Cost of lockdown will cast a shadow over us for decades

We all knew there would be a reckoning and here it comes. Every Budget contains a lot of very large numbers. This one, however, contained one absolutely colossal figure that towered above all the rest: £407 billion.

That is the amount of money the Government will spend on supporting the UK economy throughout the coronavirus pandemic. On one level, this number could be simply viewed as the bill to pay for the extraordinary measures needed to keep businesses on life support and provide incomes to those who haven’t been able do their jobs in the long months of lockdown.

But it is such a vast sum that it will surely cast a shadow over our lives for decades to come and shift the centre of the nation’s political gravity in ways that we cannot yet comprehend.

Paul Johnson, the head of the Institute for Fiscal Studies think tank, heralded “a new phase of UK economic history” and suggested taxes are likely to reach their “highest sustained level in history”. Gulp.

You can certainly see how the

Government’s response to the pandemic could set all sorts of precedents, normalise a bigger state and give future politicians the cover to further raise taxes, increase spending and insinuate themselves into the economy and our daily lives to a far greater degree.

Those inclined to make the case for freer markets and a smaller state will almost certainly find themselves swimming against the tide.

In an assured performance, Rishi Sunak announced more generous support for businesses and workers in the coming months than was expected but also pencilled in heftier tax rises than anticipated in order to start balancing the books. Conspicuous by its absence, however, was any commitment by the Chancellor to review or row back on those tax rises if the economy bounces back stronger than expected and the Treasury’s coffers start refilling naturally.

Mr Sunak also lay the groundwork for a return to normality and outlined plans to help boost the recovery. There will be restart grants for those businesses in the so-called “nonessential retail” and leisure industries.

And a new recovery loan scheme will replace the bounceback loans that have been in place during the pandemic.

Those of a pessimistic mindset might find cause to worry in this. It strongly suggests that Mr Sunak does not subscribe to the view, best articulated by Andy Haldane, the chief economist of the Bank of England, that the UK economy is a “coiled spring” ready to bounce back as soon as restrictions are lifted.

Mr Haldane believes that the economy hasn’t been fundamentally damaged, and once we are all allowed to go about our normal lives, we’ll be down the pubs, restaurants and shops or off on holidays spending the money we haven’t been able to for the past 12 months or so.

The Chancellor clearly thinks

there is at least a possibility it will not be as easy as that and the economy will need a bit of help getting back on its feet. At the very least, he is not prepared to wait and see.

This is interesting in and of itself. Yes, we are living in extraordinary times. But they appear to have inspired a much more interventionist tendency in the Conservative Party.

Indeed, there was little in the Budget with which Sir Keir Starmer, the leader of the Labour Party, could find fault.

There’s an old rule of thumb that economic crises come round every 10 years or so. But they used to hit different countries at different times, so the effects were staggered. In today’s hyper-connected world, the really big problems happen everywhere all at once.

This means that the damage is worse and the aftershocks take much longer to subside.

The coronavirus started spreading around the world before the world had fully recovered from the financial crisis in 2008.

And global governments are clearly developing a habit of borrowing and spending ever bigger to combat these serial economic calamities.

Recent research by the fund management firm Blackrock showed that the cumulative hit to economic activity in the US and Europe as a

‘There is a real danger we will still be paying for today’s emergency when we get slammed by the next’

result of the Covid shock is likely to be a quarter of that caused by the financial crisis.

And yet the combined fiscal response to the pandemic has been four times bigger.

Partly that is because this has been a health crisis, so damn the expense. But nevertheless there is a very real danger that we will still be paying for today’s emergency when we get slammed by the next catastrophe.

At that point, we’re into a situation of almost perpetual crisis management, with governments unable to shrink the size of the state even if they wanted to – or could remember how.