Steps in right direction for the economy

IF, with hindsight, the UK was too slow to enter lockdown, it was because some foresaw its enormous costs and the difficulties of emerging from it. In that, at any rate, they have been vindicated; relaxing the restrictions is much trickier and even more expensive than imposing them.

The Chancellor, Rishi Sunak, had therefore to perform some unusual manoeuvres in his summer statement, and introduce measures that at any other time might be regarded as reckless. But these are not normal times: had he been able to tax the word “unprecedented”, Mr Sunak could probably have defrayed his costs considerably.

As it is, the UK Government is paying almost 10 million people not to go to work, and coronavirus has already cost an eyewatering £70 billion. The further £30 billion announced this week, though a staggering sum, will be only the beginning, and much of this spending is not yet stimulus – where it will be vital to get the timing and direction right – but merely attempts to contain and ameliorate what will be a grave and inevitable recession.

In the circumstances, this mini-budget (costing so much more than any normal full-scale budget) was never going to be perfect. But it contains some welcome and inventive proposals. Much of it applies, of course, only to England and Wales, and the Scottish Government will have to consider in which areas it should follow suit, and the steps that it might take in tailoring policies for those in which Scotland’s needs differ.

The most useful initiative, particularly from the point of view of the Scottish tourism and hospitality sectors, is the six-month cut in VAT from 20 per cent to 5 per cent. These are the businesses that have been amongst the most severely affected, and though this measure provides a welcome lifeline, it may not be enough to prevent many of them from going under.

Similarly, the job-retention bonus, which is Uk-wide, will not be able to save every worker on furlough, but it is at least a sign of the Government’s intent. It has “dead weight” costs; the Treasury will be paying firms that might have retained those workers in any case. But some aspects of a “one size fits all” approach, as opposition politicians have critically characterised it, are unavoidable in such measures.

Civil servants’ caveats over whether these policies will actually be effective are not a criticism; this is a rare moment when ministers north and south of the border can be exempted from some of the normal considerations. Bluntly, no one knows with certainty what might work.

The “meal deal” voucher to encourage restaurant diners is one example of creative thinking; we’ll need more of that from the UK and Scottish governments. The latter should be much more proactive in engaging with business – it is disappointing and worrying that following Sir Tom Hunter’s call in this newspaper to work together he has had minimal interaction from Holyrood and its agencies. That is a mistake.

The Scottish Government deserves praise for reducing the infection and R rates, but a clearer direction on the steps for financial recovery is needed. If Westminster has arguably been too gung-ho in its departure from lockdown, Holyrood risks seeming too cautious.

It should be listening to business, and consider emulating some of the “kickstarter” policies directed at helping young workers, not all of which will apply to employees in Scotland. Grants for trainees, apprentices and to encourage education will be needed here, too.

But it should not follow every policy blindly: stamp duty cuts will be a boon in England, but it is less clear that they would be as helpful in Scotland. Holyrood should have the freedom to divert resources where they are most effective. That may require greater powers on borrowing, a position with which we sympathise. But inventive thinking is what is needed most.