LIVEBLOG: Treasury Committee inquiry into the economic impact of Coronavirus - Wednesday 20 January 2021

20 Jan 2021

The Treasury Select Committee took evidence from CIOT and other professional bodies on the ecomomic impact of Coronavirus. A second session took evidence from two economists.

You can watch the session live here.

You can find out more about the committee's inquiry here.

The session began at 2.30pm. The live blog of the session, prepared by the External Relations team, can be found below:

Session 1

Witnesses:
Glenn Collins, Head of Technical Advisory and Policy, Association of Chartered Certified Accountants (ACCA)
Caroline Miskin, Tax Practitioner Support and Private Clients, Institute of Chartered Accountants in England and Wales (ICAEW)
Richard Wild, Head of Tax Technical Team, Chartered Institute of Taxation (CIOT)

Committee chair Mel Stride began the proceedings by asking about HMRC’s room for manoeuvre in using the upcoming self-assessment deadline to widen out eligibility for the Self-Employment Income Support (SEISS) scheme to include the estimated 1 to 3 million people excluded under the current rules.

Richard Wild said that there were two main opportunities to ‘expand or refine’ the scheme. The first was to target the newly self-employed (those who became self-employed during the 2019-20 tax year) and the second, to use 2019/20 tax return data to refine the amount of support available to eligible claimants. But he warned that that there would be complexities and risks associated with implementing reform. He suggested that it might make sense for any reforms to not be announced until after 31 January in order to prevent abuse of the process by people putting in last minute returns. The 5 October deadline for notification of self-employment was mooted as a possible benchmark, that if you had notified by that date the scheme could be extended to those individuals. For those that already qualify for the scheme you might use 2019-20 data and drop off the earlier year to get a more up to date picture.

Caroline Miskin agreed in principle that 2019-20 returns could be taken into account when determining eligibility for the fourth SEISS grant. She warned this would require work on the part of HMRC on data cleansing, and risk-assessment. She also cautioned that there would be winners and losers involved in any reform process. Glenn Collins favoured targeting the scheme at those currently excluded, not the general tax population. He said this would be ‘far more manageable’ for HMRC. He would look particularly at those who had notified the government of employment previously but had not yet submitted a tax return.

Stride asked if there were other categories beyond the newly self-employed that have fallen through the safety net. Collins identified ‘some large groups out there’, such as company directors.

Asked if there should have been more scope for HMRC to better target its support, Wild said that it was easy to say with the benefit of hindsight that there should have been better targeting but that would have delayed the schemes’ roll out at a time when they were seen as short-term interventions. Miskin said HMRC had sought to target SEISS grants and conditions were significantly tightened for the third scheme.

Alison Thewliss (SNP) focused her remarks on company directors and asked why there may have been reluctance on the part of the Treasury to provide support to this group. Richard Wild said that there was no reason to believe they had been intentionally excluded and that it was a consequence of the way that the system had been established. Miskin said the problem had been identified at an early stage of the pandemic but that it would have been difficult to include them within existing schemes. She thought it was notable that when the Chancellor announced the SEISS he made remarks about NI contributions for the self-employed having to change.

Glenn Collins said that ACCA – with the support of other organisations including the Federation of Small Businesses – had identified a possible route to support for company directors, based on the SEISS scheme, and had spoken with HMRC and the Treasury. It was built on the premise of self-assessment, as the tax system generally is built. He said officials had greeted the proposal (Directors Income Support Scheme, or DISS) positively and that work was ongoing to consider the practicalities of the proposal.

Collins acknowledged that even under this proposal, some people would be excluded from support, such as those with income above £50,000.

Thewliss noted that IPSE have proposed a ‘pay now, clawback later’ scheme for dividend income. How did this compare to the ACCA’s scheme? Collins said ACCA’s scheme was based around company profits rather than dividends. That provides the opportunity for directors of those companies to decide how they will use the support within the business, he said. It could be to support employees, keep the business running and/or pay themselves.

Miskin said that ICAEW would be pleased to support government in the implementation of such a scheme if there is political will in support of its introduction. She added that the ICAEW have concerns about the scheme - it would be a higher risk scheme than SEISS, but their concerns might be surmountable.

Alison Thewliss also asked about the risks involved if company directors are not supported. Collins said that there were many company directors who have not had any income during the course of the pandemic, with the hospitality industry cited as a particular area of concern. He said that directors would generally keep businesses running if there was hope that a solution could be found, but that data from tracking the ACCA’s membership had started to identify a worsening picture giving them ‘some real concern’ that businesses may have to close or employees be laid off.

