Public Finance March/April 2021

TRADE AID Joe Biden’s election could spell the end for protectionism

Immune response

BATTLE LINES Evolving security threats pose tough questions on defence budgets

Counting the cost of the race to protect populations against Covid-19

MARCH / APRIL 2021 PUBLICFINANCE.CO.UK

THE JOURNAL FOR THE CHARTERED INSTITUTE OF PUBLIC FINANCE & ACCOUNTANCY

PANDEMIC PAYBACK Is an era of higher tax levels set to replace the age of austerity?

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EDITORIAL

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COLIN MARRS

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E

arly indications suggest that Covid-19 vaccines perform as well in the real world as they did in clinical trials. This is not only good news for human health but also for the sustainable provision of public services. As we continue to discover, there is almost no contradiction between the aims of stamping down on coronavirus and allowing the economy to get back onto a stable footing.

It is no surprise that governments are desperate to secure vaccine stocks. However, our cover feature on p36 uncovers some ugly truths. While making some efforts to help provide vaccines to poorer nations, developed countries have pushed their way to the front of the queue. While this might curry shortterm favour with domestic voters, the approach might well prove myopic – the threat of new mutations means nobody is safe until everyone is safe.

If wealthy countries fully funded vaccination for the poorest nations, they would gain back $4.80 for every dollar spent, research shows.

Vaccine nationalism is just the latest manifestation of increasingly inward-looking politics – a phenomenon that has dominated recent years. In 2016, the election of Donald Trump and the vote by the UK to leave the EU seemed

to herald a new era of increased nationalism. Yet the first two months of 2020 have seen the swearing in of multilateralist Joe Biden in the US, while a new free trade agreement between the UK and EU has taken effect. Our p44 feature asks if this might already mark the beginning of the end for the age of protectionism?

Meanwhile, the debate over whether world governments need to worry about the amount of debt accumulated to deal with the pandemic continues to rumble on. Vaccine rollout and a quick opening up of society could change the picture by sparking enormous public spending, boosting GDP and tax revenues – in February, Bank of England governor Andy Haldane described the UK economy as a “coiled spring”. The UK Labour Party’s shadow chief secretary to the Treasury, Bridget Phillipson, believes a rush to implement cuts or tax rises would be a mistake.

She outlines her party’s emerging new approach to public finances in an interview on p30.

Although even the International Monetary Fund now seems relaxed about higher debt (Catch Up, p9), some politicians clearly take a different view. Our feature on p20 asks whether this might signal the dawn of a new high-tax environment?

Vaccine nationalism is just the latest manifestation of increasingly inward-looking politics

COLIN MARRS Editor colin.marrs@publicfinance.co.uk PUBLICFINANCE.CO.UK 3

03 Welcome_Mar-Apr 2021_Public Finance 3

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Find out more about our services Visit www.cipfa.org/subscription Email customerservices@cipfa.org Phone 020 7543 5600

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CONTENTS

MARCH / APRIL 2021

55

36

NEED TO KNOW 7

Catch up

Public pension liabilities; IMF softens debt view 11 News analysis

Council tax rises; code consultations 14 Big picture

Myanmar protests 16 Talking points 17 World in numbers

44 National guard

Will Joe Biden’s election reverse protectionism?

48 Turf war

OPINION

New threats put pressure on defence allocations

18 Book review

Lessons from the US Apollo moon mission

44

IN PRACTICE

19 Health check

Audit absence in NHS revamp white paper 28 Head to head

Are wealth taxes a realistic option?

48

47 Damage limitation

Trade deal lessens Brexit fallout 52 Defensive thinking

Will pandemic scupper military spending?

IN DEPTH 20 Fair dues

Is the world heading for a new era of higher taxes?

30 Interview

30

Shadow Treasury secretary slams government waste 36 Me first

Vaccine nationalism poses a threat to recovery

53 Priti pickle

UK’s home secretary conduct probe provides workplace lessons 55 Back to work

How to reconnect teams separated by coronavirus 56 Contract killers

Renegotiating service terms hit by Covid-19 57 Integrated treatment

University of Edinburgh’s novel accounting approach 58 Green Book update

Opening up new funding opportunities 63 Flexible friend

New FM code terms allow tailored approach 64 Events 65 On account

Andrew Burns on the Financial Resilience Index 66 Where next?

PUBLICFINANCE.CO.UK 5

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"'&1 ** 1SPHSBNNF -BVODI "QSJM  ˊ .BSDI  CIPFA are excited to announce that the successful Achieving Finance ,LJĉėŒŒėŝĉėɆļŝɆ ŨŒļĉļŝİɆƋƎŨİƎëśśėɆļƖɆŝŨǂɆļŝǁļƢļŝİɆśėśĈėƎƖɆƢŨɆŌŨļŝɇ D, ɆQQ With commitment from 80% of UK forces and PCC’s, and supported by associated partners, AFEP II is positioned to exceed the accomplishments of the award winning programme to date.

QŝɆëĐĐļƢļŨŝɆƢŨɆĐƎļǁļŝİɆėįǘĉļėŝĉļėƖȚɆëŒļİŝļŝİɆǁļƖļŨŝƖȚɆëŝĐɆƖƢƎėŝİƢķėŝļŝİɆƢķėɆ ŝëƢļŨŝëŒɆǁŨļĉėɆŨįɆƖėĉƢŨƎɆǘŝëŝĉėɆƋƎŨįėƖƖļŨŝëŒƖȚɆśėśĈėƎƖķļƋɆĈėŝėǘƢƖɆļŝĉŒƪĐėț • National peer support network and retreat • ©ķëƎļŝİɆĈėƖƢɆƋƎëĉƢļĉėɆëŝĐɆļśƋƎŨǁļŝİɆǘŝëŝĉļëŒɆƖƪƖƢëļŝëĈļŒļƢLj • ɆĉŨśƋƎėķėŝƖļǁėɆǙėLJļĈŒėɆƢƎëļŝļŝİɆƋƎŨİƎëśśėɆŨƋėŝɆƢŨɆǘŝëŝĉėɆëŝĐɆ ŝŨŝȯǘŝëŝĉėɆƢėëśƖ

Next steps To get involved, please contact the AFEP II programme manager Amie Bridson (nee Hall).

Call 07824 839567 Email amie.hall@cipfa.org

QŝɆëƖƖŨĉļëƢļŨŝɆǂļƢķɆƢķėɆDļŝëŝĉėɆëŝĐɆ ŨŨƎĐļŝëƢļŝİɆ ŨśśļƢƢėėɆŨįțɆ

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N E W S / A N A LY S I S / O P I N I O N / D E B AT E

p12

p18

p19

CODE SWITCHING CIPFA proposals aim to further limit property speculation

REACHING FOR THE MOON New book seeks procurement lessons from the Apollo mission

PAPER TRAIL Who will audit a reformed UK healthcare system?

PENSIONS

Covid-19 impact set to reduce public pension liabilities

Depending on their maturity profile, schemes could potentially see liabilities drop by 1.5% to 3.5%, according to XPS

By Oliver Rudgewick

E

arly deaths from Covid-19 could reduce liabilities for defined benefit pensions schemes by up to 3.5% over the next decade, according to new modelling. Actuarial firm XPS Pensions Group has predicted an average reduction in life expectancy of between three and six months and an increase in earlier-thanexpected deaths as a result of the pandemic.

Its model implies a potential drop in liabilities for the Local Government Pension Scheme of between £4.3bn and £10bn.

Steve Leake, partner at XPS, told PF: “The issues are exactly the same in both the private sector and public sector. I would expect a very similar reduction in liabilities between the two sectors. Our estimate of 1.5% to 3.5% is quite a range, but really depends on the maturity profile of a scheme. Obviously, if you have got lots of older pensioners, these are the people who have been most susceptible to Covid-19.”

The XPS model assumes that a third of the expected impact on life expectancy is because of people contracting Covid-19.

The remaining two-thirds is attributed to indirect deaths resulting from factors including missed hospital appointments

Photography: Getty

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NEED TO KNOW

CATCH UP

CIPFA RESILIENCE INDEX SHOWS RESERVES DROP CIPFA’s latest update to its Financial Resilience Index shows a real-terms reduction in English council reserves of 3.1% during 2019-20. After early central government funding for Covid-19 was removed, reserves dropped from £25.4bn in 2018-19 to £24.6bn the following year.

and screening for serious illnesses. Other factors include unemployment, NHS spending and interruptions to health research.

Richard Warden, partner and actuary at pension adviser Hymans Robertson, said early indications show that the impact on the LGPS of early death resulting from the pandemic “is not that material – probably less than 0.5% of liabilities – equal to around £1.5bn”.

However, he added: “I can see certain scenarios, such as the emergence of a vaccine-resistant strain, where liabilities may be around the levels predicted by XPS.” He agreed that current pressures on the NHS could have negative health impacts in the future, with a knock-on effect on LGPS liabilities. es.

Research conducted by pensions adviser Barnett Waddingham ngham for the LGPS Advisory Board in n September – before the second wave ve of the pandemic – suggested ted pension liabilities had reduced by 0.1% in March-May 2020 as a result of the pandemic.

It found that mortality over the three-month

period was around 30% higher than the fund average for equivalent periods in the previous 10 years. The research concluded: “The excess mortality that has been observed will… lead to a reduction in liabilities, although our calculations suggest that this reduction is negligible in the context of the total liabilities that require to be funded.”

Barry McKay, partner and fund actuary at Barnett Waddingham, said: “We do not have enough data yet to determine the impact on LGPS funds, but we expect the experience to be similar to that of the general population. If this materialises, there will be some savings to pension schemes as [pension payments will be] lower, but we do not expect this to have

a material impact on the funding level.”

He predicted that a far greater impact on LGPS funding levels was likely to come from the shape of the economic recovery and how funds’ investment assets perform in coming years.

Warden said current evidence does not suggest that there has been a notable increase in people claiming early retirement through ill health caused by ‘long Covid’, which would increase liabilities. He said this was because of tight restrictions on health-related early retirements.

Warden said he expected an increased rate of death and a slight reduction in life expectancy to impact figures in the next round of LGPS triennial valuations in 2022.

I can see certain scenarios, such as tthe emergence of a vaccine-resistant sstrain, where liabilities may be around the levels predicted by XPS Richard Warden, Hymans Robertson

TA X AT I O N

E X I T PAY M E N T S

Study debunks ‘trickledown’ economic theory

Defiant Treasury pledges to resurrect exit cap

Reducing taxes on the rich creates income inequality without boosting economic growth or reducing unemployment, according to new research. A study by the London School of Economics and King’s College London appears to undermine claims by supply-side economists that tax cuts encourage the wealthy to raise output and stimulate the economy through higher spending. Researchers looked at data from 18 OECD

The UK government has pledged to introduce new measures limiting public sector exit payments after a humiliating climbdown on its short-lived £95,000 cap. In February, the Treasury revoked ‘golden handshake’ regulations after just three months, saying that the “cap may have had unintended consequences”.

The previous month, the High Court had granted a judicial review challenge to

countries, including the UK and the US, over the past five decades.

Report author Dr Julian Limberg, lecturer in public policy at King’s College London, said: “Our results might be welcome news for governments as they seek to repair the public finances after the Covid-19 crisis, as they imply that they should not be unduly concerned about the economic consequences of higher taxes on the rich.”

See feature on taxation, p20

the cap on grounds including conflicts with human rights legislation and existing Local Government Pension Scheme regulations.

A Treasury spokesperson said: “The government is committed to ensuring that public sector exit payments are fair and proportionate to employers, employees and taxpayers. We remain committed to bringing forward proposals at pace to tackle unjustified exit payments.”

8 PUBLIC FINANCE MARCH/APRIL 2021

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The IMF (pictured) has advised governments to avoid austerity

IN BRIEF Health proposals stipulate greater collaboration

GOVERNMENT BORROWING

IMF softens debt view in wake of Covid-19

By Calum Rutter

G

overnments are more likely to take a gentle approach towards reducing debt incurred during the Covid-19 crisis after recent comments by the International Monetary Fund, leading economists believe. In January, IMF head of fiscal policy Vitor Gaspar told the UK’s Financial Times that governments should avoid major austerity and focus fiscal policy on encouraging growth.

Separately, Gita Gopinath, director of the fund’s research department, emphasised the role of low interest rates and returning growth in stabilising borrowing levels.

The IMF’s endorsement of a more relaxed attitude is likely to affect the way policymakers act, according to the fund’s former chief economist, Olivier Blanchard. “The IMF has correctly recognised that debt dynamics are very different when interest rates are very low,” Blanchard told PF. “There is more room to run deficits if they are needed to fight crises such as Covid-19. Coming from the IMF, which is not known as a Photography: Alamy

07-09 Upfront - Catch up_Mar-Apr 2021_Public Finance 9

fiscal dove, I think such a position will have some influence on governments.”

Martin Weale, economics professor at King’s College London, agreed that the “institutional weight” of the IMF was likely to affect the way governments look at debt in the coming years. “It has had a clear position [discouraging high debt levels] for quite some time, and so this change is very material,” he said.

“But I think very low interest rates are key. Government action will depend on what happens to those in the future.”

Isabel Stockton, research economist at UK think-tank the Institute for Fiscal Studies, said the IMF was correct that “now is not the time to be worrying about consolidating public finances”, because additional borrowing is cheap and could aid “a more complete recovery”. But, Stockton said, taxes will eventually need to rise. “While there is not a magic level where indebtedness suddenly becomes problematic, having it on an ever-increasing path driven by a current budget deficit is unsustainable,” she said.

The UK government has unveiled plans to put partnerships between councils and the NHS onto a statutory footing. Currently, integrated care systems are voluntary agreements between health providers and authorities to collaborate on healthcare services.

A white paper published in February proposes making ICSs a legal requirement as part of changes that would scrap reforms made by the Health and Social Care Act 2012.

US administration ‘open to tax reform’ The new US government is likely to cooperate with ongoing talks on international tax reform, German finance minister Olaf Scholz has said. Former US president Donald Trump’s administration withdrew from discussions involving nearly 140 countries last summer.

Speaking at a February OECD meeting, Scholz said. “When I spoke to [new US treasury secretary] Janet Yellen, I understood very much that there is a willingness to make reform happen.”

Authority to finance property investment A UK local authority says it could raise £18m of revenue a year to fund services after agreeing an £89m expansion in its commercial property investment. Leicestershire County Council will use internal resources to grow its existing corporate asset investment fund to a size of £260m, which it says could produce a yield of 7% a year.

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40%

NEED TO KNOW

NEWS ANALYSIS of English councils are likely to opt for less than the fullest permitted council tax increase in 2021-22

C O U N C I L TA X

Poll tactics muddy funding message Councils spurning the full council tax rise available for 2021-22 could be creating a rod for the sector’s back

By Mark Smulian

E

ver since the 2008 financial crash, a sustained howl of anguish has emanated from local government about resources. So it is perhaps surprising to find some councils saying: “We are perfectly OK, thank you – we do not need extra money.” That is the message from the estimated 40% of English councils set to opt for less than the fullest permitted council tax increase in the coming financial year. In 2021-22, councils can increase the domestic rate to 2% without holding a referendum – plus a further 3% for authorities providing adult social care. However, elections tend to concentrate councillors’ minds.

A bumper crop of May elections after delayed polls last year means many will avoid imposing extra costs on residents.

Adrian Jenkins, chief analyst at local government advisory firm Pixel Financial Management, says: “There is a tension between officers, who I suspect would like to increase council tax by the full amount, and members, who may have made promises about freezing council tax, or raising it by less than the full amount.” Councils can defer the 3% social care precept for a year, although there is no guarantee it will be available beyond that. Jenkins estimates that the restraint over council tax rises will see overall core spending increase by some Photography: Shutterstock

11 Upfront - Analysis_Mar-Apr 2021_Public Finance 11

Many councils have been reluctant to impose extra costs on residents prior to local elections

2.5% in 2021-22, rather than the 4.6% cited by the government.

