Test and trace in England falls short despite £22bn budget

11 December 2020: Despite achieving significant increases in testing activity, the Department of Health and Social Care’s test and trace service failed to meet recommended effectiveness rates, according to the NAO.

The rapid scale-up of COVID-19 test and trace service saw 23 million tests carried out, 630,000 of 850,000 people testing positive reached and 1.4 million of their contacts traced up to 4 November. However, at 66% the close contact trace rate is below the 80% needed to be effective.

The National Audit Office (NAO) has issued an interim report on the NHS Test and Trace Service set up by the Department of Health and Social Care (DHSC or the Department) to test for COVID-19 and to trace close contacts of those testing positive. 

The NAO reports that between 28 May and 4 November 2020, only 41% of test results were provided within the target time of 24 hours and only 66% of close contacts of those testing positive were reached and asked to self-isolate, compared with the 80% rate recommended by the Scientific Advisory Group for Emergencies (SAGE) for an effective test and trace system.

Test and trace programmes are a core public health response in epidemics that can be used with other measures, such as social distancing, barriers (such as masks) and handwashing, to reduce infections. At the start of the COVID-19 outbreak, Public Health England carried out comprehensive testing and tracing on the relatively low numbers of initial infections, but this was suspended at the start of the first national lockdown in mid-March. The Department scaled-up testing capacity from April onwards and on 28 May 2020 launched the NHS Test and Trace Service covering England.

The NAO’s key findings include:

  • The Department has achieved significant increases in testing activity, set up a national contact tracing service scratch and has tested millions of people.
  • The delivery model chosen for the national test and trace programme, which excluded local public health teams from the response, was only documented in a retrospective business case written in September 2020.
  • The Department spent £4bn up to October 2020, around £2bn less than forecast, due to underspending on laboratories, machines and mass testing. The total budget for 2020-21 is now £22bn with a significant expansion in mass testing planned in the remaining months of the financial year ending in March 2021.
  • 407 contracts worth £7bn have been signed with 217 public and private organisations, with a further 154 contracts worth £16bn expected to be signed by next March (this includes spend going into the next financial year). An internal government review of test and trace systems in 15 other countries confirmed that the UK approach was atypical, as although some countries had used private sector outsourcing to increase testing capacity, none had done so to increase tracing capacity, which was generally built up from existing public health expertise.
  • Connecting discrete services provided by different organisations into an effective end-to-end process has been challenging, with the initial focus on creating a ‘minimum viable process’ shifting to refining, integrating and stabilising the process so it operates reliably at scale.
  • Accountability is unclear, with the executive chair of the test and trace service reporting directly to the Prime Minister and the Cabinet Secretary, bypassing normal reporting lines within the Department.
  • There are now 593 testing sites and 15 laboratories, with plans to add a further 15 lighthouse laboratories and two high-capacity ‘mega-laboratories’ in January 2021. Testing capacity expanded rapidly in line with the public target of 500,000 available tests per day on 31 October, but the average number of tests since May has been only 68% of capacity, below the 85% expected level. The ambition is to increase testing capacity to 800,000 tests a day by the end of January.
  • Turnaround of test results peaked in June with 93% of community (pillar 2) test results provided in 24 hours, but this had deteriorated to 14% around mid-October before improving to 38% by the beginning of November. Turnaround times for hospital and care homes have consistently been about 90%, albeit measured on a different basis.
  • The Department did not plan for a sharp rise in testing demand in early autumn when schools and universities reopened, resulting in the number of tests available being limited, longer turnaround times and extra assistance being commissioned.
  • Initial problems in sharing data with local authorities have now been largely resolved, but there are a number of significant data risks to be managed pending a planned upgrade of contact tracing software scheduled for January 2021.
  • High reported levels of non-compliance with self-isolation rules represent a key risk to the success of test and trace, and national and local government have been trying to increase public engagement.

The NAO concludes by commenting that although a rapid scale-up in activity has been achieved with new infrastructure and capacity built from scratch, issues with implementation and potentially the initial choice of delivery model mean that the government is not yet achieving its objectives.

