Economic recovery will prove a Herculean task - comment

Responding to the Covid-19 crisis can feel like tackling the Hydra of Greek legend. Like the mythical monster sprouting heads, currently every time a problem is resolved, two more appear to grow in its place.

Shoppers will need encouragement to resume normal spending patterns, says MacDonald-Russell. Picture: Ian Rutherford.

See the apparent trade-off between public health and economic growth. Essential restrictions to prevent the spread of the virus stop us shopping or socialising, hurting both the economy and our mental health.

Lifting those restrictions risks a second wave that could cause incalculable economic harm – for example closing shops over the crucial Christmas trading period. The classical simile may provide the solution.

Heracles succeeded in defeating the Hydra by including his nephew Iolaus – who could cauterise the stumps, preventing further growth. The same is true here. Preventing the virus spreading whilst restarting the economy is the key to rebuilding our economy.

MacDonald-Russell is head of policy and external affairs at the Scottish Retail Consortium. Picture: contributed.

Retailers are ready to lead this work. Grocers and pharmacies show safe trading is challenging but achievable. Retail sales fell 40 per cent in April compared to the same month in 2019. Stores must manage physical distancing, upgrading online deliveries, extra colleague hours, and infrastructure to keep colleagues and customers safe.

The operational costs may well exceed the value of the 100 per cent rates relief generously provided by the Scottish Government. Running a shop has become more expensive, and takings are down. Every retailer has stores that are more profitable than others, and some may never reopen.

Therefore, changing current incentives should be at the heart of any economic recovery plan, with the focus on protecting people’s jobs. The Coronavirus Job Retention Scheme has been a great success in keeping people in work – but it can only be a holding action. It’s not a trade-off between safety and the economy, it’s about doing both.

Boosting confidence

Rebuilding business and consumer confidence is a pre-requisite. On one side, that requires a successful test, trace, isolate system. We need clear plans to make visiting high streets safe. But we also need to deal with consumer under-confidence.

Shoppers will need encouragement to resume normal spending patterns through short-term economic stimulus. That could involve a mixture of targeted income tax cuts for lower earners, for example. At a UK level, a short-life VAT cut could have the same effect.

Getting people shopping again is one of the quickest ways to restart economic activity. Retailers will need to replenish stock, and restart supply chains. Government can also help with managing the cost of business in the coming key months. Non-Domestic Rates are the single greatest public policy cost for retailers and the current relief has been a lifeline.

Getting shops reopened and trading will allow retailers to start paying again next spring. However, Scottish ministers should consider tapering those bills at the start of the next financial year to avoid an inadvertent cost cliff edge.

It’s not just about taxes, but the opportunity cost of responding to new public policy measures. That’s why it was right for Scottish Ministers to pause work on the Good Food Nation and Circular Economy Bills. The principle needs to be adopted across government – a one-year moratorium on new public policy measures. Right now, firms need to focus on core trading, keeping customers and staff safe, and survival; everything else is a luxury.

Scotland’s economy will be completely changed by coronavirus. The time to shape that change has arrived. Urgent intervention to drive economic activity over the next 12 to 18 months will keep people in work, which will help maintain our productive capacity, making it more likely the recession will be shallower and the recovery swifter.

This is not the moment for austerity, or distraction. The task is perhaps more daunting than the Hydra, or any of Heracles’ other labours. There is no doubt it matters an awful lot more.

Ewan MacDonald-Russell, head of policy and external affairs, Scottish Retail Consortium

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