Come the au­tumn, Su­nak’s half mea­sures must morph into rad­i­cal wealth creation

Chan­cel­lor should pre­pare ground for dereg­u­la­tion of plan­ning and cut red tape that holds back in­no­va­tion

The Daily Telegraph - Business - - Summer Statement: Focus On Business & Economics - JEREMY WARNER

Rishi Su­nak, the Chan­cel­lor, asks to be judged not by the cri­sis it­self but by the Gov­ern­ment’s re­sponse to it. As well he might, be­cause what is so unique about the eco­nomic con­se­quences of the Covid pan­demic is that in large mea­sure they are down to the Gov­ern­ment’s own in­struc­tion; they are not the re­sult of some ran­dom me­te­orite strike. Hav­ing closed large parts of the econ­omy down, banned peo­ple from trav­el­ling and spend­ing money, stopped them go­ing to the pub or to the of­fice, and in­stead urged them to work from home, the Gov­ern­ment is strug­gling to find ways of per­suad­ing them back again.

As Paul John­son, di­rec­tor of the In­sti­tute for Fis­cal Stud­ies, put it: “They’ve pre­vented us from go­ing to the pub; now all of a sud­den they are try­ing to bribe us to go.”

As screech­ing, hand­brake turns go, this one is hard to beat. Yet there is one rather ob­vi­ous prob­lem; as

‘Un­til we are told it is safe to go back to work, much of Su­nak’s pack­age threat­ens to fall on stony ground’

‘Of all the mea­sures, per­haps the most in­no­va­tive was the new jobs re­ten­tion bonus’

long as the so­cial dis­tanc­ing mea­sures are main­tained, and as long as peo­ple con­tinue to be told to work from home, you can bribe all you like, but still it will strug­gle to have the de­sired ef­fect.

The Gov­ern­ment’s at­tempts to “kick-start” the econ­omy are there­fore all a bit cart be­fore horse.

Un­til we are told it is safe to go back to work, to gather in crowded places, to eat in pop­u­lar restau­rants where the ta­bles are close to­gether, un­en­cum­bered by plas­tic screens, un­til we can again sit cheek by jowl in the theatre, cinema and mu­sic venue, and un­til the kids are sent back to school, much of Su­nak’s pack­age threat­ens to fall on stony ground.

All that said, it’s hard to find any par­tic­u­lar fault in this £30bn of ini­tia­tives. The devil of these things is al­ways in the de­tail, but if we view the pack­age as in ef­fect one mighty tem­po­rary tax cut for the most af­fected sec­tors, then it plainly has some merit. Mer­ci­fully, the Gov­ern­ment has so far largely re­sisted the temp­ta­tion of mas­sive, make-work, pub­lic sec­tor job creation schemes.

We’ll for­get the as­ton­ish­ing £49bn so far spent in ad­di­tional sup­port for pub­lic ser­vices, much of it on PPE and test, track and iso­late sys­tems, which is much big­ger than ini­tially bud­geted for.

The strong­est crit­i­cism that can be made of the new pack­age is that it is not par­tic­u­larly large by in­ter­na­tional stan­dards. The Ger­man stim­u­lus, for in­stance, is more than four times as big, and that’s as­sum­ing take-up of the UK ini­tia­tives achieves the head­line num­bers, which it won’t. As an an­swer to the ex­piry of the £60bn fur­lough scheme, they are most un­likely to do the trick.

But let’s not be churl­ish. Of all the mea­sures, per­haps the most in­no­va­tive was the jobs re­ten­tion bonus, po­ten­tially worth £9bn if all 9m work­ers cur­rently on fur­lough were to be taken back on staff.

Ob­vi­ously, it is not as gen­er­ous as the fur­lough it­self. Firms will have

‘De­spite the in­no­va­tions, it’s hard to make a dif­fer­ence with one arm tied be­hind your back’

to make some dif­fi­cult judg­ments on how quickly busi­ness ac­tiv­ity, and there­fore staffing needs, might re­cover. But it is a po­ten­tially im­por­tant in­cen­tive none the less, which of­fers a use­ful re­duc­tion to firms in labour costs.

The VAT cut might like­wise be re­garded as more of a tax break to firms than to con­sumers.

If the dif­fer­ence be­tween the old 20pc rate, and the new, tem­po­rary 5pc rate is pock­eted by the busi­ness rather than passed on by way of price re­duc­tions, it goes some way to com­pen­sat­ing firms for the lower lev­els of foot­fall man­dated by con­tin­ued so­cial dis­tanc­ing mea­sures.

In ef­fect, the firm gets a 15pc in­crease in tak­ings with­out any ad­di­tional cost to the cus­tomer.

The eat-out-to-help-out scheme is by con­trast in ef­fect a tax cut for con­sumers, rather than busi­nesses, and could prove use­ful in per­suad­ing them back to the now al­most for­got­ten habit of go­ing to a restau­rant, café or pub. I’ve no prob­lem with the stamp duty land tax hol­i­day, or the green homes grant, both of which ought to help sup­port jobs, and gen­er­ate new ones, in the home im­prove­ments sec­tor. More hous­ing trans­ac­tions mean more work for kitchen fit­ters, dec­o­ra­tors and fur­ni­ture mak­ers.

Yet for all these in­no­va­tions, it’s hard to make a dif­fer­ence when you have one arm tied be­hind your back; the econ­omy is strug­gling not be­cause of the rel­a­tive ab­sence of gov­ern­ment sup­port, but be­cause so­cial dis­tanc­ing, both vol­un­tary and oblig­a­tory, pre­vents it from op­er­at­ing prop­erly.

There is no leg­is­lat­ing for how peo­ple might be­have once re­stric­tions are re­moved – many will re­main ul­tra-cau­tious for a long time to come re­gard­less – but the econ­omy stands no chance of fully re­cov­er­ing un­til they are.

Even so, I’d have gone fur­ther if in Su­nak’s shoes. What’s he got to lose? “In the long run we are all dead,” ob­served the econ­o­mist John May­nard Keynes. “Econ­o­mists set them­selves too easy, too use­less a task, if in tem­pes­tu­ous sea­sons they can only tell us that when the storm is long past, the ocean is flat again.”

At times like these, you need to look af­ter the present, and trust that the fu­ture will take care of it­self.

Al­ready Su­nak wor­ries too much about the fu­ture, as in some re­spects he must. Even­tu­ally, all this will have to be paid for. If the Chan­cel­lor goes too far, he might frighten the horses and prompt a calami­tous loss of mar­ket con­fi­dence in the UK econ­omy.

But as long as the Gov­ern­ment deems it nec­es­sary to keep the econ­omy chained, he is duty bound to keep feed­ing it.

The “build back bet­ter”, third phase of the pan­demic re­sponse is ap­par­ently saved for the au­tumn Bud­get, where I imag­ine, with the end of fur­lough pend­ing, he will have to be a lot bolder than this pack­age of half mea­sures.

In par­tic­u­lar, he needs to come for­ward with a quite rad­i­cal pro­gramme of ini­tia­tives to en­cour­age wealth creation, in­clud­ing root and branch dereg­u­la­tion of plan­ning and the myr­iad other re­stric­tions that hold back Bri­tain’s pent-up en­tre­pre­neur­ial po­ten­tial.

Like it or not, this has to be­gin with the big­gest re­stric­tion of the lot – gov­ern­ment-man­dated so­cial dis­tanc­ing.

The Chan­cel­lor de­liv­er­ing his sum­mer eco­nomic up­date in the House of Com­mons

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