Wild agreed with Collins that directors fall between the two existing schemes.

Harriet Baldwin (Conservative) focused her questioning on support for on self-employed people with trading income above £50,000 and freelance workers.

She began by asking if it would have been feasible for the SEISS scheme to have had less of a cliff edge or for it to have mirrored the furlough scheme by providing for a monthly cap on the support provided.

Caroline Miskin said that there was ‘no inherent reason’ for the government to have chosen to cap support for the self-employed at the £50,000 income level. It would have been a policy decision. She said that it could have been designed so that it provided a tapered level of support above this figure, or for it to have paid out a grant at a capped level. She said that she believed the £50,000 level was chosen in order to exclude very high earners from support, but it has caught people who aren’t particularly high earning. Richard Wild agreed, adding that it would have been possible for HMRC to build in a taper to its processes.

Baldwin then asked whether the new tax year meant that people who had earned above £50,000 previously could now be eligible for support if their income had fallen below this level in 2019/20. Richard Wild said that this would be dependent on HMRC incorporating 2019/20 tax return data into its calculations (which use an average across the qualifying period) and that it would be feasible if this approach was taken.

There was then discussion around the Business Owners Support Scheme (BOSS) proposal. Richard Wild remarked that the scheme appeared to be complicated, which could present challenges in the way it operated, because it was trying to be as inclusive as possible. Miskin added that the scheme would require taxpayers to actively provide information to HMRC, which would then need to be verified in order for HMRC to determine a taxpayer’s eligibility.

Baldwin asked about people excluded from support because they get less than half their income from self-employment but the other part of their income was also very small. Collins said the principle behind this is you have one eligible type of report coming through per person, but he thought it should have a safety net for those who operate across employment and self-employment.

Miskin said she saw the 50% test as another policy decision. We have seen cases where it gives results which look unfair, eg if someone had something like a pension drawdown which meant their income was especially large in one year. She added that it would be a different group of people who failed the 50% test if you took 2019-20 into account. Some new people would qualify but some would fall out.

Wild also provided some comments concerning the scheme Northern Ireland has introduced to provide support for the newly self-employed. He noted that this initiative recognised the transition from employment to self-employment and suggested that this should be considered when determining whether to introduce such an initiative in England.

Rushanara Ali took up the questioning. How could more be done HMRC in relation to those who are left out, she asked.

Wild said that whilst there is a good tool on gov.uk it’s hard to track and narrow down who is left out because of the number of different kinds of support. Now Scotland and N Ireland have schemes any UK scheme would have to decide whether you are allowing people to benefit twice or whether you are going to complicate things by requiring deduction of further support businesses have received from elsewhere. Scottish scheme had wide list of exclusions –as time goes on harder to target.

Miskin – we do now have a lot of different local schemes and grants across UK. There is no one solution to this. The people that miss out fall into a lot of different categories. Some of the local schemes may be the way to go, but the N Irish and Scottish schemes don’t seem to be scalable.

Ali queried this. Miskin responded that the schemes require the taxpayer to provide significant amounts of data and the administrations themselves to do a lot of checking.

Collins praised the Welsh resilience fund which has been oversubscribed. Businesses invested time and effort in applications and then found they had done it for no benefit. It needed more funds.

Ali said that historically after recessions self-employment had been a driver of recovery. Should we be looking at how we can encourage it? Collins agreed and said looking at export opportunities was important for our growth internationally.

Ali asked about a report that suggested 1.3 billion pounds was handed out to workers who saw no loss of income while half a million people were left with no support.

Miskin said this is where digitalisation comes in. There would have been scope for government to be more targeted in how it provides support. HMRC has made this point in its 10 year tax administration strategy document that better data would enable more targeted support. We hope this wouldn’t need to happen again but if it did this is how you would do it.

Collins said there are some declarations – people have to say their businesses have been affected. But some of that isn’t clear in terms of how affected. HMRC have a job to make it clear what info you need to keep and how they will use that.

Wild said there are two categories to consider – those who claim who weren’t entitled to the grant, and those who claimed more than they needed. On the first the eligibility tracker sometimes had false positives because it was based on information known to HMRC, so if someone had ceased being self-employed they would still potentially be told they were eligible to make the claim even though they would fail that test. Also the claims process itself was ‘very affirmative’ – it took you through the steps without flashing up warnings about whether you might not qualify. On the latter the grant was ‘all or nothing’. Even if you only lost a few hundred pounds you met the requirement of being financially affected so you were entitled to what the system determined. You can make a voluntary contribution now but a mechanism to allow you to limit the size of your claim at the time might have been useful.

