George Osborne may not be a figure who evokes much nostalgia, but I couldn’t help being impressed by what this former chancellor of the exchequer said the present chancellor of the exchequer should be up to this Wednesday. Put in rather striking terms, what Osborne wants is a “coronavirus Budget”, and one that will “vaccinate the economy”, even if we cannot yet vaccinate the population.
This is precisely what Rishi Sunak should be doing, but you wonder whether, after the sudden resignation of his predecessor Sajid Javid a few weeks ago, he, the Treasury and the Independent Office for Budget Responsibility will have had the chance to redraft the Budget in such a way. On the Marr show on Sunday, Sunak pledged that the Treasury would do whatever it takes to support the economy – but the virus story has been moving so quickly that that may be rather difficult.
The short answer to that conundrum is for Sunak to draw himself a blank cheque. His first act, in these extraordinary conditions, should be to abandon any soft fiscal rule in the next year or so (by which time a vaccine may have been developed and the population built up some natural resistance). He should simply declare that the government will borrow and spend as much as necessary to contain, slow and mitigate the effects of much of the population suffering Covid-19.
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Supposedly, up to a fifth of the workforce could be off work at various points, but as we really don’t know how many this will actually be, and what sectors will be affected particularly and in what way, then we cannot sensibly make any particular predictions for public borrowing. They would be bound to be wrong. We would be left with the sole constraint being market discipline – how much investors are prepared to lend to the British government at an acceptable interest rate. We may have to test the limits of this; we could offset some of the emergency borrowing by those huge infrastructure projects for a few months.
The next thing the chancellor should announce, so that we can all make the necessary arrangements, is that ministers will seek an extension to the Brexit transition period until, say, the end of 2021. Sunak has already rejected this, arguing that it wouldn’t make for a better deal; but that is not the point. The point is that come 31 December 2020, there will still be continuing disruption in any case as a result of the coronavirus, and it is simply asking too much of business and citizens to expect them to deal with wrecked supply chains and shortages as a result of a no-deal Brexit, or even a Brexit with a free trade deal (which would also introduce new barriers and bureaucracy). To draw an analogy, if you, as a patient, already have Covid-19, it makes no sense to let yourself get food poisoning on top.
Third, Sunak needs to get cash into businesses and the economy now, as Osborne rightly argues. That means a package of remission for VAT and other business tax returns, and even a reduction in their liability. A cut in the overall rate of VAT, time-limited for 12 months, would also help businesses maintain demand. The government should guarantee bank lending to businesses for the duration too; and stand by the Bank of England as it eases monetary policy as well. This is what we had to do during the financial crisis, when Gordon Brown and Alistair Darling did so much to steer the nation and the world through a terrifying and more dangerous episode.
The social care sector, in a particular, urgently needs a specific action plan similar to the general national one that has been so well received. While so much attention has been rightly paid to cancelling big festivals and sporting events, and shutting schools and nurseries, there’s been virtually no discussion of what can be done in the care sector. Here we have buildings full of older people and other vulnerable individuals, with little or no scope for sending them “home”, because that is their home. Living in close proximity, the coronavirus will spread quickly, and it is in this cohort that the mortality rate is at the highest, disproportionately so. The death rate for the over-80s is almost 15 per cent, so you can see the scale of the potential problems.
There is no reason why anyone over the age of 50 (at which point the mortality rate starts to rise steeply) should be treated less well than anyone under the age of 50. It would be good to hear this from the medical authorities. The suspicion is that when clinicians have to make tough choices, then they will be in favour of the young. There needs to be some transparency about this, to say the least.
Yet there seem to be no care-sector-wide plans to try and combat coronavirus when it strikes – a mixture of medical measures (eg screening and deep cleaning); and financial support for homes that will need to employ more staff to deal with isolating some residents. It is scandalously underprepared, and the consequences are appalling to contemplate.
Last, we should try to turn coronavirus into an opportunity to right some wrongs. Another easy way to inject spending power into the economy is to dissolve some of the unrecoverable debts associated with universal credit, to speed up payments, and to give every recipient an immediate cash bonus to cope with the effects of coronavirus in their household (for example if they cannot claim sick pay).
A Budget for the coronavirus is probably not the sort of set-piece Sunak wishes to start his time as chancellor with, but a bold and flexible approach to what is facing the population would win him, and the government, much thanks from a grateful nation. If he gets it wrong, then the Johnson administration could end up as just another casualty of coronavirus.
