The announcement by Rishi Sunak of £330bn in government-backed loans for businesses and a three-month mortgage holiday “for those in need” is nowhere near sufficient to confront the current crisis. The chancellor himself said this was merely the first step, but with many people facing an immediate collapse in their incomes, help cannot come soon enough.
The British economy is heading towards critical condition: as more and more people start to self-isolate, economic activity is grinding to a halt. Despite knowing about the coronavirus since December, the government has been complacent and sluggish in its public health response. It now needs to act with purpose and pace to put the economy on to life support.
The traditional tools of economic policy are severely blunted. The emergency cuts in interest rates made by the Bank of England are welcome but insufficient. A fiscal stimulus is likely to be of limited help in the face of collapsing demand as a result of large swathes of the population self-isolating and all households cutting back on expenditure on non-essential items.
There is no economic orthodoxy that anticipates events of this nature: the nearest analogy is the wartime economy, though even that has its conceptual limitations. So this is a time for economic orthodoxy to be junked. Just as when the global financial crisis hit in 2008, there is an urgent need for policy innovation. That requires a return to first principles in thinking through the response.
The twin objectives of economic policy should be to sustain household living standards and to ensure business survival, so that the economy is able to recover once the crisis passes. This can only be achieved with government action on a massive scale. “Fiscal rules” are entirely meaningless in such a scenario; there will need to be an expansion in national debt to levels last seen during the second world war. If the economy is put on life support for the rest of 2020, it seems plausible that debt could rise to 150% of national income.
The first step must be to sustain household incomes where possible. The Tories’ long assault on workers’ rights has left millions of workers and their families exposed to this crisis. About 5 million people are now self-employed and nearly a million are on zero-hours contracts. In places such as Norway, Denmark and Sweden, governments have acted swiftly to provide income protection; the UK needs to follow where others have led.
It may be that entirely new methods for sustaining incomes are required. One option would be “helicopter money” where the government directly deposits money into individual bank accounts. This would be akin to a universal income for the period of the crisis.
What is Covid-19 – the illness that started in Wuhan?
It is caused by a member of the coronavirus family that has never been encountered before. Like other coronaviruses, it has come from animals.
What are the symptoms this coronavirus causes?
The virus can cause pneumonia. Those who have fallen ill are reported to suffer coughs, fever and breathing difficulties. In severe cases there can be organ failure. As this is viral pneumonia, antibiotics are of no use. The antiviral drugs we have against flu will not work. Recovery depends on the strength of the immune system. Many of those who have died were already in poor health.
Should I go to the doctor if I have a cough?
In the UK you and your household should stay at home for 14 days if you have either:
- a high temperature
- a new continuous cough
This will help to protect others in your community while you are infectious. Do not go to a GP surgery, pharmacy or hospital.
You do not need to contact NHS 111 to tell them you’re staying at home.
People who are self-isolating with mild symptoms will not be tested.
Is the virus being transmitted from one person to another?
China’s national health commission confirmed human-to-human transmission in January, and there have been such transmissions elsewhere.
How many people have been affected?
As of 17 March, more than 180,000 people have been infected in more than 80 countries, according to the Johns Hopkins University Center for Systems Science and Engineering.
There have been over 7,150 deaths globally. Just over 3,000 of those deaths have occurred in mainland China. 79,000 people have recovered from the coronavirus.
Why is this worse than normal influenza, and how worried are the experts?
We don’t yet know how dangerous the new coronavirus is, and we won’t know until more data comes in. Seasonal flu typically has a mortality rate below 1% and is thought to cause about 400,000 deaths each year globally. Sars had a death rate of more than 10%.
Another key unknown is how contagious the coronavirus is. A crucial difference is that unlike flu, there is no vaccine for the new coronavirus, which means it is more difficult for vulnerable members of the population – elderly people or those with existing respiratory or immune problems – to protect themselves. Hand-washing and avoiding other people if you feel unwell are important. One sensible step is to get the flu vaccine, which will reduce the burden on health services if the outbreak turns into a wider epidemic.
Have there been other coronaviruses?
Severe acute respiratory syndrome (Sars) and Middle Eastern respiratory syndrome (Mers) are both caused by coronaviruses that came from animals. In 2002, Sars spread virtually unchecked to 37 countries, causing global panic, infecting more than 8,000 people and killing more than 750. Mers appears to be less easily passed from human to human, but has greater lethality, killing 35% of about 2,500 people who have been infected.
At the same time, the government has many options: it could act to reduce household outgoings. It could introduce a council tax holiday, cut student loan interest to zero and suspend collection, or directly pay utility bills. More radical measures could include suspending all mortgage payments and requiring landlords to reduce rents by 50% for the remainder of the year.
If the economy is to have any prospect of revival after the crisis, it will be essential to ensure that businesses are able to survive. The immediate steps could include a business tax holiday – or, indeed, suspending any form of tax collection – to reduce outgoings. Other measures could include reducing or suspending rents. The government has already said that it will provide a facility for companies to access emergency working capital on “attractive terms”, yet to be explained.
But with the economy in a nosedive, more radical steps may become necessary. One option would be for the government to provide capital to enable businesses to cover their fixed costs for the duration of the crisis, perhaps in return for equity. With shareholders facing wipeout, dilution of equity in this way is a small price to pay. It would have the added advantage that after the crisis, the government could progressively sell its stake in firms, enabling the national debt to be paid down.
The nature of the coronavirus crisis demands a collective response in this country and across all countries. Successful suppression in one place can be undermined by an uncontrolled outbreak elsewhere in the world. This moment is a sobering reminder that we have a shared humanity and that the rules of capitalism are merely of human design. The rules didn’t come down from the mountain top. They aren’t carved in stone. We can, and we must, be prepared for a radical response fit for these extraordinary times.
• Tom Kibasi is a writer and researcher on politics and economics