It is a cliche to say that a politician should “think outside the box”. Boris Johnson and Rishi Sunak now need not so much to think outside it as to trample it to tatters altogether – at least when drawing up an economic plan as well as a social one for countering the Coronavirus.
The focus of yesterday’s stark press conference was on people rather than the economy – on self-isolation, social distancing, mass gatherings and so on. But on second thoughts, this is a mistaken way of considering the economy. For it is not an abstract. Rather, it is an organism, like a person – and could never be otherwise, since it is knit up with what people do. With wages, jobs, firms, services, livelihoods and putting food on the table.
There can be little doubt that this collective person, our economy, faces the immediate prospect of a heart attack. The OECD has said that growth worldwide may be more than halved this year to 1.5 per cent. But the truth is that no-one knows for how long the Coronavirus will rage before mass immunity is reached or a vaccine is discovered.
Meanwhile, there is no knowing what damage the combination of the virus, Saudi-Russian oil strife, high levels of corporate debt, imperilled banks (think Italy), the lack of international leadership from America, the torpid response of the European Union and China’s indebtedness could wreak. Here in Britain, we are sliding at an accelerating pace towards recession amidst the threat of a global downturn, to put it no more starkly than that.
We face the prospect of a kind of reverse multiplier effect. First, consider the workforce. The self-employed, who don’t benefit from statutory sick pay or from measures to assist employers, are especially vulnerable. Next, think by sector. Pubs, restaurants, hotels, theatres, cinemas, cabs – all are already being hit hard and will be hit harder.
Now go on to mull those who can’t work from home, and are therefore most exposed to the Coronavirus – factory workers, delivery people, shop assistants, bus drivers, teachers, policemen, health visitors, nurses, doctors, policemen: the mass of those who work in public services. There are many other ways of slicing and dicing the working population.
All will have less money to spend. That means a knock-on effect on the businesses from which they are no longer buying. Which in turn means lay-offs and redundancies, and more hammering on the doors of the banks. Who will be wary of lending to the uncreditworthy. An era of low interest rates has already led to a mass of zombie firms.
Nadhim Zahawi channelled anxiety about banks’ potential unwillingness to lend yesterday morning on this site, when he wrote that “the early signs are that the banks will make use of these changes, but we need to make sure their full power is brought to bear”. The Business Minister went on to say that “the Bank of England will be closely monitoring this, and I know the Government will be bringing pressure too”.
He was referring to the centrepiece of the Budget’s emergency package – the Coronavirus Business Interruption Loan Scheme, which bamkSunak said “will unlock up to £1bn of attractive working capital loans to support small businesses, with more as needed”.
The Chancellor did not desert the self-employed, who with others will benefit from the deferment of tax payments; similarly, he eased the conditions around the receipt of Universal Credit, and waived Business Rates for some shops, cinemas, restaurants, and music venues for a year. But the blunt truth is that the Office for Budget Responsibility figures on which he was drawing were out of date before his Budget was even delivered.
We are thus reaching the point where he and Johnson must begin to “think the unthinkable”, as the saying has it. Dealing with the Coronavirus has been compared to fighting a war – and there’s a lot in that figure of speech. But it fails to capture the whole of what the Government must now deal with.
Wars can sometimes boost the economy, if the domestic market is secure as they rage. The Second World War did wonders for America’s, for example, as its homeland remained inviolate. The virus is more like being battered in ascending scale by a mass of V2 rockets. In such circumstances, the wartime Government would have propped up the entire economy – even more than it was already doing. It successor must now prepare to do likewise, as follows:
- Indirect means of funding businesses, such as loans from banks, will not be enough. Government must be prepared directly to part-fund employers and workers, drawing on Denmark’s example, in exchange for agreements not to lay off workers. John Redwood, who is on fine form at the moment, suggested some conditions on his blog yesterday.
- Where there are no employers to support workers, the state must step in, supporting small businesses up to an agreed threshold via HMRC. Sunak is putting in a helpline for his Time to Pay tax deferment Budget scheme, and it could double up for this purpose.
- Italy has suspended mortgages, rent and household bills. The same looks to be necessary here and government will be required to cover the costs. In France, Emmanuel Macron is declaring that no business will go bust.
- Business rates should be suspended across all sectors for “as long as it takes”. Cuts in income tax would not encourage people to go out and spend in current circumstances. Nonetheless, if the state is giving with one hand it would make little sense for it to take with the other. A reduction in the standard rate there should be.
- Sunak announced a £500 million Hardship Fund in the Budget – to be distributed to Local Authorities. He will need to scale that up.
- It is hard to see why pubs, clubs and theatres, which potential users are being asked to avoid, are not being asked to close formally – thus enabling them to claim on their insurance policies. (Unless the Government believes it might be asked to bale out the insurance sector.)
This is only the first draft of such a programme – which would need to be discussed, 1970s-style, with business and unions.
It will be claimed that such a response would be socialism. Not so: socialism is a doctrine with equality of outcome at its core.
Nor would it mean government seeking to run a state-directed fitness programme for the economy, as it were. Rather, it would represent administering life support to ward off the economic heart seizure we describe.
Which would undoubtedly necessitate statism on a scale unparalleled in modern times. This would make no sense in normal ones – but, as we say, these is not a conventional moment, and usual expectations must be reversed.
Government would fund such policies by means of a resumed QE programme and more borrowing – whatever it takes. The Bank of England can be expected to cut interest rates even further during the coming weeks.
Sunak is to appear at Johnson’s press conference later today. We hope that he sets out a path to a policy prospectus along these lines.