Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.
I understand the government’s wish to “flatten the curve”, to delay more people catching the virus so the NHS can cope. Having a three-week lock down when contacts between people are hugely reduced should ensure the spread of the diseases is slowed. It has also bought the NHS more time which it is using to complete major new temporary hospitals and to acquire more ventilators, oxygen systems and protective clothing.
Thereafter we need to concentrate on protecting the elderly and vulnerable, by making their enforced and prolonged isolation as comfortable as possible, while getting others back to work. The prime aim is to avoid deaths so we should concentrate on keeping at home those most at risk of dying if they catch the virus.
I am no medic nor epidemiologist, and government will rightly use specialist advice to minimise loss of life as the overriding priority. What I do know is that continuing for too long with a lockdown will be gravely damaging to our economy, which means damaging the lives and livelihoods of the majority of people who earn their living in the private sector – by supplying us with goods and services we choose to buy.
We saw in the first two weeks of controls US unemployment rocketed by 10 million people, with stories of many others unable to register their claim for benefits and so still not in the official numbers. The UK is also experiencing record levels of claims for Universal Credit, despite a state scheme to persuade employers to keep their staff in furlough on their payroll with substantial financial help from the government.
This recession is swifter and more deadly than any I have ever witnessed. In a normal bad recession, businesses gradually lose a portion of their turnover as demand falls and people can afford less. That leads to losses, the need for more borrowing and, in some cases, to bankruptcy. This time many businesses lose all their turnover overnight, as they are banned from working. They have to try to turn off the supplies they have ordered. They need to slash their employment costs, renegotiate the rent and plead with government to go easy on the tax bills for past work done if they want to survive.
There are just two ways to stop this deep recession destroying many jobs and businesses. One would be to declare there will be a return to work after three weeks, allowing people to bridge the revenue gap and limiting the big losses of turnover. The other is to put in place generous and effective schemes to replace lost turnover with state support. This latter course is what Treasury ministers seemed to announce, but the execution has not lived up to the intention.
Advisers advise and ministers decide. We have seen that during the crisis, when ministers have made timely and difficult decisions about closures, subsidy schemes, testing, procurement of NHS clothing and equipment and a variety of other important matters.
Treasury ministers also need to recognise that the second part of their job, after making the decision, is to supervise the implementation. I remember well when I was Margaret Thatcher’s policy adviser that I used to say designing the policy, getting political agreement and announcing it is the relatively easy bit. Getting it up and running in a recognisable version that would do good was altogether the harder part of the task. The minister or senior adviser has to lead that as well.
Let us take the case of the furlough scheme. It was well intended but it was delayed. The Gmargaovernment website still says you are unlikely to be able to claim before the end of April. It had to be fast-acting. Companies with no turnover and large staff bills cannot wait around for the form to appear on a website. They need money from the first week of shutdown onwards. Ministers allowed delay. They also allowed detailed provisions which took large numbers of people out of scope. People changing jobs fell through the net. People on low basic-pay earning a piece rate or commission or bonus find their proper income is not protected.
The self-employed scheme was presented as if it were some kind of development of anti-tax avoidance policies by the Treasury. The self-employed were told they could get no cash before June, to require the small proportion who had not completed last year’s tax return to do so. A person working for themselves with no savings needs money week to week to pay the household bills. How do they get through three months with no cash? Don’t they abandon their business and claim Universal Credit? The self-employed were also threatened with a National Insurance increase to come, on the false grounds that they get the same benefits as everyone else.
The scheme to help small businesses defined by the rateable value of their premises went out at the same time as notices raising people’s rateable values, tipping some small businesses out of eligibility for the scheme at the very time they need financial assistance. There are many more details which appear penny pinching and unhelpful, or serve to delay people getting the help they need.
This is a most unusual situation. Good businesses and hard working self-employed people are prevented by law from earning a living. They do not want subsidy and had no plans to become state pensioners. Assuming the ban on their working is short lived the state can afford to pay up, replacing their lost income so they can help carry out a shut down policy the government thinks is right for other reasons. If the state does not do so willingly and speedily unemployment will race up and many companies will wind up in an orderly way or go bankrupt in a disorderly manner.
One bit of bad news leads to another. Trading companies fail to pay the rent, so property companies struggle. Weak companies don’t pay their suppliers, who lose out from bad debts as well as lost business. Companies fail to pay interest on their loans. Charities and retired people living on investment income see their dividends shrink. Individuals who keep well paid jobs in the public sector or in stronger private sector companies, spend less and save more, partly because many of the things they want to buy are banned. These and many other problems reinforce a deep recession. There is too little spending, so too few people can earn a decent living.
This is quite unlike the war, where there was a surplus of demand and the need for rationing. There millions of people and thousands of factories were diverted from the normal things they provided to supplying the war effort and staffing the vastly expanded armed forces. The country had to dig for victory to replace food sent to the bottom of the ocean by enemy action or blocked from export from the continent, and had to make its own uniforms, munitions, ships and planes on top of civilian needs.
There are limits to how much the government can borrow and the central bank can print to pay for the virus effects. They will get away with quite bit because of the deflationary forces holding down general prices. As the world starts to pick up, however, there could be more inflation around especially if the UK has lost a lot of future capacity through permanent closures and bankruptcies. The position is clear. Recovery will be much easier if the closures are short-lived. The state does have to assist people and companies through, when it is the state stopping them earning a living.