HMRC chief queries furlough bonus value
HMRC’s chief executive has written to the Chancellor to question the value for money of the Job Retention bonus scheme and the ‘eat out to help out’ scheme.
HMRC's Jim Harra this week sent two letters to the Chancellor asking for his written instruction to proceed, due to the nature of the risks associated with both schemes.
Under his responsibility as principal accounting officer, Harra requested the ministerial directives after identifying risks that the schemes did not meet departmental standards for managing public money. By issuing a formal direction to implement the decision, the minister rather than civil servant is accountable for the decision.
Sunak responded to Harra’s letter by “formally directing” him take forward the schemes and to manage the identified risks “as best you can”.
“There are broader issues that I am able to weigh in my decision that you are not able to accommodate in your assessment,” the Chancellor wrote.
Sunak said the Job Retention Bonus will play a vital role in the economic recovery by supporting employers who bring employees back: “Without such action, jobs will be at acute risk.”
The furlough bonus and the ‘eat out to help’ schemes bookended Rishi Sunak’s Summer Statement. Under the Chancellor’s Jobs Retention Bonus, employers will get a one-off payment of £1,000 for each furloughed employee they bring back until the end of January 2021.
In his letter to the Chancellor, Harra recognised the “sound policy rationale” for the scheme, but couldn’t overlook the uncertainties. “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.”
He added that HMRC will be spending “at a risk” until the full details of the scheme have been established – although he envisages spend to be minimal as the scheme doesn’t launch until later this year.
“If, for some reason, the scheme is delayed the propriety risk of nugatory spend increases and is greater the more money that HMRC have spent,” the HMRC chief warned.
Eat out to help out uncertainty
Harra shared similar about the ‘eat out to help out’ proposal. The voucher scheme aims to encourage nervous diners back into restaurants by offering a 50% discount up to £10 per head off their meal from Mondays to Wednesdays. The proposal was part of Sunak’s plan to revive the hospitality sector as one of the main elements of his summer plan for jobs agenda.
Harra recognised the scheme was designed to minimised “deadweight” with strict Monday-Wednesday eligibility for a limited period. However, he couldn’t provide a counterfactual for this scheme either due to the unknown future demand for eating out.
He continued: “By nature, this is a novel scheme meaning there are also particular value for money risks surrounding the level of potential losses that could arise. Whilst not sufficient on their own they have contributed to my overall value for money assessment.”
For both schemes, the HMRC boss also raised further uncertainties concerning their efficiency.
In concluding both letters, Harra emphasised that it was “entirely appropriate” for Sunak to “proceed in the light of the COVID-19 emergency”.
More questions from the frontline
Frontline restaurants and accountancy practices raised further questions. Ben Steele, the owner of Bristol-based Steele Financial Chartered Accountants, said his hospitality clients understood the intention behind the scheme, but concluded that it’s “just poorly thought out”.
“Many see Monday to Wednesday as the quietest days for their restaurants and bars and usually do not bother to open because of this,” Steele told AccountingWEB.
“To staff an empty restaurant/bar is costly, without even producing any food or drink. They would have to have a chef/front of house person at the very least over three days, in hope that people will see a £10pp saving as a good enough reason to change their dining habits.
“Some will, and if they do great. But numbers would have to be substantial to see a benefit. Not only that, you also have to rely on new/additional diners and not just those swapping their usual night out to save money.”
The furlough bonus also raised similar concerns from the accountancy trenches. Paul Barnes, managing director of Manchester-based firm MAP, couldn’t understand the reasoning behind the announcement.
“Who is really going to keep an employee just for the £1,000 bonus? It makes no sense,” said Barnes. “Why not just continue to pay the employers NI and pension contributions like they were?
“It’s obviously designed to avoid redundancies and keep people in jobs, but in reality not many employers will keep someone they can’t generally afford just for a small £1,000 bonus.
“But the big companies who would have already brought the staff back anyway will now make a windfall. So I don’t see it rescuing many jobs and I do see it costing our government a fortune. So we have the downside with the upside.”