At some point, economic concerns will trump health concerns for the majority. Furlough has delayed this, but it’ll shift: when the death rate drops significantly, or when it becomes clear the country can’t sustain the level of support to wages granted until now.When this happens, what will the public want economic policy to look like in the long recovery period? And how should the Government think about public opinion?
Each of these questions is worth an article in its own right, but let’s start with the likely economic position in a few months: significant numbers of businesses will go bust; many cling on at the best of times and reduced demand will finish many off.
In turn, we can expect significantly higher levels of unemployment than during recent times, and more people on welfare.
Many businesses, too, in fear of a second wave of infections, will be cautious about hiring and investing generally; many will terminate or reduce office space and pay rises will be a thing of the past.
We can assume that those parts of the country where the private sector is relatively weak – and relatively much more reliant on consumer spending – will be more severely hit than the affluent South. High streets that were already struggling will be decimated. And we can assume astronomically high levels of debt. All in all, a terrible place to be.
Let’s now consider some of the parameters of policy for Government that will be set by public opinion.
First, public spending. The public will want health spending increased significantly. When people look at why Britain was so badly hit, even if a consensus emerges we should run healthcare differently, it’s inconceivable that one of the conclusions won’t be that the health service needs more money – it’s already what people think.
We can also be reasonably sure of demands for greater spending on social care, given how badly those in care have suffered.
It’s also likely the public will expect additional spending on welfare – to support the rising number of unemployed and more generally to support those communities which have suffered disproportionately during the crisis. While the public are, in normal times, quite sceptical of welfare spending, they are not going to see the new unemployed in the way that they saw (healthy) people without jobs in a near-full employment economy.
It’s also a reasonable bet the public will demand greater support for those in “precarious” work – workers seen to have kept the country going during lockdown. While there are many reasons to suggest those working in the gig economy love the freedom they’re granted and don’t consider themselves “victims” in any way, the likely campaign that Labour will run to reward these workers will have an irresistible attractiveness.
In other words, there will be significantly more money across three major areas of public expenditure. On the flip side, the public are less likely to have the same demands on expenditure on policing; defence; or even education, but these are likely to be dwarfed by the size of the welfare and health budgets.
Second, tax. The public will demand action is taken against those businesses perceived to unfairly avoid tax (presently and historically) – particularly if they have enjoyed bumper sales during the crisis.
When there are bills to be paid during the long recovery period, there will be no longer be any hiding place for them. And there’ll be demands for action against those businesses that splurged cash on high salaries and dividends while furloughing workers.
One area that has had relatively little attention, but could get much more, is the behaviour of commercial landlords across the country. This aspect of public debate could be very ugly.
On the other hand, they’re likely to be very positive towards the idea that tax cuts for small businesses are a necessary stimulus. They are likely to be open to the idea that these businesses need a break from high business rates and high levels of corporation tax.
It’s possible that they will ask for lower personal tax rates so they can start to save to accumulate protection for any possible re-emergence of the virus. Whether the Treasury thinks that such a policy is advisable is something else; but they’ll at least likely have freedom to think about targeted tax cuts.
Whether these two sides balance – higher taxes on a small number of very large businesses, lower taxes on a large number of small businesses – is another question. Together, these spending pressures and the need to stimulate the economy will put enormous pressure on Ministers for some time. It is fortunate that this Government doesn’t seem to have any philosophical adherence to low spending and debt, or the next year would be very uncomfortable.
- We could end up building a lot more, a lot faster. Construction is an obvious place to go for a fiscal stimulus, and there will be huge pressure on the Government to meet some of its infrastructure promises before its term is up. That requires changing the planning system.
- We could see much bolder incentives to industries that are essential for “national resilience” – pharmaceuticals and life sciences are the most obvious example, but agriculture and energy would be others. It is probably no coincidence that many of the countries that have done best during Coronavirus have also had decades of effective industrial policy. There will be a race to replicate it here. (It is hard not to see how, in many parts of the country, universities will be part of the policy mix.)
- Anything that rebuilds town centres and communities will be enthusiastically welcomed. Completely re-hauling the business rate and general small business taxation system is plausible.
- Of course, the long-anticipated reforms to the structure of the state have been put on ice while the Government has been trying to deal with Corona. Here, the public simply don’t care that much – but the performance of different parts of Government during the pandemic will, surely, be used as a reason to reshape the state.
None of these are new territory for the Government. It’s the combination of parochial and modern that was obvious in the general election manifesto last year. But while the epidemic has created demands from the public, it does also create space to achieve large amounts in the next three and a half years, and change a lot of rules.