One authority not imposing the full increase is Derbyshire County Council.

The Conservative administration had planned a third year’s freeze, but the impact of Covid-19 meant it needed extra resources. Finance director Peter Handford says: “We have a 2.5% increase – 1.5% on the ‘normal’ council tax and 1% for adult social care. We could have gone to 5%, but the adult social care precept can be taken over two years, and we expect to take it next year. We are missing 0.5% on the ‘normal’

council tax. That is £1.6m-£1.7m, so not insignificant on a £50m-£60m budget, but not a dealbreaker.”

Handford says the pandemic has made it impossible to achieve some planned savings and brought extra costs – notably in looked-after children – but “there is nothing specific that we will need to cut or not do as a result of limiting the council tax increase”.

Meanwhile, Basildon Borough Council expects to freeze its tax.

Leader Gavin Callaghan says: “It is not fair or right to ask residents to make up for the shortfalls in our lost income caused by the Covid-19 pandemic. Instead, we are working to commercialise more of our services and reduce spending in areas of the council where we can work more efficiently.”

The perennially lowcharging London Borough of Wandsworth also plans a freeze, which leader Ravi Govindia calls “the single most effective thing we can do to help the largest number of people”. In an unusual move, Wandsworth will create a charitable trust to take donations from wealthier residents wishing to help those less well off.

This year’s strange circumstances will see some councils giving away money rather than seeking it. Jenkins thinks councils can live with the lost revenue income in the short term, but are storing up problems for the future. “If you do not increase council tax by the full amount, you can never catch up. Your future increase is always 2% of something less, and that adds up over time,” he says. “There is no mechanism for a council to say ‘our predecessors made choices to keep council tax low, but we do not like that and now want to catch up’.”

Tony Travers, professor of government at the London School of Economics, warns that councils “should be careful about the message they send – the idea that they have enough money will be heard loud and clear by the Treasury”.

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NEED TO KNOW

NEWS ANALYSIS The proposals aim for a sustainable approach to commercial activity

TREASURY MANAGEMENT

CIFPA proposes code revisions Tightened wording aims to further restrict councils’ ability to borrow money for commercial property investments aimed at raising revenue

By Oliver Rudgewick

I

n February, CIPFA launched separate consultations on significant amendments to two of its main codes – the Prudential Code and the Treasury Management Code.

Both could have major impacts on how authorities invest their money, according to experts.

Currently, the Prudential Code states that “authorities must not borrow more than or in advance of their needs purely in order to profit from the investment of the extra sums borrowed”. CIPFA is keen to change “purely” to “primarily”, to mirror wording used by the Treasury in November when it banned borrowing primarily for yield purposes through the Public Works Loan Board. CIPFA’s proposals would cover all borrowing from all sources.

“The change outlined is aimed at addressing misinterpretation by some local authorities, which pushed the boundaries of the code by engaging in excessive borrowing to fund commercial activity,” according to CIPFA’s senior

technical manager, Richard Lloyd-Bithell.

However, one local authority finance chief worries that the proposal could stifle authorities’ abilities to raise funds to help fund frontline services. “The biggest issue is recognising that councils do have to look at alternative funding streams,” Adrian Rowbotham, chief officer for finance and trading and Section 151 officer at Sevenoaks District Council, tells PF. “It closes the door without addressing the real issue – funding for local government.”

However, Lloyd-Bithell says restricting councils from seeking to raise revenue from commercial property investment is vital.

“The proposals are about ensuring a measured and sustainable approach to commercial activity,” he says. “We want to address a minority of the sector taking disproportionate levels of debt for yield investments.”

Proposed new wording makes it clear that the new restrictions would not cover borrowing where the

We completely recognise that within a regeneration project there will be commercial activities that help with delivering services

primary aim is “rooted in the function of the authority and [where] the making of the return is incidental to the function– eg, regeneration”.

Lloyd-Bithell says: “We completely recognise that within a regeneration project there will be commercial activities that help with delivering services.”

CIPFA also proposes that councils create a ‘liability benchmark’ indicator, based on predicted future cashflows and minimum revenue provision for debt repayments. David Blake, strategic director at Treasury adviser Arlingclose, says: “Authorities have had this in their toolbox for many years now, and it is something we find very useful. It is good to

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Code change proposals Prudential Code Commercial investment should be ‘proportionate’ to service and revenue expenditure; Capital expenditure should be “sustainable in accordance with the corporate objectives of the authority”; Capital strategies should provide more commentary on the affordability of commercial activities; ‘Liability benchmark’ to replace prudential indicator on gross debt and the capital financing requirement; Two new prudential indicators on affordability – ratio of external debt and commercial income to net revenue streams.

Treasury Management Code New knowledge and skills schedules for treasury management roles to assess and track competencies; New council committees to focus solely on scrutinising treasury management decisions; New TM guidance on assessing the environmental, social and governance risks of future investments.

The two consultations will run until 12 April.

CIPFA expects to implement any changes to each respective code in December.

see the proposal to make it a requirement of the code and an indicator.”

Strengthened wording would, if adopted, attempt to ensure capital spending is ‘proportionate’ to authorities’ resources. This would be supported by two new indicators, measuring the ratio of both external debt and commercial income to net revenue streams.

Lloyd-Bithell says the proposals run “in parallel with existing principles of affordability that are already contained within the code”.

Treasury Management Code A separate consultation on changes to the Treasury Management Code focuses on increased monitoring Photography: Alamy

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of training and skills.

Finance departments would be required to detail how training will be delivered and recorded, as well as how they intend to help staff gain the level of knowledge needed to run their treasury management functions.

The proposed changes are a response to the 2018 implementation of the Markets in Financial Instruments Directive. This enables local authorities to become ‘professional’ clients to investment firms, allowing them to use more complex financial instruments as part of their treasury management strategies.

“This proposal could add a bit of extra work that will not necessarily be

welcomed,” Blake says. “A balance needs to be struck between prescribing further requirements on training and creating something that becomes quite extensive, unwieldy and, potentially, turns into a box-ticking exercise for local authorities.”

However, Lloyd-Bithell says: “We recognise that local authority resources are squeezed, but want to ensure they have the ability to handle the level of complexity they are engaging in. If you do not have the in-house expertise to do something, then it follows that you should not really be doing it.”

CIPFA’s consultation also proposes a new framework for environmental, social and

governance risk management to ensure authorities consider the wider impacts of proposed investments. David Whelan, managing director of public sector treasury at treasury adviser Link Group, says any new requirements must not prevent councils from making investments that will provide the most optimal returns. “What you do not want,” he says, “is to put in place policies preventing authorities from carrying out the treasury function and observing the principles of security, liquidity and yield just to satisfy an environmental, social and governance requirement. ESG is the right approach, but it needs to be handled very carefully.”

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NEED TO KNOW

BIG PICTURE

M YA N M A R C O U P

Protests erupt

H

undreds of thousands of people in Myanmar have protested against a military coup that removed and arrested the country’s democratically elected leader, Aung San Suu Kyi, and those around her. In 2015, the Nobel Peace Prize winner’s party won Myanmar’s first democratic elections for 25 years.

It extended its majority in 2020 – but the military contested the results, claiming the election was fraudulent.

The World Bank called the 1 February coup a “major setback to the country’s transition and its development prospects”. The upheaval occurred as Myanmar’s economy was already struggling amid the Covid-19 crisis. Just days earlier, the International Monetary Fund had transferred some $350m of financial assistance for the country, to help it deal with the social and health effects of the virus. IMF spokesperson Gerry Rice told a press briefing that the fund was “very concerned” about the impact of the coup, but had not had any communication with the new regime. “It would be in the interest of the government and certainly the people of Myanmar that those funds are used accordingly,” he said, adding that there were safeguards in place to protect the funds, including audit and transparency measures.

Supply chain disruptions, extensive lockdowns and a sharp decline in tourism have all hit Myanmar hard, the IMF said when it approved the funding. In the past five years, spending on education and health as a percentage of GDP, already well below Asian averages, have declined.

14 PUBLIC FINANCE MARCH/APRIL 2021

14-15 Upfront - Big Pic_Mar-Apr 2021_Public Finance 14

23/02/2021 15:57

The coup is a major setback to the country’s transition and its development prospects The World Bank

Photography: Getty

14-15 Upfront - Big Pic_Mar-Apr 2021_Public Finance 15

PUBLICFINANCE.CO.UK 15

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NEED TO KNOW

TALKING POINTS Feature spread from the January/February issue of Public Finance

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If vaccines and therapies were to remain effective against the virus, we may be able to exit this crisis with less scarring than was feared Gita Gopinath, chief economist at the International Monetary Fund, speaking at the January launch of the IMF’s latest World Economic Outlook report. She warned that a successful economic recovery was not guaranteed without more policy action

LETTERS

Act local on waste I read with interest the dilemma facing local government in dealing with waste now we can no longer dump it on other countries. We cannot wait for governments and manufacturers to act.

As consumers we have a responsibility to shop/procure sustainably. The basic economics mean that if we shun goods with plastic packaging, suppliers will stop selling and manufacturers will stop producing them.

Many local high streets now have ‘zero waste’ shops, where you can buy goods without plastic packaging or refill your own containers. With a click on the internet, you can have toilet rolls in paper/cardboard packing delivered to your door. Many products are available in jars and boxes/bags rather than plastic, and there is growing demand for loose fruit and vegetables. Why are bunches of bananas packaged in plastic when they have their own natural protective packaging? Few coffee brands sell coffee without plastic packaging.

FROM ONLINE

Comment from PublicFinance.co.uk “Excellent news! A backdoor re-invention of the ghastly Audit Commission is the last thing local government needs.”

Mike100 welcomes the news that ministers do not back the recommendation of the Redmond review to create a new oversight body for UK local government audit.

However, the will is there if the industry will listen and react.

Future recycling contracts need to be flexible and resilient to ensure they allow for what is likely to be a dramatic change in consumer behaviour in coming years.

Helen Williamson

Iranian concern Your Public Finance Focus website carried an article on rising poverty levels in Iran. It would have been helpful if you had used this opportunity to reiterate calls for the releases of Nazanin Zaghari-Ratcliffe and other British citizens illegally detained by the Iranian authorities.

What many CIPFA members may not know is that both Nazanin and her husband Richard have been long-time advocates of public accountability and financial regularity. When Nazanin was working with the Thomson Reuters Foundation, she was part of a project involving the UK National Audit Office, the Westminster Foundation for Democracy, and others helping strengthen financial governance – in her case, arranging training for financial journalists. It is saddening to see the continued growth in poverty in Iran, but the article is disingenuous in not pointing out that some of this is a direct result of the actions of those currently governing Iran and their refusal to abide by international standards of justice. This is symbolised all too evidently by the way they continue to fail to discharge Nazanin and allow her to return home to her family in the UK. David Goldsworthy, honorary CIPFA member and former head of the NAO’s International Relations and Technical Cooperation programme

16 PUBLIC FINANCE MARCH/APRIL 2021

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NEED TO KNOW

WORLD IN NUMBERS

27BN BDT Bangladesh’s latest Covid-19 stimulus package to keep small businesses and low-income communities afloat, worth around £234m. Covid-19 stimuli by the government now total 4.4% of GDP.

6.5 % 9.5% Proposed increase of the Greater London Authority council tax precept, proposed

by London mayor Sadiq Khan.

Growth in China’s GDP in the final quarter of 2020, according to government statistics, making the country one of the few in the world to register positive growth for the year.

143,000

WORLD IN NUMBERS

$36BN Amount believed to have been lost in unemployment benefits owing to incorrect and fraudulent Covid-19 payments, according to US statistics.

5% Size of contraction in the German economy as a result of Covid-19 during 2020.

Despite the sharp decline, the drop was not as severe as the one suffered in 2009 as a result of the financial crisis.

€200M

€20BN A$109BN Number of new public sector workers employed in the UK in the 12 months to September 2020, according to the Office for National Statistics.

Amount of money the French government would have saved over the past eight years by providing homeless people with immediate access to housing, according to the nation’s audit office.

Size of a loan allocated by the European Investment Bank to Hungary’s state-owned Eximbank for Covid-19 business support.

Size of the Australian deficit in the first five months of the financial year up to 30 November, according to country’s finance department.

PUBLICFINANCE.CO.UK 17

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OPINION

BOOKS

REVIEW

Mission control A new book argues that the US moon programme can inform a new approach to public procurement – but lands short

By Colin Marrs

W

hat role should the public sector play in the economy, and how should it best interact with the private sector to achieve its aims? Economics professor Mariana Mazzucato’s latest book, Mission Economy, bills itself as a “guide to changing capitalism”. In reality, it largely addresses a narrower question – whether lessons from the 1960s US

Apollo moon programme could improve modern-day government procurement to achieve policy goals and stimulate economic activity.

The public sector, it argues, should take a leaf out of president John F. Kennedy’s book, define a grand mission (the main exemplar offered here is tackling climate change), and spend big on its “ability to interact with other value creators in society”.

Beating the USSR to the moon might have cost $260bn (in 2021 prices), but Mazzucato says the way NASA partnered with business produced numerous unplanned spin-off benefits for society: computer mice, wireless headsets and insulating foil blankets, to name but a few. Its new management methods were subsequently adopted within the private sector. Mazzucato declares that Apollo succeeded through “leadership by a government that had a vision, took risks to achieve it, put its money where its mouth was and collaborated widely with organisations willing to help”.

The opening chapters neatly dismantle the view, ushered in during the Thatcher-Reagan era, that government is, by nature, a lumbering machine stifling the instincts of the wealthcreating private sector. It is hard to quarrel with the book’s assertion that the public sector’s confidence to ‘boldly go’ has withered in line with the erosion of its procurement capabilities.

Governments must create – not just fix – markets, Mazzucato argues.

Anticipating criticism that this means ‘picking winners’ (and, by implication, losers), she says the public sector should spread risks via a venture-capitalist-style portfolio approach. She points out that past grand projet failures, such as Concorde, also produced side benefits – such as a

novel cooling system and a super-reflective paint – that “should surely be taken into account in any evaluation of that investment. And yet no proper evaluation exists….”

A fair point, but Mazzucato fails to extend the same logic to her excoriation of the private finance initiative – a more recent attempt to recast procurement relationships between government and business to achieve societal goals. In 2018, the National Audit Office laid bare the serious problems with PFI – but it also found there has been no proper evaluation of the compensating benefits of that programme.

The book also lands a little short of the landing zone in explaining how the new relationship with the private sector would work. At one point, it cites arguments in favour of awarding major R&D contracts without competitive bidding. It talks about picking “the willing” rather than “winners”. The obvious questions raised by such ideas are left untackled.

Despite its tainting by association with fellow big-picture radical Dominic Cummings, the word “moonshot” crops up at regular intervals in Mission Economy. The ideas in the book are certainly thoughtprovoking, but fail to fully convince that they can succeed any better than those of the UK prime minister’s former Svengali.

Mission Economy: A Moonshot Guide to Changing Capitalism is published by Allen Lane (RRP £20)

18 PUBLIC FINANCE MARCH/APRIL 2021

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OPINION

NHS REFORMS DAVID WALKER

Health examination The UK government’s health and social care white paper promises radical reforms. But who will check they meet the aim of delivering better value for money?

T

he NHS in England NHS aggregates, while faces comprehensive individual trusts use reorganisation. Health private accountancy firms secretary Matt Hancock for both internal and promises that February’s white external audit, with the paper will create a “more Big Four dominating. integrated, more innovative Nobody could call NHS DAVID WALKER and responsive” system. To get auditing satisfactory, and chairs Oxford Health NHS Covid-19 has seen it largely there, multiple new boards are being created, funding streams Foundation Trust and is supplanted by central a former director at the rerouted, and directors’ command and control.

Audit Commission responsibilities rewritten.

