Big spending list on Test and Trace and furlough loss needs context

30 November 2022
What was claimed

The EU ‘divorce bill’ will cost £42 billion.

Our verdict

Correct. The latest estimate is £42.5 billion.

What was claimed

Test and Trace cost £37 billion.

Our verdict

This was its budget in the first two years. It’s actually spent less than this. According to the NAO, as of July 2022, £25.7 billion had been spent with an expected final bill of £29.3 billion.

What was claimed

Furlough fraud cost £4.3 billion.

Our verdict

This is an old estimate of how much was lost to both fraud and error in the furlough scheme, Eat Out to Help Out and the Self-Employment Income Support Scheme, and hadn’t been recovered. The figure is £3.7 billion as of July 2022.

What was claimed

Useless PPE purchased by the government cost £8.7 billion.

Our verdict

£8.7 billion refers to the loss in value of PPE bought in 2020/21 at the end of that financial year. While some is arguably useless, most of it (£4.7 billion) is loss associated with buying usable PPE at high prices during the early stages of the pandemic.

A post on Facebook makes a number of claims about government spending, including that Test and Trace cost £37 billion, furlough fraud cost £4.3 billion and useless PPE cost £8.7 billion, which aren’t quite right or could do with context.

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Test and Trace

The post then claims Test and Trace cost £37 billion. This is incorrect and we have checked it many times before.

The total budget allocated to NHS Test and Trace in the first two years of the pandemic was £37 billion: £22 billion in the first year and £15 billion in the second.

But the most recent figures produced by the National Audit Office show that, as of June 2022, £25.7 billion had been spent. The estimated lifetime cost of Test and Trace is £29.3 billion.

Fraud and error from furlough

The post says £4.3 billion went to “furlough fraud”. This isn’t quite right as this figure covers several Covid-19 payment schemes, not just furlough, money lost to error, not just fraud, and the government has since adjusted the estimate to be slightly lower.

Earlier this year, £4.3 billion was widely reported to be how much the Treasury had “written off” in Covid payments “fraud”.

This figure was derived from January 2022 estimates of how much in total was lost to “fraud and error” through the Coronavirus Job Retention Scheme (furlough payments), the Self-Employment Income Support Scheme and the Eat Out to Help Out scheme.

In these estimates, the government said a suspected £5.8 billion was lost to fraud and error on these three schemes and that it had also “recovered £500 million of overpayments in 2020 to 2021” and expected a new HMRC taskforce to “recover £800 million to £1 billion between 2021 and 2023”, so up to £1.5 billion total. That would leave around £4.3 billion permanently lost to fraud and error across the three different schemes, not just furlough fraud, as the post claims.

In July, the government adjusted down the total amount that was lost to error and fraud on these schemes from £5.8 billion to £4.5 billion. It also said that £762 million had been recovered, meaning the total so far lost to error and fraud was £3.7 billion, although attempts to recover the money are continuing.

The estimated amount lost through error and fraud solely through the furlough scheme amounted to almost £3.5 billion, although we don’t know exactly how much of that money has been recovered.

‘Useless’ PPE

The post claims that “useless PPE” cost £8.7 billion.

The Department of Health and Social Care (DHSC) has estimated that PPE purchased in 2020/21 lost £8.7 billion in value. 

Of this, £4.7 billion relates to “reductions in market prices since the goods were purchased.” This may reflect the fact that PPE costs increased significantly when demand was high in early 2020 so doesn’t mean all this PPE was useless. 

Of the remaining £4 billion of lost value, around £0.7 billion was spent on defective PPE, around £0.8 billion on PPE that was designated surplus to requirements.

Additionally £2.6 billion was lost on PPE that wasn’t used in the NHS, but it remains unclear whether this PPE was used elsewhere. We’ve seen conflicting reports as to the status of this PPE and we’re looking into this further. 

Other claims

The post starts off by saying: “EU divorce Bill £42B”. This is true. The government announced in July that the latest estimate for the amount the UK owes for spending commitments made during its membership of the European Union had increased to £42.5 billion. 

Simon Clarke, the then-chief secretary to the Treasury, said this was “primarily due to the most recent valuation of the UK’s obligation under Article 142 for EU pensions”.

The post also appears to claim that Rishi Sunak’s “error” around interest rates cost £11.4 billion. This appears to reference research from the National Institute of Economic Social Research (NIESR) which claimed earlier this year that the government has lost around £11 billion by not insuring against interest rises last year, when Mr Sunak was chancellor. 

Under the quantitative easing programme the Bank of England bought bonds from pension funds and other investors in the financial markets using newly created money.

The Financial Times reports these investors then put the proceeds in commercial bank deposits at the Bank of England, which had to pay interest at its official interest rate. 

Last year NIESR recommended the government convert these deposits into fixed-interest rate bonds so the Bank wouldn’t have to pay higher interest rate payments if it increased its main rate.

Since last year, the Bank’s main rate has increased from 0.1% to 3%.

The Treasury argued that NIESR’s proposals would have been “hugely damaging” to the UK’s credibility, according to Reuters, and said the £11 billion figure was based on an “implausible assumption”. 

The post also claims “lost trade” because of Brexit costs £100 billion per year. We haven’t seen any reports of this figure. The Office for Budget Responsibility estimates that Brexit would reduce long-run productivity by 4% and GDP by 4%, which a report in the Financial Times said could equal £100 billion a year in lost output, rather than just trade. 

It could also be referring to a five-year-old estimate, again from NIESR, about how much lower GDP (not trade) might be, each year by 2030 if Theresa May’s 2018 Brexit deal had been enacted.

The post also claims economic errors from former Prime Minister Liz Truss and former chancellor Kwasi Kwarteng wiped £300 billion off the markets. The combined value of the UK’s stock and bond markets did reportedly drop by this amount in the first month of Ms Truss’s premiership, following the mini-Budget.

Image courtesy of John Cameron

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