The assumption of a strong economic recovery from coronavirus, on which the government has pinned so much hope, and on the basis of which the Bank of England has been most especially (and most unwisely) bullish, required that there be no upturn in coronavirus. That assumption now looks to be entirely misplaced.
It is now apparent that the coronavirus infection rate in the UK as a whole is above 1, meaning that we are back into exponential growth rates in infection numbers.
It is also clear that this growth rate is, at present, mainly amongst the young, meaning that the apparent medical consequence of this is limited, so far. But the risk that as case numbers grow there will be growing numbers of cases amongst those who are older is clearly very high if past patterns are to be followed.
This creates a crisis for the government. The National Audit Office has now estimated that the cost of measures to tackle coronavirus has already amounted to £210 billion. How many lives this saved cannot, of course, be precisely known. But if around 400,000 were, based on March forecasts from Imperial College, that is at a cost of more than £500,000 per life saved, implying that an additional 17.5 years of life were required to justify the spend if the government rule of thumb that a year of life is worth £30,000 is to be used. Given that many of those whose lives saved were amongst the elderly, this may well not be true.
To use this supposedly rational, but equally deeply flawed, logic based on data whose reliability is hard to confirm, the government will, no doubt, claim that its measures to date cannot be repeated if there really is another major coronavirus outbreak. But a new outbreak requires that it take measures, whether it thinks it can afford them or not. What it does requires is that they be focussed.
But that leaves it with the most massive dilemma. Fear of coronavirus has been created, and not without reason, because it has very obvious significant medical consequences in both the short and long term. Nothing that the government can do will now take that fear away.
And what is apparent is that all attempts by the government to break lock down situations have resulted in a wholly unsurprising increase in coronavirus cases. The ‘eat out to help out’ scheme very clearly backfired, both by encouraging group activity that is now to be banned again, and by literally putting people into close proximity. The return to school and university will do the same thing, with the latter a considerable risk because I am all too aware that young people are very reluctant to follow the coronavirus guidelines. And government pressure on people to return to work does exactly the same thing.
To be kind, the government’s policy is riven with contradictions. To be slightly less generous, it is an utter mess. That mess, which has led to the situation where heavyweight lawyers have admitted that they have no idea what regulation on Covid-19 really is, has undoubtedly contributed to this outbreak of cases now, both by policy (encouraging people to go out) and creating confusion (no one knowing what they may do).
But more worryingly, it means that even if lockdowns are local new economic disruption is likely, not least because the message to stay at home will be the most commonly heard one amongst the noise, and a great many older people, at least, will obey it. And however medically important that is the consequence is that the economic recovery from coronavirus will stall. It is hard to imagine otherwise.
But that will come just as furlough is ending, businesses have rent to pay, critical decisions on redundancies are going to have to be made, and pressure to repay loans and taxes is beginning to develop, because arrangements offered by the government assumed that businesses would be enjoying strong cash flows by now, which will simply not be true. Add new lockdown measures, their spillover into other areas, and the economic impact of reduce socialising again into this mix, and what is certain is that what was already going to be a very hard autumn is now going to be very much worse.
I am aware that I have hardly been an optimist for our prospects this autumn, having forecast up to 6 million unemployed. With the end of furlough I still see that as possible. That’s because the number of people on very short term furlough remains very high. For example, I know of a large relatively local employer in my area who is furloughing staff by part days to save cost, with a couple of hours notice being given. I think this is commonplace. This is giving the wholly mistaken impression that the employees affected are back at work, when what is instead happening is that the employer is managing rolling unemployment through the furlough scheme until such time as they are forced to make a decision on who to make redundant, which will no doubt be happening soon.
What to do about this? The obvious answer is to extend furlough, by sector and by region. Unless this happens the damage will be immense. As it is, the chance of much of the hospitality and tourism sector making it to next year appears to be low.
But more importantly, because furlough will always be a short term measure, the government has to decide what its long term policy for coronavirus is. When so far medical and testing solutions look to offer little hope, with no known vaccine as yet and effective testing proving to apparently be nigh on impossible, with numbers successfully tested seemingly steadily declining, what has to be decided upon is how the long term impact of coronavirus will be managed.
I am not suggesting I know all the answers, but the government has to decide who it will support which businesses, and with what measures.
As I have long argued, this will require it to face a fundamental question, which is whether it supports employment or capital. The issue facing many businesses is that they cannot pay the rent and employ people now, and the demand to do both will be what forces them to close. In a situation where work clearly matters most this requires government intervention to save jobs by enforcing rent cuts. That in turn will require protection for banks who will face consequential losses from the fallout this will give rise to in that sector, which will mean bank nationalisation is very definitely an issue that will be back on the cards quite soon.
The government has to also decide on how to replace furlough. That means a job guarantee scheme now has to be created, as a matter of urgency. Nothing else will do.
And the government has to decide what its guidelines are. Slogans are not saving anyone. Confusion is giving rise to the spread of the epidemic. And nothing seems to be cutting through to the public, who are rightly confused by the messages that they are receiving. The government does in that case have to decide what the parameters for action are for the foreseeable future and stick to them if they are to have any effect: constant changing is clearly not working.
In between all of which test and trace has to be made to work when so far it is a dismal failure because of the hopelessly inappropriate outsourced approach adopted to it when it is known that the only way to now effectively establish such systems is locally, under local government control.
Cherished policy has, then, to be abandoned by the government in the national interest. It has to be accepted that literally everything is different now.
But is a government that now has so little authority, and which admits that it is willing to break the law when it suits it, able to command the respect and resources required to make this happens? Who knows?
But if it can’t that economic recovery is not even remotely V shaped. It is going to be a downward spiral for some time to come. I stress, not even an L, but a downward slope. And the entire blame will be due to a government that has shown itself entirely unable to make up its mind on critical issues, and is still not doing so.