Now things are to get Amid this flurry, there is more complicated. NHS a peculiar absence. Who is going to trusts will have a statutory duty to audit the new arrangements, test for collaborate. They can no longer be probity, efficiency and effectiveness, audited as semi-sovereign autonomous and follow the public pound as it crissentities. Directors will have external crosses boundaries between places and, responsibilities, with some sitting on critically, between the NHS and local multiple boards within the integrated government? Audit is used to, let’s face system, undermining the concept of it, a somewhat undignified role – akin related party transactions. Shared to the municipal sweeper who comes assets might now sit on their along after the cavalry parade has gone balance sheets. Everything by. But not even to mention audit in the points to the need for systementire white paper is a glaring omission. wide audit.

Up and down the country, NHS None of that poses an organisations are banding together insuperable challenge to in integrated care systems, to be an audit profession that run by statutory boards. At present, is itself grappling with the National Audit Office audits intellectual and professional challenge – how to incorporate environmental sustainability and how better to understand the balance of rights and interests within an organisation, which, of course, include those of staff.

But it does demand some consideration. A glance at the available evidence might help – for example, from Scotland, which has had several years’ experience of joint health and local

authority care boards, found by Audit Scotland to be far from effective.

The chief executive of the ICS board is to become accounting officer. Use of that phrase in the white paper implies answerability to the Treasury, and, presumably, audit by the NAO. The ICS board will include councillors, making commitments of both local authority and NHS money. Whose audit trail will they belong to? Surely not the NAO’s?

It has steered well clear of auditing individual councils.

The whole point of integration – value for money – depends on improving the health and wellbeing of the ICS area’s population. So who audits that? Any answer would have to involve revisiting the ‘comprehensive area assessments’ that the Audit Commission devised and first ran in 2010, trying to audit all local services together in one place. But, of course, ministers would do anything rather than have to acknowledge that the precipitate abolition of the commission might have been an error.

Whitehall officials say that it is early days and that details will be worked out. Meanwhile, better integration of health and care in places has to be welcomed. But how will we know it is better without an accompanying and rigorous audit regime?

Audit is used to a somewhat undignified role, but not even to mention it in the white paper is a glaring omission Illustration: IKON Images

18-19 Opinion - Book review_Mar-Apr 2021_Public Finance 19

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FEATURE

TAXATION

20 PUBLIC FINANCE MARCH/APRIL 2021

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G N

I V L O S AX T E L E Z H Z T U P A decade of austerity means a new era of higher taxes could loom for some governments picking up the pieces after Covid-19 W O R D S DAV I D P R O S S E R

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FEATURE

TAXATION

T

he scale of government borrowing in response to Covid-19 is breathtaking.

The International Monetary Fund warned last year that deficits would rise by an average 9% in 2020, with global public debt approaching 100% of GDP. The last time debt spiked so sharply – in the wake of the global financial crisis of 2007-08 – policymakers in the West responded determinedly.

Governments, particularly in Europe, sought to bring deficits down at speed – even to begin paying down debt – shunning tax rises in favour of aggressive austerity measures.

However, given the huge debts incurred while managing the coronavirus crisis and the imperative to ‘build back better’, some experts believe the low tax philosophy to which most advanced economy governments have broadly subscribed in recent years is simply no longer sustainable. Will a reset of Western governments’ approaches to tax prove to be one of the lasting impacts of Covid-19 pandemic?

Not straight away, predicts Chris Sanger, head of tax policy at accountancy firm EY, and former head of tax policy at the Treasury. “The near consensus view, including at the OECD and the IMF, is that after the last crisis, we moved too quickly to raise taxes and apply austerity,” he says.

“Equally, everyone realises that we will need to take certain steps in due course – there is broad acceptance of that.”

For now, interest rates are at historic lows and forecast to stay that way for the foreseeable future, making debt servicing costs remarkably modest.

The problem facing policymakers is that in coming years, the process of economic rebuilding, particularly while simultaneously tackling climate change, will require further spending.

There will, no doubt, be selected opportunities to finance some of that cost from reduced public sector expenditure.

But such opportunities are likely to be limited in scope, particularly in Europe, where the focus on austerity following the financial crisis was more single-minded.

Each cut is a potential economic stimulus withdrawn.

Which brings us back to taxation. “There is going to be a need for a different type of social and economic solution,” argues

“Politically, it looks as if we are moving into an era of higher public spending – that was the thrust of the Biden presidential campaign” Daniel Bunn, Tax Foundation

Richard Murphy, founder of campaign group Tax Research UK, who says the current situation is similar to the immediate aftermath of the Second World War. “That will lead to increases in the overall level of tax, as governments are expected to do more – some taxes will go up,” he adds.

Isabel Stockton, research economist at the UK’s Institute for Fiscal Studies, agrees. “Even before the pandemic, long-term issues such as the affordability of pensions and how to pay for care loomed large,” she says. “You can now make a case for higher spending, and there is not much scope for funding it from austerity, because the low-hanging fruit has all been picked.”

Daniel Bunn, vice president of global projects at the Washingtonbased Tax Foundation, also thinks the agenda is shifting.

“Politically, it looks as if we are moving into an era

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US president Joe Biden’s $1.9trn pandemic programme includes both shortterm reliefs and ongoing spending

of higher public spending – that was the thrust of the Biden presidential campaign,” he says. “In the short term, that is connected to the crisis, but it may now be sustained.” The new US president’s $1.9trn pandemic programme includes both short-term reliefs and ongoing spending.

The million-dollar question is which taxes policymakers are most likely to target. This will need finely balanced political judgments as well as practical and economic decisions. Politically, governments find it easier to raise taxes on businesses than individuals. Indeed, politicians often paint themselves into a corner on personal taxation. In the US, Biden has pledged to reduce the tax burden on families, particularly those on low incomes. In the UK, prime minister Boris Johnson’s government was returned on a ‘triple tax lock’ promise – that rates of income tax, VAT and national insurance would not rise during the course of the government.

Good and bad options Countries such as the UK, with a corporation tax of 19% – well below the G7 average of 23% – clearly have more room for manoeuvre, however, than peers such as France, where the rate starts at 31% (see infographic, p26). In countries relying more heavily on business taxes, asking for more may prove difficult. “One thing I hope governments will certainly do is recognise the holes that exist in the current systems,” says Bunn. “There are ways to increase taxes on the wealthy or on businesses, but there are good and bad options.” In the UK, for example, he points to inconsistencies in the way VAT is levied. “In the US,” he says, “I imagine there will now be more focus on carbon taxes.”

Another imperative, argues Yael Selfin, chief economist of accountancy firm KPMG, must be to focus on how tax policy can support the recovery.

“We want to encourage public investment, so we need to be very careful about distortions and disincentives,” she suggests. For example, Photography: Reuters

20-24 Feature - Tax_Mar-Apr 2021_Public Finance 23

PANDEMIC DEBT

Reaping a windfall?

Such is the scale of the Covid-19 crisis that some tax experts and campaigners believe one-off taxes are now required to ease the pressure on the public finances.

Chris Sanger, former head of tax policy at the UK Treasury, who designed a windfall tax on energy companies for the Labour government elected in 1997, says there may be a place for such a levy, but warns: “It is pretty difficult to find a large base for a Covid-19 windfall tax. It would also be something that is difficult to design as a genuine one-off, so there is a real danger of distorting future behaviours.”

In December, the UK’s Wealth Tax Commission, comprising researchers from the London School of Economics and Warwick University, said a one-off 5% tax on Britons’ housing, pension and business assets above £500,000 would help the Treasury pay back nearly all of the £280bn deficit built up (at that stage) during the pandemic.

If individuals paid the tax at 1% a year over five

years, it would raise £260bn, the group suggested.

A wealth tax would potentially require every property and business in the country to be valued, Tax Foundation’s Daniel Bunn points out. (See p28 for more discussion on a wealth tax on individuals).

Another possibility is a windfall tax targeting businesses that made excess profits during the crisis, such as online retailers and supermarkets. Gabriel Zucman, a University of California, Berkeley, economics professor, proposed such a tax last year, pointing to previous ‘excess profits’ taxes in the US following both World Wars and the Korean War. Little work has been done on what it might raise.

More modest proposals made by the Resolution Foundation in the UK suggest a 10% tax on firms that have made ‘supra-normal’ profits during the crisis, although the foundation believes this would net only £130m.

PUBLICFINANCE.CO.UK 23

24/02/2021 09:32

FEATURE

TAXATION words, people believe in the idea of increased taxation until it applies to them. This isn’t just selfishness – many taxpayers have genuine concerns about how well their money is spent. And some of the more egregious examples of government waste risk hardening attitudes – the money spent on the UK’s Covid-19 test and trace system, widely seen as ineffective, is a case in point.

UK chancellor Rishi Sunak’s March Budget will reveal his plans for sustainable public finances

Hypothecated taxes Greater use of hypothecated taxes might help here. In Tax Justice UK’s research, 61% of people say they would be prepared to pay more tax if they knew it was being used more effectively.

The 1% hike in national insurance contributions announced by Gordon Brown in 2002 might be an instructive example. The then chancellor pledged to use the cash to pay for a £6.1bn increase in health spending, and faced very little opposition.

Still, policymakers are not keen on having their hands tied in this way – and there are practical problems too. For example, planning health funding for the long term will be more difficult if it is inextricably linked to the unpredictable ups and downs of the economic cycle. Nevertheless, discussions about radical tax reforms are now moving into the mainstream. In the UK, the Treasury Select Committee launched an inquiry into ‘tax after coronavirus’ last autumn.

The realities facing the UK are not particularly appetising. An analysis of UK Office for Budget Responsibility data by the Institute for Government calculates that for the government to get back to pre-pandemic progress on plans to borrow only for investment by 2025-26, the chancellor will need to announce tax rises or spending cuts worth around 1.7% of GDP – some £40bn a year. That is broadly equivalent to a 7p increase in the basic rate of income tax.

Given low interest rates and the need to support the economy rather than throttle the recovery, there is time to adjust. Chancellor Rishi Sunak’s March Budget will give some clues as to how he now sees the flight path to more sustainable public finances.

In the end, however, experts such as Richard Murphy argue that a seismic change will be needed.

Tax Research UK conducted research last year suggesting that bringing tax on wealth in line with tax on income would raise up to £174bn a year. That may not be on the cards just yet, but Murphy argues: “There is lots of capacity to charge more tax on wealth.”

“We want to encourage public investment, so we need to be very careful about distortions and disincentives” Yael Selfin, KPMG

requiring online retailers to fund retraining for staff made redundant by failing bricks and mortar rivals might have better outcomes than bluntly targeting digitally generated profits, she says.

Still, the tension between the new and old economy is very real, particularly in the context of the balance between taxation levied at national and local levels. In many countries, local taxation is heavily dependent on revenues raised from business properties. The shift to the online economy, accelerated by the pandemic, therefore presents a significant issue. “The case for reform is mounting, though there are lots of problems,” warns Stockton.

Public attitudes also present a further complication. Polling data suggests public acceptance of the need for higher levels of taxation is mixed. Research from Tax Justice UK suggests that 74% of Britons are now in favour of increased tax on wealth. However, asked if they would be prepared to pay higher taxes themselves in order to fund public services, only 48% agreed. In other 24 PUBLIC FINANCE MARCH/APRIL 2021

20-24 Feature - Tax_Mar-Apr 2021_Public Finance 24

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23/02/2021 10:34

DATA

TAXATION 0.6

AUSTRALIA 30%

2 7.9 %

AUSTRIA -4

-3

10

0.0 4

25%

4 7.9 %

-9

1 .4

CHILE 25%

7%

C Z E C H R E P. 19%

4 3 .9 %

-1

FINLAND 20%

41 .9 %

FRANCE - 5 .6

-9

HUNG ARY 9%

4 4 .6 %

32%

4 6. 7 %

-5.7

4.3

ICELAND 20%

-9

- 3 .8

3 3 .1 %

-1 0

-1 0

0.9

I TA LY 24%

23.2%

32.7%

-1 3

LITHUANIA 15%

3 7. 2 %

1 8.8 %

-9

- 8. 5

1 8.1 9 %

-1 3

N O R WAY 22%

-5

0.0 2

S LO VA K R E P. 41 .9 %

35.7%

22.3%

-6

- 2 .9

S LO V E N I A 19%

-8

SWITZERLAND 8. 5 %

2 .6

3 8.4 %

- 0.6

21%

- 6.8

LU X E M B O U R G

NEW ZEALAND 28%

2 .9

J A PA N

48%

4 3 .6 %

-6

-2.7

TURKEY 22%

0

3 9.1 %

-1 1

- 0.6

-1 . 2

TA X BY N U M B E R S

Tax rate changes since 2000 The data above compares corporate and personal tax rates in the year 2000 with the most recent rates collected by the OECD. All but one of the organisation’s 37 current member countries is included (Colombia

only joined the organisation in April last year, meaning its data is unavailable).

The corporate tax figures reflect a growth of international tax competition during the first years of the century, resulting

from increasing globalisation. Just one of the countries represented (Chile) has a higher corporate tax rate now than at the beginning of the century. In 2019, the country’s president, Sebastián Piñera, reversed a promise to reduce the

tax burden on businesses after huge protests over living costs forced the government to find resources to increase its welfare bill. Switzerland is the only other country that does not have a lower rate than in 2000. Meanwhile,

26 PUBLIC FINANCE MARCH/APRIL SEPTEMBER/OCTOBER 2021 2020

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INFOGRAPHIC KEY:

C O R P O R AT E I N C O M E TA X R AT E P E R C E N TA G E P O I N T C H A N G E

C U R R E N T C O R P O R AT E TA X R AT E

P E R S O N A L I N C O M E TA X R AT E P E R C E N TA G E P O I N T C H A N G E

C U R R E N T P E R S O N A L TA X R AT E

B E LG I U M 25%

CANADA

52.2%

- 4 .8

15%

DENMARK 22%

-1 4 .1

ESTONIA

3 5 .4 %

-6

-1 0

GERMANY 1 5 .8 3 %

20%

3 7. 2 %

24%

-4

2 .1

4 0.8 %

-1 6

IRELAND

ISRAEL - 2 .1

33.2%

23%

22.7%

-1 1 . 5

-1 3

6.9

KOREA (STH.) 25%

-6

GREECE -3.5

4 9.4 %

- 2 6. 3

12.5%

- 2 .4

3 0. 5 %

-1 4

23.3%

L AT V I A 20%

-3

- 6.9

4 2 .6 %

-5 - 0. 7

7. 5

MEXICO 30%

2 0.1 %

- 2 .8

3 7. 3 %

-1 0

POLAND 19%

NETHERLANDS 25%

-5

3 .6

PORTUGAL - 2 .6

3 5 .6 %

-1 1

30%

41 %

-2

0.9

S PA I N 25%

SWEDEN

3 9. 5 %

2 1 .4 %

42.7%

-1 0

UK 19%

- 6.6

-7. 5

US 3 0.9 %

21%

2 9.8 %

-1 1

-1 4 -1 . 7

Germany implemented the largest cut over the period, partially a result of it being late to join competitors that had made big reductions during the 1980s.

On personal tax, the picture is more mixed, with 13 of the

36 countries having seen an increase in the burden. Hungary saw the biggest fall over the period, the result of the country’s introduction of a flat tax in 2010.

The corporate tax data uses the ‘basic’ (non-targeted)

Source: OECD Tax Statistics

26-27 Feature - Tax - Infographic_Mar-Apr 2021_Public Finance 27

central government rate. Where a non-flat rate is in place, the top marginal rate is shown. The personal tax rates are based on a single person without dependents earning the average wage in their country. The figure

-1 .1

is expressed as a percentage of gross earnings plus employer social security contributions.

The most recent year for which OECD data on corporate tax is available is 2020, while for personal tax it is 2019.

PUBLICFINANCE.CO.UK 27

23/02/2021 16:03

HEAD TO HEAD

TAXATION

PANDEMIC RECOVERY

Can a wealth tax help governments repay Covid-19 debt?

