Jethro Elsden is a Data Analyst and Researcher at the Centre for Policy Studies.
The most important thing about the success of the UK’s vaccination rollout is that it will save lives. Not only will the vaccines cut the numbers dying of this horrible disease, but they will mean that – as the pandemic eases – the NHS can go back to dealing with other health issues properly, and be more than just a National Coronavirus Service.
But it will also bring enormous economic benefits. If all goes well, we can go back to normal, or at least something fairly close to it, by the summer if not before. This will not only make all of our lives a great deal more pleasant, but enable the economy to launch its longed-for recovery.
I’ve been looking at the Office for Budget Responsibility’s data, and comparing the vaccination trajectories of the UK and EU. And it is possible that our decision to go it alone will be one of the most economically beneficial decisions any government has ever made – with the £12 billion the UK is reportedly spending on vaccines delivering a potential return by the end of 2021 in the hundreds of billions of pounds.
As we saw last year, with the post-lockdown recovery, each stage along the path back to normality will bring a substantial economic boon. As we move gradually out of lockdown, more and more economic activity will become possible again. If tiers are maintained, even moving from lockdown and Tier Four into Tier Three woud provide a significant stimulus, as non-essential shops are allowed to open again.
So the faster our return to normality, the greater the dividend – not just in terms of relaxed restrictions, but the increased confidence that will come as fear of the virus fades and businesses can reopen and refocus on meeting consumer demands. Not to mention the wider benefits, such as getting children back into the classroom, easing the toll on people’s mental health, and so on.
Speeding up the vaccine rollout is, as one commentator put it, “the world’s easiest cost-benefit test”, with costs in the billions and an upside in the trillions. And yet while the UK, USA, and especially Israel are passing this test, the EU – which prioritised trying to get superficially better prices and terms from pharmaceutical companies – has manifestly failed.
While the UK will soon have vaccinated 15 per cent of its population, across the EU the same figure is just three per cent. And this gap will likely grow, since the UK rollout is still accelerating: over one per cent of UK adults were vaccinated on Saturday alone, a figure most countries in the EU would struggle to achieve in a week.
If the Government had opted in to the EU vaccine scheme, we would now be stuck in the slow lane. This would undoubtedly have meant many more lives lost in the coming months.
But it would also have meant paying a substantial economic cost. With the more transmissible variant of the virus widespread, it would surely have meant a longer lockdown, and continued heavy suppression of the virus for much of 2021. Normality would probably not have been possible until near the end of the year, perhaps later.
So how much better off economically might the UK end up being, compared with the counterfactual in which we moved at the speed of the EU
Putting an exact number on it is not an easy task. There are too many moving parts and far too much uncertainty. We don’t know exactly how good the vaccines will be in stopping transmission, or if a new mutant strain will dash our hopes. Perhaps the supply of vaccines will improve to such an extent in a few months that the EU can rapidly catch up.
But having said that, we can come up with a rough estimate – not least by looking at the Office for Budget Responsibility’s economic and fiscal outlook, published late last year. It offered multiple scenarios for economic growth, depending on the course of the pandemic and results of the Brexit talks.
On the pandemic, the upside scenario assumed that the second wave would be relatively easily contained; that vaccines would arrive in the spring and be rapidly rolled out; and that economic activity returned to its pre-virus level by the end of 2021.
The central forecast assumed a slower rollout and restrictions in place until the spring, with the economy not recovering until late 2022.
he downside scenario assumed the vaccines wouldn’t fully control the virus, the rollout would be slow and restrictions would remain in place for much of the year, with the economy only recovering to pre-crisis levels in late 2024.
While the second wave was much more severe than was predicted, cases are now falling remarkably rapidly, and hospitalisations and deaths are starting to follow. There are signs that the vaccine may already be eating into the virus’ ability to spread.
So while it is likely that we ended 2020 doing worse than the OBR’s central forecast for growth, the faster vaccine rollout means that, by late spring or summer, we should have moved from the downside scenario closer to the upside scenario. Vaccinating at the pace of the EU could have kept us trapped in the OBR’s most pessimistic forecast, perhaps for the entirety of 2021.
Using the OBR forecasts for quarterly nominal GDP shows us the significance of this kind of shift. Assuming the faster vaccine rollout shifted the economy from the downside to the upside scenario for the whole of 2021 would mean nominal GDP was about £235 billion bigger by the end of the year – in other words, roughly ten per cent bigger. It’s more than our cumulative real-terms contributions to the EU during our entire membership, and more than the most pessimistic assumptions about the economic damage of Brexit.
It is probably more realistic, however, to assume that the economy doesn’t suddenly spring back into shape. But even if you assume that we will be closer to the central forecast for the first half of the year, and then transition into the upside scenario in the second half as all restrictions are lifted, you still end up with an estimate for nominal GDP that’s about £170 billion higher than if slower vaccine rollout kept us trapped with low growth for the rest of the year.
Even if we’re less optimistic and assume the current lockdown weighs heavily on the economy, and we only shift up to the central scenario from the summer, it still leaves nominal GDP over £100 billion larger.
The point of this exercise isn’t to find an exact figure for the economic benefits of our vaccination programme: as I said, there are far too many imponderables for that. But they certainly show the order of magnitude involved. Even if our vaccination programme brings forward the return to normality by matter of weeks or months, compared to the EU situation, going it alone will have been worth it – and, in fact, one of the best economic bargains in decades.
Most Government decisions that get remembered stick in the mind because of how disastrous they end up being: returning the pound to the Gold Standard after the First World War, the Suez Canal conflict, or in more recent times the invasion of Iraq.
The grim death toll from the pandemic, alongside the economic costs, certainly made the last year a bad one for Britain. But the vaccine rollout is as effective as we hope, opting out of the EU vaccine scheme will deserve to linger in the memory as one of the best policy decisions a British Government has ever made.