Labour warns UK recovery plan could end up wasting public money

Labour has warned that Rishi Sunak’s £1000-a-worker job retention scheme could see money ending up in the wrong pockets, as the chancellor refused to rule out future tax rises to pay for his £30bn summer budget.

Amid warnings from experts that much of the cost of the scheme could be banked by firms that would have kept staff on anyway, the shadow chief secretary to the treasury, Bridget Philipson, has written to HMRC’s chief executive, Jim Harra. She is calling on him to publish any internal analysis carried out by HMRC on the potential costs and benefits – and to appear before MPs.

It has emerged that Harra had also warned the chancellor it was impossible to judge whether his plans to boost the economy were a good use of public funds.

“Every penny given to those who don’t need it, when whole sectors of our economy are in trouble, is money not available to support jobs at risk, money not helping the families and firms in desperate need,” said Philipson.

Harra took the relatively rare step of writing to the chancellor this week, in two separate letters, to request a formal “ministerial direction” to go ahead with both the jobs bonus, and the “eat out to help out” meal discount.

The letters, and Sunak’s replies, were published by the government on Thursday.

Sunak’s job retention bonus will hand employers £1,000 for every furloughed worker who is still on the payroll in January, three months after the job retention scheme ends.

Harra said there was “sound policy rationale” for the scheme; but warned that as the principal accounting officer of the department funding it, he could not vouch for its “efficiency” – because it would be unclear how many additional jobs would be safeguarded.

“It has proved difficult to establish a counterfactual for this scheme, which depends on the overall cost of the scheme and the number of extra jobs it would protect both of which are currently highly uncertain. That uncertainty also applies to the efficiency of the measure,” he said.

In his reply, Sunak said there were “clearly compelling reasons to justify the introduction of this scheme”, claiming it would “play a vital role in supporting employers to bring their furloughed staff back to work”.

Similarly, on the “eat out to help out” discount, Harra warned that the baseline for the scheme – to judge whether or not it has worked – “depends on the future demand for eating out in the absence of this scheme, which is currently highly uncertain”.

He also warned of “potential losses” – suggesting HMRC believes fraudulent claims are a possibility. The treasury expects the £10 a head meal discount scheme to cost up to £500m.

He stressed it was “entirely appropriate” for the chancellor to make his own judgment, given the severity and fast-moving nature of the downturn.

A Treasury spokesman stressed that Harra’s warnings were needed because of a lack of time, and uncertainty about policy take-up. The same thing had happened, he said, when the jobs furlough scheme was introduced. “The system of ministerial directions is a normal part of business where the managing public money rules, for one reason or another, cannot be met,” the spokesman said.

But the letters emerged after Labour had already seized on Sunak’s admission that there would be some “dead weight loss” in the job retention bonus scheme.

In interviews on Thursday, Sunak said this dead weight was necessary to act at the scale and speed required even though it presented “some degree of moral hazard … in an ideal world we wouldn’t be doing those things”.

The Resolution Foundation thinktank pointed out that recent surveys suggested eight out of nine furloughed workers were set to keep their jobs anyway; while £1000-a-head might be too modest a sum to protect many jobs. Its chief executive, Torsten Bell, called it, “poorly targeted at those jobs that are most at risk of being lost”.

In a series of broadcast appearances on Thursday after delivering his summer statement, the chancellor repeatedly refused to rule out future tax rises to pay for record public spending during the coronavirus pandemic.

Sunak said it was “too early to speculate” when asked whether the government was planning to increase taxes to pay for the unprecedented public borrowing behind the coronavirus response.

He said the extra spending announced in his mini-budget on Wednesday was intended to make the economic recovery as strong as possible but that it depended on whether Britons were willing to go out and spend.

“We’ve moved through the acute phase of the crisis where large swathes of the economy were closed. We’re now fortunately able to safely reopen parts of our economy, that’s the most important thing that we can do to get things going,” he told Sky News.

“But we won’t know the exact shape of that recovery for a little while – how will people respond to the new freedoms of being able to go out and about again. We have to rediscover behaviours that we’ve essentially unlearned over the last few months.

“Unless activity returns to normal, those jobs are at risk of going, which is why we acted in the way that we did.”

The chancellor said he was “not going to write future budgets now” when pressed on how the government would pay for the record borrowing behind the measures announced on Wednesday.

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Sunak said the cost of not taking this action would be far greater but that such high borrowing was not sustainable and in the medium term ministers would “return our public finances to a sustainable position”.

He said: “It’s difficult now to get exactly the right trajectory of that because we have an uncertain path ahead but as soon as we have a clearer path about that, we can look at the situation and make sure that our public finances are back on a sustainable footing over a reasonable period of time.”