Bill Jamieson: History’s reminder that biggest test is the day after tomorrow

Amid all the photographs and newsreels of VE Day vast joyful crowds, street parties and an exuberant Winston Churchill, it is hard to discern the tremors of an earthquake that would follow just weeks later.

Winston Churchill waves to jubilant crowds on VE Day. Picture: Imperial War Museum

On 5 July, 1945, Britain went to the polls with cheers for the prime minister still echoing across the land. But the result was one of the biggest political shocks in our history: Prime Minister Churchill was defeated as Labour swept to victory, winning 393 seats, a stunning gain of 239.

Few predicted such an outcome. But after five and a half years of conflict, these following the era of the Great Depression and mass unemployment, voters wanted no return to the past, but a new era of social reform – with a transformation of health, housing and welfare to the fore.

War analogies with the coronavirus trauma and its loss of lives and livelihoods have been overdone. But the experience of 1945 is instructive in this respect: victory posed searching questions over the future for which so much was sacrificed. Defeating the immediate enemy was one thing. But hopes and aspirations for the day after tomorrow were something else. Longer term consideration of “war aims” was lost amid the immediate exhortations for victory.

So too, today: in our immediate preoccupation with how to emerge safely from the pandemic and the national lockdown, little has so far emerged about the government’s priorities and planning in the aftermath.

We will face enormous difficulties, while at the same time avoiding an austerity lockdown and permanent extension of an intrusive state. Yet huge weaknesses will need to be addressed as the full economic and social shock has still to be counted.

Last week, amid warnings that the true rate of new daily cases of infection could be 20,000, far higher than previously acknowledged, the Bank of England said we were on course to suffer the worst recession for 300 years: a 14 per cent plunge in output this year and 25 per cent hit in the second quarter alone.

This would make it one of the worst years in UK economic history, worse than the Great Frost of 1709 when the economy shrank by 13.4 per cent and the 14th biggest fall in GDP since 1270 – the earliest year for which there is an estimate – and one surely far short of even today’s statistical uncertainties.

Such historic analogies may indeed be meaningless. But what is more compellingly credible is that unemployment is expected to more than double, from four per cent to a 26-year high of nine per cent with a further six million workers expected to be furloughed.

The Scottish Parliament’s Information Centre has posted an outstanding summary of the impact of the pandemic so far in Scotland. Much of its coverage highlights the headline figure suggesting economic output in Scotland could decline by 33 per cent during the period of social distancing.

The Scottish Government’s State of the Economy publication set out three possible paths for unemployment here. The most optimistic scenario sees a huge increase in unemployment, peaking in the second and third quarters before declining rapidly towards four per cent. Even in the most optimistic scenario, unemployment reaches a level in excess of any previous peak in the ONS series going back to 1992.

The Scottish Government has estimated that the businesses which have been asked to stop physical trading during the lockdown account for around 22 per cent of the economy, employing 920,000 people (32 per cent of the February 2020 Scottish workforce).

But the damage runs deeper. According to the Holyrood administration, there have been over 100,000 new claimants of Universal Credit in Scotland since 15 March around 6.5 times more than the same period in 2019.

And last Friday the Social Security Secretary, Shirley-Anne Somerville, revealed a 59 per cent increase in applications for crisis grants in Scotland in March – almost 60 per cent higher than for the same month last year.

Meanwhile businesses need access to finance to replace lost income. Net loans to large businesses increased by £32.1 billion in March, by far the largest increase in net lending since this series began in May 2011.

Those expecting a rapid rebound in economic activity, the Scottish Parliament Information Centre analysis warns, are likely to be disappointed. It quotes the Economist’s analysis of China’s recovery that only around 90 per cent of the economy can recover quickly, with transport and discretionary consumer spending still weaker than pre-crisis levels, and bankruptcies rising and unemployment heightened.

Priorities are almost certain to change as this deadly virus lifts. Already the March budget, bristling with emergency measures, seems a distant memory. A forward-looking package should follow this autumn. A radical revamp of health emergency planning and procurement looks assured. And in due course a programme of tax reform once the massive amounts of state aid start to be tapered off. And we may well require a revamp of government offices, with a new department dedicated to pursuing recovery measures and projects. Infrastructure spending, for example, may have to be recalibrated to replace projects that are no longer seen as priorities – airport expansion, for example.

Among other changes would be opportunities for UK businesses and suppliers to step up production as global supply chains face permanent shrinkage. The pandemic has exposed weaknesses in local supply, from the manufacture of personal protection equipment for health workers to food and clothing items.

“Local supply” has become a notable feature of the response to the lockdown, with thousands of local food and farm shops reporting a surge in custom. And adaptation, innovation and enterprise have sprung to the fore – my local weekly parish council newsletter now runs to 13 pages of news, information and contact details on where products and services can be obtained.

Some of this will fall away as the lockdown lifts – but it has certainly worked to encourage local provision and supply. And it is this surge in local enterprise that has worked to sustain us during a period without precedent in modern history. Thank heaven for it – and let’s hope it continues long after the day after tomorrow.