Two experts take opposing stances on the merits of a targeted tax on the rich

EMMA CHAMBERLAIN

Going head to head

EMMA CHAMBERLAIN, barrister at Pump Court Tax Chambers and commissioner at the Wealth Tax Commission

PHILIP CROSS, senior fellow at right-of-centre Canadian think tank the Fraser Institute

A one-off tax could raise billions Nobody wants to pay more tax. But if the government needs to raise money, the alternative to a wealth tax is a rise in some other tax. Clearly, an annual wealth tax is possible: Switzerland, Norway and Spain all have one, and in Switzerland’s case it raises a reasonable amount of revenue.

However, the Wealth Tax Commission’s final report, published in December, did not recommend an annual wealth tax, for reasons including valuation costs, avoidance, and complexity.

We said the tax should be implemented once only, to meet the urgent need to raise large amounts of revenue quickly. It is important to realise that this proposal is in addition to, and not a substitute for, proper structural reform of existing taxes on wealth.

Neither is it intended as a longterm method of raising revenue.

Although a one-off wealth tax (or ‘Covid-19 recovery tax’ if labels matter) would be assessed at a single point in time, people would have five years to pay. A levy starting at £2m would tax the top 1% of adults. At 1% a year over five years, it would bring in as much as raising the basic rate of income tax from 20p to 23p. Unlike a rise in income tax, it would not discourage work and hiring at a time of high unemployment.

A one-off tax should cover all types of wealth, including all pensions (defined benefit and defined contribution, public and private) and houses (after taking off any mortgage debt). This makes it fair – it does not penalise the woman who has saved in her business relative to the one who works for the civil service, nor the man saving to buy a house relative to the one who has just climbed onto the property ladder.

Media comments on our report often missed the point that those in the South East who bought expensive houses are also likely to have higher debt – so a one-off wealth tax would not necessarily hit London and the South East more harshly. Tax due on pensions would be deferred until retirement. Where there is still hardship, longer periods of payment would be available, to avoid people needing to sell their home or business.

Several scenarios We did not make any proposals on rates or thresholds, because these issues must be decided by politicians. Despite widespread media coverage, we are not recommending a threshold of £500,000 – that was just one of several scenarios that we outlined. But it is important to realise that different rates and

28 PUBLIC FINANCE MARCH/APRIL 2021

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23/02/2021 16:04

PHILIP CROSS

Wealth taxes will not raise revenues or reduce inequality

thresholds will raise different levels of revenue and have different administrative effects.

At a threshold of £500,000 per individual, there would be eight million taxpayers (the top 17% of UK adults by wealth). At a rate of 5% payable over five years this would raise £250bn after administrative costs. But raising the threshold to £2m per individual (£4m net wealth per household) would mean that only 600,000 individuals (the top 1%) would be affected. At a rate of 5%, payable over five years, it would raise £81bn.

Too often taxes on the wealthy have been dismissed: “too difficult”, “won’t raise revenue”, “will make the rich leave”, “the wealthiest avoid it”.

We disagree: a one-off wealth tax operates very differently from other taxes on wealth and can raise serious amounts of money. The outcry from fairly predictable quarters about why it is not fair suggests that our report has hit home.

Photography: Getty

28-29 Feature - Tax - Head to head_Mar-Apr 2021_Public Finance 29

The idea of imposing wealth taxes plays on the populist fantasy that taxes can painlessly be shifted to rich people and corporations. Their lure is amplified by record budget deficits as a result of the pandemic. However, they would hamper economic growth, raise few revenues, have little impact on inequality, and contradict the conduct of monetary policy.

A wealth tax penalises savings and encourages consumption over investment. Its message that society prizes redistribution ahead of growth, and equity over efficiency, is the wrong one to send after the worst slump since the 1930s capped a decade of sub-par growth. Proponents claim wealth taxes generate needed revenues. However, Europe’s experience shows they raised little revenue. The shortfall reflects the political necessity of exempting most housing and pension savings (the largest part of wealth), keeping the tax rate low to prevent capital flight and people acting to minimise their taxes.

As a result, wealth taxes raised only 1% of GDP in Spain and Switzerland, 0.4% in Norway, and 0.2% in France – not enough to significantly affect either government finances or wealth inequality. Most European nations therefore abandoned wealth taxes years ago.

Wealth can easily be shifted to circumvent a tax. The imposition of higher taxes to pay for the First World War created Switzerland’s tax evasion industry. The ease of moving money across borders is growing as cryptocurrencies proliferate. Compounding this mobility of capital is the willingness of people to move to minimise taxes.

One study found that 21.4% of the richest Americans moved state to sidestep an estate tax, meaning $80.7bn of wealth went untaxed.

A wealth tax encourages consumption while penalising savings and investments that foster higher long-term growth. This is especially true when they are layered

on top of taxes on the capital income that wealth generates. Administrative problems are endemic to wealth taxes.

Asking people to evaluate their own worth invites under-reporting. Having outside assessors do the job is expensive and leads to valuation disputes.

Wealth taxes presume that wealth is driven only by economics. In reality, demographics play an increasing role – older people inevitably have more wealth having had longer to accumulate assets.

As ageing populations inflate the number of wealthy people, taxing the wealthy can easily become taxing the elderly.

Contradicting monetary policy Instituting a wealth tax means fiscal policy contradicts monetary policy. Wealth soared over the past decade as central banks slashed interest rates and adopted quantitative easing, hoping that higher housing and share values would stimulate spending. A wealth tax would depress the very asset prices that monetary policy is inflating. If wealth inequality is regarded as worse for society than slower growth, central banks should end policies that increase asset prices. Governments should not penalise wealth intentionally fabricated by central banks.

One view of wealth is that it is the stock of past accumulated savings, resulting in an economy dominated in Ricardian economics by ‘parasitic’ landowners, where wealth is passive, immobile, and often unearned. Taxing such wealth has few negative economic effects.

A competing view, however, looks more to the future than the past, where wealth is a claim on future output arising from investments. Profits are the proper reward, allowing capital to be accumulated. Since wealth is deployed to investments benefiting the economy and not wasted on large estates, it should not be taxed. Governments should tax the capital income that wealth generates to minimise the negative impact on investment and growth.

PUBLICFINANCE.CO.UK 29

23/02/2021 16:04

FEATURE

INTERVIEW

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23/02/2021 16:05

ONLY PEOPLE WHO DO NOT UNDERSTAND THE VALUE OF MONEY COULD WASTE IT IN THE WAY THIS GOVERNMENT HAS DONE A future Labour government would reverse the current government’s profligate use of public cash, says shadow chief secretary to the Treasury Bridget Phillipson – but specifics on tax and spending policies are, as yet, scant WORDS COLIN MARRS PUBLICFINANCE.CO.UK 31

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23/02/2021 16:05

FEATURE

INTERVIEW ridget Phillipson’s webcam is on the blink. Black horizontal lines of varying thickness skip up and down the face of the shadow chief secretary to the Treasury as she talks. Almost a year into the brave new world of homeworking, technical issues continue to bedevil many of our virtual conversations. “Sorry,” Phillipson says.

“Sometimes if I put my finger on it, it stops flickering.”

A soft tap restores normal service and we continue the conversation. Two weeks previously, Phillipson’s boss, shadow chancellor Anneliese Dodds, had become the first woman to deliver the prestigious annual Mais lecture at London’s City University. The speech, Phillipson says, “set out the responsible fiscal approach that we would take, and the need to ensure that decisionmaking is made for the long term”. Trying to put one’s finger on exactly what direction a Labour government would take on the biggest issues of UK fiscal policy, however, is currently a fruitless task.

Predictably, Phillipson does not mince her words about the Conservative government’s management of the huge sums it has borrowed to tackle the Covid-19 crisis. She criticises chancellor Rishi Sunak for “seeking to make a virtue” of the amount of money he is borrowing and spending, when so much of it, in her view, has been misdirected. “Many people have fallen between the gaps of the various schemes that the government has put in place,” she says. “Almost a year on, the government still has nothing to say to them about how they will provide help to get them through it.”

Phillipson also seizes on a lack of transparency and accountability surrounding procurement spending. She cites the NHS test and trace system, which – despite a budget exceeding that for the entire fire and police services combined – has so far had limited success. “Only people who do not understand the value of money could waste it in the way this government has done,” she says.

Beyond Dodds’ broad fiscal framework, however, details on a future Labour government’s approach to tax and spending “will rightly rest on the state of the public finances ahead of the next general election”, Phillipson says. “I do not think even the most august economists would necessarily seek to make detailed projections as to where we will find ourselves at that point.” Few would disagree.

32 PUBLIC FINANCE MARCH/APRIL 2021

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However, it is a position also serving a useful political purpose for Labour.

Economic management Fairly or not, the Conservative Party has consistently viewed highlighting Labour’s economic management as a valuable electoral strategy. The sterling crisis of 1976, which saw chancellor Denis Healey going ‘cap in hand’ to the International Monetary Fund for a $3.9bn loan, resonated throughout election campaigns for a generation.

The ‘Labour’s tax bombshell’ advertising campaign that helped John Major win the 1992 election was one of the most successful of modern times.

Of course, Major’s government swiftly trashed the Conservative Party’s economic reputation by crashing the UK out of the European Exchange Rate mechanism. Without that ‘Black Wednesday’, Tony Blair might not have become prime minister. But Labour’s 1997 landslide victory also owed much to a transformation in perceptions of Labour’s financial competence. In his autobiography, former prime minister Blair cites shadow chancellor Gordon Brown’s 1995 Mais lecture as a turning point. “He gave our position on the economy credibility, and Photography: Betty Zapata/Labour Party

23/02/2021 16:06

CV

Bridget Phillipson EMPLOYMENT 2020-present Shadow chief secretary to the Treasury 2015-2020 Member, Public Accounts Committee 2013-2015 Opposition whip 2010-2013 Member, Home Affairs Select Committee 2010-present Member of Parliament for Houghton & Sunderland South 2007-2010 Wearside Women In Need (domestic violence charity), latterly as refuge manager 2005-2007 Officer roles, Sunderland City Council

EDUCATION 2002-2005 BA in modern history, Hertford College, Oxford

Phillipson believes much of the government’s Covid-19 spending has been misdirected, with many people falling ‘between the gaps of the various schemes put in place’

that in turn enormously enhanced the credibility of the party’s aspiration to power,” Blair said.

If attempting to repeat that success was not already hard enough, Labour’s membership is still bitterly divided over New Labour’s economic legacy. It is, then, understandable that Phillipson is unwilling to be drawn very far on more specific tax and spending promises. While Labour “recognises the value of public spending”, the focus is on “looking at how money is being spent, not simply the amount of money being spent”, she says.

In her speech, the shadow chancellor made a small number of pledges unlikely to provide a political banana skin. One of them would require ministers to take action on issues raised in a proposed new annual report by the National Audit Office on the effectiveness of public spending.

Phillipson, who served on parliament’s Public Accounts Committee from 2015 until last year, says: “I think there are lessons on issues crossing over a number of projects that might be usefully learnt by different government departments. Right now, [NAO reports] are quite department-specific.

There is a much broader role for how we consider getting good value for the taxpayer.”

Dodds also praised an idea proposed by the Institute for Fiscal Studies – a so-called ‘fiscal anchor’, which would be less rigid than the perennially broken ‘fiscal rules’ governing Treasury budgeting. But was this a commitment to adopt the anchor as policy? Phillipson says only that a detailed fiscal framework will be revealed closer to the election, “governed by a set of rules that target the current budget deficit but allow flexibility in times of crisis”.

Rebuilding trust Perceived as a Labour moderate, Phillipson lost her role as a Parliamentary whip in September 2015, following Jeremy Corbyn’s election to lead the party. Her current role was offered only after Sir Keir Starmer took over, following the 2019 election disaster. Phillipson says that result has been a major motivation for the party’s new approach. “It was a devastating result for my party,” she says. “We let the people of our country down with that outcome. But what we are focused on now is rebuilding trust.”

A pro-remain MP in Houghton and Sunderland South – a constituency that PUBLICFINANCE.CO.UK 33

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23/02/2021 16:06

FEATURE

INTERVIEW Phillipson and Labour leader Sir Keir Starmer discuss postCovid-19 support for businesses at engineering components manufacturer Beard & Fitch

saw 62.4% vote ‘leave’ in the 2016 referendum, Phillipson is unsurprisingly keen to move on from the divisions of the Brexit vote.

“I think that question of ‘leave’ or ‘remain’ is a divide that is now behind us,” she says. But she admits that winning back ‘red wall’ voters who deserted the party in droves in 2019 will be “a really big challenge”.

Phillipson is sceptical about the government’s version of ‘levelling-up’. “They cannot even define what it means,” she says. She bemoans current funding as overly focused on infrastructure and transport: “Unless you address the big challenges we face around skills, that investment will not deliver the best possible outcomes.” She also criticises the government’s system of bidding for pots of cash, which requires councils to spend time writing bids “rather than the government thinking about how they can use their role to support more strategic development in our towns, villages and cities”.

Legacy of austerity Phillipson firmly rejects the argument that, in the light of Covid-19, austerity was a prudent strategy, creating the financial headroom needed to fight the pandemic. “I think austerity has led to the lack of resilience that many families and communities are currently facing,” she says. “It has also meant that our public services were less well prepared for a crisis than they should otherwise have been.”

The government would be making a big mistake by rushing to implement early cuts and tax rises to reduce government borrowing resulting from the pandemic, she says. “If you look at the impact of the council tax increases that the chancellor is pushing onto local councils, the cuts to universal credit, the fact that many key workers will face a pay freeze – that triple whammy will suck demand out of many of our local economies at a really critical moment.”

In her Mais lecture, Dodds pledged another ‘value for money’ policy unlikely to scare the horses.

A future Labour government would extend fiscal planning from the current cycle of five years (or less) to more than 20 years. This would create greater resilience to allow the public finances to respond better to future crises, including climate change, believes Phillipson. “If you take social care,”

“I think austerity has led to the lack of resilience that many families and communities are currently facing”

she says, “that is not going to be solved by simply a short-term injection of cash. It requires a much broader consideration of demographic change.”

The extent of private sector involvement in providing public services is another traditional hot potato for Labour. While Phillipson is critical of “the fixation Conservative governments have had with assuming solutions will also lie in the private sector”, she says Labour would want to work closely with business. “We have seen during this crisis some wonderful examples of what can be achieved when you have government, business and trade unions working closely together,” she says. “We want to see a new kind of social contract under a Labour government that would allow that to develop.”

Citing bus services, she says local areas could be given greater control without full-blown nationalisation. At some point, the Labour Party will have to firm up such ideas. But that time is not now.

As we bring the conversation to a close, Phillipson says that, from shadow cabinet meetings to coffee mornings, she has now adapted to the online shift necessitated by lockdowns. To relax, she is a keen jogger. “I have used lockdown to explore parts of my constituency that I have not been to for a while, and to learn new routes to places; to take a new path.”

The description might equally apply to her party’s slowly emerging approach to public finances.

34 PUBLIC FINANCE MARCH/APRIL 2021

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23/02/2021 16:06

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FEATURE

COVID-19 VACCINATION

36-43 Feature - Covax_Mar-Apr 2021_Public Finance 36

23/02/2021 16:07

DOUBLE DOSE Vaccine nationalism not only threatens human health – it could deepen the financial damage caused by Covid-19 W O R D S K E R RY LO R I M E R I L LU S T R AT I O N S S E N O R S A L M E

W

hen rampant global demand for Covid-19 vaccine collides with the reality of scarce supply, international relations come under strain. The recent spat between the UK and the European Union over vaccine supplies lays bare the political and diplomatic footwork needed to resolve what is, in truth, an inevitable shortfall in production compared with demand. In the stampede to immunise their own populations, governments have faced both practical challenges and moral dilemmas.

In a world where no one is safe until everyone is, how do leaders balance enlightened self-interest against the need for equitable global access?

So far, the race to make a safe and effective vaccine has seen billions of pounds of public money poured into developing and testing potential candidates. Wealthy nations have hedged their bets on a portfolio of options, anxious to lay first claim to the most promising.

