BY SHILP BURMAN ROY
“There are decades where nothing happens; and there are weeks where decades happen,” claimed revolutionary Vladimir Ilyich Lenin. The coronavirus pandemic has halted Britain’s economic growth, delaying decades of prosperity within a matter of months.
Reduced supply chains, scarce travel demand and pervasive panic mongering have pummelled Britain’s economy. The Organisation for Economic Cooperation and Development (OECD) reports that the sovereign will contend the worst damage of any developed country. The UK’s national income has plummeted by 11.5% in 2020, eclipsing the slumps of Italy, Sweden and Spain.
Reinforcement of measures to curb the spread of infection presents a gloomy forecast of unemployment skyrocketing to 9%. The imposition of a second lockdown has the potential to contract the economy by 14%, the OECD predicts. These ramifications will be aggravated by the government’s failure to conclude a trade deal and access to the single market of the European Union by December 2020. On the whole, the UK economy is battling its worst quarterly fall in 41 years, surpassing the repercussions presented in the 2007 financial crisis.
Though policymakers are treading unfamiliar territory, there is widespread consensus that massive fiscal stimulus is required to kindle consumer demand and in effect, encourage economic growth. Rishi Sunak, the Conservative Party’s Chancellor of the Exchequer has unveiled countless policies sharing the common goal to support public and private services battered by Covid-19.
Nearly £50 billion has been pumped into the NHS, hoping to ease congestion in the heart of British healthcare. Creating and preserving employment are on the frontline of this economic battle; funding to support businesses stretch beyond £29 billion. The government dug into its pockets, paying 80% of wages through a furlough scheme.
Naturally, crises do not pass without politicisation. Following the announcement of his emergency fiscal package, Sunak’s popularity surged among voters. Opinion polls rated him above Prime Minister Boris Johnson for sound judgement during times of adversity. Currently, he is deemed the most approved Chancellor that the electorate have encountered since the 1970s. It is no surprise that Sunak’s roaring public approval remains a source of solace for Tories, whilst demoralising Labour MPs.
But what happens when the spending spree stops?
Undoubtedly, the pandemic has blown a hole in Britain’s wallet. The underside of such unsustainable spending is the severe deepening of the government’s budget deficit. The Office for National Statistics reported that public debt has soared above £2 trillion – higher than the value of goods and services produced this year.
Paul Johnson, Director at the Institute of Fiscal Studies, urged the Treasury committee to increase income tax, national insurance or VAT. He argues that such streams derive noteworthy amounts of income, thus filling the budget blackhole.
Nevertheless, a mere 3% rise in income tax will cost the average taxpayer an additional £400, according to the Taxpayers’ Alliance. Such astute austerity will burden wage earners, particularly one in eight people who are still being furloughed. Their livelihoods hang in the balance, given that the government’s furlough initiative reduces by 10% later this month.
Another option that Downing Street has not ruled out is wage freezes. Chief economist at Bank of England Andy Haldane insists this will limit redundancies and shield the labour market.
Indeed, it may curb tax rises and maintain public investment. Even so, such caps contradict PM Boris Johnson’s pledge to ‘level up’ the nation and improve living standards across the North and the Midlands. Accordingly, Johnson’s popularity in opinion polls may face steep decline as Tory voters lose faith in the government’s accountability.
This also elicits questions regarding the morality of pay freezes. The Trades Union Congress asserts that the very notion is appalling, given the massive amount of labourers living on minimum wage. These key workers such as healthcare and supermarket staff are the backbone of the sovereign during these extraordinary times. Social media outrage demands that the government shifts financial burden onto broader shoulders, inhibiting the suffocation of low and middle-income classes.
Covid-19 has given a platform for the Labour Party to push their wealth tax agenda. The shadow Chancellor Anneliese Dodds alleged that the pandemic has exposed and exacerbated inequalities in Britain. Considerable amounts of money concentrated in the upper class are derived from assets; a tax reform may support the most vulnerable populations and distribute wealth more evenly. Opinion data indicates that over 60% of the British public approve of such targeted measures.
Henceforward, the government wields immense responsibility in steering a path through modern complexities. The costs of servicing debt will be felt soon; future proposals call for significant revisions to public finance figures. That is all Britons can hope to ask for.
Image: Flickr / Pippa Fowles / No 10 Downing Street