The Treasury is pushing us into a depression

Companies are collapsing across the country thanks to the failures of the UK’S Covid-19 support package

Look after the present and the future will take care of itself. This long-standing piece of folk wisdom is as relevant to economics as it is to other walks of life. Up to a point it seemed to have been taken on board by the Chancellor, Rishi Sunak, when at a Downing Street briefing this week he in effect said the Government’s priority was the health emergency, not the lasting economic costs of it.

This is not just a moral choice; it is also paradoxically an economic one, in that to lift the lockdown too early risks having to reimpose it later at an even more punishing cost. It might therefore prove a false economy to prioritise the resumption of trade.

A similar point can be made about the Government’s approach to measures to support the economy through the lockdown. Unfortunately, the Chancellor doesn’t yet seem to have got the message on this front. To skimp on such measures is, in the long run, likely to prove far more costly than any immediate upfront costs of more generous, timely actions. “Unprecedented” the Government’s measures may have been, but they have also been penny pinching, falling some way short of “whatever it takes”.

I’ve no argument with the size of the overall balance-sheet response to the crisis. Relative to GDP, the UK seems to be putting just as much public and central bank money behind mitigating the economic impact of Covid-19 as anywhere else.

The failings are at the micro level: much of the support is simply not getting through to the parts of the economy that need it most. Up and down the land, firms are dying on their feet. Many of them will not live long enough to see the social distancing measures lifted, and if they don’t, the anticipated bounce back in the economy simply won’t happen, with extreme long-term consequences for jobs, livelihoods and the public finances.

But we don’t have to end up in a second Great Depression. Ultimately, it’s a policy choice. Regrettably, the Government hasn’t yet got the balance right.

As guardian of the nation’s purse strings, it is wholly understandable that the Treasury should want to make its business support schemes scamproof and resilient to those cynically seeking to take taxpayers for a ride. It is also understandable, if wrong, that the state should want to limit its exposure. But in doing so, Mr Sunak runs the risk of half measures that still cost us dearly but fail to save the economy.

The main components of Britain’s economic safety net broadly mirror what’s been put in place elsewhere – paying the wages of furloughed workers, help for the self-employed, emergency government-guaranteed loans, tax deferment and forgiveness, business rates relief, and cash grants for small enterprises.

But there are important differences of detail and implementation that have left the British package wanting. As with UK shortcomings on coronavirus testing, the business response does not stand up well to international comparison. By attempting to limit the risk to the public balance sheet, we are in danger of losing large chunks of the economy entirely. In the past week there have been some welcome signs of corrective action, but for many it is too little too late.

German and Swiss countermeasures, both medical and economic, have already drawn much praise, yet even the US – caught off-guard in most respects – seems to have been rather more on the ball when it comes to protecting the economy. Crucially, its Coronavirus Aid, Relief and Economic Security Act guarantees 100 per cent of emergency loans, against just 80 per cent in the UK, and thereby removes the need for personal security and lengthy credit assessment that has bedevilled its British counterpart. No doubt the banks are partly culpable in the UK scheme’s failings, but the underlying fault lies with its design.

The US jobs retention scheme also appears more effective, in that wages are paid via immediate interest-free loans, which are written off at a later stage as justified. By contrast, the UK scheme has required an entirely new administrative and delivery system, and won’t pay out a penny until the end of April at the earliest. For some, that’ll be too late.

The US system also seems to allow for furloughing for part-time employment while working elsewhere in the economy, whereas the worker has to be economically inactive to qualify for the UK scheme.

Multiple other anomalies and unfairnesses abound in the UK package, most obviously in business rates, where a comparatively unaffected retail business such as Tesco enjoys a lengthy rates holiday, but firms in other sectors where revenues have collapsed get no relief at all.

Just as the nation needs to get a grip on testing, it must also take urgent action on business support. Mr Sunak must assert himself against stultifying, bureaucratic public-sector obstinacy before it’s too late. Ironically, the absent leadership of the Prime Minister provides no excuse on this front. Traditionally, most chancellors behave as if they are the prime minister in any case.