Despite that public investment, vaccine pricing around the world is subject to confidential trade deals struck between pharmaceutical firms and individual countries or negotiating blocs.

The haste to secure vaccines has seen the US and some European nations contracting with manufacturers to produce doses even before PUBLICFINANCE.CO.UK 37

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23/02/2021 16:07

FEATURE

COVID-19 VACCINATION clinical trials had found the drugs effective. The need for speed meant prices were negotiated without the usual analysis of cost-effectiveness.

“There are certainly circumstances that might well make it appropriate not to use the usual process to evaluate prices,” says Marc Rodwin, professor at Suffolk University Law School in Boston. “However, the process used to set prices was not transparent.”

Despite this, the cost-effectiveness argument for any successful vaccine is clear cut, says John Appleby, director of research and chief economist at the Nuffield Trust. “You do not need to be a rocket scientist or an economist to work out that the benefits are going to be so big that cost-effectiveness analysis is largely pointless,” he says.

Pricing deals Pfizer, whose vaccine was first authorised by UK regulators in December, says that although the details of its deals with governments are confidential, the vaccine has been

“You do not need to be a rocket scientist or an economist to work out that the benefits of any successful vaccine are going to be so big that cost-effectiveness analysis is largely pointless” John Appleby, Nuffield Trust

priced to ensure there are “little to no” costs for those receiving it. The company confirms that its decisionmaking was not driven by traditional cost-benefit analysis.

However, the differing shape of countries’ health systems plays a big role in the final size of the immunisation bill. The US will pay more for vaccines, as it lacks a national health service to negotiate pricing, according to Rodwin. “You have Medicare/Medicaid, the US Department

TIMELINE

The race to save lives 31 DECEMBER 2019 Chinese government confirms dozens of viral pneumonia cases being treated, linked to wholesale seafood market in Wuhan

30 JANUARY WHO declares global health emergency

11 JANUARY 2020 17 MARCH First novel coronavirus Pfizer and BioNTech genome sequence made announce initiative publicly available, as to co-develop China releases genome vaccine for virus SARS-CoV-2

38 PUBLIC FINANCE F MARCH/APRIL 2021

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30 APRIL AstraZeneca and University of Oxford agree vaccine collaboration

15 MAY US launches Operation Warp Speed to accelerate the development of vaccines

of Veterans Affairs system, and a bunch of independent insurers negotiating rates for drugs, rather than a single government entity, which makes the US, at least thus far, unable to negotiate prices for drugs even close to those of other developed nations,” he says.

In China, too, vaccine pricing has been unclear. According to Beijingbased think-tank Anbound, disclosures from provinces suggest that prices are determined through a combination of price negotiation and bidding. Founder

4 JUNE AstraZeneca strikes licensing deal with the Serum Institute of India to supply one billion doses of the University of Oxford vaccine to low- and middle-income countries.

Agreement also reached with CEPI and Gavi to distribute 300 million doses of the vaccine

12 SEPTEMBER AstraZeneca vaccine trial resumes, having stopped after adverse reaction in patient

JULY Pfizer and Moderna vaccines show early promise in clinical trials

Photography: Alamy, Getty, SPL

23/02/2021 16:07

Chan Kung believes the current situation and the distortion of market prices is the result of “panic and political pressure”.

However, he says relatively inexpensive Chinese vaccines – currently focused on the domestic market – will also boost availability in the developing world, aiding global efforts to control the pandemic. “China may have to bear the vaccine demand of 2.5 billion people in developing countries,” he says. “Even if India exports a large amount, vaccines produced in China will inevitably occupy a good proportion of the world market.”

Pfizer says it has introduced a tiered pricing plan, so its vaccine can be offered at a not-for-profit price to low-income countries. “Our pricing strategy is based on volume, advanced commitment, equity and affordability principles,” a spokesperson says.

However, developing countries’ fragile health infrastructure has led the World

2 DECEMBER UK regulators become first in world to grant authorisation to Pfizer vaccine for emergency use, followed by the US, Mexico, Canada and Saudi Arabia

NOVEMBER Early data shows Moderna and Pfizer vaccines to be 95% effective

95%

8 DECEMBER Margaret Keenan becomes first person to receive Pfizer vaccine outside trials

36-43 Feature - Covax_Mar-Apr 2021_Public Finance 39

Bank to approve a $12bn funding package to purchase doses, manage vaccine storage, train vaccinators and support outreach campaigns.

The global Covax initiative, set up to pool the buying power of the world’s richest and poorest nations to ensure equal access to vaccines, has also been gathering momentum. The scheme, led by the Coalition for Epidemic Preparedness Innovations (CEPI), the

TWO billion

Affordability

18 DECEMBER Covax announces deals with AstraZeneca and Johnson & Johnson to bring potential number of doses secured to almost two billion

Gavi vaccine alliance, and the World Health Organization, aims to deliver at least two billion doses by the end of the year – enough to protect high-risk and vulnerable people, as well as frontline healthcare workers.

For countries failing to strike bilateral deals with manufacturers – and those simply unable to afford vaccines – the programme represents an essential lifeline. But it also offers a safety net for wealthier countries, both by increasing their chances of securing vital doses for their own populations, and by reducing the risk of a resurgence of the virus by ensuring that the rest of the world is also vaccinated.

There is growing concern, however, that, behind all these good intentions, progress towards the global cooperation needed to combat the virus could be sabotaged by the self-interest of richer nations. A study from Duke University’s Global Health Institute in the US predicts that limited manufacturing capacity,

13 JANUARY African Union secures 300 million vaccine doses for member states

30 DECEMBER UK authorises AstraZeneca vaccine for emergency use, followed by Argentina

19 DECEMBER Moderna vaccine approved by US regulators

8 JANUARY UK authorises use of Moderna vaccine

21 JANUARY President Biden promises US will join Covax initiative

PUBLICFINANCE.CO.UK 39

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FEATURE

COVID-19 VACCINATION combined with the vast wealth disparities between nations, will put vaccination beyond the grasp of the world’s poorest countries.

“The initial research we did allowed us to identify the dangers coming and the potential crises coming, yet, over the past few months, we have not seen the gaps in vaccine equity close at all, so it actually feels like it is becoming bleaker with every week,” says Andrea Taylor, assistant director of programmes at the institute. “High-income countries really leveraged their purchasing power and their ability to make investments in vaccine development to get themselves to the front of the queue,” she adds.

Vaccine nationalism Specifically, they could afford to risk large purchases of a range of untested vaccines – in the process, reserving most of the manufacturing slots. “They purchased so many doses, it just left empty shelves for everyone behind them,” says Taylor. While emphasising global equity and investing generously in Covax, wealthy countries were keen to maintain control of their own purchasing arrangements to ensure their own populations were vaccinated first – a phenomenon known as vaccine nationalism.

“What we saw was high-income countries treating [Covax] as a charitable mechanism,” she says.

“Most said here is a lot of money, thank you very much for doing this important work, and now we will go make our own deals.” Research by Rand Europe suggests that the ‘my nation first’ approach could have catastrophic implications for both human health and world economies, with failure to allocate vaccines equitably leading to a higher global death toll, as well as potentially reducing global GDP by $1.2trn a year.

A patchwork of bilateral agreements risks adversely affecting the pricing and availability of vaccines, favouring individuals at low risk in high-income countries over those at high risk in poorer countries. “The problem with not vaccinating equitably across the

VACCINE COSTS

Price variations The prices paid by different countries for Covid-19 vaccines depend on a multitude of factors – not only the negotiating clout of a nation or bloc but also contribution to research and development, the size and timing of the order, and the costs of distribution. Manufacturers may also pledge to, for example, supply vaccines on a non-profit basis to developing nations.

Of the leading vaccines, the cheapest will be the Oxford/ AstraZeneca jab, with a reported price tag of $3-$4 per dose. The UK in particular will benefit from its upfront investment in the product. Although AstraZeneca has pledged not to profit from the vaccine “during the pandemic”, it is unclear how that period will be defined, and how high the price could then rise.

The vaccine developed by US biotech firm Moderna – based on pioneering mRNA technology – was initially estimated to cost up to $37 a dose. However, the US government, which pumped funding into research and development for the vaccine, is understood to have negotiated an initial price of $15, while the EU, according to leaked information, has secured a price of $18.

Meanwhile, the US government is expected to pay just under $20 a dose for the Pfizer vaccine, while the EU has agreed a price of around $15, partly thanks to German backing of Pfizer’s partner, BioNTech. Like Moderna’s, the Pfizer vaccine contains mRNA, but in lower quantities. However, the cost of the Pfizer vaccine will have to be offset against higher distribution costs, as it must be kept at -70C.

globe increases the risk that new strains develop, making the vaccines in those countries that are already vaccinated less effective,” says Marco Hafner, senior economist at Rand Europe.

“This virus is extremely intelligent and is mutating quite rapidly. If you only vaccinate parts of the population, you will most likely import new strains, and, in a worst-case scenario, you could start all over again.” Investment in vaccine development and equitable access would be economically beneficial in the long run, the analysis suggests. Compared with the $25bn it is estimated to cost to supply lower-income countries with vaccine, high-income countries stand to lose a combined $119bn a year if poorer nations are denied a supply. If, on the other hand, wealthy countries agreed to fund those vaccines, they would gain back $4.80 for every dollar spent.

Pressure to share In the meantime, pressure is growing on developed nations to share their excess vaccines. Pre-purchasing strategies, which saw the US, Canada and the EU diversify their range of vaccines, are likely to leave these countries with an oversupply of doses that cannot be stockpiled indefinitely. According to Amanda Glassman, executive vice-president of the Center for Global Development, a commitment to share vaccines with low- and middle-income countries should be a key deliverable at the meetings of G7 and D10 nations to be hosted by the UK later this year.

“International organisations could be clear on the moral and ethical imperative [of sharing] as well as the scientific imperative,” she says. Covax already has a formal mechanism for the resale, exchange and donation of vaccines, and that should be urgently brought into play. “I would like to see as much attention given to that as to fundraising for money contributions to Covax from high-income countries, because the timing matters now,” says Glassman.

“If we have all the high-efficacy candidates that are available right now, now is when it matters to share.”

PUBLICFINANCE.CO.UK 41

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23/02/2021 16:10

(FU VQ UP TQFFE PO FUIJDT /FX F MFBSOJOH NPEVMF GSFF UP BMM $*1'" NFNCFST BOE TUVEFOUT Using videos, Q&As, case studies and background reading, the e-learning offers a practical insight into how ethics can impact ƋƪĈŒļĉɇǘŝëŝĉėɇƋƎŨįėƖƖļŨŝëŒƖș What’s covered: • Fundamental principles of ethics • Threats to compliance • Safeguards to counter the risk of unethical behaviour • Sources of pressure to breach the fundamental principles • bėLjɆǘŝĐļŝİƖɆįƎŨśɆ Q D ȼƖɆǥǣǤǫɆėƢķļĉƖɆƖƪƎǁėLj • Being aware of, and prepared for, ethical challenges • How to report potential violations • ÕķėƎėɆƢŨɆǘŝĐɆëĐĐļƢļŨŝëŒɆƎėƖŨƪƎĉėƖ

Buy now Visit:ɆĉļƋįëșŨƎİȦėƢķļĉƖėŒėëƎŝļŝİ Part of CIPFA’s growing range of e-learning for public ǘŝëŝĉėɆƋƎŨįėƖƖļŨŝëŒƖțɆĉļƋįëșŨƎİȦėŒėëƎŝļŝİ

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22/02/2021 11:24

DATA

COVID-19 VACCINATION V A C C I N E S U P P LY

Paying for fair immunisation The biggest government contributions on top of the World Bank’s commitment of $12bn to the Covax vaccine programme

$1.08bn

$688m

$677m

$436m

$313m

$232m

UNITED KINGDOM

CANADA

GERMANY

NORWAY

SAUDI ARABIA

EU COMMISSION

£250m of the total is conditional on $4 match funding from other donors for each pound pledged

Includes a C$5m investment in a mechanism to equitably reallocate vaccine doses

Germany last year decided it would not source its own vaccine through the Covax scheme

Aid minister DagInge Ulstein said: “It is in everyone’s interest to ensure a fair distribution”

Part of a $500m package announced by the kingdom for global relief to tackle the pandemic

+$400m guarantee scheme launched with member states and the European Investment Bank

$227m

$152m

$145m

$115m

$100m

$0m

JAPAN

FRANCE

SPAIN

ITALY

NETHERLANDS

US

Foreign minister Toshimitsu Motegi hailed “a stand for the principle of human security”

Despite its pledge, France, along with others, used the EU to source its own vaccine supplies

President Pedro Sánchez: “At this historic crossroads, we must raise the bar of ambition”

Italy pledged $79m in June last year, subsequently adding more to its contribution

Holland is one of the six original donors to Covax organising partner the Gavi vaccine alliance

President Joe Biden has pledged to reverse his predecessor’s boycott of Covax

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FEATURE

PROTECTIONISM

LACK OF

PROTECTION Joe Biden’s election as US president is likely to mean greater global trade cooperation – but anti-globalist forces remain powerful W O R D S A DA M B R A N S O N

H

as the cork been replaced before the genie escaped the bottle? During the past few years, rising nationalism has led to a series of political earthquakes, the most prominent being the election of Donald Trump as president of the US, rivalled only by the decision of the great British public to vote to leave the European Union. As a result, after 2016, the US adopted protectionist policies, either deliberately or by happenstance, and barriers to trade have been erected.

And yet, the swearing-in of the avowedly multilateralist Joe Biden to the presidency in January seems to point in a different direction. Do recent events indicate that

the forces of nationalism and protectionism are in retreat?

And what impact do international trading relations have on the management of public finances?

That protectionism was once again pursued by the US – the largest economy in the world – was shocking for most mainstream economists. After all, they had been winning the argument for ever-greater trade integration for more than half a century. As a recent European Central Bank report notes, the process of economic cooperation began in the years after the Second World War, received a boost in the 1980s, and entered what the ECB describes as a “golden age” between 1990 and 2008, when total trade in goods and services increased from 39% to 61% of

The forces that tried to overturn the US election result in favour of Trump remain in play 44 PUBLIC FINANCE MARCH/APRIL 2021

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Joe Biden’s US election victory has sparked hope of greater global trade cooperation

world GDP. Since then, however, trade has slowed, clocking in at 58% of world GDP in 2019, not least because of the 2008-09 global financial crisis and its political aftershock.

“Protectionism has been on the rise, driven by an increase in non-tariff and, more recently, tariff barriers,” the ECB paper notes. “At the same time, public support for globalisation has declined on both sides of the Atlantic. While factors such as Brexit and Euroscepticism have challenged the principles of freedom of movement and economic integration in Europe, the benefits of free trade have been openly called into question in the United States.”

