Neil O’Brien is MP for Harborough.

On a cold day in December 2006, a Treasury official clicked a mouse, sending £54 million to the US and Canada. And so we finally paid off our debts from the Second World War. When we borrowed the money there was no such thing as teabags, supermarkets, motorways, sliced bread, or teenagers.  

Hopefully the debts we’re running up fighting Coronavirus won’t take so long to pay. But they’ll be with us a long time, and change politics. Of course, right now, the long term isn’t our main concern. Today’s challenge is to prevent disaster, then secure a recovery.

According to the IMF, the UK is doing more than most: spending proportionally more than France, the USA or China to fight the recession. UK policies are generous: while Germany pays two thirds of furloughed employees wages, and Canada just 10 per cent, the UK government pays 80 per cent.

Rishi Sunak is winning plaudits for his emergency actions. The next step is to clear obstacles slowing issuance of government-backed loans to businesses.

Looking ahead to recovery, every country faces the same balancing act: trying to leave lockdown without overwhelming their health system. Germany’s exit roadmap starts with small shops. In France schools and nurseries will reopen first.

In Asia, things are swinging back the other way, with Singapore now forced to close schools and China to announce a Wuhan-style lockdown of the city of Suifenhe.

We’ll likely be stopping and starting until a vaccine or herd immunity is reached. How can we have economic recovery amid this?

Unlike the last recession, the UK starts in good financial health – both government and businesses. According to the IMF, in 2007 the UK’s cyclically adjusted deficit was the highest of any G7 country. At 5.2 per cent it was twice the average advanced economy. In contrast, in 2019 it was just 1.3 per cent – lower than the developed country average of 3.4 per cent. Debts of non-financial businesses fell from 102 per cent of GDP in 2008 to 84 per cent in 2018: a bigger reduction than any other G7 country.

We’ve gone from worst prepared, to among the better prepared. Despite this, many firms will run up large debts to survive Coronavirus, including loans from government.

Firms crushed by debt could clamp the brakes on recovery. As their new bank manager, the Chancellor has a range of options. Perhaps a long period of zero interest rates. Perhaps offering partial debt forgiveness – maybe even full debt writeoffs for smaller businesses?

Such a bung from taxpayers might feel unfair on those who didn’t need it. Against that, were we really expecting the Dog and Duck to have insured against an unprecedented global pandemic?

We could do other things to help firms refinance. Put the British Business Bank on steroids to issue cheap debt and equity – perhaps turn it into a British version of Germany’s KFW. We could change monetary policy to support growth. Ever since the last recession, economists have been debating “secular stagnation” and whether we should have a looser monetary policy.

We don’t aim for zero inflation, because limited price rises oil the wheels of economic adjustment. We could tolerate a little extra inflation for higher growth. “NGDP targeting” is one possible framework. The US is looking seriously at another, average inflation targeting.

Faster growth would be very helpful, because the UK and other governments are going to have big debts. The OBR produced estimates last week suggesting government will borrow about 14 per cent GDP this year: a postwar record, taking government debt levels to the highest since 1963 (year of the Beatles first LP).

The graph at the top of this page shows that prediction in long term context: it’s always a bad sign when your problems are visible even on a 300 year-long chart. Even this OBR forecast feels like a best case scenario, and assumes the economy gets back to where we thought it would be by 2022. Instead, it feels more likely we’ll have some permanent loss of growth, meaning a persistently higher deficit.

No-one knows how big the hole will be. The Resolution Foundation predict that in five years we’ll still be borrowing £30 to £130 billion extra a year, equivalent to between 5p and 22p on the basic rate of tax. And there’s lots of pressure to spend more too.

The Chancellor may struggle to take back temporary increases in welfare spending quickly (a freeze sounds more plausible than a cut). We may want to fund extra help for young people to find new jobs, and get unemployment down.

The biggest economic impact of the COVID-19 recession seems likely to be in bits of the North and Midlands. So funding for the PM’s mission to “level up” is more needed than ever. Government is already undertaking a review of social care and “fair funding” for councils, both of which will likely create pressure to spend more.

Above all, there’s the NHS. It’s true there’s no obvious connection between health spending and Coronovirus rates.  Big spenders like France and Germany are performing very differently. It’s also true that health spending has been protected, growing in real terms, from £117 billion in 2010 to £145 this year in England. In real terms per household, we’re spending twice what we spent in 2000.

But there may well still be a strong desire to spend more after Coronavirus, turning clapping into cash. On this site last week, Andrew Gimson made the case for a German-style system and a new funding settlement. It’s a compelling vision.

But German levels of health spending would be expensive. Germany is both a richer country and the second highest health spender in the world (after the US).  Government health spending is around £1,500 higher per person there.

To fund such an increase here would mean finding about £100 billion a year. Using only higher taxes, that’s roughly equivalent to increasing each of the basic rate of income tax, the higher rate and corporation tax by about 10p in the pound. So going that far feels unlikely. But a new settlement for health and social care may well be on the agenda.

How can we possibly pay for the Coronavirus-induced deficit, and meet these pressures too? A second decade of tight spending on public services feels like a tough sell. There are still opportunities to save taxpayers money. The question is whether they’re enough.

Looking at the classic suggestions made in comments on this site, halving international aid would save £7-8 billion a year, but would mean breaking our manifesto promise.

Cancelling phase two of HS2 doesn’t save you any real money until the 2030s, and phase one is now under construction.

We could get high single figure billions of savings from cutting the number of low value courses at university.

There’s huge potential to put the locked-up value of council housing to work in building new social housing, releasing capital for other things.

But ultimately, none these ideas seem likely to add up to filling the hole. Could we just live with a big deficit for a bit? Maybe, maybe not.

Things could come to a crunch fast if viral contagion is followed by financial contagion, as predicted by the Economist Intelligence Unit.

As every country in the world tries to borrow like crazy, there’s a risk shakier governments may totter or fall like dominoes, a problem the G20 are trying to preempt. Hopefully it will be crisis averted, and we’ll have a bit more time to fix the hole. But sooner or later, difficult choices on tax and spending are coming. We didn’t have a party. But we’ll still have a hell of a hangover for years to come.