Opinion Piece by Michael Swadling
Each day sadly the death toll keeps rising, and on any given day the economic news keeps getting worse. We are in a lockdown with social distancing in place to save lives.
But at some point this will end, we will get back to normal and we must look to recover from the economic slump. My own economics philosophy being somewhat laissez faire means I would like government generally to do as little as possible, however that is neither realistically what will happen, nor what is likely to be acceptable in our democracy today. Rather than focus solely on what I would want, I intend to also look at some policies that might realistically be used to aid the recovery.
The new baseline
The lockdown will have already changed some things that will never change back. The longer this goes the greater and more ingrained these changes will become. Whole industries are successfully working from home. More people are getting food and other shopping delivered. Many of us are becoming heavy users of streaming media services. We are getting out the habit of commuting or even just going for a drive.
With the loss of life, fear will drive many people to reasonably want to avoid unnecessary contact even when the lockdown is lifted. It is reasonable to assume the lockdown will be lifted in stages, and quite likely it might be reintroduced if we see a second spike in contagion. Many will find their normal routines disrupted for 6 months or more.
What might these changes mean? Who are the economic winners and losers? Here are some thoughts on how things might have already changed.
- Whether for streaming media or working from home, we have all become super dependent on our broadband. Companies often have duel supply for such a critical service. It is reasonable to assume some households may do the same and that suppliers will start to provide emergency callout services as happens with many utilities today.
- At one end of the broadband connection is the single point failure in many homes of the laptop or home PC. Expect sales of small inexpensive thin client technology to go up as people require some home redundancy and capability for multiple users. Companies have already been moving to ‘the cloud’ for providing services for customers and staff. As it becomes apparent more of the staff are themselves in the cloud rather than the office these services will further take off.
- Without the commute or as much international travel people expect to be ‘always on’. This was already happening as more buses, trains, cars, and airplanes have network connectivity, and WiFi, expect this to intensify, and telecoms companies to benefit.
- Also already happening was the move from the shopping centre to Amazon delivery. This will only accelerate. Many people like shopping and will no doubt rush back once the shops are open again, but will they spend much? Will they make up for the many spending more conveniently online? Amazon, other delivery services and delivery jobs are bound to grow.
- Lots of people are facing and will face real economic hardship from this period. Too few people and businesses have emergency savings to survive even the smallest setback. In time, as people re-find work and as they can, expect more people to save more for a rainy day.
- All high streets will be devastated with lost shops. Pubs and restaurants may initially boom, but then struggle with the debts of the period of lockdown. However in the medium to long term as more people work from home, as people rediscover their local shops, local high streets may do well. A day working from home is greatly brightened by popping to see a friendly face in a local store.
- If your workforce can operate from home why would companies pay for the upkeep of massive city centre offices? Some offices are still needed. There is no substitute for face to face meetings, but these could accommodate say 10-15% of your workforce not the 90-100% they do today.
- The long term trend has been to move spending from products to experiences. People want fewer physical items and more memories. The lockdown has made many realise what really matters in life, and it isn’t things. Between fear of further economic uncertainty, changing habits and economic suffering, consumerism could be on a steep decline.
- Town centre shopping is on the decline. Fewer big shopping centres are being built, people have fewer reasons to visit them. With more people working from home, a move from products to experiences, and economic uncertainty town centre shopping will continue to suffer. In the same way the department store and supermarkets changed the shopping experience in the past, someone will need to reimagine the whole shopping experience to get people out to revive these centres.
- More working from home, more people avoiding the commute. How many will travel abroad or even far from home if they are worried about another shutdown of travel or period of confinement? Travel, be it commuting or further afield is likely to decrease for some time to come.
At first glance more savings and less consumerism might look like positive outcomes, but our economy requires people to spend money to create jobs. More savings means more supply or even an oversupply of money needing a home, and it is likely to be lent badly. Some rebalancing is a good thing but ideally in moderation.
Avoid making things worse
The first step to recovery must be to avoid making things worse. Net Zero emission targets were economy killers before Covid-19, they won’t help now. People are already changing their habits, with more working from home. Carbon emissions are already falling and are likely to stay lower. We will be in an economic slump, government should avoid making things worse with more punitive changes. The other reason to delay implementation of Net Zero targets is whilst people may choose to change their habits, after a few months of lockdown they will resent and likely rebel against being forced to change their habits.
