Riding high and lifting the lockdown

The problem for the Government is when to lift the lockdown, and how.

Despite criticism on individual areas – PPE, availability of ventilators, testing – to name the most significant, public support has remained remarkably high. The position of the Prime Minister as the most high-profile sufferer has likely helped to sustain this. And the opposition have been careful in agreeing with the central approach, even while pushing on certain areas.

Riding high and lifting the lockdown_Insights by Lansons
But the policy aim is to hit the pause button on the economy – not to take it offline entirely. The Government will know that public support is likely to become more difficult to hold when damage becomes more widespread. The policy problem the Government then needs to answer is which bits of the economy – which supply chains – necessarily have to be restored, and how do you do so safely.

The Office for Budget Responsibility today published a scenario in which they predicted that COVID-19 will result in the worst budget deficit since WW2, with the economy contracting 35% in the second quarter of this year and unemployment rising to 10% – more than 2 million people. The OBR illustrated this with a chart (see below) which clearly showed the extent to which the economic stoppage has been more sudden and violent than anything else in living memory.

The OBR also underlined the difficult nature of the decision about lifting the lockdown. They say that they believe the cost of inaction would have been worse – something clearly reflected in public attitudes. However, they also noted that as time goes on, the damage to the economy becomes worse and more difficult to recover from, creating permanent economic ‘scarring’ which results in lower output and less income for the exchequer.

Against that backdrop, we know that we have 3 weeks more and there will then be a review. No one is querying that – indeed, arguably the Government would have real difficulty in lifting it at this point. But there is a real question about how sustainable the current situation is into May, when restrictions across Europe will be being eased.

In service and hospitality, which rely upon volume for their margins, this problem becomes particularly difficult. Telling a bar or a restaurant they can reopen – but only if they are half-full to ensure social-distancing remains effective – is likely in many cases to kill those businesses over a slightly longer period of time. The same applies in the travel industry – where if airlines are told they can only run with half the number of passengers, then the bottom will drop out of much of the travel sector.

The Government therefore needs a plan to bring furloughed staff back into the workforce – because the risk they run is that it will otherwise have been an extremely expensive way of transitioning even more people onto the benefits bill.

 

 

 

First published in our weekly Political Capital newsletter
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