Ali suggested it could be seen as overly generous in that case. She contrasted this to far less generous welfare support.

Steve Baker asked if any of the panel could give an idea of how serious being excluded has been in people's financial lives.

Miskin said there are a huge number of case studies showing the impact. So far as ICAEW are concerned they have done everything possible to highlight the gaps and what help is available. Our members do report back devastating cases similar to those very publicly expressed.

Too late to help people? asked Baker. Miskin said that was a political decision. The extent to which providing support now would retrieve the situation for some people is uncertain but she imagines for some it would.

Collins said there had been a deterioration on wellbeing. ACCA members reported back continued stress, highlighted in further lockdown and home-schooling in addition to full-time working.

Baker asked if HMRC had gained any additional capabilities as a result of running the schemes which it could use in future.

Collins said one of the capabilities HMRC has shown is its ability to turn round and provide quickly. Flaws within some of the digital information they use had also been shown. They've learned a lot around data management and guidance. Generally updates are highlighted.

Wild said HMRC have found new 'friends' in the professional bodies, working well during the roll-out, and 'we should build on that going forward'. We are all on the side of the tax system and making it work.

Anything new that should be collected on tax returns? asked Baker. No-one had a suggestion.

How long should the schemes last? Miskin said that was an impossible question because we don't know how the pandemic is going to pan out. The one area where this might have got confusing is replacing CJRS with the Job Support Scheme. It was a relief this didn;t happen and we stuck with the scheme we knew and which could be adapted rather than coming up with a completely new scheme. She said what HMRC had achieved was 'phenomenal'. When the schemes stop it will be very hard for lots of people.

After the vulnerable are vaccinated we will have stepwise progress down the tiers to the point - eventually - of no restrictions. What is the trigger for winding down the schemes? asked Baker.

Wild said it depended on the extent to whcih we have regional variation. That would be hard to apply to the grant system. The key is to give businesses as much notice as possible. The JSS - on the even of it going live it was scrapped and we continued with CJRS, but it took even HMRC by surprise.

Baker asked: isn't the crucial point that businesses have a predictable environment to work in, giving them capacity to plan?

Collins said that was the most important point for cash flow and any cash deferral. Hard to plan ahead without an element of certainty. Tax deferrals need to be built in to that.

Session 2

Witnesses:
Jonathan Athow, Deputy National Statistician for Economic Statistics, Office for National Statistics
Ian Mulheirn, Chief Economist, Tony Blair Institute

Chair Mel Stride said OBR Fiscal Outlook 2020 shows a GDP contraction between Q4 2019 and Q2 2020 showing the UK ‘well down in the pack’ compared to countries such as Germany and Japan. Are things as bad as this?

Jonathan Athow said UK saw a big fall in health (especially elective procedures) and education at the start of the pandemic. The concern is whether countries are measuring outputs and inputs in the same way or at all. ONS is working with OECD to answer this. Another complexity is that different countries get waves of COVID-19 at different times, meaning restrictions at different times. ONS has also looked at just money spent and this makes the UK performance similar to other countries. There is no single way to identify a way that compares accurately to other countries.

Ian Mulheirn was asked about measuring GDP. He said it is difficult to identify why some countries have been able to manage COVID-19 better. In some countries they will be hit harder than other countries because of the culture of social contact, for example.

Stride asked if when the economy goes back to normal, we should expect a virtuous uptick in GDP because of the way we measure it in the UK. Athow said yes but commercial side of the economy will face long-term problems.

Angela Eagle said GDP does not tell the whole story, citing that women’s contribution to the economy is often underestimated. Athow agreed, saying it is an aggerate figure and does not show the distribution.

Instability in how statistics are compiled is an effect of COVID-19 crisis, e.g. inflation has to be managed when some goods and services are not available. ONS also dependent on businesses completing forms, which they may be too stressed to do.

Mulheirn said GDP figures are not invalidated just because it does not measure everything well.

Eagle asked about alternatives to GDP. Mulheirn said GDP is used as a proxy of wellbeing/welfare but that is not what it is there to do. Athow said ONS is now looking at the quality of services rather than just quantities in GDP, also looking at nature and the natural environment.

