As I write I can see 15 builders working. Last week on the same two sites there were only 5. Traffic data also confirms that where they can, people seem to be choosing to go back to work. It will be odd if a politician with as much sensitivity to the public mood as Boris Johnson tries to stand in the way of a rising tide of opinion that the lockdown should start to ease. Other countries in Europe are also ending their lockdowns and it would be very difficult for the UK to do something completely different.
As the Chief Medical Officer has made clear, the end of the lockdown will be gradual. And the task for public policy will be to manage the end of the lockdown and the rebooting of the economy while at the same time dealing with the continuing problems of the pandemic. Indeed, many of the more serious humanitarian problems are yet to come – fortunately Coronavirus has not yet become widespread in many of the slums, shanty towns and refugee camps in South Asia or Africa (partly because of superhuman efforts by refugee agencies) but if it does it will be hard to halt the spread. And a food crisis also looks highly likely. In rich countries we can probably use our spending power to buy our way out of this, but poorer countries and people don’t have the option.
Data released by my Cebr colleagues on Friday showed that with incomes down 17% and consumer spending down 30% because shops were shut, British consumers do actually have some money to spend – we estimate that by the end of the second quarter they may have saved about £23 billion more than usual. Whether they will spend this will be crucial in determining the pace of the recovery.
But with unemployment in June likely to be about 6 percentage points higher, incomes depressed, many in fear of losing their jobs and house prices likely to fall, the climate for spending isn’t good. For sure, post lockdown people will want to take a trip, see their friends and go to a restaurant or two. But they will be much more reluctant to spend on big ticket items like housing and consumer durables. Measures will be needed to kickstart this. Temporary tax holidays to reboot the markets for property and durables would almost certainly pay for themselves.
Beyond that, we should be even more imaginative. We can be certain that tech is the sector that will lead the recovery. Should we be getting ahead of the game in providing a stable basis for the regulation of contact tracing technology? Almost certainly there will be innovations galore in the biotech and information technology areas. How do we ensure that the UK’s Flat White Economy takes advantage of these?
With car sales down, is now the time to make a step change to newer and cleaner technology for vehicles by providing the relevant infrastructure?
We expect a long-term squeeze on public finances. Even with tax havens being shut down, there is limited scope for higher income taxes on the rich and any increase in wealth taxes may have to be earmarked for redistribution. Questions are being asked about public sector productivity and now might be a time to try to achieve productivity gains that can then be reallocated to improved services.
This is a shortened version of a talk which I gave to Northbank Talent Management Clients recently.
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Douglas McWilliams +44 7710 083 652