Two issues linked to the public finances have come to the fore in the wake of the Blood Scandal inquiry. These economic issues are clearly secondary to the wider safety and public policy concerns, but let’s address them here. One is the cost of public inquiries; the other is regarding how the £10bn of compensation linked to the blood scandal impacts the public finances.

In my view, the cost of public inquiries is not a major issue, and the £10bn is, by today’s standards, affordable. That being said, it is important to stress both the need for value for money in public spending, including inquiries, and the limited room for manoeuvre that exists currently in the public finances.

Let’s first consider the cost of public inquiries. This issue came to the fore at the time of the 2005 Public Inquiries Act. Back then, cost was an important contributor to the debate. That was largely because the preceding 1921 Act under which inquiries were set up contained no provision to control the cost of inquiries and, by 2005, the cost of the Bloody Sunday Inquiry had attracted much attention. This eventually ran for twelve years from 1998 to 2010, at a total cost of £192m. 

In January 2005, the House of Commons Public Administration Select Committee pointed out that £300m had been spent on public inquiries between 1990 and 2005, and that excluding the Bloody Sunday inquiry, the cost averaged £7m. Since then, the number of inquiries has risen sharply, and the average cost has crept up, with a greater number of expensive ones. 

It is important to stress that in 2005, it was not just the direct costs that was noted, but also the indirect costs in terms of time experts spent in preparing for and then giving evidence. This latter point is often overlooked but is important.

I have not testified to inquiries, but have given evidence to Select Committees here, as well as to committees of the US Senate and Congress. I can vouch that the time taken can be considerable, although naturally it is important for experts to help inform the public and policy debate. In terms of inquiries though, it reinforces the wider issue about the large number and scope.

There are two types of inquiries in the UK: statutory and non-statutory. The latter still have to be established by a government minister, but not under a specific act of parliament. These may include ad-hoc public inquiries, committees of privy counsellors and royal commissions. Non-statutory inquiries allow greater flexibility on procedural rules, and may be preferred in areas linked to security and the ability to hear testimony. 

But it is the statutory inquiries where the focus of attention is. Earlier this year, data in a House of Commons Library report showed the rising cost to the taxpayer. Of 22 inquiries set up under the 2005 Act and which had already been concluded, the cost varied considerably, ranging from £0.4m up to £186.1m for the Inquiry into Child Sexual Abuse. The total cost of these was £382.5m, averaging £17.4m each. As that same report noted, as of February 2024, there were 18 active or announced inquiries. Five were announced last year, one in 2022, so they are not easy to predict.

A 2017 report on public inquiries by the Institute of Government highlighted a host of wider issues. One was the large number of concurrent inquiries. Another was the implications. They noted that only six of 68 inquiries between 1990 and 2017 had received full follow-up by select committees to ensure that government had acted upon the recommendations. Part of the challenge, perhaps, is that inquiries can take a long time and when they report, attention has moved on.

It is said that too many recommendations can be made, with the key ones being lost. This, if anything, reinforces the need for clarity about what the government wants to achieve by establishing an inquiry, a sense of urgency about its timing, and in turn this will contribute to costs being contained. All this is of particular relevance to the current Covid inquiry, where costs have already soared.

The second wider issue that has been raised in the aftermath of the Blood Scandal Inquiry is the compensation. No one should have any problems with this. The question is how it fits in with the fiscal numbers. It also says something about the scale of public spending, that £10bn is no longer a huge amount. In fiscal year 2024/25, public spending (as defined by Total Managed Expenditure) is set at £1,226bn, or 44% of GDP. This includes: £371bn on social protection; £251bn on health; £131bn on education; £109bn on debt interest and £71bn on defence. 

It will add to borrowing but this is manageable. The good news is that the public finances are improving, but they are still in a precarious position. In the last fiscal year, public borrowing was £120.7bn. In his two fiscal events last year and in this year’s March Budget, the Chancellor provided stimulus, including cuts in national insurance.

The challenge is that in March, the margin with which he met his widely criticised fiscal rule for debt to be falling as a share of GDP in five years’ time was only small, and that while the economy is improving, this has already been factored into the numbers. The Official for Budget Responsibility is predicting growth of 0.8% this year and 1.9% next. As growth gathers momentum and as lower inflation allows borrowing rates to ease, the pressure on the public finances will ease too.

This article was originally published in CapX and is republished here with permission.