By Oscar Duffy
Coverage surrounding the current outbreak of Covid-19 in the UK and across the world has now been relatively constant for the last month, with the intensity ramping up day by day and little prospect of an end in sight.
Much of the discussion has surrounded the unprecedented issues this has caused for public health. Cases are increasing exponentially, and pressure on the NHS (more specifically ventilators), intensive care beds and ward space have dominated the headlines and discussion on media panels. But what makes the Coronavirus crisis so interesting is that the pandemic is just as much an economic as well as a health-related problem.
Indeed, any crisis, whether it be war, financial collapse, or in this case, a viral outbreak requires government economic relief efforts. With the country now on lockdown after the Prime Minister’s order to close all unnecessary shops and to work from home if possible, the UK economy is practically going into stagnation mode, with businesses flailing and company layoffs imminent across all sectors of the job market.
A heavy stimulus was obvious, but the extent of Rishi Sunak’s proposed initiatives has shocked pundits across the country. Last week, the Chancellor announced a £330 billion (15% of GDP) injection of cash to be made available to business. Only a couple of days later, the government promised to pay 80% of an individual’s wages if they are unable to work. Finally, on Thursday, after calls to help the self-employed, the government pledged to pay 80% of typical profits beginning with a lump sum in June.
The word “unprecedented” is something we all will be sick of hearing (it’s a favourite now of the BBC), but this spending well and truly lives up to the definition. As the chancellor said, “never in peacetime have we faced an economic fight like this one” and it’s this type of investment that proves he truly means it. He went on to argue that if that amount wasn’t satisfying demand, then he would make even more available. This type of Keynesian response is nothing short of baffling for a Conservative government, highlighting just how seriously they’re taking Coronavirus’ ability to completely batter our economy.
It all sounds unbelievably attractive, but the age-old question must be asked: where is all this money coming from? Only three months ago during the General Election, Boris Johnson and the Tories lambasted the Labour manifesto for promising money where there wasn’t any, and for being too ambitious in their manifesto. Huge spending inevitably means huge borrowing and a huge deficit, while the Conservative Party usually boasts a frugal economic policy. The Chancellor acknowledged this in his Budget two weeks ago, stating that borrowing would be £14.6 billion more than was previously forecast. But that was only when £30 billion was promised to help fight Coronavirus, back in the comfortable times when the outbreak seemed far less damaging to the UK.
Who knows the huge burden this will place on government finances when this crisis ends? Are we about to enter yet another decade of devastating austerity when this is all said and done? Will the extent of government spending increase as more of the population fall ill with the virus? These are all unknowable and quite frankly unthinkable questions, and the only certainty seems to be that the whole situation will only become more intense. The US has only just passed a bill in Congress injecting an economic stimulus worth trillions. In the end, who is to say how high these numbers will get when the world reaches the peak of the Covid-19 pandemic?
Photograph: UK Prime Minister via Flickr