Every year governments like to introduce more regulations and laws. A few of the new laws for 2020 can be found here. Many are good laws, no doubt all done with the best intentions, but stop, hold fire don’t do any more. We have already seen further implementation of IR35 delayed. Scrap it, and scrap any more bright ideas for the next couple of years. Whilst we’re at it many government processes and regulations will have been streamlined or just removed to get vital products to the front line. Keep them streamline, don’t revert, if the new processes are good enough for a pandemic they are good enough at all times. Let businesses have a period of a freer environment, without the dead hand of the bureaucrat crashing down on them.
Enable opportunities don’t force change
Many people will struggle with mental health issues being cooped up. Many will lose a business they have spent many years building, many more will lose their jobs. People are broadly accepting the need to socially distance, although we saw a quick backlash to some initial heavy handedness from the police. People will quickly resent the government trying to force the pace of change.
Many a public health civil servant will see the pub closures as a chance to change habits, many in Treasury will like the tighter control they have on the economy. Many will think command economics work. This needs to be resisted. People and businesses will respond to light touch incentives and likely push back on heavy handedness. I would like government to take next to no action, that may be too much to ask, but government signposting the way rather than forcing change will be the path to recovery.
Reinstate free speech
A huge amount of liberty has been given up during the lockdown. Government needs to prove that our freedoms are not traveling down a one way street from us to them. Health advice will dictate timelines for the returning of many basic rights. But government could do more and do it now. The Public Order Act 1986, The Criminal Justice and Public Order Act 1994 and The Racial and Religious Hatred Act 2006 all impose restrictions on our speech.
Hate speech is wrong, people shouldn’t aim to insult others based on immutable characteristics but likewise government shouldn’t legislate against our most fundamental right to free speech. Repealing these more egregious parts of these and other laws will send a message, freedom matters. That message is important in itself, it’s important for the confidence of the nation, and a nation of clear and limited laws will encourage investment to rebuild our economy.
Build, build, build, toll roads
The Conservative victory at the 2019 election had manifesto commitments to significant infrastructure investment. The massive cost of the Covid-19 emergency and the reduced tax base will make further borrowing difficult. But investment can still come and it can come in the form it always should have, from the private sector. Build toll roads, railways, bridges, ports funded by and with profits to the private sector. As a result of private risk taking, better more effective projects are likely to be chosen. If some support is needed cheap borrowing could come from publicly backed bond schemes, which provide a route to encourage and soak up savings. It also provides for a sense of everyone ‘doing their bit’. We get the infrastructure we need and the user of it rightly pays.
The government has already announced a consultation on Freeports. The freeports would have different customs rules than the rest of the country, act as innovative hubs, boost trade, and generate employment opportunities in some of our most deprived communities. Global trade is likely to reduce as a result of the pandemic. Anything to increase trade is to be welcomed. Nothing should be allowed to get in the way of delivering on these plans.
Supply chain sourcing, with a UK mix
In the US we already are seeing a reluctance to buy goods marked ‘Made in China’. We have already seen French border guards impound trucks with face masks bound for Britain and India limit medicine exports. Expect economic protectionism to return often directed by consumers rather than governments.
Many companies are now seeing the perils of long supply chains, and our national security is at risk if much needed medical supplies can only be sourced from abroad. Lots of companies will naturally look to move more of their supply chain into the UK. It may be prudent for government to work with suppliers to ensure some key industries source, at least in part, from the UK, or for the government to source from the UK for key items.
Manufacturing closer to home
If supply chains are likely to want to move onshore we need to make manufacturing cheaper. The US saw a massive boom in manufacturing when energy prices dropped as a result of Shale Gas. World energy prices are in steep decline, government should reduce taxes to ensure more of this is passed onto the end user.
The Annual Investment Allowance is used to deduct the cost of plant and machinery equipment. The maximum deduction has already increased from £200,000 to £1,000,000 for 2020. This is great news, but frankly why stop there? Let’s see a real commitment by making a permanent increase of say £10,000,000 to really bring back manufacturing to our shores.
Support the high street
The chancellor had announced a business rate holiday for retail and leisure firms. This will bring relief during this period, rates are a problem but government’s long term options to reduce tax when they have a massive deficit are limited. Reducing duty on alcohol in pubs could actually increase the tax take as it keeps business afloat and pubs act a magnets for their local high street.
