to Help Out policy was formulated. It was a scheme, as with all policy measures at that time, designed to operate within the boundaries of what was deemed safe at that time. HMT did not set the Covid-secure guidelines for hospitality businesses to operate safely, it designed economic policy that could be implemented within the parameters of that guidance.

Sixth, within this economic support package, Eat Out to Help Out was in fact a relatively small, if novel and eye-catching, measure. It ran for only 13 days in total, Mondays, Tuesdays and Wednesdays between 3 and 31 August 2020, at an estimated cost of £500 million. The overall estimate of fiscal support of this kind provided via the package was up to £30 billion, to put it into context.

During the Module 2 oral evidence hearings, the Inquiry has explored with a number of witnesses, principally scientists, what they knew of the Eat Out to Help Out policy before its implementation, and adduced evidence that their reaction would have been one of concern regarding increased risk of transmission if they had been consulted on the detail of the policy.

However, this was a policy which operated within the Covid secure guidance in place at the relevant time. In any event, it appears that, as Mr Sunak explained, concerns were not raised with him between the announcement of the scheme on 8 July and its commencement on 3 August 2020.

I have two more points on Eat Out to Help Out.

Eight, as the Inquiry knows from evidence already submitted, following the end of the scheme, HMRC, who administered the scheme, examined available data to try to ascertain whether any relationship existed between the use of the scheme and increased cases of Covid-19.

The conclusion in that report, dated 15 December 2020, was that there is “little evidence to support the claim that Eat Out to Help Out scheme directly led to an increase in Covid-19 cases on a UK-wide level. Generally correlations are either weak or not statistically significant”. And further analysis was carried out by HMRC in the following months which reached a similar conclusion.

HMT invites the Inquiry to have regard to those findings, which were not considered by a single scientific witness who has given evidence, and have not so far been referred to during closing submissions.

Finally in relation to the Eat Out to Help Out policy, the Inquiry explored with Mr Sunak whether concerns about rising cases informed the judgement not to extend the scheme. As set out in his evidence, this was not the case. The policy was always designed to be short term.

My Lady, may I just briefly return to lessons learned?

Lady Hallett: Provided you’re very swift.

Mr Block: My Lady, it’s, I hope, swift. Thank you.

HMT is keen to learn from its experiences in the pandemic, and it continues to seek to improve its ways of working to discharge its functions and ensuring the stability of the macroeconomic environment and financial system, including in the event of any future health and/or major crisis.

Different crises will demand different policy responses, but HMT has already started to build on its experience during the pandemic, to improve its ways of working. For example, it’s continued to develop its analytical capabilities, it’s deepened its engagement with the ONS and the newly established Joint Data and Analysis Centre in the Cabinet Office, and continues to build its modelling capabilities supported by academic engagement. It’s also expanded its data science capabilities, establishing a data science team. And, my Lady, it’s increased analysis of economic risks, including establishing a new horizon scanning workstream within the Economic Risk Group to more systemically monitor and assess future risks to the economy, and this included creating the economics group risk monitor, which reflects risks in the National Risk Register and draws on the expertise of relevant teams across government.

My Lady, we look forward to considering any additional recommendations which the Inquiry makes that can improve HMT’s discharge of its function and responsibilities, and will of course seek to assist the Inquiry in any further way we can.

Thank you for indulging me with the time.

Lady Hallett: Thank you, Mr Block.

Very well, we’ll break now. I shall return at 11.25.

(11.10 am)

(A short break)

(11.25 am)

Lady Hallett: Mr Howells.