RECOVERY FROM LOCKDOWN – V or U or L-SHAPED?
Hope of a “v shaped recovery……….is delusional” said Ambrose Pritchard-Evans on 16 April; “recovery certainly won’t be v-shaped” said Alastair Heath on 16 April; and “early hopes of a v-shaped recovery always looked overly optimistic, and now seem fanciful, if not wholly dashed” said Jeremy Warner on 16 June. These quotes from the Sunday Telegraph and Daily Telegraph from articles by the named journalists reflect how most economists and financial commentators have forecast that the UK’s recovery from the economic “catastrophe” caused by Covid-19 (CV) and lockdown will not be a “bounce back” but a long haul, more likely L shaped than U shaped even. They may be proved right, but V shaped would be nice. And of course, some very clever economists and reporters predicted that simply voting for Brexit would bring financial ruin. So, they can be wrong.
Perhaps a ray of optimistic sunshine is welcome: “Bank [of England] predicts V-SHAPED (Sherbhert emphasis) recovery from pandemic “was the Times headline on 1st July. The report states that Andy Haldane, Chief Economist at the Bank, said “It is early days but my reading of the evidence is so far, so V.” This was also predicted by Andrew Bailey, Governor of the Bank, in reports of 15 May. Bold maybe, when it is so much easier to predict the negative. That is not to say that the sudden CV driven collapse in the UK economy is not a dire event, with job losses and bankruptcies inevitable. But the start of recovery, as lockdown measures are eased, gives cause for optimism, which to date is in short supply in the media. The Treasury, as ever less bold, will perhaps fuel the flames of gloom, always prudent as there are no marks for getting an optimistic prediction wrong, unless Chancellor Rishi Sunak, in July, injects some courage and imagination.
At least two of those Telegraph writers had been sponsors of the idea that there should never have been a lockdown, or that easing of it should have started earlier. It is impossible to know whether they or UK Government (UKGOV), which of course had to actually make a decision which Journalists and commentating economists do not, is more right, as what would have happened if different decisions had been made will always be impossible to know. No doubt, the longer the economy was under anaesthetic in the lockdown, like a human being, the longer it will take for the after-effects to wear off. What we do know, as experience has proved time and again, there will be as many forecasts as there are economists and other soothsayers, somewhat like epidemiologists as is now known, and, if any, one or two may be right. Fortunately, the British people have it in their hands to prove the Bank of England correct.
SURELY, THE UK CAN LEARN FROM GERMANY!
Germany, out of the major European nations, is generally perceived to date to have dealt most effectively with CV, including being better prepared and in limiting deaths from CV. Whether this is good judgement, luck or because, with a thriving diagnostic industry, it also had better intelligence from China about what CV was doing is unclear, but maybe its medical and scientific experts were better than others. But its economy too is suffering major setbacks. So much so that, from being a cheerleader of austerity and prudence in the EU, leader Angela Merkel announced a state aid stimulus programme of some 135 billion Euros: measures include a cut in VAT from 19% to 16%; some 50 billion of state money for rail and broadband, and subsidy for electric cars, the car industry being the heart of Germany’s powerful manufacturing body. Germany sees the chance to borrow, taking advantage of roughly zero interest rates. Exceptionally each German household is also being gifted 300 Euros by the State. And the big giveaway does not stop there. Germany is promoting a 500 billion Euro fund to be established in the EU to help struggling countries (Brussels wants 750 billion), much to be provided by way of grant not loan – yet to be supported by the likes of the Netherlands. Whatever the outcome, Germany will likely be the main donor.
WHAT WILL UKGOV DO? – FIRST, BORIS JOHNSON’S “NEW DEAL”
On 30 June, Boris Johnson launched an element of the proposed recovery plan with much fanfare citing a “New Deal”, evoking Franklin J. Roosevelt’s new deal in the U.S. to counter the Great Depression in the last century. It is recognised as hardly comparable, but it assisted in grabbing attention and diverted commentary to the comparison. In reality, much of what was proposed is a re-hash of policy previously announced. The package amounts to more UKGOV spending of £650 billion over 5 years. It is mainly focussed on infrastructure investment such as housing, rail and other transport generally, hospitals and funding science. “Austerity” is now unmentionable, and “Build” is the magic word, along with speed – previous plans will be accelerated. Broadband roll-out was an earlier priority, now it is to be speeded up. At least the plan so far has some consistency with Germany! But far the most important part of this launch was the tone: positive messaging and seeking to turn off the misery of CV lockdown and focus on future building of prosperity.
Two commitments as reported stood out: it is time “to end the chasm between innovation and application” – ensuring British ideas do not become a commercial success for the U.S. or China. Second, he gave an opportunity guarantee to every young person in the UK – to get an apprenticeship or in-work placement to help them gain the skills and confidence to find a new job. He said UKGOV will help create thousands of high paid, high skilled jobs by supporting British firms that make commercial breakthroughs.
All the words of promises and commitments are to be celebrated. But themselves they produce nothing tangible. Translating them into efficient delivery, at speed, is another matter. The greatest challenge facing UKGOV is policy execution, which depends upon the Civil Service, the leaders of the public services and their managers, and the managers of projects, and on builders and engineers and all people charged with the task of doing the things promised. Boris Johnson has set up a “Coconut Shy” and there will be no shortage of opponents waiting for, and in some sorry cases, hoping for failure.