In 2018, rhetoric was replaced by action in the US. First, in January, came the implementation of Ursula von der Leyen, European Commission president tariffs on solar panels and washing machines for a wide range of president Ursula von der Leyen stating: “The transatlantic countries. That was followed by 25% tariffs on steel and 10% alliance is based on shared values and history, but also on aluminium in March. In June, the tariffs were extended to interests – building a stronger, more peaceful and more Canada, Mexico and the EU. Inevitably, retaliations followed. prosperous world. When the transatlantic partnership is In the latter half of 2018, relations with China deteriorated strong, the EU and the US are both stronger.” when the US imposed 25% duties on 1,300 types of products, with an annual import value of $50bn. China responded with a package amounting to $60bn. Subsequently, the situation Solve trade irritants improved, especially between the US, Mexico, Canada and the Naturally enough, the agenda included warm words about the EU, but the risk of escalation remained. global fight against climate change, but trade also featured As Chad Bown, Reginald Jones senior fellow at the Peterson prominently. “The EU wants to work closely with the US to solve Institute for International Economics, observes, any upsides bilateral trade irritants through negotiated solutions, to lead of trade barriers for American workers and companies were reform of the World Trade Organization, and to establish a new outweighed by the downsides. According to Bown: “The hike EU-US Trade and Technology Council,” the document stated. in metals prices makes manufacturing products from cars to The EU is also explicit on working with the US to solve washing machines more costly in the US than elsewhere. As a that thorniest of fiscal issues – how to get tech companies result, for every US steel worker who benefits from the tariffs, to pay fair levels of tax when they can so easily set up shop an estimated 75 American manufacturing workers are hurt.” in low-tax jurisdictions. “In addition, the EU is proposing to Those higher prices also put strains on government create a specific dialogue with the US on the responsibility of finances, says Bown: “Government infrastructure projects online platforms and big tech to work together on fair taxation that use metal cost more than they did before the tariffs, and and market distortions, and develop a common approach to US taxpayers foot the bill. Moreover, the tariffs are cascading protecting critical technologies,” the agenda states. into further demands for protection – companies that have However, the amount of political space that Biden has to to pay more for materials than their foreign counterparts play with is limited, no matter his instincts. According to cannot compete, and they increasingly want tariffs of their Jeffrey Matsu, chief economist at CIPFA, the forces that were own.” And that, of course, could lead to a downward spiral. at work trying to overturn the election result in favour of As a result of all this, Biden’s election victory was greeted Trump – demonstrated most explicitly in the storming with relief in many parts of the world. In December, the of the Capitol building on 6 January – remain in play.

European Commission published what it called a “proposal Put simply, nationalism has not gone away and, to an for a new, forward-looking transatlantic agenda”, with EC extent, Biden needs to be mindful of the fact.

“The transatlantic alliance is based on shared values and history, but also interests – building a stronger, more peaceful and more prosperous world”

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FEATURE

PROTECTIONISM “Protectionism is still alive and well,” says Matsu. “It may not be at the forefront of policy conversations, but it is bubbling under the surface. We are certainly in a less protectionist global environment [without Trump]. But the nature of his departure [shows] underlying persistence of the populist pressure he represented.”

Matsu adds: “I can appreciate how people want to feel that this populist sentiment has somehow gone away, but, given the right opportunities, it will resurface. It helps that Trump is not around anymore, but there is a lot of social anxiety and discontent in terms of equality, in terms of public health, in terms of economic wellbeing.”

Mary Lovely, professor of economics at Syracuse University’s Maxwell School of Citizenship and Public Affairs, agrees that public attitudes make it difficult for Biden to change anything quickly. “He really has to get the stimulus through and the economy revving [first],” she says. Longer term, however, Lovely suggests Biden may be

“[Tariffs make] sales tax revenue go down, because people think twice about buying certain products” Arthur Guarino, Rutgers Business School

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able to address tariffs and begin to prioritise trade deals. “He is a moderate. He has been pro-business,” she says. “I will not say proglobalisation, because that has become a toxic term, but he sees opening up markets and working with allies as a positive thing.”

So, for a period at least, tariffs set by the Trump administration are likely to remain. And that, says Arthur Guarino, associate professor of professional practice at Rutgers Business School, is problematic both for consumers, who ultimately pay the price through more expensive products, and for the public purse.

Paying the price “You can have sales tax revenue go down, because people think twice about buying certain products,” he says. “And that can ultimately be a problem for states, cities, towns and counties that have sales taxes. People say, ‘You know what? It is too expensive.

I will forego it. I will put it aside. I can make do without it.’”

While clearly a supporter of free trade, Lovely does concede that if a manufacturing plant gets shipped abroad it can wreak havoc locally in terms of job losses and tax revenues: “When you have concentrated job losses in a local area, you see revenues decline and [poorer] public services, because if state and local governments have to balance their budgets, they are going to have to cut services.”

To Lovely’s mind, governments’ Pennsylvania’s responses should be interventionist Old Bethlehem steel to support people and businesses to factory was consigned thrive in the modern economy, as, to history by the US on balance, free trade leads to greater steel industry decline economic growth and higher revenues.

Matsu agrees. “Some people benefit from protectionism in the near term, but they are also losers in the long term, as they are part of the overall macro economy,” he says. “If the overall performance of the economy is sub-optimal, then the net effect for even those near-term winners will be a negative one.”

All of which underlines why Guarino believes that Biden – and indeed, the leaders of most countries – will ultimately step back from protectionist policies. “Biden is going to bring jobs back to the US and put people to work,” he says. “But, at the same time, he knows that he is going to have to work with our alienated allies in order to open up markets so we can sell our products overseas. He has got to rebuild the bridges that Trump destroyed. Globalisation is here to stay.

It is never going away.”

Photography: Getty

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VIEWPOINT

PROTECTIONISM GEORGE BUCKLEY

Cry freedom On the eastern side of the Atlantic, the eleventh-hour trade deal with the EU will soften Brexit’s damage to UK public finances

Even with a free trade agreement in place, the economy and public finances are generally expected to be weaker relative to continuing EU membership

T

he Covid-19 pandemic and its effect on the economy have dominated the UK’s public finances over much of the past year and will continue to do so for some considerable time yet. However, we should not lose sight of the impact of Brexit. We can think of this in two ways – the impact from leaving the EU with a free trade agreement (FTA), and the damage avoided by dodging the bullet of leaving on World Trade Organization (‘no deal’) terms.

It seems likely public spending would have been higher and receipts lower under a WTO outcome, owing to weaker economic growth.

Average estimates of GDP in the long run under a WTO scenario were 6% lower than continued European Union membership – two percentage points worse than the 4% average estimated hit from leaving the EU with an FTA. This gap is probably explained by weaker investment and productivity related to reduced trade flows and migration.

Higher revenues from tariffs on EU imports would have only partly ameliorated the hit, especially with imports probably shrinking as a consequence of these tariffs.

The Office for Budget Responsibility estimates this combination of a weaker economy but higher tariff receipts would have raised the deficit by 0.5% of GDP over coming years, and increased the debt-toGDP ratio by around three percentage points five years from now.

Even with an FTA in place, the economy and public finances are generally expected to be weaker relative to continuing EU membership – though precisely how much is a matter of debate. First, lost output, and thereby higher deficits, have already resulted from the political and economic uncertainty between the 2016 referendum and the end of the transition – ie before the actual departure from the EU.

Then there is the 4% long-run hit to GDP from the switch to an FTA from the start of this year. Of course, because the deal is so fresh, there is little research on its impact on the public finances relative to EU membership. It might sound tempting to simply extrapolate the WTO effect on the deficit (ie a 2% GDP hit raising the deficit by 0.5% of GDP), but it is far from clear that such relationships are linear.

Much will depend on the precise reasons GDP is weaker under an FTA relative to EU membership. One source of uncertainty, for example, relates to how generous the EU will be in allowing the UK to trade financial services with the bloc.

We must also take into consideration the direct costs – the financial (‘divorce’) settlement and the domestic cost of replacing EU funding to UK sectors, less the annual EU membership contributions that no longer need to be made.

There is also likely to be some interaction between the two shocks of Brexit and Covid-19. If, as suggested by surveys, the virus disrupted some businesses’ plans to prepare for Brexit, the near-term economic (and thus deficit) impact could be worse than expected. Conversely, there may have been a smaller effect on activity resulting from Brexit per se, because it had already happened thanks to the uncertainty generated by Covid-19.

In summary, Brexit is likely to represent a long-term negative influence on the economy and the public finances, but is likely to be relatively small, at least compared with the effects of Covid-19.

GEORGE BUCKLEY is chief UK and euro area economist at investment bank Nomura PUBLICFINANCE.CO.UK 47

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FEATURE

DEFENCE

THE NEW

FRONTLINE Resources to fight new forms of warfare cannot simply be found from cuts to traditional areas of defence W O R D S C A LU M R U T T E R

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S

econd US president John Adams called national defence “one of the cardinal duties of a statesman”. More than two centuries on, the maxim remains as true as ever – even Vatican City is protected by Swiss Guards. The relationship between military spending and public finances is as old as government itself. In the UK, income tax was introduced by William Pitt the Younger to fund wars against France, and it was first used in the US by the Union during the American Civil War. In the modern world, defence spending covers a huge array of capabilities: land armies, navies, air forces, and, arguably, intelligence agencies, even extending to fringe areas such as space. In recent years, the number of threats has expanded – growing terrorism, disinformation campaigns and artificial intelligence require an increasingly sophisticated response.

This shifting landscape poses new funding choices to be made by governments in the post-Covid-19 world.

Arguably, the biggest change in the security landscape in the past few decades has been the internet. With more and more people and organisations – especially in advanced economies – digitally connected, both state and non-state actors now have a myriad of new potential attack routes.

In 2016, the year the proportion of people worldwide who have access to the internet passed 50%, NATO recognised cyberspace as a “domain of operations”. “Cyber defence is a part of collective defence,” a communiqué proclaimed. War had gone, at least in part, online.

New threats “Computer networks are an integral part of defence,” says Dr Tim Stevens, head of the Cyber Security Research Group at King’s College London. “Taking any organisation online makes it a target for foreign [state-sponsored] hackers, as well as criminals.” Stevens says this is true of both military operations in the field and intelligence operations based at home, but it also applies to other government departments and contractors. “The main aim of hostile cyber operations is to discover what the defence community is up to, and who it is supplying with what information,” says Stevens.

“It is age-old espionage in a different guise.”

Although the world is increasingly connected, different countries face different levels of threat, Stevens says. “The global threat landscape is very general, but different countries do have different positions in the international system. The biggest players face more attacks. The most targeted military in the world is the US, followed by its NATO allies. Then you have got a whole swathe of other countries at different levels of digital sophistication, and a lower tier of countries that are just beginning to get with the programme, which, on the whole, have poor cyber security.”

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FEATURE

DEFENCE But the advent of cyber security issues does not mean governments can neglect more traditional areas of defence – land, air and sea. In fact, professor Malcolm Chalmers, deputy director-general of defence at security think-tank the Royal United Services Institute, says spending on cyber must be made on top of existing spending.

It is not a substitute.

Maintaining the military “The cyber threats [that hostile actors] pose are in addition to, not instead of, the challenges from their military forces,” he says. “At the margins, more needs to go on cyber – defensive and offensive – but this will remain a small part of the total budget. The UK, for example, still needs to maintain credible nuclear, air, land and sea forces – at least as long as its adversaries are doing the same.” Chalmers believes that although a major war “remains highly unlikely”, it would be catastrophic, and more traditional aspects of defence are necessary to prevent it. “Strong military forces play a vital role in making such a war less likely,” he says.

Because cyber defence requires less physical equipment than a navy or an air force, it might seem cheaper than many other parts of defence spending.

However, Stevens says that while it is less expensive than tanks and bombs, “not all aspects of it are cheap”. “If you want to develop high-end cyber capabilities, then it takes huge amounts of work and testing. And it could all become redundant overnight, if the target updates their system.”

Cyber weapons are relatively untested in a major war scenario, so their value for money is unproven, he adds. “You hear a lot about how we can turn off the lights in Moscow or Paris or London or Addis Ababa. Regardless of whether we can do it or not, how effective would that be in getting the enemy to submit to your demands?” he asks. “Will it win you a war? The general consensus is that it might not, but it will make up part of your total capabilities. All investments have to be made as part of a joined-up framework.”

Andrew MacDonald, lead analyst at defence information firm Janes, warns against the notion that defending against digital threats is particularly similar to traditional defence.

“I think the idea that you can lump cyber threats in with defence against traditional kinetic ones is a bit flawed,” he says. “It was probably reinforced by the defence industry, which saw it as a way to maintain earnings in an era of declining budgets, but, really, for most countries they are just not the same thing. Of course, cyber capabilities are crucial, and often deeply integrated into defence applications. It might be that the military is the best place to house them, but, for the most part,

they represent a competing priority for funding.”

The UK does, however, appear to be taking money from elsewhere in the military budget to pay for cyber technologies, notes MacDonald. The National Cyber Force, set up to carry out offensive hacking operations against hostile states, terror groups and other threats, was announced last year by prime minister Boris Johnson.

And, across government, the National Cyber Security Programme has been working to improve security since 2015.

“The Treasury seems to accept that this is an area that requires new spending, or at least some that is freed up from elsewhere in defence,” MacDonald says.

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Operational readiness The UK already focuses its defence spending on operational readiness and equipment, Chalmers says, instead of investing in personnel. “This trend will be deepened by last November’s Spending Review, where all the increase is going on hardware investment and running costs, including a cut in army numbers,” he says. The government is increasing defence spending by 2% each year for the next four years in real terms.

“Defence’s share of GDP and public spending will therefore remain stable – doing worse than health in allocations, but better than many other departments, and a lot better than overseas aid.”

Of course, as with every other spending area, defence will feel the effects of the Covid-19 pandemic for years to come. But will spending habits change because of the virus?

“Our initial expectation was that countries would respond to the pandemic by making significant cuts to defence spending, as government revenues plunged and other areas of spending, such as healthcare and social welfare protections, were prioritised,” says MacDonald.

“But, so far, we have not really seen that happen,” he adds. “In the context of a much bigger economic shock

“If you want to develop high-end cyber capabilities, then it takes huge amounts of work and testing Dr Tim Stevens, King’s College London

than we saw from 2009 onwards, that is quite surprising.”

In fact, Janes found that global defence spending grew in 2020 for the seventh year in a row, up by 1.9% on the year before to reach $1.93trn. MacDonald, who leads Janes’ work on defence budgets in the Asia Pacific region, says perhaps this was because governments are now less averse to taking on debt to finance spending, or perhaps it was because of the changing security environment.

“Increased multipolarity, a proliferation of leaders with popularist, authoritarian tendencies and the US’s disengagement from its historic role as global guarantor of security may all

have pushed defence spending a bit higher up the priority list than it was after the global financial crisis,” he says.

“However, it is worth noting that it is, in all likelihood, too soon to assess the impact of the pandemic on defence expenditure. It took until 2013 for the worst of the funding cuts that followed the financial crisis to impact defence.”

But most trends in defence and security pre-date Covid-19. One is the gradual erosion of US hegemony.

In 2010, at what MacDonald calls the “end of the post-9/11 peak”, US military spending accounted for 50% of the global total, at about $870bn. By 2015, this had fallen to less than $670bn (under 40%), and although US spending has grown since, Janes predicts that Asian defence spending will overtake North America’s by 2028.

Clearly, defence and security are changing as quickly as many other aspects of modern life that are inexorably tied to the vicissitudes of politics and the advance of technology. For governments, this means unrelenting investment in new technologies, alongside more familiar items such as tanks, bombs and soldiers. The best we can hope for, at least for now, is that this arms race continues indefinitely, without reaching the finish line of major war.

I N T E R N AT I O N A L C O O P E R AT I O N

2% NATO target fuels defence spending NATO set a goal in 2014 for its 30 members to spend 2% of their GDP on defence, at a time when just three (the US, the UK and Greece) did so. Data released in October 2020 shows that 10 countries are now meeting the target, with more expected to reach it in the next few years, despite the budgetary pressures caused by coronavirus.

“Broadly, the eastern states near Russia are most strongly committed to 2%, because they

fear Russian military power the most,” says professor Malcolm Chalmers, deputy directorgeneral of defence at security think-tank the Royal United Services Institute. “Sweden and Finland are in the same boat.”

The pandemic could even indirectly bolster spending on security in the long term.

“One of the things made clear by Covid-19 is that this is a dangerous world,” says Dr Tim Stevens, head of the Cyber

Security Research Group at King’s College London. “It seems unlikely that the countries that could already afford to spend 2% on defence would cut their defence budgets.”

Countries not already meeting the 2% target are required to move towards it by 2024. By then, all countries should also aim to spend at least a fifth of their defence budget on major new equipment, including research and development.

In October, NATO secretarygeneral Jens Stoltenburg said the past 10 years “have seen such fundamental changes in the security environment that the time has come to modernise, to adapt”. He listed threats including “a more assertive Russia”, “a new and brutal form of terrorism with the rise of Isis”, “more hybrid cyber threats”, “climate change [becoming] a crisis multiplier” and the rise of China “shifting” the global balance of power.

