Austerity post-virus ‘is not a done deal’

A FINANCIAL crisis-style extended period of austerity after the coronavirus emergency “is not a done deal”, a top economist has said.

Office for Budget Responsibility (OBR) chairman Robert Chote said reported government debt of more than £300 billion did not necessarily have to mean years of slashing public expenditure.

Mr Chote also said the UK economy should be over “the worst of it” in terms of the economic hit from the lockdown, and is now entering a recovery phase as the public health restrictions are gradually relaxed.

The economist told the BBC’s Andrew Marr show: “We’re certainly going to see – temporarily – a higher amount of government borrowing.

“The fact that the level of debt goes up on its own doesn’t necessarily mean you have to have the sort of austerity that followed the financial crisis.

“Much more important is whether you have this effect of scarring of the economy. If the economy is permanently smaller then you get permanently less tax revenue.

“Do we come out of this with a much bigger debt interest bill? At the moment it’s relatively cheap for the government to borrow so hopefully that won’t be too much of a problem.

“Then also there will be political choices coming out of this. Do we want to spend a higher proportion of national income, for example, on health and social care?

“All of these things together will shape the fiscal challenge for the government coming out of this. A post-financial crisis-style extended period of austerity is not a done deal.”

Regarding the UK’s economic recovery, Mr Chote said: “People shouldn’t panic in the sense that we know the economy, probably at its worst last month, may have been a third or so smaller than it normally would have been in terms of the output of goods and services and people’s spending.

“But that should be the worst of it.”

Outlining factors critical to the economic health of the UK, he highlighted the pace at which restrictions are relaxed, as well as people’s behaviour.

Separately, Carolyn Fairbairn, director-general of the Confederation of British Industry (CBI), told Sky News the idea of health-of-the-nation versus health-of-the-economy was a “false dichotomy”.