The NAO also highlights the most significant risks remaining, including in how to increase utilisation of testing capacity, manage spikes in testing demand and expand the use of local authority public health teams. There are challenges to be overcome in delivering mass testing across the country, increasing public engagement to improve compliance with self-isolation and in ensuring contracts awarded contain sufficient flexibility to respond to changing requirements at reasonable cost.

Finally, the NAO stresses the importance of embedding strong and sustainable management structures, controls and lines of accountability, addressing arrangements where accountability does not clearly align with organisational and strategic objectives in other aspects of the government’s COVID-19 response.

Alison Ring, director for public sector at ICAEW, commented: “While the need to move quickly in response to an out-of-control pandemic was always likely to prove extremely challenging, the NAO has highlighted how consequential the initial decisions made under pressure can be. 

The NAO hints (without being explicit) that the choice to exclude local public health teams and local expertise from the initial roll-out of national test and tracing was a major mistake that the government is still struggling to recover from. They also do not sound entirely comfortable with the governance arrangements for the test and trace service and intend to look at value-for-money and contract management in their second report expected in spring 2021.

Despite an eye-watering £22bn price tag, the investment in test and trace will be worthwhile if it saves lives ahead of the roll-out of vaccines and enables restrictions on our freedom and on economic activity to be lifted as quickly as possible in 2021.”

Read the full report here.

This article was originally published on the ICAEW website.

ICAEW writes to Chief Secretary on Spending Review priorities

16 November 2020: Alison Ring, ICAEW’s director for public sector, has written to the Chief Secretary to the Treasury ahead of the Spending Review to stress the importance of investment in infrastructure, data and financial management.

The government has announced that the Spending Review will take place on 25 November 2020 but with the uncertainties caused by coronavirus, it has decided to restrict this to only one year instead of the previously planned three-year time horizon.

In the letter to Steve Barclay MP, Chief Secretary to the Treasury, ICAEW stresses how vital it is the government moves forward with its ambitious programme of infrastructure investment, and that projects are not delayed by the postponement of the Budget until next year and the reduction of the scope of the Spending Review to one year.

Commenting on the letter Alison Ring OBE FCA, ICAEW’s director for public sector said: “The 2020 Spending Review comes at a critical time for the UK and its public finances and will quite rightly focus on the government’s current spending plans for the coming financial year starting in April 2021 and capital budgets for the following year. Well-targeted support will be critical to ensure as strong a recovery from the coronavirus pandemic as possible. 

Our letter to the Chief Secretary focuses on the importance of budgetary certainty to ensure infrastructure projects are green-lit now rather than risking further delays because of the restriction in Spending Review time horizon. The long-delayed National Infrastructure Strategy is urgently needed if the government’s ambitions to level up economic prosperity and deliver carbon neutrality are to be achievable.

The government also has ambitious plans to improve the way government works, with the recently published National Data Strategy setting out how digital innovation will be key. We comment in the letter how the importance of high-quality financial skills, finance processes and risk management to delivering better outcomes and ensuring value for money for taxpayers should not be underestimated. The government does not have the best of records in undertaking major transformation programmes, and we caution the Chief Secretary against under-resourcing the planning stages of these projects. 

Finally, we hope that the government will use the delays in the Budget and the later years of the Spending Review to think about the longer term and how to put the public finances on a sustainable path. Even before the pandemic and the huge amounts of additional borrowing being undertaken this year, the Office for Budget Responsibility had reported that the strains on public services, more people living longer, and growing debts and other public liabilities were not being addressed. A comprehensive long-term fiscal strategy is needed to look beyond the immediate and establish a sustainable framework for the public finances for the next quarter of a century.”

The letter to the Chief Secretary to the Treasury focuses on three key areas, all of which ICAEW believes are essential to re-balancing economic opportunity and performance across the UK and to achieving carbon neutrality, as well as being key to driving the post-pandemic economic recovery in 2021 and the decade ahead.

Sustainable infrastructure investment

The shortening of the Spending Review period risks causing uncertainty in departmental capital budgets and the potential for further delays in getting infrastructure projects underway. ICAEW believes that establishing capital budgets for 2023-24, as well as 2022-23, would help departments to be confident in carrying out the groundwork for these projects so that they can be implemented as soon as possible.

