The next few months will demonstrate whether Downing Street is on top of the macro-economic agenda. If they are not, then the country is in for a rough ride.
A pro-growth economic policy is needed, with a focus on jobs, living wages and increased investment. There is a need to raise the quantity and quality of UK growth and incentivise the private sector.
The first steps are clear-cut. Continue with the unlocking, keeping the virus at bay while allowing the economy to escape recession.
Policy own-goals can change. Relax social distancing from two metres to one. End the fourteen-day quarantine, too.
However, while we are in a vaccine gap some sectors will not return to full health. This impact is widespread, from restaurants to across the creative sector. Here many firms will need financial support until a vaccine is available and social distancing ends.
While unlocking may unleash some pent-up demand, many people will be reluctant to shop, have little to spend or will want to add to their savings as they are uncertain about the future. Thus, VAT should be cut to help boost demand and stamp duty reduced to help kick-start the housing market.
The economic vision needs to reflect the post crisis agenda and recognise that many economic drivers will not be altered by the virus.
The global trends in place before the crisis will continue. This includes the digital and data revolution, driven by new technology and artificial intelligence. Also, the geography of global growth will keep moving to the Indo Pacific and a G2 world, dominated by the US and China. This points to the UK needing to focus on innovation and investment, and to think globally.
However, the soft underbelly of our imbalanced economy has been exposed by this crisis. Many are in low paid work, in firms where investment has been weak. We have not shared success from our high productive areas.
Thus, the crisis should strengthen and not derail the government’s pre-crisis agenda of levelling up, delivering Brexit and following through on delivering a net-zero carbon economy.
Yet, levelling up is not just about rewarding northern constituencies that voted Conservative through more infrastructure spending.
Infrastructure, while needed, will not provide quick wins. There are few shovel ready projects. Devolving power to urban and local authorities as well as easing planning restrictions may speed things up. Levelling up should be more widespread and creative, allowing firms to flourish through low tax zones and addressing issues from housing to skills.
While the crisis has weakened the economy the same is true on the Continent. There is no case to delay Brexit. It would heighten uncertainty. Being in a transition leaves the UK vulnerable to new EU legislation over which we have no voice, vote or veto. Also, we would be liable to pay more. As the clock ticks down, political pressure for a deal will grow.
As important as this pre-crisis agenda is, recent months highlight the need for vision and a pro-growth ambition that serves all of society.
Such a policy needs to be based on three arrows. The PM needs to aim for a bullseye on each.
One is credible fiscal activism. There is no magic money tree. Instead, low inflation, rates and yields allows the government to borrow, and to then reduce debt to GDP gradually over time. It would avoid tax increases or austerity.
Second is monetary and financial stability, including a new-remit for the Bank of England based on money GDP. This helps guard against inflation in an upturn and weaker demand in a downturn. Also, while the City needs to be globally competitive it must help finance UK companies better. Last year, the funding gap faced by the UK’s small and medium sized firms was a hefty £22 billion.
The third economic arrow is a supply-side agenda aimed at incentivising the private sector and helping it grow. The focus would be on lowering inequality, getting incentives right and boosting innovation, investment and infrastructure.
The crisis could herald in a sea-change in how we work and travel. This merits delivering widespread broadband at a faster pace. It warrants a rethink of transport plans; after all the rail system has effectively been nationalised. Also, during the lockdown, almost unnoticed, Gatwick was given permission to turn its unused emergency runway into a second runway. Why?
A credible economic vision has yet to be outlined by this government. The good news is that the health and economic crisis provides a clear basis for doing so.
This column by Gerard Lyons appeared in the Sunday Telegraph, on 14th June, 2020. Gerard also discussed the unlocking and the economic outlook during live interviews on BBC Newsnight, on 11th June, and on Sky News on 14TH June.