With the ease of online deliveries, going shopping needs to be about more than just procuring goods and services, it needs to be an experience. Travel to the US, Canada or Australia, and it’s much more common for bars, restaurants and shops to offer free WiFi. Government through tax breaks, councils through helping to organise, and granting planning permission, can assist high streets and local business districts to provide publicly available free WiFi. Give people a reason to stay, browse and buy, let them stay online and connected.
After the lockdown one practically free solution could be to encourage or better still instruct councils to provide 3 or more hours of free or cheap parking for all local high streets. Stop the relentless drive to stop people driving to the shops, stop punishing people for wanting to park up and use local facilities. Even use tax breaks to encourage private enterprise to set-up car parks. Let people get to the high street so they can support their local community.
Heightened health service surge capacity
We are likely to see a long tail to the Covid-19 pandemic. Governments are warning of further peaks in new cases and possible further lockdowns. It is likely in future years we will see calls for social distancing in bad flu seasons. We will also likely see ongoing greater scrutiny of available health care capacity. At the start of the crisis the UK had a low per capita ICU bed capacity. The capacity in normal times matters less than the ability to surge it. It would be sensible for the government to make the capital spend on creating and possibly warehousing a significantly increased surge capacity in ICU equipment. The equipment won’t be needed immediately, and can be placed on a longer procurement timeline with British businesses thereby securing many jobs.
We would also need staff for these facilities. We have seen a nation respond to the great work of the NHS. Let’s encourage something similar to the Territorial Army and help organizations like the St John’s Ambulance expand so we have more medically trained people who are ready to step into or backfill for others staffing these positions.
Tourism and travel
Airlines are on the brink, airports are shutdown, the rail franchises have been effectively nationalised. People will be in the habit of commuting less. People will be worried about overseas travel while Covid-19 still threatens the globe, and people will have discovered how simple and effective video and audio conferences can be.
How can people be encouraged back out? Being at home people will become used to being always on. Get buses, trains, airplanes, bus depots, railways stations, and airports flooded with free WiFi. Make the traveling experience easier make it less of a chore and let people answer emails or stream a movie whilst travelling. Government can again make tax breaks available for this.
As part of returning the rail franchises to private ownership government should look to remove barriers to providing more carriages on the railways. Make the travel experience better, we expect to be crowded for a short commute in rush hour, there is no good reason why a long distance Sunday train ride packs people in like sardines.
As has been said before scope for reduction of taxes will likely be limited. However charging punitive Air Passenger Duty when few people are traveling is counterproductive. Sweeping cuts until the industry is back up and running will likely bring in more tax revenue than it costs.
A quick google of a few major airports in the UK and most offer no smoking facilities once airside. Approximately 15% of people in the UK still smoke. It might be very bad for you, but freedom is the freedom to make bad choices. Given people can be airside for up to 3 hours before a long flight, it is reasonable to offer smoking rooms, enclosed, well ventilated and away from non-smokers. A small change in the law is needed, and government could encourage a set of people put off flying back to our airports.
5G and 4G for that matter
It is unlikely the prospect of Huawei equipment running our 5G network will be greeted with more glee now than it was before the Covid-19 pandemic. This will inevitably slow down the rollout of 5G in the UK, but government can help nudge it forward. More tax breaks, grants, and sped up planning permission will all help. We shouldn’t forget how good 4G is (it’s what most of us use now), and how much of the country has poor coverage. Government can again work with providers to help provide greater coverage to rural and even some suburban communities. Coverage will enable more people to work productively in their home or local communities, help us in the event of a further shutdown and help build productivity outside of London and the South East.
We may have a long way to go, and things will change, but we need to get thinking about the future. Relatively small amounts of government intervention can enable the private sector to grow and embrace the new future. More home working with less commuting and a little help to build local high streets can go a long way. Changes to procurement patterns can with a little help be a great opportunity for domestic manufacturing. Make travel a little easier and encourage people back out. With restrictions on government borrowing let’s get the private sector to develop the infrastructure of tomorrow. And after a period of suppressed freedom, let’s go further than reinstating the rights lost at the start of the pandemic, let’s take dramatic steps to making us a truly free country once again.