The National Infrastructure Strategy is more urgent than ever to reduce regional inequalities and deliver on the ‘levelling up’ agenda.

Data and financial management

ICAEW welcomes the publication of the recent National Data Strategy and the commitment to rethinking how government works set out in the Chief Secretary’s speech of 28 July – digital innovation and better use of data will be key to delivering improved public services at a lower cost. However, sufficient resources must be provided to the initial stages of these projects – the experience of ICAEW members is that underinvestment in planning is one of the major causes of project failure.

Relatively small amounts invested in improving the quality of financial information needed to support effective decision-making, in more efficient and effective finance systems and processes, and in enhancing financial controls such as fraud prevention and detection are likely to be paid back many times over.

A long-term fiscal strategy

One benefit of the delay in the Budget and the deferral of the second two years of the Spending Review is the additional time this will give the government time to think about the longer term and how to put the public finances on a sustainable path. 

This is more pressing than ever as strains on public services increase, people live longer, and debt and other public sector liabilities continue to grow. 

A comprehensive strategy setting out a framework for taxes, welfare and public services over the next quarter of a century would provide an opportunity for sustainable reform to deliver a robust public balance sheet, a more resilient government machine, and a stronger and more prosperous economy. 

This article was originally published on the ICAEW website.

Plastic is the future for cash – one way or another

22 September 2020: Physical cash use is declining fast, leaving the fixed cost base for processing cash transactions at risk of stranding. As cards and digital forms of payment become more prevalent, what will happen to those who still need access to cash?

The National Audit Office (NAO) issued a report on 18 September 2020 on the production and distribution of cash. It looks at what the Bank of England, the Royal Mint, HM Treasury and financial regulators are doing in response to a 59% decline in the volume of cash transactions between 2008 and 2019, as well as efforts to improve the efficiency of cash production and reduce counterfeiting.

According to data from UK Finance, cash payment values fell from £267bn in 2008 to £141bn in 2019 and were (prior to the pandemic) forecast to fall to £59bn by 2028.

Coin production has fallen significantly, with 383m coins manufactured for circulation in 2019-20 compared with 1.1bn in 2010-11. Notes in circulation have continued to increase (to 4.4bn notes with a monetary value of £76.5bn in July 2020), but only around 20%-24% of these are used for cash transactions and 5% used for savings, leaving over £50bn whose location is uncertain – a point which the NAO believes deserves further investigation.

A key finding from the report is that there is no single body in government responsible for overseeing how well the cash system is performing, despite the establishment of a Joint Authorities Cash Strategy Group (JCAS) focused on access to cash for those that need it, in particular for the million or so UK adults who do not have a bank or building society account.

The UK’s entire cash infrastructure across the public and private sectors is estimated to cost around £5bn a year, with many of these being fixed costs that with declining usage are putting pressure on the cash system. 

The number of ATMs fell by 12% over the two years to December 2019 to around 60,000, with a fall of 17% in the number that were free-to-use to around 45,000. The Payment Systems Regulator (PSR) has been working with the industry to maintain free-to-use ATMs in geographic areas where provision is most limited, although the NAO recommends greater attention is given to more deprived areas.

Demand for notes and coins declined by 71% between early-March and mid-April 2020 during the COVID-19 lockdown but has since recovered. The NAO believes it is still too early to assess the longer-term impact on cash access and usage but moves amongst some retailers to suspend acceptance of cash during the pandemic could further accelerate the switch to non-cash forms of payment.

The NAO is positive about the steps the Royal Mint and the Bank of England have taken against counterfeiting. In 2016, about one in 30 £1 coins was a counterfeit, but surveys since 2018 have found very low counterfeiting rates for the new £1 coin. The introduction of the polymer £20 note, traditionally the denomination favoured by counterfeiters, should also help reduce the cost of fraud to consumers and businesses.