Siobhain McDonagh, Labour, asked about education, such as the closure of schools. Athow said before COVID-19 ONS measured it by pupil hours taught in school. But early in pandemic, ONS realised it needed to change, such as by measuring remote learning by surveying schools. But ONS is finding it hard to look at the wider impact of school closures.

McDonagh asked about 1.3 million devices to help remote learning that were promised from the Government but not enough of this has been delivered, especially hitting and disadvantaging poorer pupils - what is the impact? Athow replied that IFS is looking at the patterns and it suggests it is children from poorer backgrounds that are struggling the most. Again, it is difficult for ONS to get an accurate picture during the pandemic. 

McDonagh spoke about a potential 'social tariff' for broadband. How does lack of connectivity costs the economy? she asked. Athow said it is not a piece of work the ONS has done. But the economy, despite upheaval because of pandemic, has adapted - and retail sales are up the levels before the pandemic. Access to online services is increasingly important and also important to how resillient the UK's economy is.

Felicity Buchan asked Athow to talk about an ONS report for SAGE on mortality - which is being updated and will be published in a few weeks. Athow said there is a direct impact of dying from the disease, then critical care, and then shifting prioritise (such as within NHS - such as reduced cancer care) and the indirect and direct impact on the economy and the effect of that on people's prosperity; all four of these drivers effect mortality, he said.

ONS has not done a detailed systematic analysis of the impact of the pandemic on GDP but has looked at individual sectors. 

The economy has adjusted over time but in November the impact on the economy was less than in the Spring. The economy and businesses have adapted, he said.

ONS does not know the overall impact of the pandemic, especially on education, as yet.

Athow was asked for a bit more analysis. He said you cannot disentangle what is the effect of COVID-19 restrictions compared to what may have otherwise have happened. It will require nuance and subtlty to bring it out, he said.

Mulheirn said there is uncertainty about how you allocate out what the effect of restrictions (voluntary social distances, for example) in behaviour and the counter factual path of the disease and without lockdown what would you expect to happen to cases. Without that view across time, a single point in time meaure does not help much - you need to look at the counterfactual.

Julie Marson asked about the counterfactual mentioned by Mulheim. Mulheim said economic analyses early in the pandemic were a bit simplistic. We need to think about health, economic and lockdown measures as all feeding back on one another. We have to consider many moving parts together. There is a large body of work now that finds some significant effect of social distancing. There are a broad range of estimates on the economy. GDP estimates showed how degree of fear had reduced and the economy has changed in how activity occurs and become less contact intensive. Fear is the big issue, he suggests.

Mulheirn said it is possible to do a cost benefit analysis of restrictions on the whole economy, but when it comes to individual restrictions it is not impossible but meaningless.

Athow said the challenge is that some things the ONS can measure easily such a direct effects of closing particular parts of the economy but the real consequences come from indirect consequences. It is a shifting picture, he reiterated.

Is there any economic modelling that the Government should do? Mulheirn replied that we will benefit from some sort of explanation of how the Government sees the spread of the virus and economic activity interacting.

Anthony Browne asked what modelling should inform the end of the lockdown. Mulheirn said the challenge is that the Government should move in a way to keep R number under one and release restrictions as quickly as possible if that is achieved. The Government could put out some plans based on contingency scenarios. Is there a risk of looking at R number when it may vary between ages? asked Browne. Mulheirn said the fear factor will change radically if we can eliminate most deaths because of COVID-19. But he said confidence among consumers will be dependent on keeping the R number below one.

Mulheirn said health costs may dip below economic costs in the future. Athow added that ONS is trying to gear up for modelling on the end of lockdown but 'nobody has a crystal ball'.

Mike Hill asked about business support and reducing uncertainty. How long should the CJRS be extended and the income support scheme extended? Mulheirn said it would be silly to be 'penny wise and pound foolish' when we have a timetable for vaccination. We must prevent mass bankruptcies and long-term scarring from the pandemic. 

What more analysis would you expect the OBR will do ahead of the March Budget? asked Hill. Mulheirn said it is contingent on path of the virus, so difficult for OBR to model that without knowing what the Government intends to do - OBR needs the assumptions and inputs from the Government even if it is given behind closed doors. Athow said there is a danger if you put out some figures to the public, they will be seized upon and given too much attention.

Measures to stimulate the recovery? asked Hill. Mulheirn said a lot will be needed, such as moving towards subsidies that encourge new employment. Micro measures need to be well defined to encourage what is a new economy rather than just keeping the old one alive. Athow said households have had very different experiences in the pandemic, such as how much they have saved;  this is a slightly unknown area, he said.

By External Relations Team