This ‘phoney depression’ is coming to an end. Soon we will be in the real thing
Britain is about to be hit by mass unemployment and inflation. The Government needs to start preparing
Imagine that last November you had met a fortune-teller who told you – accurately as it turned out – that in the second quarter of 2020, UK GDP would shrink by 20 per cent and that government borrowing would balloon to £127.9billion. I know how I would have reacted: by assuming it must be the work of Jeremy Corbyn, not Boris Johnson, then on the verge of winning an 80-seat majority in December’s election.
But even then I would have wondered how things could turn quite so bad, so quickly – Corbyn was only promising £82.9billion a year of extra spending. Yet his promise of free broadband for all seems positively mild compared to the Government subsidising the wages of nine million workers and going halves on our pub meals.
The cataclysmic state of the UK economy was confirmed in last week’s quarterly GDP figures from the Office for National Statistics. Covid-19 has devastated every economy, but none to the extent it has Britain’s.
The average fall for the EU was
12 per cent – little more than half of that for Britain. But no one should fool themselves into thinking that things are so bad that they can’t get any worse.
The most bizarre statistic this week has been the unemployment figure which, at 3.9 per cent, is still stuck near a 45-year low. How can you have a 20 per cent contraction in the economy without a rise in unemployment?
Because, thanks to the fools’ paradise that is the furlough scheme, the tsunami of job losses has yet to hit us. But it will do this autumn, when the furlough scheme is unwound. Add several million unemployed, and the 20 per cent contraction in the economy is going to look a little less abstract.
It is not just the economy. Deaths from Covid-19 may have slowed to a few dozen a week, but the real human misery is yet to come: the deleterious health effects of longterm unemployment, the toll from cancers and other health conditions undiagnosed and untreated during lockdown, not to mention the cost of being a poorer country than we otherwise would have been.
Last month the Department for Health and Social Care quietly published an analysis of the cost of Covid-19 and lockdown. In terms of Quality-Adjusted Life Years (QALYs), it concluded, lockdown will eventually cost more life-years than the disease itself (although it argued that Covid-19 would have killed far more people had we not had lockdown).
If you think the past 10 years were an age of “austerity”, it is nothing compared with what is coming. Fiscally, we are on a knife edge. Few in government seem to worry about borrowing at the moment. They should.
This year, estimates the Office of Budgetary Responsibility (OBR), the deficit will come in at over £300billion
– more than twice the overdraft left behind by Gordon Brown after the 2008-09 economic crisis, which was seen as a great ball and chain around the nation’s ankles at the time.
If interest rates were miraculously going to stay at zero, or even a little under zero, then, sure, we could carry on like this.
But it won’t take much of a rise in interest rates for the cost of servicing the Government’s debts to become an onerous burden, necessitating deep cuts to public spending which will make George Osborne’s retrenchment look like a giveaway.
The temptation will be for the government to print its way out of a fiscal crisis. But while governments can print money, they cannot print resources.
Too much of the former chasing too little of the latter, and we will be back in the Seventies, when at times the cost of living was rocketing up by 30 per cent a year. Since no one under 50 can really remember living with rampant inflation, this horror will catch most people unawares.
It is remarkable that support for the Government has remained so high through this crisis. Despite numerous failures and examples of incompetence, the polls continue to show a Conservative lead in the high single figures – all after Labour has ditched Corbyn and replaced him with a more centrist leader.
How can a Government that has led us into the deepest recession ever, whose efforts to tackle the epidemic have failed in so many areas, possibly have shed so little support since the last election? The clue is in a recent comment attributed to the Prime Minister: that he would never have guessed how easy it would be to take people’s freedoms away; nor how difficult it would be to return them.
A hefty section of the public is not remotely concerned by the privations nor the economic damage wrought by lockdown; only on bringing down the number of new infections and the daily death toll. Everything else can wait.
There was a phrase we used to hear a lot at the beginning of this crisis and which remains the ruling belief of many Britons: “Lives are more important than money.” The fact that the two are interconnected, and that economic disaster, like disease, costs lives, does not enter into the calculation. So long as the dreaded “second wave” is kept at bay then it seems all will be forgiven – including this week’s A-level grades fiasco.
But for how much longer can this attitude last? Only, I guess, so long as the bailouts last.
As long as Rishi Sunak is able to dig into his seemingly expansive pockets and keep coming up with the goodies, economic decline will remain an abstraction. So long as the Treasury can maintain the illusion that the effective unemployed still have jobs to which they might one day return, many voters will remain preoccupied with the disease.
But the phoney depression is coming to a close. Soon enough we will be in the midst of the real, painful thing. How Boris Johnson’s government adjusts from furloughed Britain to mass unemployment on the scale of the early Eighties if not greater – will define its legacy.
A hefty section of the public is not concerned by the economic damage of lockdown; only on bringing down the number of infections