WHY COMPARE THE PANDEMIC TO THE LAST WORLD WAR?
Unless the UK’s businesses can get firing on most if not all cylinders, UK Government (UKGOV) risks becoming the long term prop, incurring debt way beyond its means; the UK’s future saddled with a burden which will stifle growth of prosperity, and public services starved of cash, with the younger generations and the poorest in society suffering the most in the short and long term. Many academics and scientists get interviewed to showcase their wisdom to the world revealing views as diverse as they are unreliable. One on television recently suggested that UKGOV can treat the pandemic like the last world war, incurring a great deal more debt than it already has, and, like war debt, repaying it over 50 years. Is this sanity? The Second World War was an existential event for the UK and many other nations, with survival at stake: the biggest price was perhaps the sacrifice of millions of people, most in their prime, not elderly, but also it justified the doing of whatever it economically took to win victory.
How can that be compared to this Covid-19 (CV) pandemic? CV, nasty though it is, is not an existential threat. Perhaps it is treating it like such a threat which is driving decisions off course, if indeed they are. Extreme language likening CV to a warlike enemy is perhaps creating a psychological problem. Perhaps too Boris Johnson, with his Churchillian tendencies, is prone to language which encourages that comparison. Indeed, is it not rather quite a possibility that a more virulent and more deadly pandemic may occur in the next 10 years or so – or even a devastating war – or even just another major event like CV? Would it not be foolhardy to spend now the UK’s “wartime budget” leaving it at the mercy of the next real existential or major event, with no reserves to call on. But this may happen if the economy is not put first.
Why is the world sacrificing years of progress in the fight against poverty and diseases, to tame CV? Yes, 1million people have died from it in 10 months. But some 25,000 people die every day from malnutrition (one million every 40 days) – which the world could prevent at much less cost. Have leaders lost all sense of proportion? The broader thinkers seem to urge thinking globally, not locally, in which case the global response should be quite different to the disproportionate panic measures being adopted in Western countries disabling their economic systems.
THE ECONOMY IS NOT A BASKET CASE
In the 12 months to July 2020, official statistics showed a UK trade surplus of £21 billion, compared with a deficit of £44 billion over the previous 12 months. This was the subject of a commentary by the Economics Editor of The Times, David Smith, on 16 September. That surplus represented a £65 billion improvement in the trade balance. The usual annual deficit he said was approximately £25-30 billion. The CV induced recession through voluntary closing down of activity, and huge reductions in imports seemed to be relevant, but the suggestion is that trading patterns may be changing, including as a result of Brexit. There is no suggestion that a heavily reduced deficit or a surplus is here to stay, but some reduction may be. Could it be that, with CV here for a while and some sustained economic change as a result, a number of imports previously habitually bought in may be realised to be an unnecessary waste of money? It will be interesting if local sourcing, to reduce dependence on other single nations, especially who may be unfriendly, replaces imports, and fuels a trend towards an improved balance of trade.
David Smith recorded how trade figures used to be a focus of economic reporting, but not so these days: largely he said because flows of goods used to play a big part in currency exchange rates but not today. All a bit of a mystery, and perhaps in part its down to currency trading, hedging and complex financial products? It is however noticeable that this major shift to a surplus received almost no publicity. And yet the large surplus of EU imports over UK exports seems to have loomed large in discussion about trade power and the like.
To a layman in economics, a trade surplus sounds good news. August and September also saw, in addition to the doomsters, economic commentators with elements of optimism as to the strength of the UK’s recovery, always with a caveat about CV resurgence risk. Even Jeremy Warner, a self-confessed glass half empty person, in the Daily Telegraph on 26 August headlined “The recovery is stronger than we had dared hope”. He recorded various items of positive growth, of course sounding a warning of the negative effect potentially of the ending of furlough and other UKGOV support schemes. On just 13 September, the economist Julian Jessop wrote his view that “In the meantime the UK economy is set fair to outperform again”. He cited how UK GDP is on track to return to pre-Covid levels by Christmas – even allowing for a likely slowdown in the Autumn. He considered that the bump in unemployment, when the furlough scheme ends, should be a “lot smaller than many fear”, with job losses concentrated in certain sectors; saying that “the UK labour market is usually pretty good at creating jobs to replace any that are lost”. This formed a background of potential optimism among some people before the recent acceleration in infection rates, a rise in increased localised restrictions in response, and finally new national constraints on individuals’ behaviour, expected to perhaps last 6 months (Recent Restrictions).
