The UK has entered its worst recession since records began and has the highest Covid-19 death toll in Europe.
The primary reason for both is the catastrophic failure of this government over the year so far. Having missed early opportunities to implement testing and tracing – indeed, having ended comprehensive testing in March – and facing the rapid spread of Covid-19 infections, forecasts of quarter of a million deaths, and an emerging ‘lockdown from below’, the government eventually called for the national shutdown.
Because it was so late, the virus became well-embedded in the community; and because the virus was well-embedded, it took longer for social distancing measures to reduce the rate of transmission. As a result, the economic hit in the UK is far greater than other, similar economies – even ones with large service sectors, like France – and the spread of the virus has been far worse.
Early, grossly optimistic, talk of a ‘V-shaped’ recovery, in which the economy bounces back “stronger than ever”, has dwindled. The V-shaped recovery is not going to happen.
The first few months of easing the lockdown will produce a return to growth, and at first glance the figures may look impressive. It’s likely this recession will be declared officially over with the next set of official figures, for instance. But 8% growth after a 20% decline doesn’t come close to repairing the damage. And as the job losses mount and businesses fail, the domino effects of both will ripple throughout the economy: more unemployment and shuttered businesses means less spending, which in turn means more unemployment and business failures. Growth will be pulled back down and a prolonged period of stagnation beckons, with even official forecasts suggesting 1980s-level unemployment early next year.
The slender hope for the Tories and those hoping for a free market miracle recovery is that the savings that some, mostly better-off, households have built up during the lockdown will be unleashed in a wave of spending. Months of working from home with limited opportunities to spend has seen a surge in household saving, even as others have plunged further into debt. If ‘Eat Out to Help Out’ has any logic, beyond its role in the Rishi Sunak leadership campaign, it is that it might act as the trigger for that pent-up demand to come roaring back onto the high streets and thus lift the whole economy. But, needless to say, a half price Nando’s is unlikely to ward off a second Great Depression: the spending being promised doesn’t come close to matching the scale of what we are up against.
Throw in the ending of the furlough scheme, impeccably timed to match an incipient second spike in infections, and the economic outlook is bleak. On current plans, 9.5m people temporarily protected by furlough will be left at the mercies of the job market and the welfare state no later than October. Two in five companies using the scheme say they plan to make some or all of their furloughed staff redundant when it ends, reflecting their own expectations of a grim future – and the wasteful £1,000 corporate bribe of the so-called ‘job retention bonus’, announced last month, will scarcely alter that calculation.
The government presumably intended to wind down the furlough scheme smoothly towards an Autumn Budget, due around October, where they could announce further measures as needed. But I suspect the rise in joblessness will arrive sooner, as companies already facing a loss of furlough payments today will have little incentive to keep on staff they expect to make redundant later. With lockdown restrictions easing before the virus could reasonably be said to be under any sort of control, and with schools scheduled to reopen in September, just as the weather starts to drive everyone out of the parks and the beer gardens and back indoors, a second spike will be hard to avoid, at the very least.
There is little evidence of much being done on the government’s side. For all Sunak’s warm words and appeals to “hope and opportunity”, we are still being marched down the road to ending furlough and mass unemployment. Beyond the chatter around ‘levelling up’ and sometimes even a ‘green industrial revolution’, there seems to be no recognition from the government of the scale (and nature) of the challenges Covid-19 has created for the future. The bias, beyond the rhetoric, is towards preserving the status quo. Even the furlough scheme, a huge intervention though it was, is intended to put the economy in suspended animation: to keep everything as it is until the virus passes, and then return as rapidly as possible to pre-Covid normality.
Drawn up in haste, under pressure from the TUC (and following calls from then-shadow chancellor, John McDonnell), furlough has provided an essential safety net to 9.5m employees during the lockdown. (Its relative generosity and efficiency, certainly compared to the miserly welfare state provisions normally available, surely account for the major part of Sunak’s popularity.) But built-in to the scheme is the belief that it will be wound down, and that life will return to pre-Covid normality.
This is the default setting of the British state in a crisis – huge, radical interventions can be made (whether nationalising banks in 2008 or furlough in 2020), as long as they are never allowed to disrupt business as usual. But the scale of the coming job losses and business failures alone rules out a return to pre-Covid times, whatever anyone’s plans might be. Throw in the longer-term impacts of living in a world where Covid-19 is endemic, where international co-operation is crumbling, and where – as the natural environment becomes more unstable, epidemics and pandemics become more common – and it becomes clear that business as usual is not an option.
As we saw in the early stages of this pandemic, when public health measures were refused in the name of protecting the economy, trying to carry on as normal when normal becomes impossible invites disaster.
At the very least, government planning for the next phase of the crisis could (and should) include measures to turn furlough into a programme of support for incomes where specific jobs and sectors are particularly affected. There are ambitious proposals being made to generalise shorter working-time, with government support; we need investment not only in green jobs in energy, but in the circular economy, building in recycling and reuse of materials and goods in a world where resource constraints are becoming tighter and access to raw materials overseas perhaps not so reliable. In this context, Labour’s demands for jobs (jobs, jobs) is a start, but it can only be a start: the details now need to be sketched out.
James Meadway is an economist and Novara Media columnist.