Opinion: ‘Is financial help hitting the target?’
Government borrowing has risen to eye-watering levels; under normal circumstances, this would be intolerable.
However, given the present circumstances, it is necessary.
The coronavirus has induced a substantial economic shock: allowing market forces to operate as per normal would lead to a depression and unemployment at levels not seen since the 1930s.
That said, our present debt levels mean that we owe more than our current GDP. We’re relying on quantitative easing – that is, the Bank of England creating “new” money out of thin air – to finance some of this debt.
However, it’s worth asking: is the result of this deficit spending going to everywhere that it is needed?
While I welcome the extension of the furlough scheme, it looks like there are substantial cracks in the government’s approach. Payrolls were down by 782,000 in September. Unemployment has risen to 4.8% with 1.5 million unemployed. Redundancies are up to 314,000, a new record.
Support for the self-employed and small entrepreneurs has been particularly lacking; also new starters and directors of limited companies also don’t receive sufficient aid. If the latter sounds like not a particularly deserving group, keep in mind that over 700,000 people are directors living off small dividends from their tiny firms. It’s by no means “fat cats”, rather, it’s people who have to hustle their way to earn every penny. What about support for them? There doesn’t appear to be much help; while the government has talked about “levelling up” and leaving no one behind, it appears that they are not targeting their measures to achieve this.
Their aim is evidently askew.
Furthermore, it is highly unlikely that the arrival of the vaccine will bring about an instantaneous revival in business; are they thinking about this? Additionally, patterns of work and consumption have changed; the commercial property market will likely take a long term hit from losses in the retail and office sector. In response, the Chancellor is rather like a firefighter, trying to hose down the largest bonfires with cash. However, what about the day after? What do we need to rebuild?
It’s likely that in the aftermath of this crisis that there are going to be more self-employed people. There will be less demand for spaces in which to socialise. People have gotten used to the idea of working from home, and by using tools like Microsoft Teams and Zoom, they even have found new ways to collaborate. Cost and carbon-conscious businesses will be keen to capitalise on this trend by reducing their office footprint. Changes to spending plans should follow: for example, the investment in HS2 should be revisited. Why would we want to expend that amount of cash if people are going to be travelling less? Surely, a more productive use of that money would be to ensure that every home has an adequate broadband connection; I have experienced enough Skype and Zoom calls with poor audio to indicate how essential that can be.
It’s easy to get wrapped up in the right now. It’s more difficult to focus on what will be. The Chancellor has shown that he is trying to fill immediate gaps: he has by no means filled them all. Furthermore, he is perhaps missing an opportunity to anticipate the economy of the future and what we need to do to ensure future prosperity.