• The London Financial

Opinion: The UK Government Has Worsened the Effects of COVID-19 on the Economy and Public Lives

By Shahzaib Ali, Founder of TheEconoBlog

Whilst reading an article by Simon Wren-Lewis, an economics professor at the University of Oxford, I was exposed to the numerous actions by the UK government which have largely hindered the economy’s progress in recovering from this pandemic. From there, I decided to carry out further research on this topic and I shall now discuss what I have learnt within this article.

One thing that stood out to me in my research was that Rishi Sunak had repeatedly refused to increase statutory sick pay (currently at £95). From one point of view, it is understandable that a rise in statutory sick pay would increase the budget deficit and deficit borrowing to even higher levels which is obviously not something that is desired by the government, especially if it leads to crowding out. However, £95 a week is clearly not enough money for people to live on and according to Andrew Fisher, a former senior policy advisor to Jeremy Corbyn, there are 2 options for people in this situation – “self-isolate and go destitute or drag your ill and contagious self to work”. If the latter option is chosen, then the spread of the virus will almost certainly rise thus raising the number of lives lost too. In addition, the productive potential of the economy will probably fall too meaning that long-term growth will slow even further than it already has.

The “Eat Out to Help Out” scheme that was implemented over August is likely to have its positive effects on the economy (caused by the large rise in consumer consumption) offset by the second UK lockdown. Helen Dickinson, chief executive of the BRC, gave a reason behind this by saying, “Now that we are entering the all-important Christmas shopping period, these losses (in consumption) are certain to be much bigger”.

This lockdown could have taken place several weeks before if Boris Johnson had not originally rejected the proposal despite stating that “nothing has been ruled out” illustrating that he himself was still unsure about his future plans for preventing the spread of the virus. It is now quite clear that in situations such as this, the government does not know how to plan ahead effectively through finding out each possible outcome of every decision that they choose to make. For example, if Sunak had realised that the “Eat Out to Help Out” scheme would contribute to a rise in Covid-19 cases and deaths as well as the likelihood of a second lockdown occurring, he might have ensured that social distancing restrictions were more strict during this period. It is also possible that Rishi Sunak was aware of this but valued the strength of the economy as being a greater necessity than the health of the population.

A further problem, stemmed from the actions of the government, is Rishi Sunak’s obsession with balancing the budget. Similar to George Osborne in the past, Sunak has not been able to understand that correcting the budget deficit could cause great harm to many members of the UK population in the long-run if spending cuts and tax rises are to occur.

Through high levels of investment in digital infrastructure and a vast effort to increase productivity (according to the OECD), the government may be able to “redeem” itself in the fight to end the pandemic.

However, due to the government’s track record this year when it comes to making decisions, we should not expect them to focus their much of their attention towards improving the productive potential of the economy. And if their rejection of Marcus Rashford’s appeal to allow for the continuation of free meals to children of low-income households over the holidays is anything to go by, it is unlikely that the government will help to reduce structural unemployment and other problems suffered by those within the poorer levels of the economy.

References: https://mainlymacro.blogspot.com/2020/10/starve-kid-to-save-quid-1.html






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