But even after that, on 1 October Andy Haldane, Chief Economist at the Bank of England, is reported to have insisted “the sky is not falling down” in response to the rigid focus of so many commentators on all things bad or possibly bad. He warns against gloomy forecasters “trashing confidence”. For economic success of course confidence is key. It would be a true shot in the foot if the doom mongers talk the UK, and other countries, into economic disaster.
CLIFF EDGE AVOIDED? RECOVERY ON TRACK?
UKGOV quickly followed the Recent Restrictions with the announcement of new financial support measures, or continuing the existing, to mitigate concerns that have overhung the economy about the effects of ending furlough at the end of October. The new approach including the Job Support Scheme has generally been met with approval including in the Financial Times, The Times, Daily Telegraph and Spectator as striking a sensible balance, and with general if not absolute political approval, though opponents will always demand more. It is noteworthy perhaps that these same newspapers focus heavily on the financial measures as the child of Rishi Sunak not UKGOV, and are declaring, through various articles and opinions, a growing dissatisfaction with or concern over the competence of Boris Johnson. This will do nothing for national unity. The divisions within the Conservative party are preoccupying many people who wish to see it implode, or Boris Johnson removed, as more interesting than getting the strategic response to surging CV correct.
There is general hope that these new measures and continuing some of the old (for example VAT payment deferrals) will prevent the cliff edge, and it is believed that many businesses and jobs will be saved as a result. The cost in borrowing is a lot less than furlough. It is and has to be accepted however that continuing restrictions will hasten the failure of many businesses and jobs will be lost. UKGOV is clear for now that it will not borrow excessively to defer briefly the demise of businesses which are not viable or subsidise jobs which are no longer supportable in going concerns. This is a price caused by CV. The choice has been tough, and a compromise may or may not be enough.
Is it not reality that in cities, which are normally tourist hotspots, leisure businesses will suffer? and while office workers are encouraged to “work from home if they can” and some employers in any event see homeworking as here to stay, urban hospitality will simply not have the customers it used to. Combined with a general reluctance to travel, similar factors will mean a significant change in retail habits and urban retail outlets will likely disappear in numbers, along with related jobs. Retraining opportunities have long been promised and those announced this week are at least a positive addition to existing facilities. Yet they too are being trashed as inadequate by prevailing negativism.
UKGOV’s measures designed to suppress the virus and keep the economy running are temporary sticking plaster, not long-term solutions. The vaccine panacea may not be round the corner – and health scientists are already warning that early vaccines at least may help control the virus but may not be enough to hold it at bay. There will come a point, and it may have arrived, when UKGOV can offer little financial support to vast swathes of the UK’s businesses unless it were to make the error of treating this CV pandemic like the Second World War. Statements to date of “doing whatever it takes” may come back to haunt Boris Johnson and Rishi Sunak. It may be better, as the strategy of restrictions and suppressants and the economic packages are so connected, if a new approach were soon to be mooted and tested with a public which still lives in an unjustified state of fear; and then adopted and implemented without U-turns where economic recovery is the key to saving lives, health both physical and mental, and livelihoods. In any strategy, scarce resources must of course be marshalled to give maximum protection to the most vulnerable in care, or if they want it. A second national lockdown could deal a fatal blow to the UK economy, making any short-term recovery impossible, leaving austerity and high taxes as the only options.
Perhaps the new approach must reject CV as an existential threat and rather focus on positive actions to encourage and incentivise work, investment by businesses and investors, and entrepreneurs and other wealth creators who can live with risk to preserve economic health. If the economies of the UK and other western nations are trashed, their futures and the futures of developing countries will be bleak. If these economies are preserved, not only will those nations be able to look after their vulnerable and deprived but developing countries will have the possibility of reducing the misery which has been multiplied by this pandemic.
