Be quick about it Fol­low­ing this en­forced slump, the UK needs the swiftest re­cov­ery pos­si­ble

To get the econ­omy go­ing we need to end lock­downs as fast as pos­si­ble and in­ject yet more stim­u­lus

The Daily Telegraph - Business - - Front Page - Matthew Lynn

It isn’t a prize any coun­try would have wanted to claim. But to­mor­row it should un­for­tu­nately be of­fi­cial. Of all the ma­jor economies, the UK will have suf­fered the worst slump in out­put dur­ing the sec­ond quar­ter of the year. Our GDP is ex­pected to have shrunk by a ter­ri­fy­ing 20pc, or pos­si­bly slightly more, from April to June, al­most dou­ble the rate of some of our clos­est com­peti­tors. It is cat­a­strophic.

Sure, there are rea­sons for that. Our con­sumer-led re­tail, leisure and ser­vices based econ­omy was al­ways likely to be espe­cially hard hit by an epi­demic, and the dis­ease spread more rapidly in the UK than in many comparable coun­tries. And yet one point is surely ob­vi­ous. If we suf­fered a worse slump than any­one else, we need to en­gi­neer a swifter re­cov­ery.

Like how? We need to end lock­downs as fast as pos­si­ble; we need to tackle unions block­ing a re­turn to work, espe­cially in the pub­lic sec­tor; we need yet more stim­u­lus, even if it means more debt; and we need to lib­er­ate the econ­omy to cre­ate more jobs. For a cou­ple of decades, Bri­tain has out­per­formed its main peers, but if we don’t make up the ground we have lost in the last quar­ter very quickly, we will have thrown away years of hard work.

When the of­fi­cial fig­ures are re­leased to­mor­row morn­ing, they are not go­ing to make pleas­ant read­ing. In its fore­casts last week, the Bank of Eng­land in­di­cated it ex­pected sec­ond-quar­ter GDP to shrink by 23pc year on year and 21pc against the first quar­ter.

It might be out by a per­cent­age point or two. But we are still go­ing to be the Nor­wich City of the ma­jor in­dus­trial economies, adrift at the bot­tom of the league ta­ble. For a com­par­i­son, GDP shrunk by 13pc in France, 10pc in Ger­many and 9.5pc in the United States.

Only Spain comes any­where close to our fig­ures. with an 18pc plunge, while Swe­den, with its light touch lock­down, es­caped with only an 8.6pc fall. Which­ever way you look at it, it is a ter­ri­ble out­come.

There are rea­sons for that. An econ­omy driven by leisure, re­tail­ing and ser­vices, and buoyed up by con­sumer debt, worked sur­pris­ingly well for the last 20 years. But it was al­ways go­ing to be uniquely vul­ner­a­ble to a highly in­fec­tious epi­demic. A man­u­fac­tur­ing, ex­port based econ­omy – such as there is in Ger­many for ex­am­ple – was likely to get through this in bet­ter shape. With so­cial dis­tanc­ing in place, and with plenty of ro­bot­ics, it is a lot eas­ier to keep a fac­tory run­ning than a night­club. But if we have the big­gest drop in out­put, we also have to cre­ate the swiftest re­cov­ery. So how can we make that hap­pen? Here are four ways we could start.

First, we need to ease lock­downs as quickly as we pos­si­bly can. There isn’t much dif­fer­ence in in­fec­tion and death rates be­tween the UK and Swe­den, but there is a heck of a big dif­fer­ence – more than 10 per­cent­age points – in the im­pact on GDP. True, we need to con­trol the spread of Covid-19, but we also have to make sure there is still a vi­able econ­omy when this is all over. With lo­calised lock­downs, bet­ter test­ing, and more trac­ing, as well as shield­ing for the most vul­ner­a­ble groups, we should be able to keep the rate of in­fec­tion un­der con­trol without shut­ting down the en­tire econ­omy.

In so far as pos­si­ble, we need to bring shops, of­fices and fac­to­ries back to life, and the gyms, beauty sa­lons, night­clubs and the­atres should not be far be­hind. It is the only way that the econ­omy can bounce back.

Se­condly, we need to curb the power of unions ob­struct­ing a re­turn to work. It is very easy to com­plain about heath and safety, espe­cially in the pub­lic sec­tor, and there is no one who ar­gues against ex­tra mea­sures hav­ing to be put in place to con­trol the spread of the virus.

But teach­ers have been far too slow to adapt to dra­mat­i­cally changed cir­cum­stances, and so have many other highly unionised pro­fes­sions. It is not just the unions ei­ther. One sur­vey last week found that the Bri­tish were more re­luc­tant to go back to the of­fice than work­ers in any other Euro­pean coun­try. Man­age­ment needs to make sure that changes as well.

Thirdly, it looks as if we will need even more of a fis­cal boost. The Of­fice for Bud­get Re­spon­si­bil­ity es­ti­mates the UK’s stim­u­lus at 5.9pc of GDP. That com­pares with 14pc for the US. If GDP is down by 20pc, we should be look­ing at a bud­get deficit of a sim­i­lar amount to make up the dif­fer­ence. We may well need some form of he­li­copter money to keep de­mand alive: in ef­fect

Don­ald Trump has al­ready taken that step with his stim­u­lus cheques and the sus­pen­sion of pay­roll taxes. We could eas­ily sus­pend Na­tional In­sur­ance, and can­cel stu­dent loans re­pay­ments, if we wanted to. It will be ex­pen­sive, but it will be worth it.

Fi­nally, we need a wave of dereg­u­la­tion. We are al­ready loos­en­ing plan­ning laws and spend­ing more on in­fra­struc­ture. But hi-vis jack­ets and JCBs can’t res­cue the econ­omy by them­selves. We need to sim­plify the tax sys­tem; loosen em­ploy­ment reg­u­la­tions; cre­ate the world’s most flex­i­ble reg­u­la­tory regime for new tech­nolo­gies; and, per­haps most of all, tur­bocharge the gig and hus­tle economies be­cause that is the only place the two or three mil­lion new jobs we will need to cre­ate in the next year will come from.

The UK has done well against the rest of Europe over the last two decades. Over­all growth has been bet­ter than most of our main ri­vals since the launch of the sin­gle cur­rency. And yet if we can­not re­cover very quickly from a dis­as­trous 2020, we will have thrown away years of com­pet­i­tive gains – and it may take a gen­er­a­tion or more to re­cover the ground we have just lost.

Pre-pan­demic rev­elry in Ber­lin’s Water­gate club – when will we see th­ese sights again?

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