The announcement by Rishi Sunak of £330bn in government-backed loans for businesses and a three-month mortgage holiday “for those in need” is nowhere near sufficient to confront the current crisis. The chancellor himself said this was merely the first step, but with many people facing an immediate collapse in their incomes, help cannot come soon enough.
The British economy is heading towards critical condition: as more and more people start to self-isolate, economic activity is grinding to a halt. Despite knowing about the coronavirus since December, the government has been complacent and sluggish in its public health response. It now needs to act with purpose and pace to put the economy on to life support.
The traditional tools of economic policy are severely blunted. The emergency cuts in interest rates made by the Bank of England are welcome but insufficient. A fiscal stimulus is likely to be of limited help in the face of collapsing demand as a result of large swathes of the population self-isolating and all households cutting back on expenditure on non-essential items.
There is no economic orthodoxy that anticipates events of this nature: the nearest analogy is the wartime economy, though even that has its conceptual limitations. So this is a time for economic orthodoxy to be junked. Just as when the global financial crisis hit in 2008, there is an urgent need for policy innovation. That requires a return to first principles in thinking through the response.
The twin objectives of economic policy should be to sustain household living standards and to ensure business survival, so that the economy is able to recover once the crisis passes. This can only be achieved with government action on a massive scale. “Fiscal rules” are entirely meaningless in such a scenario; there will need to be an expansion in national debt to levels last seen during the second world war. If the economy is put on life support for the rest of 2020, it seems plausible that debt could rise to 150% of national income.
The first step must be to sustain household incomes where possible. The Tories’ long assault on workers’ rights has left millions of workers and their families exposed to this crisis. About 5 million people are now self-employed and nearly a million are on zero-hours contracts. In places such as Norway, Denmark and Sweden, governments have acted swiftly to provide income protection; the UK needs to follow where others have led.
It may be that entirely new methods for sustaining incomes are required. One option would be “helicopter money” where the government directly deposits money into individual bank accounts. This would be akin to a universal income for the period of the crisis.
What is Covid-19?
It is caused by a member of the coronavirus family that has never been encountered before. Like other coronaviruses, it has come from animals.
What are the symptoms this coronavirus causes?
The virus can cause pneumonia-like symptoms. Those who have fallen ill are reported to suffer coughs, fever and breathing difficulties.
In the UK, the National Heath Service has defined the symptoms as:
- a high temperature - you feel hot to touch on your chest or back
- a new continuous cough - this means you've started coughing repeatedly
Should I go to the doctor if I have a cough?
Medical advice varies around the world - with many countries imposing travel bans and lockdowns to try and prevent the spread of the virus. In many place people are being told to stay at home rather than visit a doctor of hospital in person. Check with your local authorities.
In the UK, NHS advice is that anyone with symptoms should stay at home for at least 7 days. If you live with other people, they should stay at home for at least 14 days, to avoid spreading the infection outside the home.
Is the virus being transmitted from one person to another?
Yes. China’s national health commission confirmed human-to-human transmission in January.
How many people have been affected?
China’s national health commission confirmed human-to-human transmission in January. As of 19 March, more than 219,000 people have been infected in more than 150 countries, according to the Johns Hopkins University Center for Systems Science and Engineering.
There have been over 8,900 deaths globally. Just over 3,200 of those deaths have occurred in mainland China. Many of those who have died had underlying health conditions, which the coronavirus complicated.
More than 84,000 people are recorded as having recovered from the coronavirus.
At the same time, the government has many options: it could act to reduce household outgoings. It could introduce a council tax holiday, cut student loan interest to zero and suspend collection, or directly pay utility bills. More radical measures could include suspending all mortgage payments and requiring landlords to reduce rents by 50% for the remainder of the year.
If the economy is to have any prospect of revival after the crisis, it will be essential to ensure that businesses are able to survive. The immediate steps could include a business tax holiday – or, indeed, suspending any form of tax collection – to reduce outgoings. Other measures could include reducing or suspending rents. The government has already said that it will provide a facility for companies to access emergency working capital on “attractive terms”, yet to be explained.
But with the economy in a nosedive, more radical steps may become necessary. One option would be for the government to provide capital to enable businesses to cover their fixed costs for the duration of the crisis, perhaps in return for equity. With shareholders facing wipeout, dilution of equity in this way is a small price to pay. It would have the added advantage that after the crisis, the government could progressively sell its stake in firms, enabling the national debt to be paid down.
The nature of the coronavirus crisis demands a collective response in this country and across all countries. Successful suppression in one place can be undermined by an uncontrolled outbreak elsewhere in the world. This moment is a sobering reminder that we have a shared humanity and that the rules of capitalism are merely of human design. The rules didn’t come down from the mountain top. They aren’t carved in stone. We can, and we must, be prepared for a radical response fit for these extraordinary times.
• Tom Kibasi is a writer and researcher on politics and economics
