For the UK, Covid-19 has been a “teachable moment”. We have learnt that our political leaders are incompetent, our bureaucracy ineffective and our economy fragile. This is not true in all respects: the Treasury and Bank of England have performed rather well. But it is true enough not to be funny.
The UK has the world’s second highest cumulative death rate from Covid-19 per million. The response has been confused, the lockdown came too late and the programme for testing, tracking and tracing still appears a mess. The country is opening up in the hope that it can control the virus, this time. We shall see.
The latest economic forecasts from the OECD are only a little less sobering. Even in its “single hit” scenario, which assumes no further waves of the pandemic, the UK economy would shrink 11.5 per cent this year. With a destructive second wave, the economy is forecast to shrink 14 per cent. Spain is the only OECD member that might experience a larger economic decline this year than the UK.
The scale of the forecast decline reflects the failure to manage the disease effectively. It also reflects the vulnerability to a lockdown of an economy so heavily dependent on services.
So what now? It is vital to reopen the economy, schools, universities and other aspects of normal life, without reigniting another unmanageable wave of the virus. It is equally vital to support the economy for as long as is needed to ensure a full recovery. Given the Bank of England’s welcome and sensible support, the government can afford to borrow on a huge scale and must be willing to do so.
The OECD makes the point clearly: “Economic measures should be kept in place as long as needed and fiscal policy should remain supportive. As stay-at-home measures are lifted, policy should gradually shift from temporary measures to preserve existing businesses and jobs towards general demand support.” The worst imaginable mistake would be to withdraw support too soon. That would turn the wounds from this deep recession into enduring scars.
Yet, while managing the current crisis better than we have done so far is essential, it is no less essential to learn from our failures. The most important of all lessons is that a great deal of humility is in order. The country is not in any way exceptionally well run. On the contrary, the state has performed poorly by the standards of many of its peers. The UK needs to learn how to manage itself a great deal better.
Here are three specific points that must already be absorbed to inform the debate on the post-coronavirus future.
First, systems of government have failed. We need a far more effective, flexible and imaginative government machine. We almost certainly also need to take the provision of at least some essential public services out of the hands of privatised businesses. The inquiry that must come will have to look into all this. It will also have to examine how politicians made their decisions. But only the electorate can learn that bombastic demagogues make bad leaders in real crises.
Second, we have to reckon with the painful fact that this crisis has hit the most vulnerable hardest, making even clearer how divided our society has become. Excellent recent reports — one on inequality from the Institute for Fiscal Studies, and another on the low paid from the Resolution Foundation — make this obvious. Our society has simply become far too segmented into the secure and the insecure, the safe and the vulnerable. This needs to change.
Third, we need to consider who will pay for the vast surge in government borrowing that was and remains so essential. Huge structural fiscal deficits cannot continue indefinitely. The exceptional programmes that have rightly been launched will in due course be wound down. But a residue will surely remain for a long time. Fiscal revenue is also likely to remain depressed. After 2010, the public finances were adjusted almost entirely by cutting spending. That must not happen again this time. The better off will surely end up paying somewhat higher taxes.
Many other issues lie ahead. Is “global Britain” anything but a fantasy in today’s deglobalising world? What is going to happen with Brexit? Do we have any idea how to accelerate the dismal rate of growth of productivity? But the points raised above — the failure of government, the worsened plight of the vulnerable and how to pay for Covid-19 — are obvious legacies of this crisis. If the UK does not learn and change now, when will it do so?
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