12 January 2021

The Treasury has made mistakes, but we should cut Sunak some slack


It has become very fashionable in certain quarters to lay into Rishi Sunak. The stop-start approach to some of the economic support measures put in place by the Treasury, and initiatives such as the Eat Out to Help Out scheme, have attracted ever more criticism as the second wave has spread across the country. But to coin what has become a Covid-era cliché, there is a lot of ‘captain hindsight’ to some of this talk. 

It’s very easy to look back and say it was obvious this was going to happen, but it really wasn’t at the time. The economics of national lockdowns is not something the Treasury has been able to lift from the traditional policy textbooks, and complexity is added by uncertainty around what the virus and its prevalence is going to do next. It would be hard enough to manage an economic shutdown if we knew it would be for three months and things could then return to normal. It is far harder when restrictions are having to be turned on and off over an indefinite period.

I was not a fan of Eat Out to Help Out when it was announced (as I said on this site), but the fact it was limited to quieter days means some who would otherwise have crammed into packed restaurants on Fridays and Saturdays chose to eat out earlier in the week. That is certainly not to say there was no additionality to the subsidy (I certainly ate out a lot more in August than I would otherwise have done), but many of the meals claimed for under the scheme would have happened even without the discount – indeed, that was one of the reasons I was sceptical of it. It is true there was plenty of doubt about the scheme before it ran, but a lot of it was scepticism about its utility as a policy tool and whether it was just a gimmick, not worries about it causing a big increase in infections.

We can look back now and say restaurants should have remained closed throughout the summer and autumn, but the fact is the virus looked to have been successfully suppressed by July. It would have been impossible for ministers to stand up in their daily press briefings and say that the lockdown was remaining in place despite substantial falls in infection numbers.

The Chancellor has drawn criticism for the way the furlough scheme and some other support measures were wound down or withdrawn, only for the Treasury to U-turn once restrictions were reimposed. Today on this site, James Ball accuses Sunak of acting “as if Britain was a medium-sized manufacturing business, desperately worrying about its debt and cash flow”. I haven’t seen anything which leads me to believe that.

The idea, for example, that measures have been inadequate because the Treasury has been too concerned about fraud and money going to people who don’t actually need it seems strange considering the way the Self Employment Income Support Scheme was constructed. The self-employed have been able to claim 80% of past profits (up to a cap) regardless of whether their income has fallen. That means many are able to claim large chunks of cash despite not being affected, or perhaps even seeing a rise in profits if they are in the right sector. This is hardly a Treasury that has been scrimping on the pennies.

There is a genuine problem about some falling through the net, but this is mainly people who have not been self-employed long enough to have submitted the information necessary to assess their normal income. As far as I see it, for the most part the Treasury have taken the advice of most mainstream economists, which is that it is reasonable to borrow as much as you need to in these circumstances, especially when borrowing rates are so low.

The decision to wind down the furlough scheme was not a fiscal one but an economic one. Many respected economists and labour market experts were pointing out that freezing the labour market for such a long period of time would have long-term consequences for unemployment and mean a more painful economic adjustment further down the line (Professor Jonathan Portes has since written about why he was wrong to take this view). 

Another charge is that the Treasury has been the reckless anti-lockdown voice within government, constantly lobbying against restrictions, and that this has amounted to a false economy as opening up led to further lockdowns once the infection rate rose again. But it is not the Treasury’s job to say what a certain level of restrictions will or will not do to the spread of the virus.

It is perfectly reasonable for the Chancellor of the Exchequer, sitting in debates within Cabinet, to point out the impact which lockdown measures are having on businesses and jobs. I would be worried if he wasn’t doing that. The point is that it is the duty of the collective decision-making apparatus to weigh this against the scientific advice – and if this has not been what has happened in practice, that is a failure of government as a whole. It is also not as if the scientists advising government were shaking their heads in disapproval when restrictions were being eased in the summer – in July, the Chief Medical Officer said “we are going to have to take risks whatever we do, and this seems a reasonable package of risks at this particular time and at this particular pace”.

I don’t think everything the Treasury has done over the last year has been perfect, but I do think we have to try to understand quite how hard it must have been (and still is) to make decisions in such an unprecedented situation and with such a great deal of uncertainty. It’s a bit of a stretch, to say the least, to blame the Chancellor for the way lockdown restrictions have had to be quickly reimposed as the virus has resurfaced (and still more of a stretch to attach blame to him for the second wave itself). From what I’ve seen since he took up the post, there aren’t many people I would rather see running the Treasury. 

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James Heywood is Head of Welfare and Opportunity at the Centre for Policy Studies.