The coming storm
“I blame this blasted weather,” said Daniel Hannan in The Sunday Telegraph. “It lulls us into thinking that we are passing through a sunlit dreamtime, a holiday from reality after which things will get back to normal.” But they won’t. “Our problems are only just starting.” The British economy has collapsed. The Chancellor, Rishi Sunak, warned this week that the UK is facing a recession “the likes of which we haven’t seen” before. A new generation is about to learn “what mass unemployment feels like”: claims for out-of-work benefits rose by 856,000 between March and April. We have taken on debt at a rate not seen since 1945. “The sums we are borrowing, hour by hour, will condemn us to decades of tax rises, inflation or both. No one is immune. If you’re a pensioner, your pension will lose its value.” If you’re a public sector worker, your pay will go down. “If you have savings, they will be inflated away. If you’re a student, you’ll be working off these debts for the rest of your life.”
“Exceptional times have brought exceptional measures,” said the FT. And these are exceptionally costly. The Government is now effectively paying the salaries of nearly one in four workers, on top of the normal public sector wage bill and fast-rising benefit costs. The Office for Budget Responsibility, the fiscal watchdog, thinks the deficit will hit £298bn this year (before the virus, it was forecast to be £55bn). “The midst of a pandemic, however, is no time to worry about a spiralling deficit.” Borrowing is cheap. There’s no sign of a debt crisis. Bond vigilantes, who target over-spending governments, “are not singling out the UK” when so many nations are running huge deficits. For now, the Government must “continue to provide the support the economy needs”. This seems to be the plan, said Larry Elliott in The Guardian. The UK Debt Management Office “is working flat-out to cover the burgeoning gap between what the state spends and what it raises in taxes” by selling gilts – government bonds. Austerity is off the agenda. Sunak will be hoping that “stronger growth, a bit of inflation, a higher tolerance for debt among investors and time will dig him out of the hole”.
As Britain found after the Second World War, “debt doesn’t have to be repaid if economies are strong enough to service the interest payments”, said Stephen King in the London Evening Standard. Without sustained growth, however, rising debt “does have consequences”, the main one being heavy inflation. Britain is at the edge of a “slippery slope”. For now, it “has the fiscal space to borrow at rock-bottom rates”, said The Times. The problem will come in the longer term. After the pandemic, the Government will feel obliged to spend more on the NHS and social care. Boris Johnson’s pledge not to raise taxes will have to be revisited. “Mr Sunak has played a commendable hand in the crisis so far. Now he faces the more complex challenge of untangling Britain from its consequences.”