UK: Treasury Reveals It Didn’t Forecast Economic Impact of Second Lockdown

Lockdowns are designed to temporarily delay the spread of the virus – but at what cost? This was the line of questioning that kicked off yesterday’s evidence session for the Treasury Select Committee, scrutinising the work HM Treasury has conducted in relation to lockdown. Chair of the committee Mel Stride asked Clare Lombardelli, Chief Economic Adviser to the Treasury, to comment on specific economic analyses conducted around lockdown restrictions, ranging from the closure of pubs, gyms and restaurants to ‘circuit breakers’ and working from home directives. It was quickly revealed that no analysis has been done.

Stride’s interest stemmed from Sage meeting minutes dated 21 September, which referenced a ‘package of measures’ that the committee said ‘need to be adopted to reverse [the] exponential rise in cases.’ These included some of the more radical measures implemented during the first lockdown, including changes to ‘working from home’ rules, banning contact between households, the closure of hospitality and leisure sectors, and even the return of a (shorter) lockdown. In the minutes, Sage states that the economic impact of these measures was being modelled by the Treasury:

“‘Policy makers will need to consider analysis of economic impacts and the associated harms alongside this epidemiological assessment. This work is underway under the auspices of the Chief Economist.’

In yesterday’s session, Lombardelli revealed that no such work was ever underway. The impact of the specific restrictions on the economy were not forecast or predicted by the Treasury before they came into force:

“‘As the Chancellor set out in Parliament last week, we haven’t done a specific prediction or forecast of the restrictions… what we do is ongoing policy that feeds into decisions ministers take, which they consider alongside the health impacts, the social impacts, and they also consider the economic impact.’

After much back-and-forth between the chair and the chief economist, the Treasury’s lack of analysis was put in the clearest terms:

Stride: I’ve got a very specific question which you could answer with a yes or no really: has any of this work, as described by Sage, on these economic impacts, on these particular interventions as they suggest. Has that work been carried out under your auspices of the Treasury?

Lombardelli: It does not exist. As the Chancellor said last week, a specific prediction or forecast does not exist.

This revelation casts doubt over what economic information the Chancellor and senior ministers would have had access to when deciding to reimplement restrictions on businesses – a point that Stride put to Lombardelli at the end of the first segment:

Stride: If it doesn’t exist – specific analysis of these measures – how can ministers be expected to take rational and sensible decisions on these important matters, if they haven’t got any analysis, economic analysis, around the impacts of those measures?

Lombardelli: They do have economic analysis of the impact of the virus and the restrictions put in place. In terms of understanding, what we can look at, for example, is what’s happened in the economy under the last set of restrictions that were put in place the period March-May. And we can learn a lot about that – of course there’s lots of reasons to think this time around the impacts will be different.

Lombardelli’s last response (cut off by Stride) implies that the data being analysed is retrospective, looking at what lockdown measures did to the economy back in the spring, as supposed to what they might do if reimposed in the winter.

Her explanation as to why the Treasury hasn’t undertaken carrying out its own forecasts for specific measures included that it is ‘incredibly difficult’ to model ‘meaningful estimates of very specific instructions’, referencing a series of unknown factors, including business reaction to the restrictions and behaviour changes that might result from ‘highly unusual’ circumstances. In response, Stride noted that ‘epidemiological analysis’ would struggle from similar unknown factors, but was still being undertaken.

Lombardelli avoided saying Sage was explicitly wrong for suggesting such analysis was being taken, and instead suggested that they were likely referring to ‘more general’ analysis the Treasury does in relation to the UK economy. According to the chief economist, there’s plenty of data on Gross Value Added, the size of different sectors, how many people are employed in each sector and what their average wage is. What’s missing, it turns out, are forecasts predicting how these sectors and employees would be impacted by new lockdown restrictions.

The Treasury’s lack of forecasting does not mean Chancellor Rishi Sunak would have been without any data when in discussions with the Prime Minister and other senior Cabinet figures about lockdown. Lombardelli notes the Treasury has been compiling forecasts done by other bodies, including the Office for Budget Responsibility and the Bank of England.

But yesterday’s admission from the chief economist calls into question the priorities of the Treasury: the Sage minutes are dated over a month before England’s second lockdown was announced, giving the Treasury at least four weeks (though the minutes imply longer) to forecast the impact of specific lockdown measures on the economy. That the institution did not produce any forecasts or predictions also raises serious questions about the extent to which the economic implications of such radical measures were considered before the government brought them in.

Source: The Spectator