If we’re not careful, we’ll be stuck with these subsidies for a very long time

The growth of the modern state is in many ways the story of emergency powers that outlasted the emergency

All this talk of Boris running a wartime administration is spot on. What we are going through is far closer to the experience of full mobilisation than to any past economic crisis. So let’s consider the full implications.

When Winston Churchill promised “victory at all costs”, he meant it literally. Every other consideration was subordinated to the goal of winning – something that was not true of all the combatant states, and that might not have been true of Britain under a different leader.

Boris, whose book about Churchill pulses with awe at the man’s strength of purpose, is well aware of how high those costs were. Britain’s deficit never dipped below 20 per cent between 1940 and 1945. We emerged from the

Second World War with a debt more than twice the size of our GDP, a debt successive governments sought to inflate away, with dire consequences for productivity and competitiveness. By the Seventies, we had the worstperforming economy in Europe. Indeed, the final instalment of our war loan from the United States was not repaid until 2006.

Now, as then, we have one goal: “victory at all costs”. Now, as then, those costs should not be measured only in higher debt. Every bit as debilitating for the economy after 1940 were the various ways in which private property and free contract were undermined – the nationalisations, requisitions and prohibitions. Something similar could happen today.

Consider, for example, the decision to pay workers’ wages on behalf of their employers. Everyone can see that this will have a huge direct cost. But it will also have an indirect cost as resources are misallocated. Technology causes a certain churn in any employment market. There are fewer secretaries, video rental employees and local journalists than there were 15 years ago, but more people working in biotech, 3D printing and online gaming. In a typical year, some 17 per cent of jobs are overtaken by technology.

As well as temporarily freezing healthy sectors (most obviously aviation and hospitality), the coronavirus is accelerating a number of existing trends, such as the move to online retail. Firms like Amazon and Ocado are hiring frantically. When the state steps in to pay 80 per cent of existing salaries, it necessarily props up viable and obsolete companies without distinction.

The point is not that state support in an emergency is wrong. A profitable company forced to close because of a Government decision – such as telling people not to go to the gym – has a strong moral claim to compensation. The trouble is that expansions in state power introduced on a notionally contingent basis tend to linger after the contingency has passed.

Consider what happened after 1945. It took years to get rid of rationing and identity cards, decades to get rid of price controls and nationalisations. Parts of the wartime economy are still with us, notably our top-down education and healthcare systems.

The growth of the modern state is in many ways the story of emergency powers that outlasted the emergencies. Income tax was introduced in 1799 as “a temporary measure necessary for the prosecution of the war”. Our colonies managed to hold out until they, too, were dragged into wars. Direct federal taxation began in Australia in 1915 and Canada in 1916.

“Nothing is as permanent as a temporary government programme,” observed Milton Friedman. It is easier to start paying people’s wages than to stop, easier to offer grants to businesses than to withdraw them, easier to save a company than to let it collapse after you have taken on responsibility for it.

On Friday, the PM again expressed the hope – a hope we all share – that we might be over the worst within 12 weeks. If he is right, that will be the moment to withdraw these subsidies, before people start to arrange their affairs around them. Otherwise, we shall be stuck with them for a long time.