Human costs of this new economic Ice Age will be catastrophic

Many haven’t yet realised the horrifying scale of the damage that lockdown will do to our future prosperity

They called it the Great Frost of 1709, and for good reason. There was no weather forecasting in those days, no warnings and no preparations, so when temperatures collapsed across Europe and the Thames froze over, an economic, social and humanitarian calamity was guaranteed. Crop failure and death of livestock led to starvation. Flu and plague swirled around the continent, while the War of the Spanish Succession continued to destroy resources and lives.

But for Britain, one of our greatest recessions started abruptly when the thermometer plunged to -12C in Upminster. In an eminently readable 25-page report republished by the Royal Society, Rvd William Derham, a self-taught scientist, wrote that “this Frost was greater (if not more universal also) than any other within the Memory of Man... of shorter continuance, [but] more intense than [previous episodes]”. It is now believed 1709 saw the coldest winter of the past 500 years; in Orlando: a Biography, Virginia Woolf described how “birds froze in mid air and fell like stones to the ground”.

The same was true of the British economy, which collapsed by more than it ever has since; in France, 630,000 people died over two years and the birthrate plummeted. The geopolitical implications were immense. Russia defeated a weakened Sweden. The Duke of Marlborough scored a pyrrhic victory over France at the Battle of Malplaquet that September – on another fateful 9/11. The battle inspired Marlbrough s’en va-t-en guerre, and the horrendous body count shocked Europe.

Some 311 years later, another natural catastrophe, this time a zoonotic disease causing the worst pandemic (for the West) since the Hong Kong flu of 1968, is once again wreaking havoc, killing thousands, crushing the global economy and threatening to usher in a series of unpredictable social, political, technological and geopolitical shifts.

The UK death toll, when eventually measured properly, is unlikely to be contained to 20,000, a number which some officials until recently thought would be a good result. England and Wales suffered a far greater than usual number of deaths in the week ending 3 April. But it is the economic impact of the lockdown – its worst side effect – which is coming as the greatest shock, not least to hopeless Treasury mandarins. We have entered a mini-economic Ice Age, and its impact on our society will be horrendous.

The economy will collapse by 35 per cent this quarter and by 12.8 per cent for the year, according to the Office for Budget Responsibility, the worst full-year decline since the Great Frost. Unemployment will shoot up by 2.1 million to 3.4 million, 10 per cent of the workforce. The fiscal costs matter less, but are equally awful. The Treasury will borrow £273 billion this year, taking the deficit to 13.9 per cent of GDP – not quite the 25 per cent in the Second World War, but close. For the first time, the state will spend over £1 trillion, taking public expenditure to 51.7 per cent of national income.

Yet for all of its grimness, the OBR’S scenario remains far too optimistic. It assumes that GDP will shoot back up next year, cancelling out the prior year’s fall. The crisis would have proved to be little more than a mirage, an extended Christmas holiday.

If only. Despite Rishi Sunak’s valiant and laudable attempts at hibernating the economy, the reality is that there will be a massive, permanent loss of output, and thus an immense, grievous human cost. At the best of times, no state-backed economic insurance plan would ever be enough given the complexity and dynamic nature of economies; and the Treasury’s pathetic bureaucratic failures and the need to build new systems means that lots of jobs and companies are falling between the cracks.

The longer the collapse continues, the greater the degradation and the bankruptcies and the liquidation and the scarring – like with the epidemic, the damage will grow in a non-linear fashion. The recovery may not be L-shaped, but it certainly won’t be V-shaped.

There were already lots of problems waiting to be crystallised by a shock, not least bubbles, excessive leverage and bizarre valuations. Many industries were already undergoing serious change, which will now be turbocharged. A pause gives people time to think: do we really need this team, and to be in this line of business? And what about these massive offices in the age of Zoom?

Yet much of the public simply don’t realise that we are already in an economically lethal deep freeze. Why? Some groups remain cushioned. Some middle-class professionals who can work from home have discovered that they quite enjoy it. Like the frost fairs on the frozen River Thames, there are upsides to calamity. But reality will eventually kick in. Some civil servants are also in this relaxed category: they think their jobs are safe regardless.

Then there are millions of furloughed employees on between £15,000 and £40,000, for whom Sunak’s scheme, which pays 80 per cent of salary capped at £30,000, together with mortgage and rent holidays, has proved to be a surprisingly tolerable interlude, even though they know that it can’t last. Because they aren’t spending much, some even feel temporarily better off.

By contrast, those who realise that we are dashing into economic Armageddon are those who haven’t been shielded from it: entrepreneurs, small business owners, high-income furloughed workers who have seen their pay slashed, many self-employed workers, investors, CEOS: all are terrified, and desperately want the Government to tell them when it will begin to loosen the lockdown, while avoiding a resurgence of the virus.

What will the criteria be? Will our exit plan be like Germany’s, or Austria’s, or Denmark’s? What about masks, tracing, testing, vaccines? Why zero information? Why the lack of trust? The absence of hope is a Gdpand jobs-destroyer. It’s much easier for entrepreneurs to wait, to delay liquidations, when they have some idea of a way out. This isn’t some idiotic health versus wealth argument: one cannot, in the long run, enjoy one without the other. Does the Government really want 2020 to be remembered not just as the Year of Covid but also as the Great Economic Freeze?