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Tue, 20 October 2020

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The economy is facing a perilous turning point. Parliament must be given a say

The economy is facing a perilous turning point. Parliament must be given a say

Chancellor Rishi Sunak

4 min read

A balanced approach to the crisis requires a balanced debate – one that weighs up the health risks and the economic costs

Covid is, first and foremost, a health emergency. All of us grieve for those who have lost loved ones. But the crisis has also triggered an economic and social earthquake. Cities deserted. Businesses shut. Jobs lost. Debt soaring. 

Even before the chancellor stood up earlier this month to announce his new package of economic support, the estimated total cost of all the government’s measures in response to the Covid crisis stood at £210bn. Put another way, that’s equivalent to two thirds of all planned departmental spending for 2019-20.

For the first time since 1960, debt has exceeded 100% of GDP. UK government borrowing in 2020/21 is likely to be at the highest level as a share of GDP ever recorded in the UK in peacetime. Meanwhile, latest figures suggest one business in six was still closed, and one employee in eight remained on full or part furlough, at the start of September.

To point this out is not to criticise the chancellor. Far from it. He has done well in extremely demanding circumstances. His latest initiatives may prevent us from following the path of the OBR’s “downside scenario”, in which unemployment peaks at 13% next spring; it takes until autumn 2024 to get the economy back to where it was pre-Covid; and the five-year cumulative shortfall in real GDP is larger than that which followed the financial crisis.

But given the scale of the economic shock, and the threat of tighter restrictions in the future, it’s time we took a step back. 

A balanced approach to the crisis requires a balanced debate – one that weighs up the health risks and the economic costs. We need to answer some difficult questions. First, what is the specific aim of the strategy – what is success? Next, what is the economic cost of restrictions on individuals and businesses? How does this compare with the cost of inaction? How are we going to support businesses and livelihoods in the months ahead? How will we pay back the ballooning debt? 

To ask such questions is not to dismiss the laudable, human instinct to save lives. It is simply to ensure that, when action is taken, we are mindful of the consequences

Some may balk at asking such flinty questions in the midst of a pandemic. I disagree. To ask such questions is not to dismiss the laudable, human instinct to save lives. It is simply to ensure that, when action is taken, we are mindful of the consequences.

Some consequences are immediate. Workers who are from a BAME background, women, young workers, low paid workers and disabled workers, have been most negatively impacted economically by the coronavirus outbreak. Other consequences are more long term – such as whether our economic growth will be sufficient to fund the NHS and our welfare system, and to pay back the borrowing. To quote the OBR: “at some point, given the structural fiscal damage implied by our central and downside scenarios, the longer-term pressures on spending, and the range of fiscal risks we identify, it seems likely that there will be a need to raise tax revenues and/or reduce spending (as a share of national income) to put the public finances on a sustainable path”. 

The Prime Minister says we are at a “perilous turning point” as regards the spread of Covid. So too the economy. Failure to ask difficult questions could result in us stumbling down a path towards higher debt and more deaths, without pausing to ask whether this is the right course.

This is why Parliament must have ample opportunity – and data – to debate our approach before any new restrictions are brought in, and vote on them. 

Lord Bridges of Headley is a former Cabinet Office and Brexit Minister.

 

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