In these grimly uncertain times, one thing is for sure: governments and central banks around the world have been throwing the kitchen sink at trying to limit the damage inflicted on economies and living standards by the coronavirus tragedy.

The focus has rightly been on minimising the death toll. The daily death tolls from the Covid-19 pandemic being recorded in countries around the world continue to make distressing reading.

The drastic but absolutely necessary measures put in place to limit the spread of the virus and save lives have meant that many sectors of the economies of various countries have shut down, with activity reduced dramatically in others.

In the UK, as in some other countries, the Government has put in place massive measures to protect people’s incomes and help businesses survive. It deserves much credit for this.

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It is estimated that Government measures to support the incomes of furloughed employees in the UK will, on their own, cost tens of billions of pounds.

However, this is money well spent, as is the other backing being provided by the UK Government to try to mitigate the economic impact of the coronavirus outbreak, such as support for the self-employed and enablement of the banks to support businesses.

Entirely unsurprisingly, surveys have shown that economic output in the UK plummeted in March. The coronavirus pandemic is taking a similar toll on the economies of many other countries, as much of normal life as we know it has shut down to prevent the spread of Covid-19.

These are very, very difficult and uncertain times.

It remains unclear at this stage how long the crisis will last.

The emergency economic action being taken will add in large measure to the public sector net debt of the UK and many other countries. The longer these measures need to remain in place, the greater the cost to the public finances.

However, there is no alternative. People must be protected from a cliff-edge as the restrictions necessary to minimise the death toll from Covid-19 hit incomes.

Eventually, likely some or even many months down the line once the worst of the coronavirus tragedy has passed, the UK Government will contemplate the public finances.

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Hopefully, by this time, there will have been some kind of economic recovery. Some hope remains that the recovery could be relatively sharp when things return to some kind of normality but at the moment it is difficult to tell.

One thing is clear, however. The current Conservative Government must not – when the day arrives to contemplate the impact of the crisis on the public finances and what to do and what not to do about this – follow the same ill-judged path as the David Cameron administration did after coming to power in 2010.

At the height of the 2008 global financial crisis, the then Labour government threw the kitchen sink at trying to limit the fall-out for the economy and people’s living standards.

As an aside, it is worth remembering the Tories tried in the run-up to the 2010 election to blame Labour for the financial crisis but the big clue as to the utter fallacy of this assertion remains that it was a global crisis. The notion that the Conservatives would have regulated the UK financial sector more tightly than Labour seems as ridiculous now as it did then.

After forming a coalition government with the Liberal Democrats in the wake of a tight 2010 election, what the Conservatives actually did was undo a lot of the good work done by Labour.

Gordon Brown and Alistair Darling, respectively prime minister and chancellor at the height of the global financial crisis, deserve great credit for a rescue of the UK financial system which prevented utter economic calamity. This included supporting the UK banking sector as a whole, and bailing out Royal Bank of Scotland to the tune of tens of billions of pounds.

Mr Brown and Mr Darling then moved to support the economy out of recession with a deep emergency cut in value-added tax. This is a very good way of stimulating the economy. It eases greatly the burden on the worst-off in society, who have to spend all of their money to live, and provides an important boost to the coffers of businesses.

Another way of supporting demand in a struggling economy, one which also helps those on the lowest incomes who tend to be hit hardest by downturns, is through welfare spending.

Sadly, one of the key pillars of the Conservatives’ grim austerity drive in the years following the 2010 election victory was savage cuts to welfare, which affected the unemployed and the working poor.

Not only that but the Conservatives were swift to hike VAT, taking it all the way up to 20 per cent. They also slashed corporation tax, but this failed to boost investment. The vision of “a Britain carried aloft by the march of the makers”, put forward by former chancellor George Osborne in his March 2011 Budget, failed to materialise.

Mr Cameron then agreed to a referendum on EU membership. The Brexit vote in 2016, and its aftermath, acted as another severe drag on a UK economy already creaking under the strain of years of austerity.

This all put the UK economy and public finances on a weak footing ahead of the coronavirus crisis.

It is good that the Conservatives have acted swiftly to protect the incomes of millions of people and support the businesses which provide employment and create wealth. Where major gaps have emerged in support, the UK Government has filled them swiftly, such as backing for the self-employed. There may still be some gaps to fill but the huge emergency measures have generally been well-targeted and, crucially, they have been put in place quickly. The devolved nations have played their part in the emergency efforts.

What will be absolutely crucial after the worst of the immediate coronavirus tragedy has passed is that the benefit of emergency measures in mitigating the impact on living standards is not then all undone with the type of austerity programme favoured over the years following the 2010 election.

Of course, this austerity programme did not even work in any case from the perspective of the public finances. The scale of the austerity, and crucially its toxic mix, was totally counter-productive.

The UK’s public sector net debt surged from around £1 trillion when the Conservatives came to power in 2010 to about £1.8 trillion, before the coronavirus pandemic hit the UK.

Of course, public sector net debt will surge further with the measures put in place. However, these measures are essential from an economic and moral perspective.

Many hope the current Government will not repeat the Conservatives’ mistakes of the past this time round because the backdrop will have changed. Certainly, to society as a whole, the importance of public-sector workers, such as those who are battling the coronavirus tragedy in the National Health Service, must surely be even clearer than it was before. And it would surely have been crystal clear to most people before in any case.

The other side of the current crisis looks a long, long way away.

And, in the short term, the focus is rightly on helping those affected by coronavirus, including Prime Minister Boris Johnson.

However, when we eventually get through the worst of this crisis, it is crucial for the economy as well as society that we do not see some kind of austerity programme that hits the poorest and bears down on the public sector as we saw in the years following 2010.

This would be unacceptable from the perspective of society – the poor should not have to pay the price for another crisis that was outwith their control and our hard-working public-sector employees should not be faced with another squeeze on their living standards.

It is also crucial for the economy that this does not happen.

We must ensure there is money in the pockets of those on the lowest incomes. This will provide the greatest boost to demand, in terms of this money being spent. And public spending must not be targeted in any drive to reduce borrowing. These are two crucial lessons from the UK’s post-2010 experience.

If the UK Government wishes to bolster the public finances after the worst of this crisis is behind us, this should be done in a slow, cautious and measured way. And there are many other ways for it to do so without looking for public-sector workers and those dependent on welfare benefits to foot the bill. A patient and gradual approach will be crucial so as not to undo the benefits of the emergency measures. And the UK Government should, unlike in 2010, pay sufficient heed to the revenue as well as the cost side of the public finances. Tax revenues are boosted by a stronger economy.

What will be crucial to everyone’s living standards is that, having pulled out all the stops to try to mitigate the economic damage at the height of this awful coronavirus crisis, the benefits of this action are not undone by a repeat of the mistakes of the recent past.


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