Fri 28 January 2022

Richard Murphy looks at the Government’s poor decision making around Coronavirus costs, and how their poor accounting could be used as another excuse to cut public spending

The House of Commons Public Accounts Committee (PAC) published two reports on the management of COVID expenditure by the government on 25 July. They included an unfortunate phrase: “The COVID-19 response means Government will be exposed to significant financial risks for decades to come.” 

The press instantly read this as a warning (like so many others issued in recent years) that a pile of debt would hang over future generations because of the Coronavirus crisis, and those future generations would have to repay. 

But the reports did not refer to debt once. What they reported instead were two things: poor decision-making by the Government; and poor accounting by the Government for those poor decisions, which is compounding their impact.

The poor decision making highlighted two key issues. One was the purchase of personal protective equipment (PPE) to ensure that those in the NHS and social care were protected from infection by COVID. What we now know is that this purchasing involved cronyism and incompetence. Much of what was bought was appears to be unfit for use. Too much was also acquired. What we have, in effect, ended up with because of this spending is a very large quantity of non-biodegradable rubbish. 

The second issue is the amount lent by the Government through its COVID Loans scheme at very short notice, and with very little risk vetting taking place, to UK businesses. Even the sums are open to dispute. The PAC report says that more than £90 billion was lent to around two million businesses. The government says it is about £80 billion to 1.7 million concerns. 

Whichever numbers are right (and that no one knows is an indication of the problem) what is certain is that some of these COVID loans will not be repaid. The PAC has been told that this sum may be £26 billion; the Government is not sure as yet. Whether the loss is because of fraud, or companies in receipt of the loans going bust will not matter. It seems certain that substantial sums will not be repaid.

In both procurement and COVID loans there appears to be poor accounting. If the Government has bought excess PPE that cannot be used, whatever the reason, it should not pretend it still has value. The cost should be written-off now and the poor decision-making should be recognised in its accounts. 

The same is true of the loan balances: if £26 billion is unlikely to be recovered, the Government should not be pretending that it is. The cost should also be written off now in its accounts. 

But that is not what is happening. The Government is not doing these write-offs, it seems. Instead, it waiting to write off the costs in years to come. And when it comes round to writing them off what it will claim is that it has incurred a deficit that means that other essential spending cannot occur. 

That will not be true. The spending on these items has already happened. The Government is claiming that they have not resulted in a cost that increases its deficit – as yet. That’s because they want to record that deficit in the future. Then they will then impose austerity because of what they will claim, falsely, to be the continuing costs of COVID.

All of this is immensely worrying. We need high-quality data from the Government. They have a duty to make it as accurate as possible. But as is the case with all accounting, they also have a duty to make it true and fair, or honest in other words. I am not convinced that is happening in this case. I strongly suspect that the government’s accounts are being used to falsely load costs into future years with dire consequences for future public services. 

Richard Murphy is Professor of Accounting, Sheffield University Management School; and director of the Corporate Accountability Network


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