How courage and innovation will help build a bright future
THE SCALE of the economic damage from the coronavirus pandemic is now alarmingly clear. As the crisis continues, our country is heading for the deepest slump for decades.
Yesterday official figures revealed that output fell by 5.8 per cent in March, a bigger drop than the entire decline suffered in the financial crash.
Even worse devastation could soon follow. Indeed, the Bank of England has warned that the economy could shrink by an incredible 25 per cent in the second quarter of this year.
This meltdown represents not just a shock but major trauma that could leave permanent scars on our nation. Perhaps the most terrifying aspect is its impact on public finances.As the Government tries to protect jobs, livelihoods and businesses, the cost to taxpayers is mounting at an unsustainable rate.
Even on a conservative estimate from the Treasury, the fiscal deficit could soar this year to a colossal £337billion.
Far more nightmarish is the Treasury’s worst case scenario of a deficit of £519billion in the current financial year, an outcome that could “lead to a liquidity crisis and ultimately a sovereign debt crisis”.
To avoid such a result, the Government will have to take drastic action.
YESTERDAY, the leak of an internal paper revealed some of the steps that the Treasury is now considering,
In a package of pain worth £25-30billion, there could be a significant rise in VAT, a twoyear public sector pay freeze, further environmental levies, a rise of one per cent in the basic income tax rate and an end to the triple lock on the state pension, a move that could save the Treasury £8billion.
In the wake of the coronavirus emergency, a tough fiscal approach will certainly be required even if it means breaking election pledges.
In the darkest case, the Government may have to put up taxes by an additional £90billion a year. The failure to act would be catastrophic, dragging the country towards bankruptcy.
But, paradoxically, the sheer size of crisis also provides an opportunity for more radical thinking about the shape of our economy beyond the dreary, heavy-handed catalogue of tax rises and spending cuts.
This is a moment for boldness, like the aftermath of the
Second World War. In 1945 our economy had almost been ruined by six years of conflict.
But after winning the general election by a landslide, the incoming Labour administration did not retreat in the face of this daunting challenge.
Instead it embarked on a daring programme of national renewal. The National Health Service was created, the welfare state expanded, and an export drive launched. Houses were built, schools established and key industries nationalised.As a result, the foundations were laid not only for a stronger society but also for an economic boom in the 1950s, prompting the Tory Prime Minister Harold Macmillan to tell the public, “You’ve never had it so good.”
The grimness of the postwar outlook was a spur to audacity, not an excuse for hesitation.
Today, the impact of Covid should be the cue for bravery. We need more than just the usual conventional tax rises.
The Government must dramatically increase revenues by really cracking down on tax injustice. HMRC admits that the amount lost to avoidance and evasion came to £35billion last year, but according to the tax expert Richard Murphy the true figure could be as high as £90billion.
It is ridiculous that five of the biggest US tech giants paid just £237million in corporation tax in 2018, despite profits in the United Kingdom of no less than £8billion. There should be no more tolerance for tax havens or dubious deals for international corporate favourites.
GREATER tax fairness should be accompanied by a host of other policies, like greater support for key industries. The corona crisis has exposed the fragility of our globalised economy, so we must rebuild our own manufacturing capacity, supply lines and domestic production.
It should not be a task beyond us, given that we were once the pioneer of the Industrial Revolution, and still lead the world in fields like biotechnology. At the same time, there should be a far-reaching overhaul of education and training, with more concentration on practical skills and less on useless university degrees.
The Government also needs to reassess its priorities for our infrastructure, such as putting broadband improvement before the £107billion HS2 project, made even more redundant by the growth in home working.
With courage and innovation, the future can still be bright.
‘Sheer size of problem presents opportunity for radical thinking’