The Royal Mint reported a reduced loss of £3.9m on its coin-making activities in 2019-20, with actions to improve efficiency including a 22% headcount reduction within its currency division and the mothballing of two of its six plating lines. The Bank of England has also worked with De La Rue to improve efficiency, albeit each polymer banknote costs 60% to 80% more than a paper one, even if they are expected to last at least 2.5 times longer. 

The NAO recommends that HM Treasury takes another look at the roles and responsibilities of the bodies involved in the cash system, setting out more clearly the specific outcomes it wants to deliver for consumers and small businesses and how this should be balanced against the cost of doing so. It also believes that a plan is needed to take action if some groups become left behind as the cash system changes.

Martin Wheatcroft FCA, adviser to ICAEW on public finances, commented: “The NAO has provided some extremely useful insights into how the UK’s cash system is coping with declining usage and it makes a number of sensible recommendations for improvements. 

“However,” continued Wheatcroft, “the report does not answer the more fundamental issue of whether cash has a long-term future at all, and in particular whether the multi-billion costs of running cash and other legacy payment systems could be better deployed.

“Ultimately, is it now time to look beyond a managed decline of the cash system and explore more radical options?”

Front cover: NAO report 'The production and distribution of cash'. Click on the image to go to the NAO website.

This article was originally published on the ICAEW website.

Magnox contract exit cost: a small price to pay?

16 September 2020: The National Audit Office has issued a report on the £20m cost of exiting the failed Magnox contract to decommission nuclear research sites and power stations.

The National Audit Office (NAO) report covers the handling by the Nuclear Decommissioning Authority (NDA) of the failed Magnox contract to decommission two nuclear research sites and 10 Magnox power stations and the estimated £20m cost incurred on exiting the contract.

The NDA is a statutory body established in 2005 to take ownership of the decommissioning programme for the UK’s oldest fleet of nuclear power stations and other nuclear facilities. At 31 March 2020, the NDA had an estimated liability of £135bn in its accounts for the costs of decommissioning still to be incurred.

The NDA has awarded a series of contracts to clean up nuclear sites and deal with radioactive materials, including fuel. This includes the 14-year Magnox contract awarded in 2014 to Cavendish Fluor Partnership (CFP) which the High Court decided was wrongly awarded, with the NDA agreeing a £97m settlement with a bidder in 2017.

The NDA then decided to terminate the contract with CFP nine years early, and an earlier report by the NAO stated how £122m had been lost by that point. The Public Accounts Committee reported in 2018 that the NDA needed to improve its understanding of the state of the sites, its ability to monitor work carried out on them, and the capability and expertise of its executive team.

Since 2017, a revised contract has been agreed with CFP and further litigation avoided, with £2.7bn of decommissioning work completed before the contract ended in August 2019.

The NAO says there have been further costs to the taxpayer, including an estimated termination cost of £20m to negotiate the early exit from the contract and incentivise a smooth handover of sites without further legal challenge. This is a relatively small amount in the context of the £6.9bn to £8.7bn estimated cost for decommissioning the Magnox sites.

The NAO report stated: “With the NDA now taking more direct control over the management of its sites, it will be critically important that it builds and retains better knowledge of the condition of its sites to enable it to plan and deliver decommissioning work efficiently and effectively. The NDA considers that it will be better placed to achieve this under its revised delivery model, but it is too early for us to assess the effectiveness of these arrangements.”

Martin Wheatcroft FCA, adviser to ICAEW on public finances, commented: “The huge sums being spent on decommissioning nuclear facilities can hide many sins, but we are fortunate that the National Audit Office is able to dig around and analyse what is going on.

“On this occasion, the £20m cost of exiting the Magnox contract appears a relatively small price to pay for a second chance at getting the decommissioning of the Magnox fleet right. There are much larger sums – in the billions – riding on the as-yet unproven new delivery model being put in place by the Nuclear Decommissioning Authority.”

Image of front cover of NAO report 'Progress report: Terminating the Magnox contract'. Click on the image to go to the NAO website to download the report.

This article was originally published on the ICAEW website.

£31 billion charge shines spotlight on £2.2tn pounds public sector pension liability

21 August 2020: Ministers insulated older employees from public sector pension reforms in 2015, despite advice saying not to. The courts found this was age discrimination, resulting in a £31bn charge in the Whole of Government Accounts.

