The Treasury now has to rely on epidemiological guesswork not economic forecasting
25 September, 2020 by Graham Stewart
Pity Anneliese Dodds, the shadow chancellor, whose task it was to strike a sour note in reply to Rishi Sunak’s winter economic plan which extends bounce back loans and replaces the furlough scheme with a job support scheme. For at least the next six months the government will pay a third of the wages of employees for the hours they don’t work because there is not the work for them to do.
Not so many months ago, in the alternative universe of last year, Ms Dodds’ predecessor, John McDonnell, held out the socialist vision of a four day week – and the Conservatives fell about in a fit of derisive laughter. Now, the Conservative government is prepared to subsidise employees working only a third of their usual hours. The response of the CBI, the Federation of Small Business and the British Chambers of Commerce is one of delight. Thanks to Coronavirus, we are all socialists now.
Not that this greatly cheers the Labour frontbench. As sourness goes, Anneliese Dodds’ response could have curdled milk before it left the dairy. To paraphrase her reply to Sunak’s announcement, he had stolen her ideas and they were not good enough.
One of her complaints which the SNP and Lib Dem spokespeople echoed was that Sunak’s support package was a late delivery, a gift proffered only at the last moment. It should have come months ago, when it could have given anxious employers and employees more certainty with which to plan ahead.
An alternative thought experiment involves imagining how much stingier Chancellor Sunak would have been if he had indeed set-out the post-furlough relief measures earlier – say – in mid-July.
Back then, the Covid infection sombrero had been flattened to the depth of an After Eight mint. There were only about 500 new cases recorded per day. Restrictions were being eased, indeed the government was so keen to get the people mixing and spending that August’s Eat Out to Help Out scheme allowed restaurant diners the pleasure of going Dutch with the Treasury.
Now Covid’s new case statistics have topped 6,000 per day and are rising fast. Subsidised socialising is a distant memory: the government has just curtailed the hours of opening to discourage the market from keeping our bars and restaurants afloat.
It is not Rishi Sunak’s fault that his economic policies bend to such uncertainty, his autumn budget is cancelled and the future of the comprehensive spending review is in doubt because planning for the future is pointless. Any sort of forecasting is impossible for a government that has devolved all other considerations to a small group of scientific and medical officials who are diligently discharging their duty to provide their honest professional judgment as best they can but whose remit is not to consider the wider, competing, considerations. If you want to guess future economic policy, ask an epidemiologist.
Supply-side economists used to criticise Conservative and Labour chancellors in the 1950s and 1960s for “stop go economics” – managing demand from year to year by hitting the economic accelerator or the break depending upon whether unemployment or inflation was perceived the greater problem. But at least there used to be several years of “go” before a brief imposition of constraint. Coronavirus has created such short-termism that Whitehall switches between “stop” and “go” on a quarterly basis. How can the Treasury make useful projections when the government is changing its advice – and the push-pull to investor and consumer behaviour that results – with such inconsistency?
To state this is not to insist that the business support and job retention schemes that Sunak has introduced are mistaken. This is not a normal “market correction” recession and if government policy is going to prevent the market operating freely then it must take responsibility for those whose ability to make ends’ meet is thereby threatened. In extraordinary times, Rishi Sunak has combined inventiveness with a cool head. This crisis has exposed the limitations of some in government and beyond, but not him.
But he is having to adapt policy without any clarity on whether he is trying to calm palpitations that could last for a few months or whether the UK economy is being structurally changed for decades ahead. The Big State, taking strategic stakes in its country’s economy to determine long-term direction was once the intentional objective of national planning. This government is achieving it through the hair-trigger responsiveness to data of a forex trader.