Delivery will be challenging. For that reason, many support reform of the Civil Service and other embedded bodies, such as Public Health England, to create a culture of ideas and imagination, of can-do, removing not creating obstacles to progress. The army cannot be called on every time a project is faltering, as was the case with the building of the Nightingale hospitals and distribution of PPE.
To get houses built, planning laws need simplifying and to be made suitable to achieve the targets. Building houses should be a quick win, see Sherbhert article, UK GOVERNMENT STRATEGY AND SHUFFLING THE CABINET-PACK – SO WHAT? . Planning laws affect all infrastructure projects, and then there looms the judicial review court process and appeal procedures to cause delay and uncertainty. Somehow these procedures perhaps need to be reassessed and adapted to enable and facilitate rather than be a drag, while still protecting against abuse of power: a thorny agenda.
To get people skilled and re-trained is both necessary and urgent. Are people up for that and does the UK have sufficient resources to apply to that? Does the UK, for example, have enough skilled builders and engineers and specialists, as well as less skilled labourers, or does the workforce need supplement from other sources, for example retired people or from abroad? Will UK workers made redundant from the leisure sector be willing and able to do other things, including getting newly trained? Immigration and social and benefits policies all need alignment with the goals: not straightforward but doable if those charged to deliver want to.
WHAT WILL UKGOV DO? – NEXT, CHANCELLOR RISHI SUNAK
Boris Johnson’s proposals are part of the declared policy of levelling-up the inequalities across the UK, especially assisting the North of England. This is a UKGOV commitment, to be re-energised, having been to a large degree in the freezer because of CV. It is declared by UKGOV to be at the heart of the recovery plan. The pandemic has highlighted and UKGOV has recognised that poverty and unfairness need to be addressed. Has the Treasury bought into diverting resource and funding de-deprivation and measures to spend in the less prosperous parts of the UK? Has Rishi Sunak redesigned the criteria whereby Treasury approves funding which to date has perhaps meant money followed moneyed areas?
Rishi Sunak has his day in the sun, probably 8 July, to add some financial muscle to the recovery plan, stimulating the economy. Will he cut or raise taxes? Will he follow the Germans and reduce temporarily VAT as many a commentator suggest he should? Some say taxes should be reduced to incentivise activity. The backdrop is one of unprecedented Government indebtedness: it is reported that £275 billion will have been borrowed by the end of August. But borrowing has never been cheaper. Much of this debt has arisen to fund UKGOV’s subsidising the economy during lockdown (for example the furlough scheme alone is expected to cost some £60 billion), and most people seem to have approved of these subsidies. But they will have to end as they are unaffordable in the longer term. One bright spot is that the UK will not have to follow Germany in funding 500 billion Euros to give away.
A core objective should be to minimise unemployment, but UKGOV has been consistent in saying it cannot save every job. UKGOV perhaps should not support lame ducks, but only those businesses which have a real future potentially or are essential. There has been commentary for example that bankruptcy for some companies was, CV or no CV, just a question of time, zombie businesses, and Debenhams demise is not really lamented. Arguably, as online shopping booms even more, there are simply too many shops trying to survive. Job losses mean there are people to re-train, and it is hoped that Rishi Sunak’s package will be designed to both encourage people to work , not stay home, and hasten training; but even if the training in all sorts of skills is available readily, it is people who must decide to take it up. Skills training is education, and lockdown, with schools closing, has shone again the spotlight on the crucial importance of education. It is education too which will help bring people out of poverty, so education, not just renovating school buildings, perhaps should be a big focus for resource allocation.
Rishi Sunak has indicated that for UKGOV to be satisfied it is appropriate to help restructure/bail out a business, the bar will be set high, which is quite right since he will be spending taxpayers’ money. Where UKGOV does invest that money in saving a business, then presumably it will seek upside such as equity so that shareholders bear some burden.
If there are to be tax rises, they perhaps will fall, rightly, on the wealthier. A wealth tax would be dangerous – never in the Conservative tax armoury, there is speculation that a one-off wealth raid could be justified, probably approved by many who are less wealthy. But what a dangerous precedent it would set. One-offs seldom stay that way. But the old, the pensioners, may take pain. Some say they should as lockdown was mainly for their benefit. Is that right as they were never asked if they wanted to isolate? But removal of the triple lock on pensions may be well justified. Pensioners, or at least most, would perhaps say that the young should not bear more pain.
DELIVER, DELIVER, DELIVER
Rishi Sunak’s package of financial support to counter the economic damage to people inflicted by lockdown was generally approved. To his and others’ credit, the financial promises were largely delivered, on time. It is remarkable how little criticism of the implementation there has been, given that so many are keen to pounce on the slightest error. So, UKGOV promises can be kept.
They are only worth making if deliverable, even though the delivery can be challenging. It will perhaps not work to wash hands by outsourcing to consultancies and services providers, who tend to be more interested in milking fees than achieving the promised outcome. UKGOV should be appointing leaders to lead all initiatives who will achieve, breaking eggs where necessary. Without those leaders and the most able, driven and ambitious managers, the best intended and most brilliant ideas will come to nought. Is it too much to be hoped that even opponents and critics will wish that the UKGOV recovery plan succeeds for the UK as a whole?
In the end it is for individual people to take up the challenges presented and grasp the nettles to make the recovery a success, hopefully a V.
