Treasury Committee publishes Government response to second economic impact of coronavirus report

• Chancellor should carefully consider targeted extensions to Coronavirus Job Retention Scheme
• Government must outline plan for viable SMEs struggling with debt to recapitalise their balance sheets to prevent prolonging the recession
• Government should consider extending the current increased generosity and accessibility of Universal Credit beyond deadline
• Chancellor should set out roadmap for placing Government finances on sustainable footing
• Clear definition and objectives of “levelling up” agenda needed

The Committee has today published responses to the report from the Government and the Bank of England. Commenting on the response, Rt Hon. Mel Stride MP, Chair of the Treasury Committee, said:

“Whilst many things have changed since we published our report in September, including the development of vaccines, many of our recommendations remain.

“The end date for the Job Retention Scheme has been pushed back by up to five months, but the case remains that the Chancellor should carefully consider targeted support to sectors hardest hit by the restrictions put in place to combat coronavirus.

“The response states that accredited lenders, not Government, are best placed to support borrowers to repay Government-guaranteed loans. However, the Committee is concerned that there may be a lack of capacity and willingness on the part of the private sector to step in to provide solutions for corporate indebtedness.

“There remains a possibility of corporate indebtedness prolonging the downturn and causing economic scarring.

“We welcome the Government’s emphasis on ‘levelling up’ the economy. But the slogan is still yet to be defined. The Government should publish a strategy underpinning it, including clear objectives and indicators.

“The Committee has consistently called for HM Treasury to publish the full analysis it has carried out on the Government’s coronavirus interventions, including the second lockdown, and is disappointed that this has not been provided.

“To ensure that MPs have all the information possible available to them to allow them to carry out their duty of effectively scrutinising Government measures, we again urge HM Treasury to publish both previous and future economic analysis.

“The Committee’s disappointment that the Government did not implement the recommendations from our first report to help those who have fallen through the gaps of support, including limited company directors, freelancers and the newly self-employed, persists. The Government must act to mitigate these significant gaps in support.”

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Notes to Editors

• The Treasury Committee’s Challenges of Recovery report, published 11 September 2020, is here, and summarised below:

The Committee’s second report – the Challenges of Recovery – focused on the medium-term challenges that emerged as much of the economy was coming out of lockdown in the summer. This included supporting the recovery of consumer spending, minimising long-term unemployment increases, and dealing with elevated levels of corporate debt. It also examined longer-term issues, such as Government debt sustainability. The Committee made a series of recommendations to Government, including:

• Effectively targeted assistance to those who need it is important. It is not clear that the Job Retention Bonus is good value for money as it’s not effectively targeted. The Chancellor should carefully consider whether a targeted extension of the Coronavirus Job Retention Scheme (CJRS) and/or other targeted support measures might be required and explain his conclusions.

• For many businesses it remains unclear how the Government expects them to pay back loans in the future. The Committee is concerned that there may be a significant lack of capacity and willingness for the private sector to step in to provide solutions for corporate indebtedness, especially amongst SMEs. Viable SMEs struggling with debt will prolong the recession, and so the Government must develop solutions for ensuring the recapitalising of their balance sheets. The Government must outline a plan for this within the next three months and should think creatively about potential interventions.

• The Government has raised Universal Credit and made it easier to access. These changes are time-limited for a year. The Government should consider extending its generosity and accessibility beyond this expiry date. The Government should also examine the adequacy of, and eligibility for, sick pay.

• The legacy of the crisis will be a sharp rise in the level of public debt, and possibly an ongoing rise in borrowing. This will make the job of stabilising the public finances in the long-term more difficult. At the next fiscal event, the Chancellor should set out an initial roadmap of how he intends to place Government finances on a sustainable footing. The Committee notes that tax increases too early are likely to stifle economic recovery.

• In order to prevent "levelling up" becoming an empty slogan, the Government should produce a strategy underpinning it that defines clear objectives and includes the indicators it will use to gauge success at the next fiscal event. The Government should clarify whether it plans to close productivity, health outcomes and education outcomes gaps, and how it intends to do so.

• The Eat Out to Help Out Scheme has ended, and the continued VAT cut on hospitality and leisure may not be enough to encourage consumers to continue to spend. The Chancellor needs to consider whether additional measures to stimulate consumption are warranted at the next fiscal event.

• The Government should throw its diplomatic weight behind the global community in investing in public health systems in developing countries, ensuring that testing, treatment and a vaccine when developed is made as widely available as possible to emerging economies. The Government should consider increasing resources to the International Monetary Fund (IMF) to maintain countries’ international financing in event of further waves of the virus.

• The Conservative Party Manifesto 2019 pledged to maintain the State Pension Triple Lock, which guarantees that pensions will increase by whichever is highest out of average earnings growth, the Consumer Prices Index and 2.5 per cent. Average earnings growth will be artificially high due to the CJRS having depressed average earnings. The Government, therefore, must be willing to be flexible, even on manifesto commitments, in response to the crisis. Lifting the Triple Lock next year is a sensible proposal that should be carefully considered.

• Commenting at the time of the report’s publication, Mr Stride said:

“The Committee’s disappointment that the Government did not implement our recommendations to help those who have fallen through the gaps in support persists. Our second report of the inquiry focuses on emerging challenges as lockdown measures are lifted.

“One such challenge is to target assistance effectively at those businesses and individuals who need it. The Chancellor should carefully consider targeted extensions to the Coronavirus Job Retention Scheme and explain his conclusions.

“The key will be assisting those businesses who, with additional support, can come through the crisis as sustainable enterprises, rather than focusing on those that will unfortunately just not be viable in the changed post-crisis economy.

“This requires a very difficult set of judgements; it is where careful analysis and creative thinking will be critical.

“As the Committee has said throughout the crisis, the Chancellor must continue to show flexibility in his approach. We hope that the Treasury’s unwillingness to implement the recommendations from our first report is not a sign of how it will respond to this one.”

• The Committee’s first report for this inquiry, published 15 June 2020, was called Gaps in Support. It can be found here. The Government’s response, published date, is here.