12 June 2020
DRD Analyst Ross Ewing looks at some of the pressing issues facing the government over the next few months and what choices will need to be made on the road to recovery.
With today’s harrowing announcement that the UK economy is (at least) 25% smaller than it was in February, it is welcome news that next week non-essential retail will reopen across England as the UK begins to carefully peel off the sticking plaster over the UK economy. Wednesday (10 June) was the last day employees could be placed on the government’s generous job retention scheme as retailers, fast food restaurants and even zoos announced their reopening under strict social-distancing obligations.
What lies ahead will be a real test of the government’s ability to retain control and guide the country through this global crisis that feels, for many, to have become centred in the UK. Our reported highest death rate across Europe and catastrophic 20% contraction of the economy in April, predicted to be the worst amongst developed economies, provides some truth to that hypothesis.
The government is under fire from all angles. The quarantine plans for international visitors have been received so badly by the airlines and tourism industry that British Airways, along with Ryanair, plan on taking the government to court. Professor Neil Ferguson has said the government should have locked down a week sooner, and the long-running debate over schools returning before the summer holidays has ended in an embarrassing U-turn from the education secretary Gavin Williamson – his department conceded that most schools won’t go back until September ‘at the earliest’. It’s apparent from our conversations that even some loyal Conservative backbenchers are losing faith in No.10’s handling of this crisis in recent weeks.
Preparations inside government have already begun for how to respond to a second peak as journalists, opposition MPs and even some government Ministers already have an eye on the inevitable inquiry that will succeed this first wave of the Coronavirus. And that’s before we plot our way out of the second of a five-phase transition to normality from this lockdown.
As we look to the future, the success or failure of the next steps taken by Boris Johnson’s government may only become apparent with hindsight some months, or even years, down the line. However, the next few months will show us the agility of this government as it tries to cope with rising unemployment and pressures from business to amend public health guidelines to support the hospitality trade.
The two-metre rule appears the be the next battleground for Boris Johnson’s government. Opposing voices on the Conservative benches, including party grandees like Sir Ian Duncan Smith, Damian Green and Greg Clark, are reaching fever pitch. We heard yesterday that Chancellor Rishi Sunak, in a meeting with the 1922 committee of backbench Tories, supported their calls for the two-metre distancing rule to be changed. This, if anything, shows the pressure business leaders have put on the Chancellor to heighten the risks to public health in favor of economic revival.
Boris Johnson has erred on the side of optimism when asked about a change to the rule during his sporadic appearances at the daily Downing Street news conferences. He knows that capacity restrictions in shops, restaurants and pubs at two metres will mean some will not open at all, and many won’t stay open for long. With pressure mounting inside Parliament and jobs across the hospitality and retail sectors under threat, it is hard to imagine the government not finding a way to curtail the two metre rule in favour of the WHO-recommended one metre rule soon.
What hides beneath the sticking plaster of the furlough scheme is another concern for the government over the next few months. How many of the jobs propped up by the Coronavirus Job Retention Scheme will no longer exist once it winds down fully? With the burden being gradually passed back to employers over the coming months this will sadly tease out many of those jobs that can no longer feasibly survive in the hardest-hit businesses.
Composing an economic recovery plan within the confines of lasting public health protective measures will be no mean feat. The velocity of money is at a record low; this will hurt everyone, so a tightrope will need to be walked by the Chancellor to find ways of incentivising spending, protecting jobs and helping businesses back onto their feet as he tries to keep the period at the bottom of the ‘U’ as short as possible – if that is indeed the shape of our recovery as predicted by the OECD.
This week, a report published by the Institute of Economic Affairs and CIVITAS said that the best way for the government to support economic revival is to take a step back and allow the market to recover itself. Relaxation of planning laws to support the high street, slashing of burdensome red tape on business and tax cuts to promote growth, amongst others, are named as the best way out. The government’s mishandling, as the report points out, of many aspects of the crisis would not inspire confidence in consumers if the state were now to preside over further interventions into our economic recovery.
These arguments will play out over the coming months. Opposition MPs, and some Conservatives, will cry out for more and more government support to prop up the economy as uncertainty could be compounded yet further by an abrupt, and possibly untidy, exit from the European Union.
Difficult as ever to place in any particular economic school of thought, it’s hard to predict what the Prime Minister’s instincts will tell him to do. Will he seek short term public approval by propping up businesses across the country and intervening whenever and wherever necessary? Or will he want to take a step back and allow the market the freedom to tackle the challenges posed for itself?
Boris Johnson will have to try and bring the country, as well as his party, with him whatever direction he ultimately chooses to go. Severe rises in unemployment coupled with growing frustration at the government’s handling of the crisis and other social issues could result in long-term public unrest and economic hardship. These next few months will set the course and must be managed carefully.
recovery, recovery, LinkedIn