Published:

58 comments

Dr Eamonn Butler is Director of the Adam Smith Institute.

Worse than the World Wars, the Boer War, the Crimean War, worse even than the Napoleonic War. The Office for Budget Responsibility thinks the war against Covid19 could see the UK looking at its worst collapse in 300 years.

The economy’s productive capability will fall by 35 per cent in this quarter alone, ending up 12.8 per cent down on the year after a post-lockdown bounceback, and that’s before we mention unemployment rising by 2.1 million too

geranThere’s good reason though, to think they’re being far too optimistic. In Reopening Britain, my latest paper for the Adam Smith Institute, I make the case that officials should stop thinking of the economy as a machine you can just turn off and on again. It’s much more organic and interconnected. Damage any bit of it—by closing restaurants, for example—and you set off waves of dislocation and destruction in all directions.

Food and drink wholesalers, laundries, business services groups, truckers, insurers and many others suddenly find they have no customers. Their suppliers in turn lose business. But bills keep coming in, and if there is no end in sight to the lockdown, the more it makes sense to liquidate and let the staff go. So all the shops, cinemas, garden centres and tourist spots that those people used to spend their wages on are hit too.

The longer the lockdown goes on, the more the dislocation and destruction spreads out and accelerates. Not unlike the virus itself, each troubled business that falls passes on the disease on to many others, each of whom in turn affect many more. Catch it early, and you can limit the damage. Leave it too late, and the disaster is unstoppable.

And don’t forget: it’s not just economic damage. There is the psychological and social strain on families and kids who are locked down. The potential for domestic and child abuse, the expected rise in chronic health problems, and indeed suicides.

We are assured that Whitehall officials are talking about the unwinding strategy. That is really not good enough. People need to believe that there is a way out. More than that, if they are to accept the strategy, and not flout it and thereby reverse the clinical gains that have been made, they need to feel ownership of it.

Cambridge academics have suggested that we should all walk clockwise in public parks, keep cats indoors and face a £20 minimum spend to stop us going to the shops too often. That is exactly the sort of elitist thinking that will generate only ridicule and contempt rather than public compliance. Would a Whitehall version be any better?

We’re falling behind other countries in explaining how we might unwind the lockdown. While dithering ministers are in thrall to physicians who want to continue the lockdown indefinitely, Germany, Denmark, Austria, even Italy and Spain have already taken early unwinding measures. Their small steps at least bring hope to businesses and individuals that, here, must be thinking of just giving up.

Half of our firms are running out of cash, and the Treasury’s much-trumpeted schemes are not plugging the gap. Just £8.7 billion of the £330 billion emergency loans and grants have been paid out, and the furlough payments don’t even begin for three days. Forget the ‘bounceback’: pretty soon there won’t be anything left to bounce back.

Right now though, our sovereign Parliament needs to be discussing the shape of what’s to come. They should be seeking and putting forward ideas from their constituents and initiate a wide public debate in which those ideas can be critiqued, amended or rejected, and improved.

There is no shortage of quick-witted reactions within businesses that stayed open. Within days of the crisis, supermarkets had found new stocks, marked safe distances on the floor, controlled customer numbers, stepped up deliveries to millions, adjusted supply chains to meet changing demands, and protected their cashiers with acrylic screens. We should be drawing on the diverse and dynamic ingenuity of individuals and businesses for solutions not relying on the staid groupthink of officials.

Don’t imagine that yet more state schemes will save the day. As people see their own jobs and businesses falling apart, the idea of the civil service being not just unaffected but expanding will provoke huge unrest. If there is a role for the state, it is in getting out of the way of recovery: removing those taxes and regulations that will stop business from applying their ingenuity on the problem of rebuilding from the ruins.

Let’s recognise that revenue for most businesses has been cut to nil by the state and so maintain then expand to all companies the suspension of business rates. Rates are in any case supposed to reflect rents and therefore profits: but nobody’s making profits right now.

There should be cuts in corporate taxes and definitely no phasing out of entrepreneurs’ relief. We need those thinkers and innovators now more than ever. We could even just defer Corporation Tax payments until the crisis is well over. And let’s abolish the factory tax that makes it so expensive for firms to invest here rather than overseas. While we’re at it, recognise other G7 countries’ banking licences so they can invest here easily.

Employers’ National Insurance is a tax on jobs. Those are exactly what we’re looking at needing, there’s no sense in taxing job creators now. And it’s the poorest who’ve shouldered the burden most. Let’s take them out of NI entirely — not in future years, but right now.

Very importantly, we should slash VAT. Our consumption has plummeted and we will want to encourage people to spend and that in turn will get shops and other businesses on their feet again. It is pointless for big-statists to moan about how much money the Government will lose – if businesses go bust at an accelerating rate, it won’t have any VAT receipts anyway.

Construction too looks to be on the cusp of a collapse. But renovations, refits and brand new builds are the backbone of much of the economy up and down the country. Let’s not forget, if we choose to cut housing costs those young people currently cooped up will see the biggest welfare gain. We might put off some of the ‘intergenerational reckoning’ others warn about. Build out, build up and build different — but whatever we do, we must build, and so let’s scrap the fussy regulations that put progress on hold.

Most importantly, let’s remember to call on the ingenuity and innovation of our businesses and citizens. They will find ways of reopening Britain safely and quickly that Whitehall would never dream up in a hundred years.

Of all the ministers we’ve seen recently, Boris Johnson is the only one that gets this, the only one that can take the people with him.  His Churchill moment is coming. As we look to what comes after the lockdown, his motto must be his idol’s: “Trust the people.”

58 comments for: Eamonn Butler: After the lockdown. If there is a role for the state, it is in getting out of the way of recovery.

Leave a Reply

You must be logged in to post a comment.