Bill Jamieson: Expect debt and doubt to put paid to the status quo ante

As the nationwide lockdown persists and looks set to extend for many more weeks, the economists’ arguments over whether we will see a “V”-shaped recovery or a “U” look ever more arcane.
Nick Hancock announced a £13.4bn NHS debt write-off. Picture: Pippa Fowles/Crown CopyrightNick Hancock announced a £13.4bn NHS debt write-off. Picture: Pippa Fowles/Crown Copyright
Nick Hancock announced a £13.4bn NHS debt write-off. Picture: Pippa Fowles/Crown Copyright

What is missing here is a recognition that many facets of economic life are set to change markedly. It is a qualitative change that may come to matter more than the speed of uplift in the months after the coronavirus peak.

At present it is hard to raise our focus above the immediate pressing concern of the growing toll of this virus and the cumulative effects of the national economic lockdown.

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It is not just the failings that have been exposed on delivery of medical kit and re-agent supplies, or the sharply rising death toll here and overseas, or the TV coverage of deserted cities around the world, or estimates of “peak rates” being continually pushed back – or the silence that has now settled on our towns and cities like a deep, muffling snowfall.

It’s the growing sense that the fundamentals of our daily life have been shown to be vulnerable to an extent that we never imagined, and that existential threats to our health and well-being here and around the world have not been banished to the history books.

It will be some time before we lose this acute sense of vulnerability, if ever we do. Tens of thousands of businesses are going to the wall, livelihoods shattered and government departments overwhelmed by applications for help – almost a million in the case of the DWP alone, questioning its ability to cope. But if there are acute problems in the roll-out and delivery of government help to stricken households and desperate businesses, withdrawing these support measures will be no less problematic.

I do not believe there will be a return to “status quo ante” – a resumption of goods and services as before once the lockdown restrictions begin to be lifted. Arguably the most resonant aspect in the months ahead is not so much the shape of recovery but some far-reaching changes to our way of life and how we do business.

Not all will be for the worse. There will be a permanent change in how we behave and interact, digital communication to the fore. But a retreat into life’s essentials will I suspect be long-lasting.

As we start to pick up the pieces after this pandemic, we will find government and business priorities radically changed. Will we really need, for example, the multi-billion-pound high-speed road link between London and Birmingham when regional airlines are battling to survive, putting vital business services to Scotland and the west country at risk? How superfluous and vainglorious it now looks when other priorities have become screaming priorities.

Long-distance foreign holidays may take years to recover after the massive blow to public confidence. But the silver lining is that it may bring a boom in domestic tourism here. It is a prospect that offers a lifeline to Scotland’s tourist and visitor economy – if all the Highland hotels and B&Bs can hold out that long.

That is why the latest measures announced by Chancellor Rishi Sunak last week to simplify access to bank loans, together with Scottish government one-off grants of £25,000 available to retail, hospitality and leisure business ratepayers with a rateable value between £18,001 and £50,999 are critical to survival.

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Will we simply flood back to our city centre offices when the pandemic subsides and movement restrictions are lifted? I do wonder. Looking at the combined costs of city centre office rent and rates, building and maintenance costs, parking charges and security, many employers will be tempted to encourage more home working where possible. In many cases it would be cheaper to provide home workers with laptops and video-conferencing apps than return to the status quo ante. Mobile food and drink delivery vans could also become permanent features of a sustainable restaurant and café business.

How will we be able to repay the vast government loans and the explosion in debt incurred in order to deal with the threat to life and the dramatic increase in health and social care spending? Last week Health Secretary Matt Hancock announced that the government will write off £13.4 billion of NHS debt to enable hospital trusts to channel their resources into battling the virus rather than balancing the books. Similar inter-government debt write-offs may be agreed in the coming months. But as national public and private pension funds are large holders of this debt, there will be enormous – and painful – ramifications.

The danger is that we lurch into a new era of austerity – deep cuts to other areas of public spending, together with large and permanent hikes in taxation. It’s easy to say we can tax the bankers’ bonuses, the hedge funds and the gambling companies and ramp up “sin” taxes such as those on alcohol and tobacco. But the increases now required across income and capital taxes if we are to reduce the debt mountain by this route would be colossal.

And that would be the opposite of the response needed to secure a long-lasting recovery. The priority has to be the promotion of economic growth – more business investment and expansion and a reduction in business taxes.

For example, last week the Scottish Fiscal Commission published updated forecasts of income from Non-Domestic Rates to reflect the relief for all ratepayers for the financial year starting in April. This relief effectively reduces the tax rate for all properties, resulting in £51 million less being paid in NDR in 2020-21.

A second relief means all properties in the retail, hospitality and leisure sectors along with all airports pay no NDR in 2020-21, a reduction in NDR of £824m. The combined effect of these two new policies will reduce NDR bills by £875m.

We need to take long hard look at how business rates can be permanently lowered – for failing to do so will encourage far more home working – and on a permanent basis. Already an estimated 46 per cent of firms have now required staff to work from home or are encouraging them to do so.

If there is anything like a return to the status quo ante, it will be with a big difference. Boosting economic growth will supersede other government and public concerns as we pick up the pieces from this emergency. Much else will fall away.