During an economic crisis, people have a habit of curtailing spending. If you are concerned you could lose your job, it makes sense to build up your savings rather than embark on a spending spree.
The problem is that if everyone does this, it will almost certainly make the crisis worse and increase the chance that people – including you – will lose their jobs. The fear of a recession can actually help bring about one that would otherwise have been avoided. This is why confidence in an economy is so vital.
Normally governments win such confidence from the international markets by being financially prudent. They must ensure the national debt, taxation and state spending all remain within reasonable levels.
So, in times gone by, the idea that the UK government would simply give every woman, man and child in the country hundreds of pounds each would have been viewed in a very dim light by many economists, politicians, business leaders – and The Scotsman.
But the same could be said of the idea that the government would pay millions of people 80 per cent of their salary to sit at home and do nothing – and yet the furlough scheme has been recognised across the political spectrum as being a necessary means to deal with the effects of the coronavirus pandemic. Clearly furlough cannot go on forever and the scheme is due to be phased out by October.
However, there is growing concern that when it ends, the result could be mass unemployment and a recession of historic proportions. Therefore, it may be that we need different ways to tide the economy over until things can get back to something like normal.
The Resolution Foundation think-tank’s innovative proposal to give vouchers worth £500 to every adult and £250 to each child to spend with firms hit hardest in this crisis would cost up to £30 billion. It might be we cannot afford quite so much, but the basic idea is certainly worthy of serious consideration and it appears the UK government agrees.
Given the vouchers would expire after a set period, people would be forced to spend and the money would hopefully go to those companies who need it most. On a large enough scale, this could help lift the economy out of a potential downward spiral, boosting confidence and encouraging people to return spending to pre-Covid levels. It would be a bold step, but now is not the time for political timidity.
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