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VIEWPOINT

DEFENCE FENELLA MCGERTY

Shifting target Defence spending is set to accelerate in 2021, but Covid-19 poses big questions about whether that growth is sustainable

The transition [to new defence systems] presents a risk that capability gaps could emerge as funding priorities evolve

T

he changing character of warfare, and the constantly evolving threats facing nations, have created a broader definition of ‘defence’. This shift has only been accelerated by the questions about resilience raised by the Covid-19 pandemic.

In recent years, an emphasis on legacy Cold War systems – now often referred to as ‘sunset’ capabilities – has switched towards transformational ‘sunrise’ systems. These are intended to counter the new threats – be they cyber attacks, hypersonic weapons, or directed energy weapons.

The transition is not cheap, and presents a risk that capability gaps could emerge as funding priorities evolve. This is particularly true in Europe. Russia is an enduring security concern and a key driver of the growth in regional defence spending. It continues to pursue a targeted military modernisation programme, set to peak in the mid-2020s.

Europe’s necessary pursuit of new and innovative technologies has the potential to constrain the resources available to enhance conventional capabilities. This risks creating vulnerabilities in the region’s ability to respond to any future threats posed from Russia or beyond. The cost of the transition will place increased pressure on defence budgets, which, in Europe, only surpassed 2009 levels in 2019 – following cuts imposed in the wake of the 2007-08 financial crisis.

Defence budgets in Europe have largely continued to grow in 2020. Spending is set to accelerate in 2021, despite the continued economic strain of the pandemic. Whether this will persist is in serious doubt, as governments move to impose measures to close fiscal deficits, which, according to the International Monetary Fund, reached 14.4% of GDP among advanced economies in 2020 and will persist well into the 2020s.

Despite the recent spending increases, procurement budgets remain tight. Funding decisions on military strategy and equipment procurement plans should primarily be driven by strategic factors, prioritising the capabilities required to counter the threats facing a territory. Financial and political factors should be secondary drivers. From a defence planning perspective, the ideal approach would be to assess ‘design-torequirement’ costs, fully considering the whole life of materials. In reality, a ‘designto-cost’ approach means that financial considerations drive decisions.

In November, the UK – Europe’s largest defence spender – announced an extra £16.5bn for defence over the next four years. Much was ringfenced for emerging technologies. While the uplift will ease some of the financial pressure on the UK’s 10-year defence equipment plan, the decision to ringfence much of the funding means many major programmes will continue to present an affordability risk. The transition to new capabilities needs to be carefully managed to ensure that equipment acquisition is fully funded and that gaps do not emerge.

Beyond the evolving nature of threats posed by adversaries, defence forces also have a role to play in the humanitarian response to natural disasters or global health crises. The pandemic has necessitated a fundamental reassessment of national security policies and the strategic threats posed by pandemics and climate-driven crises. The scope of military responsibilities has the potential to broaden significantly further, meaning that pressure on resources could mount.

FENELLA MCGERTY is senior fellow at the International Institute for Strategic Studies

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TIPS / LESSONS / CASE STUDIES / VIEWPOINTS

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PROFESSIONAL CONDUCT

Home truths An investigation into the behaviour of the UK’s home secretary provides pointers for public finance professionals

U

K home secretary Priti Patel avoided being sacked in November, despite prime minister Boris Johnson being advised that she broke ministerial rules. A Cabinet Office inquiry into allegations against Patel was completed in the summer. Sir Alex Allan, the prime minister’s independent adviser on ministerial standards,

Photography: © 10 Downing Street’

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IN PRACTICE

ETHICS Priti Patel’s frustration with civil servants ‘manifested itself in forceful expression’

looked at the report and found Patel’s behaviour “has been in breach of the ministerial code, even if unintentionally”.

Patel’s frustration with a lack of responsiveness and support from officials had “manifested itself in forceful expression, including some occasions of shouting and swearing”, Sir Alex said. “My advice is that the home secretary has not consistently met the high standards required by the ministerial code of treating her civil servants with consideration and respect. Her approach on occasions has amounted to behaviour that can be described as bullying in terms of the impact felt by individuals.”

Sir Alex said Patel had not been made aware of the impact

of her behaviour on civil servants. However, he recognised the “high pressure and demands” of the home secretary’s role, also finding that the minister had not been adequately supported by senior staff in the Home Office.

Despite Sir Alex’s findings, the prime minister decided that Patel had, in fact, not breached the code, and so allowed his

[Patel’s behaviour] has been in breach of the ministerial code, even if unintentionally

home secretary to keep her job. The move led to Sir Alex’s resignation.

Patel has apologised for “the upset that has been caused”, but insisted it was “completely unintentional”.

In February, civil service union the FDA launched a judicial review into Boris Johnson’s decision. In a statement, the union said that the prime minister needed to recognise the damage he has done to confidence in the ministerial code. It noted: “His decision… potentially allows ministers to avoid the consequences of their behaviour in future by pleading that it should be the intent of their actions which is important, not the consequences.”

INSIGHT

Personal responsibility equally vital as robust safeguards Many public finance professionals will recognise some of the characteristics in the Priti Patel case. The public service challenges of the past 10 years have their origins primarily in the funding reductions that emerged from austerity. Some of those challenges were played out in town halls and the boardrooms of public bodies, where tensions emerged when the message from finance professionals became increasingly difficult. We know that, in some instances, pressure was brought to bear in attempts to influence budgets or demonstrate more positive performance.

Although a funding challenge was not evident in this episode, the ensuing tension will be recognisable. This case allows us to compare the expected actions of finance professionals against the behavioural expectations of our elected politicians and all those charged with governance.

The principles that professional accountants adhere to are, of course, mirrored by the threats they could face. One of the identified threats is intimidation. In this case, we can clearly identify some of the key characteristics of how a professional could feel intimidated – in this instance, by a politician. The example of “shouting and swearing” clearly goes beyond any definition of ‘robust criticism’. But each threat should have a safeguard – here, that clear safeguard was the ministerial code.

The code itself will be based upon extant employment legislation and supported by the requirements of the modern work environment. It is clear, however, from Sir Alex Allan’s judgment, that the requirements of the code, which should provide the necessary guiding moderation, failed in this instance.

Sir Alex found that Home Office responses were not as flexible as they

could be, and the clear conclusion is that the service and support provided was not at the standard expected. When applied to the requirements for a professional accountant, this would mean that the principle of professional competence and due care was not adhered to.

The case does, however, provide a reminder to all professionals that the responsibility for ethical conduct is ultimately a personal one for each individual. No matter how good the procedural framework is, there will be occasions when the threats will be strong enough and will lead to breaches of the ethical standards. This is why professionals should ensure that they benchmark their behaviour on an ongoing basis and undertake periodic self-assessment.

DON PEEBLES is head of CIPFA policy and technical, UK and international

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IN PRACTICE

MANAGEMENT

Leaders may find they are returning to the office with a new team, facing new dynamics and, potentially, the loss of integral and unifying personalities

LEADERSHIP

2

Come together

Organisations tend to focus on the more tangible aspects of working life, such as targets, actions and bottom-line performance. Open forums will allow staff at all levels to discuss some of the difficult emotions and challenges arising from the past year, as well as their experiences of returning to work.

As Covid-19 vaccination rolls out and employees begin returning to the office, public sector leaders will face a new challenge – successfully reconnecting their temporarily disparate teams

D

uring the past year of lockdowns, people have grown accustomed to attending and hosting virtual meetings in their own homes, balancing work commitments with a host of distractions.

In many cases, this has led to a reduction in genuine engagement between peers.

Leaders will need to allow time for employees to readjust to face-to-face communication, where much more concentrated attention is required.

Employees who have been on furlough may feel they are returning to work at a disadvantage. They will have missed months of communication, with relationships and roles developing while they were absent. Similarly, those who have worked throughout the pandemic may hold resentment or jealously towards those who were effectively granted paid leave that allowed them to focus on their family and domestic commitments.

Lastly, over the course of the year, many teams will have undergone significant change in personnel – through the natural progression of staff moving on, or through enforced redundancies.

Leaders may find they are returning to the office with a new team, facing new dynamics and,

potentially, the loss of integral and unifying personalities.

It will be up to leaders and managers to find ways to work through these difficult emotions and diverse experiences and bring their teams back together as a cohesive unit. Here are some strategies to address these issues and reconnect their teams post-pandemic:

1

Increase staff members’ psychological safety

Given the loss of physical connection, it is important to invest time in developing a climate of psychological safety, in which people can be – and express – themselves without p fear of sanction.

Hold regular open forums

3

Reset expectations

A kick-off meeting with your team can reset expectations and rules.

Who is doing what? How have roles shifted? How do we make decisions now? What are the ‘open’ and ‘hidden’ expectations?

How do we communicate and resolve conflict?

GUY LUBITSH is professor of practice at Hult Ashridge Executive Education and co-author of the recent book Connect – Resolve Conflict, Improve Communication g and Strengthen Relationships

4

Check in on how everyone is feeling

5

Do not give up on difficult conversations

Before moving into the business agenda, it is helpful to spend five to 10 minutes on an informal catch up. You might ask everyone to share their current mood and encourage the team to informally reconnect and re-engage with one another.

The virtual space may have made it easier to avoid challenging conversations. Use face-to-face opportunities to create the space for conversations on difficult strategic choices or any other painful decisions that were made.

6

Create a buddy system

Assigning a buddy or mentor may encourage your team members to share their experiences of the past year and offer support, dissipating any resentment or tension between staff with differing experiences.

PUBLICFINANCE.CO.UK 55

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IN PRACTICE

LAW

M

any authorities have renegotiated, varied or even terminated contracts during the Covid-19 pandemic. The experience so far shows there is no one-size-fitsall way of addressing the impact of a pandemic on a contract.

Each situation depends on the specific contract’s terms, but also the contractor’s performance and situation, and the public sector counterparty’s own budgetary pressures.

A ‘force majeure’ clause typically allows one party to either delay or forgo carrying out its contractual obligations in defined circumstances. Whether Covid-19 is an FM event depends on the contract’s terms. The party seeking to enforce an FM clause has the burden to prove that it applies within the context of the contract. If it refers to ‘disease, epidemic or pandemic’ as possible ‘relief events’, then Covid-19 is likely to be covered. In other cases, Covid-19 may still fall under ‘acts of God’, ‘government action’ or less specific catch-all wording. In reality, much rides on the appetite of the contracting parties to negotiate.

Where FM does not apply, a contractual party may assess whether circumstances amount to ‘frustration’ – ie that the contract has become impossible to perform. UK government guidance, PPN 02/20, suggests that “the threshold for a contract being declared ‘frustrated’ is high” – increased costs are unlikely, alone, to be sufficient.

The courts are strict about frustration: in 2019, the High Court rejected the European Medicines Agency’s claim that its office lease was frustrated

by Brexit.

Some Covid-19 restrictions have triggered contractual provisions

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an obligation to assume all costs/losses and that it was only obliged to reduce the concession payment to zero.

Justice Kerr declared that: A ‘specific change in law’ requires the parties to operate the ‘authority change’ process, adapted so that it addresses the specific change in law, and cannot be withdrawn.

1

2 C O N T R A C T N E G O T I AT I O N S

Term limits Public bodies must consider a number of areas of law when assessing the impact of Covid-19 on service agreements with their contractors allowing contractors to claim for increased costs owing to a ‘change in law’. For example, the closure of leisure centres by health protection regulations was widely accepted (including by the Local Government Association and Sport England) as a ‘specific change in law’ allowing preset risk and cost allocations in the contract to apply. A recent case saw operator Sports and Leisure Management Ltd claim that the ‘specific change in law’ provision in its contract required Westminster City Council to bear full costs/assume all losses arising through the leisure centre being forced to close – ie that SLM should not be worse off.

However, Westminster argued that the clause did not impose

The outcome of that process is determined by agreement between the parties acting reasonably or under the dispute resolution procedure; the outcome is not necessarily that the contractor is ‘no worse off’; nor that the contractor bears all the losses from the specific change in law.

3

The financial consequences of a ‘specific change in law’ cannot include a concession payment becoming payable to the contractor instead of to Westminster; the concession payment cannot be less than zero for any contract year.

4

The financial consequences of a ‘specific change in law’ can include reduction of the concession payment as far as (but not below) zero and can include payment of a lump sum by the council to the contractor.

HELEN RANDALL is senior partner at law firm Trowers & Hamlins.

Additional contributor: Henna Malik, solicitor at Trowers & Hamlins

The judgment reminds one that resolving the contractual dilemmas caused by unanticipated events requires both parties to co-operate and work pragmatically through their contract to reach a mutually viable solution. To do that, one must appreciate the other’s viewpoint and current market conditions.

Illustration: IKON images

23/02/2021 16:25

IN PRACTICE

LEARN FROM...

I N T E G R AT E D R E P O R T I N G

A wider perspective University of Edinburgh finance director Lee Hamill explains how his team won the Financial Reporting and Accountability category in the 2020 Public Finance Awards for developing integrated reporting

I

ntegrated financial reporting enhances statutory financial reporting requirements by using graphics, charts and storytelling to demonstrate the wider context in which it operates.

The University of Edinburgh adopted this approach in its 2016-17 accounts, shortly after Lee Hamill joined the university as finance director.

“I came across the idea looking at other higher education institutions – a few universities in South Africa had adopted the method and it inspired me,” Hamill says. “I followed up the topic in professional accounting journals, and found a white paper by the International Integrated Reporting Council on the topic, which had a big impact on me – though a few years old now, it is regularly updated and still relevant.”

The university conducted further research on alternatives before seeking approval for the approach from its internal committees. “It was a pretty easy decision to make – either stick with the status quo, a pretty decent set of accounts that ticked the boxes for the auditors,” Hamill recalls, “or do something more meaningful, relevant and understandable for lots more of our stakeholders.”

Lee Hamill’s key lessons PLAN FOR THE LONG TERM “Integrated reporting is not something that you should try to do overnight. You should have at least a two-year plan in place to really try and make the changes necessary.”

ENGAGE WITH STAKEHOLDERS “Before you start anything, stop and talk to your stakeholders, and ask what the annual accounts mean to them.”

The objective was to define the wider impact the university has on the community and wider world. “We are trying to explain what value the university adds to the local community, the broader community here in Scotland, and the UK,” Hamill says. “The ‘value creation model’ section of integrated reporting allows you to do that.” The team’s new-look accounts incorporate infographics and narrative boxes, plus additional commentary from the chair of the organisation, the principal and vice-chancellor, and Hamill himself.

The biggest challenge in the early stages was reassuring stakeholders, including student and governing bodies, that the reporting approach was the right

one for the university, Hamill says: “In any large organisation, change can be slow. Moving away from the status quo can be seen as being difficult; there is that sense of inertia that has to be dealt with.”

“We showed our stakeholders the skeleton of the document as it emerged,” he adds. “We made sure the relevant people were part of the process and not simply getting sight of the document when it needed to be signed off.”

Another challenge involved educating the university’s finance community on integrated reporting. “What was difficult,” Hamill says “was finding the time to actually talk to people about this. Fortunately, we have events four times a year and they were a great opportunity to get people interested.”

The learning process was a “slow burn” for a number of years, right up to the award-winning accounts of 2018-19, Hamill notes. “I had to ask myself, is this something that I want to take on, in the full knowledge that it would be a long, challenging journey?” he adds. “It was hard to find the time when I have a busy role, but it has been absolutely worth it because of the results that we got.”

GET CREATIVE “With integrated reporting, the finance team has a chance to look outside the box, and to create a report that is well designed and informative for stakeholders.”

Photography: Alamy

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IN PRACTICE

FUNDING BIDS

BUSINESS CASES

Growth opportunity The UK Treasury has updated the Green Book – its methodology for assessing funding bids – to help users put it into action more effectively to achieve ‘levelling up’

T

he ability of the Green Book to enable the government’s ‘levelling up’ agenda has been a matter of contention for some time.

