The writer is professor of economics at King’s College, London
The success of the UK’s vaccine programme allows us to glimpse the possibility of a welcome return to normality. But can you put a rough value on the benefits of this return? You can and, netting off the vaccine’s costs, it’s currently about £300bn a year.
The vaccine is provided free not only in the UK but also in countries where there are usually healthcare charges. Free goods and services are normally valued by their costs of production. That is how the NHS has always been represented in official data. The general enthusiasm for vaccination suggests that most people would probably value it much more highly than the cost of its provision — a point that is not unique to the vaccine and probably applies to most health service activity.
To develop a framework to value the vaccination programme, we need to employ the concept of defensive expenditures, which protect people from something unpleasant. While they add to welfare because they protect, it would be better if they were not needed.
The vaccine largely protects us from the effects of Covid-19 but we would all rather live in the world of 18 months ago when the virus did not exist. In the last quarter of 2019, no one thought that in less than a year they would be waiting for vaccination against a disease that had then scarcely been identified.
Resources have to be devoted to the vaccination programme which, without the virus, could be used for other things. Moreover it is likely that, despite the vaccine, some of the other costs associated with coronavirus will continue. So we are in a situation where the vaccine is likely to contribute substantially to welfare but, at the end of the day, welfare will still be lower than if Covid-19 did not exist. If we are to show coherently the benefits of the vaccination programme, we also need to calculate the costs of the virus that it is protecting us from.
So how might we measure the costs of Covid-19 to the UK economy? That cannot be done without valuing the lives lost, and ideally also the loss in wellbeing due to the usual and the long forms of the disease. On top of this, we must include the resources used for fighting coronavirus. That includes expenditure on the test and trace programme, as well as the health service resources devoted to treating patients.
Finally, it is clear that without the vaccine the economy cannot function as it did before the pandemic. Output is nine per cent below that in February of last year. The overall loss to gross domestic product in the 12 months from last April to the end of this March is likely to be more, with output perhaps some 11 per cent lower.
Of course, past experience may be a poor guide to the future; the economic impact of the current lockdown seems to be less than in the first. The pattern of future Covid-19 mortality may, even without vaccines, also be very different. Still, rough calculations are possible.
When making them, it is important that transfer payments, such as the money taxpayers put into the furlough scheme, are excluded. These are payments by government but receipts for households. The output that is lost, resulting in the need to put people on furlough, is already counted in the reduction in GDP. To add the costs of the scheme is thus double-counting.
We could put the loss to GDP from the pandemic at, say, £220bn. If we value each life lost at £1m, that puts the cost in terms of lives lost at £126bn — although strong cases can be made for both lower and higher figures. In the Budget it was stated that £63bn has been spent on front-line health services associated with Covid-19. This included £22bn on test and trace and £5bn to support vaccine development, but it did not include the full effects of the diversion of resources from other uses in the NHS, as reflected in the sharp increase in waiting times for other treatments and the higher number of deaths from factors other than Covid.
Against this, one might want to value the home schooling and child care provided during lockdown, setting these off against the reduction in GDP. With these limitations in mind, the figures point in broad terms to a cost of about £400bn a year in the absence of the vaccine. If the cost falls to say £100bn in a fully-vaccinated country, the vaccine’s defensive value is about £300bn, gross of the £5bn supporting its development, and the £12bn cost of the vaccination programme itself.
This picture is very different from what our national accounts will show, where the vaccine will scarcely feature. That is entirely consistent with the idea that national accounts and GDP tell us about our economic product but not about our wellbeing. Yet, if we want to understand the sources of contributions to our welfare, we need to show the vaccine for what it is actually worth — rather than what it costs.
Source: Economy - ft.com