When the Hutton review on public sector pensions reported in 2011, it recommended retaining the defined-benefit pensions provided to public sector employees. However, it wanted to reform how public sector pensions are calculated to reduce the cost to taxpayers, while at the same making them fairer for lower-paid employees. 

Recommendations included switching from final salary to career average for calculating pension entitlements, aligning the retirement age for most public sector employees with the state pension age, and increasing employee contributions.

The Hutton reforms followed a major cost saving already achieved in switching from RPI to CPI-linked increases for pensions in retirement, which resulted in a one-off gain of £126bn in the 2010-11 Whole of Government Accounts (equivalent to a 10% reduction in the gross pension liability at that time) as well as reducing the cost of providing pensions going forward. 

To protect existing employees, Hutton recommended that accrued rights at the date of the switch should still be calculated on final salaries, with only subsequent years of service accruing on an average salary basis. Retaining existing rights meant there was no significant gain or loss recorded when the reforms to existing pension arrangements were implemented in 2014 and 2015, with any cost savings arising in future years.

Despite the Hutton report explicitly stating that “age discrimination legislation … means that it is not possible in practice to provide protection from change for members who are already above a certain age”, the Government decided to provide transitional protection for older members. Full transitional protection was offered to workers 10 years or less away from retirement in 2012, with partial protection on a sliding scale tapering away to zero for those with 14 or more years to go until retirement at that point.

As might have been expected, given the clear advice in the Hutton review that this would constitute unlawful age discrimination, the UK Government lost in the Supreme Court in 2019 in the McCloud and Sargeant cases. As a consequence, employees that have lost out because the transitional protections did not apply to them will receive an uplift in their pensions when they reach retirement.

Illustrative example

To illustrate the issue, consider the case of fictional civil servants Sarah and Maxine who were 20 and 10 years away from retirement respectively in 2012 and who were moved into the new career-average ‘alpha’ pension scheme in 2015. Each is expected to retire with 30 years’ service on a final year salary of £80,000, following rapid promotions in their final 10 years of service.

Image of table with worked example. Click on link at the end of this post to for the article on the ICAEW website containing the table itself.

In this illustration, Maxine, who in 2012 had 10 years to go before retirement, should receive an initial pension of £40,000 a year when she retires in 2022, including a £500 transitional protection uplift. 

Without transitional protection, Sarah would expect to receive £34,000 a year when she retires in 2032. Although the precise details of the remedy in response to the court judgements is still being worked out (see HM Treasury consultation), it is likely that Sarah will now receive a transitional protection uplift covering the period from 2015 to 2022, potentially adding around £4,000 (based on our illustrative assumptions) to her pension on retirement, but still below what she would have received without the changes.

The court ruling will only affect employees who would have got more under the final salary arrangements. For a significant proportion of public sector workers, the faster accrual rate on a career average basis will provide them with a higher pension than they would have received under the slower accrual rate applied to final salary under the old arrangements. They will not have lost out from not having had transitional protection.

Spotlight on the £2.2tn public sector pension liability

The £31bn past service cost recorded in the Whole of Government Accounts in 2018-19 added 1.4% to the amounts owed to current and former public sector employees for their accrued pension rights, increasing the gross liability recorded to £2.2tn at 31 March 2019. (The Government separately reported that the court judgements would cost £17bn but did not explain how this number reconciled with the £31bn reported in the accounts.)

£2.2tn is a huge amount of money, equivalent to around £80,000 for each household in the UK. Most public sector schemes are unfunded (£1,756bn out of the £2,244bn gross liability) with pension payments funded out of future taxation. Local authority and other funded public sector schemes (£488bn) do have pension fund investments (£350bn at 31 March 2019) set aside to pay pensions, but they will need to increase their contributions to those funds to cover the cost of extending transitional protections to affected employees. 

There are no doubt many morals to be drawn from this story, but what it does highlight is the sheer scale of the pension obligations that public sector employers have built up over the years, and just how much a single ministerial decision can end up costing taxpayers.

This article was originally published on the ICAEW website.