Many critics see the UK Treasury guidance as a mechanism that leads to government funding being concentrated in areas of higher economic output, while regions more in need of development miss out. Last year, the government reviewed the Green Book. While the core methodology was not, by itself, found to skew outcomes, changes were recommended to the way it is used to develop business cases.

I support this conclusion. After all, the Green Book is ultimately not a decision-making algorithm.

Following the review, the Treasury has updated the Green Book to include: A stronger requirement to establish clear objectives from the outset; Stronger and clearer advice on what constitutes value for money; New guidance on how to assess local impact; New guidance on the appraisal of transformational changes; and Measures to improve analysis on differential impacts.

In addition to strengthening the approval and decisionmaking process, the department is looking to improve the culture around the development of proposals, including: 58 PUBLIC FINANCE MARCH/APRIL 2021

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New emphasis on the role of business case reviewers, featuring more training and support; Greater transparency, with a new requirement to publish a summary after final approval; and More extensive and flexible support for Green Book users.

Such changes could enable decision-makers to better understand what investments they need to make to deliver regional priorities. The process requires a range of functional professions, including government finance, commercial and projects, etc, to build up the evidence while narrowing down the options to the preferred best-value option. Business cases are living documents, providing a decision-making audit trail, and should be used to capture benefits, costs and risks through the project life cycle.

experience, the commercial supply chain and financial controls.

In my experience, it is helpful for projects to have a series of financing and delivery options.

It is powerful to be able to say: “Yes, the economics, finances and commercials on this stack up, such that it can be funded/ financed and delivered in a variety of ways.” Then the business case can be used to evaluate which option offers best public value.

2

Ensure projects are ready to deliver

The announcement of government cash should not be the starting point nor the sole reason for developing a project.

Spending proposals should be driven by the local policy context

FIVE TIPS TO IMPROVE YOUR BID

1

Present different options

Many projects fail not as a result of the Green Book, but because of shortcomings around the financial, commercial and management cases. It is important not to neglect these. In the recent grant applications for £1bn of decarbonisation funding, there were a wide range of questions on project governance, delivery Illustration: Getty

23/02/2021 16:26

and objectives, and evaluated on the basis of best public value.

Given the annualised nature of central government spending, often funding is linked to very tight spending/delivery timelines.

Continuous consideration should be given to which shovel-ready projects can be brought forward.

3

Invest in your capacity

Some have argued that local public services no longer have the capacity for developing projects in this way. This could be improved by more accessible and flexible training and updating the reviewer’s checklist(s). However, business cases need good project management – it is estimated that public services spend

£1.35bn a year on business-case development. The foreword to CIPFA’s Better Business Cases guidance states that 30%-40% of the time and cost of preparing business cases could be saved by following the guidance and by using accredited teams.

It is important to robustly explore a wide range of options, including financing arrangements and commercial delivery models. Collaborative working, proportionality and honesty in business case development are all vital.

4

Know when to quit

If evidence grows that the project is not going to be viable or that other projects are preferable, then it

Many critics see it as a mechanism that leads to government funding being concentrated in areas of higher economic output should be halted. There will be sunk costs, but, under the Green Book economic case analysis, these are not part of the forward appraisal. Often, it is the commercial and/or management case that causes such a halt, rather than the strategic or economic case.

5

Be honest about failure

The ability of professionals to get the most out of the Green Book would be immeasurably improved by greater access to both positive and negative case studies.

CIPFA’s Better Business Cases training contains examples of cases and projects that are perceived as not going well.

Programmes for major projects, such as the UK’s ‘levelling up’ or net-zero targets, are much easier to grasp through the lens of specific case studies.

MARK WILLIAMS led the training workstream on the Green Book review for HM Treasury, provides Better Business Cases training through CIPFA, and joined audit firm Grant Thornton in January PUBLICFINANCE.CO.UK 59

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IN PRACTICE Covid-19 has shown the principles of the FM Code to be more important than ever

FINANCIAL MANAGEMENT CODE

FM reception The first year of full compliance with the Financial Management Code is upon us – but authorities have flexibility to interpret it to fit their circumstances

A

t CIPFA, we believe that good financial management should be at the core of every public sector organisation. While statutory responsibility for the financial management of a local authority rests with the Section 151 officer, the principles should also penetrate through all departments, the entire leadership team and those with an advisory role.

This notion of collective responsibility is why CIPFA launched the Financial Management Code back in October 2019. The new code, which came into effect from April 2020, was designed specifically to support local government with consistent standards, rooted in transparency and sustainability. At the time of its launch, CIPFA acknowledged the existing financial pressures facing councils. This is why we set 2021-22 as the first full compliance year for the code, allowing authorities a shadow year to work towards full implementation. While we accept

Illustration: IKON images

63 IP - CIPFA column_Mar-Apr 2021_Public Finance 63

that the pandemic has thrown the 2021-22 financial year into a cloud of uncertainty, what we do know is that the pressures experienced in the sector over the past year have shown the principles of the FM Code to be more important than ever.

Building awareness and understanding of shared financial goals throughout an organisation improves the quality of decision-making and helps defend against unexpected roadblocks. There has been no bigger unexpected roadblock than the Covid-19 crisis. Large quantities of government funding have been directed at (and through) local government at speed over the past year, often with very little guidance.

The ability to determine financial objectives at pace and communicate them well across an organisation have been vital to managing the pandemic for finance teams.

The FM Code also aspires to support improvements in financial planning, so that local authorities have the ability to

JOANNE PITT is local government policy manager at CIPFA

GUIDANCE

make decisions about the future effectively and create sustainable financial plans. The uncertainty created by the pandemic has resulted in a risk environment that no one could have predicted a year ago, along with only a single year of funding certainty from the government’s most recent Spending Review. All of these factors continue to make scenario planning and financial forecasting increasingly difficult, but they entirely underline the need for strong financial management and governance in local government decisionmaking. Those authorities that are best equipped to rebuild when the crisis is over and prepare for the crises of the future will be those that have embedded the financial planning elements set out in the FM Code.

As a result, the shadow year will be ending as planned, and full compliance with the FM Code will still be expected for the upcoming financial year.

We recognise that this will have resource implications. The pandemic has meant that plans set out last March will have changed radically. But there will always be difficulties to face in public finance, and one approach will never suit all organisations.

This is why proportionality was built into the code during its development. This allows every chief finance officer to implement and interpret the code in a way that reflects the unique circumstances of their authority and supports its journey towards long-term financial sustainability.

CIPFA will continue to provide support in implementing the code. We know that this will not be easy. But, in our experience, those things that are worth doing rarely are.

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IN PRACTICE

DIARY DATES

CIPFA offers events around the UK to members and non-members alike. Our events range from small workshops for local CIPFA members through to largescale conferences aimed at professionals across most disciplines in the public sector. Upcoming events are listed below.

EVENTS

Visit www.cipfa.org/training to search for the events you are looking for, or contact customerservices@cipfa.org S TA R T I N G 1 0 M AY

To continue supporting you during the Covid-19 restrictions, all our events will be delivered online.

The format and provision of the programme is under constant review.

For support and guidance around Covid-19, including webinar and e-learning support, please visit cipfa.org/coronavirus

WEBINARS

Accredited Counter Fraud Specialist This course focuses on the skills and knowledge needed for the effective management of fraud – from prevention and creating an anti-fraud culture to investigation and resolution to the highest evidential standards. cipfa.org/acfs S TA R T I N G 2 4 M AY

an uncomfortable audit process.

This event aims to demystify the process, jargon and regulations.

M U LT I P L E D A T E S

Completing and Accounting for NNDR3 More essential than ever, given the impact of Covid-19 on non-domestic rates income, this series allows revenues and accounting delegates to consider their respective and combined responsibilities in completing the national nondomestic rates return form, NNDR3, and the subsequent accounting implications.

COURSES 30 MARCH

Better Business Cases, Foundation Level Foundation-stage accreditation on HM Treasury’s Green Book guidance on public sector business cases, using the fivecase model. It is a pre-requisite for the practitioner qualification. www.cipfa.org/bbcfoundation

23 MARCH / 25 MARCH

S TA R T I N G 1 3 A P R I L

Introduction to Asset Valuations Undertaking capital asset valuations for land and buildings within local authority balance sheets is far from easy. Interpreting regulations and standards to ensure compliance can be tricky and time-consuming.

Any misinterpretation can become embedded into locally accepted practice, making for

Leadership Development Programme A four-day course for future leaders and managers that supports the development of excellent leadership practices within public sector finance functions. Delegates from local authorities in England are eligible for 50% off their fees, thanks to bursaries from the Local Government Association. www.cipfa.org/ldp

S TA R T I N G 1 9 A P R I L

Diploma in Finance Business Partnering Focusing on the skills, knowledge and expertise required to operate effectively as a finance business partner, this course will enable you to advise and guide decision-makers. www.cipfa.org/fbp S TA R T I N G 5 M AY

Diploma in Contract Management Combining contemporary contract management theory and good practice to help you manage contracts effectively. www.cipfa.org/ contractmanagement

Accredited Counter Fraud Technician Ideal for anyone in a position to spot fraud at an early stage, this course offers a comprehensive introduction to counter fraud and investigative practice. www.cipfa.org/acftech 1 5 J U LY

Better Business Cases, Practitioner Level Achieve sufficient understanding of the theory and application of the five-case model to effectively develop and produce a business case.

You must have passed the foundation exam before undertaking this course. www.cipfa.org/bbcpractitioner 6 O R 9 S E P T E M B E R S TA R T

S TA R T I N G 7 M AY

CFO Leadership Academy Designed for those who are in, or aspire to be in, senior finance roles in the public sector, this course focuses on the development of personal impact, problem-solving and decision-making skills. cipfa.org/cfoacademy

CIPFA/ACES Diploma in Public Sector Asset Management An online property qualification from CIPFA Property and the Association of Chief Estates Surveyors and Property Managers in the Public Sector, offering the skills and knowledge for expert asset management. www.cipfa.org/dpsam

64 PUBLIC FINANCE MARCH/APRIL 2021

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IN PRACTICE

ON ACCOUNT ANDREW BURNS CIPFA ASSOCIATE DIRECTOR

FINANCIAL RESILIENCE

Benchmark index The latest update of the Financial Resilience Index provides a useful base from which to assess the impact of Covid-19

T

he preparation of this year’s Financial Resilience Index was far from ideal. We would have liked to have been talking about this back in December to support Section 151 officers in pulling together their Section 25 reports on the robustness of their budgets and the adequacy of their reserves. However, we have been living in a less than ideal world for quite some time.

Data on revenue outturns from the Ministry of Housing, Communities & Local Government, on which a large part of the index is based, were originally expected in November. However, because of Covid-19-related issues, release of the data was delayed to late January 2021.

Despite the unavoidable delay, the index will provide a useful benchmark on local authority resilience ahead of the 2020-21 update, provisionally scheduled for release in November.

So what can we expect from the 202021 Financial Resilience Index? First and foremost, we can expect reserves to take a hit. The 2019-20 update shows an uptick in local authority reserves, mainly owing to the way many councils treated the Covid-19 relief funding issued at the end of March 2020. Several authorities, in the absence of guidance, accounted for these funds in their reserves. Putting them aside, in real terms, reserves decreased from £25.4bn in 2019 to 24.6bn in 2020. With some authorities choosing not to increase their council tax in line with the assumptions made in November’s Spending Review, it

would not be unreasonable to expect that reserves are set to face another dip.

The next update of the index will reflect the unique circumstances of Covid-19. One set of indicators is ‘total fees and charges as a proportion of service expenditure’. The higher the ratio, the lower the financial risk faced by the authority – a greater amount of fees and charges provides councils with more control over their budgets.

However, authorities that are highly reliant on income from sales, fees and charges have been among those hit hardest by the pandemic. As a result, a quirk of next year will likely be that a high level of fees and charges compared with service expenditure will increase rather than reduce risk. Some of this will be mitigated by government compensation, but we would still expect the next index to take these extenuating circumstances into account.

An additional factor will be around business rates. The current index measures the percentage growth in business rates above a baseline. However, as announced in the Spending Review, the expected reset will no longer take place in 2021-22. Under the retention scheme, many local authorities have been able to maintain growth in business rates. In the event of a reset in which the baseline is raised, authorities with greater income above the baseline will face a more negative impact. However, that risk has now been pushed into the future.

While it has always been impossible to have a crystal ball for issues affecting local authority financial resilience, it is still important that we remain true to the principles we originally set out in the development of the index. It provides a clear set of high-level indicators of financial stress, with transparent numbers around which the financial health of an authority can be discussed.

The added implications of Covid-19 have emphasised the importance of local context. The pandemic is set to have impacts that ripple through local government finances for quite some time to come, well beyond the end of the pandemic. We hope this update, in combination with the 2020-21 update in November, will provide a useful snapshot of these effects and support conversations in the sector that start to build a road to a sustainable postCovid-19 future.

PUBLICFINANCE.CO.UK 65

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LAST WORD

WHERE NEXT?

Give this your fee mo db @PU nth’s m ack on agaz BLIC ine a _ F IN t @PF _FO ANCE_ CUS

READ…

The latest publications from CIPFA Disclosure checklist for 2020-21 accounts A guide to meeting the requirements of the Code of Practice on Local Authority Accounting in the UK. Service Reporting Code of Practice for Local Authorities 2021-22 Mandatory requirements and best practice to ensure consistent financial reporting for services.

Visit publicfinance.co.uk and publicfinancefocus.org for exclusive news and opinion on the latest developments affecting public finances. Sign up for news bulletins direct to your inbox NHS FINANCES “The 2019-20 NHS accounts show that the provider sector was in a precarious financial position before Covid-19 took off.”

Amelia Chong, policy adviser for finances and specialised services at NHS Providers

INCOME TAXATION “Piecemeal reforms risk being ‘whack-a-mole’, alleviating one problem at the expense of making others worse.”

Stuart Adam, senior research economist at the Institute for Fiscal Studies READ the full articles at www.publicfinance.co.uk/type/opinion

The idea that production is increased when people specialise and labour is divided is one we associate with Adam Smith, but Khaldoun is clearly talking about it 300 years earlier Quote from the Economics in Ten podcast, which examines key economic thinkers from history, on 14th century philosopher Ibn Khaldoun (left).

LISTEN

CIPFA speaks! podcast Latest episodes DAISY HOOPER, head of policy at the Chartered Management Institute, discusses flexible working, while Audit Wales’ director of finance and HR STEVE O’DONOGHUE reveals how operating from home has affected his working life.

NIGEL RIGLAR, president of the Association of Directors of Environment, Economy, Planning and Transport, joins CIPFA chief economist JEFFREY MATSU to assess the economic frameworks affecting climate policy.

LISTEN at publicfinance.co.uk/ podcasts-cipfa-speaks

66 PUBLIC FINANCE MARCH/APRIL 2021

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4UBZ VQ UP EBUF XJUI PVS MBUFTU HVJEBODF #VZ JOEJWJEVBMMZ PS UBLF PVU B QVCMJDBUJPOT TVCTDSJQUJPO As well as being the standard setter for local government accounting, Q D ɆķėŒƋƖɆėŝƖƪƎėɆėLJĉėŒŒėŝĉėɆļŝɆǘŝëŝĉļëŒɆśëŝëİėśėŝƢɆƢķƎŨƪİķŨƪƢɆƢķėɆ public sector. Our range of titles stretch beyond reporting and address key topics and the latest issues confronting the sector.

Latest publications: • Code of Practice on Local Authority Accounting in the United Kingdom: Disclosure Checklist for 2020/21 Accounts • Code of Practice on Local Authority Accounting in the United Kingdom Guidance Notes for 2020/21 Accounts • A Guide to Local Authority and Public Sector Asset Management • Service Reporting Code of Practice for Local Authorities 2021/22

View our titles Visit www.cipfa.org/publications Email customerservices@cipfa.org Phone 020 7543 5600

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