Our economic recovery will require expert guidance and tough decisions
Chancellor Rishi Sunak in Downing Street on 13 May the first day of the easing of coronavirus restrictions to bring the country out of lockdown| PA Images
We must give our all to our economic recovery – but it will mean making careful but tough decisions and giving a boost to consumer confidence
These are the most difficult of times. Wartime may be a rather loose comparator but not in terms of the profound way in which our economy and society will be affected by the virus over the longer term. And just as World War II began with the ‘phoney war’, so too, economically at least, due to massive government intervention, the economic consequences of what will now follow have not yet sunk in for most.
For many this will be a personal catastrophe and how governments and institutions around the world act will determine the future livelihoods and wellbeing of billions of people right around the globe.
As Paul Johnson of the IFS has said, consciously or otherwise, channelling that first dreadful global conflict, we’re facing “a mega-recession. It is a recession to end all recessions”. None of that is to eschew optimism – far from it – we need to throw the kitchen sink at our recovery and must do all within our power to keep the animal spirits alive and whole. But the laws of gravity cannot be undone and the challenges ahead are of the highest order.
In the face of this, the Treasury Committee has gone about its inquiry into the virus and the economy and its scrutiny of government with a sense of extraordinary urgency and vigour. We’ve worked flat out through term-time and recess alike with virtual evidence sessions, calls for evidence and correspondence with the Treasury, HMRC, the financial services sector, economists, businesses, unions and many others. We have focused relentlessly on the critical concerns raised by businesses, families and individuals.
Our initial work focussed on the Treasury’s business support measures and the hard edges and sometimes inadequate speed of delivery that, unsurprisingly, typically accompany bold measures pushed forward with such urgency and at such vast a scale.
We pushed the Government on the lack of support for the self-employed, on lenders requesting personal guarantees on business interruption loans, and on the issue of many larger firms struggling to find support. We called in the banks and pressed them to up their game in getting much needed loans out the door. And we urged Government to consider 100% loan guarantees for smaller firms.
The introduction of the Self-employment Income Support Scheme, banning lenders from requesting personal guarantees on loans under £250,000, and the Coronavirus Large Business Interruption Loan Scheme were all welcome signs that the chancellor is listening. The Bounce Back Loan scheme is now also helping small businesses access finance faster and is 100% state guaranteed.
But there are still people and businesses falling through the gaps. For example, directors of limited companies who often pay themselves a relatively small salary and take dividend payments from company profits currently do not have these dividends considered when it comes to assessing the furlough grant available.
New starters who are failing to qualify for furloughing are another group struggling for help. The committee will continue to highlight these and other gaps.
In this fast-moving crisis, the focus must constantly move on. The big questions now include both how to ensure the economy bounces back as fast as possible but also what form the Government’s macroeconomic policy should assume as we come out the other side?
For the economy to fire on all cylinders, the chancellor will have to get several things absolutely right. Job support measures must be eased at just the right pace and in a form that maximises the chances of businesses bringing workers back into the workplace.
Financial resources must be used with maximum efficiency to ensure that every pound spent is rigorously focused on businesses and sectors that can come through the crisis, rather than on those that sadly have a business model that will not survive the new normal before a vaccine arrives.
Banks must ramp up lending and the voice of business and economists must be heard alongside the voice of our vital health experts.
Confidence of course will be key to recovery. As we exit lockdown the economy will need people to engage more like they did pre-crisis. Around two thirds of our economy is made up of consumer expenditure and it will be critical to get people spending again.
That will be boosted by getting the health-related decisions right so that they drive economic engagement, but there is also the opportunity to use short term fiscal measures to stimulate spending, such as perhaps a time-limited cut in VAT.
There has recently been a period of effectively enforced saving due to a lack of expenditure opportunities and reductions in day to day costs, such as travel. Some of these savings will need to be pivoted quickly into the economy.
The chancellor will have to give very careful thought to how businesses saddled with newfound debt can be made willing and able to continue to focus on investing in expansion, wealth creation and consequent job creation and tax contribution.
Profound and overarching decisions will need to be taken around the balance between borrowing, spending, taxation and the push for growth and just as importantly how that balance might vary through time.
These and other thoughts will be the focus of the Treasury Committee and I remain hugely grateful to all members of the committee – whether Conservative, Labour or SNP – who have worked immensely hard and in an entirely constructive, consensual and determined spirit.
For policy makers across the world, now is certainly a time for action, but it is also a time for deep and careful thought. The decisions we make now will be with us for a very long time. The Treasury Committee will continue to contribute with this at the forefront of our minds.
Mel Stride is Conservative MP for Central Devon and chair of the Treasury Committee