9 July 2020

Why Rishi Sunak’s stimulus package is unlikely to prove a cure for the UK’s economic woes

The biggest economic problem is the public’s fear of Covid-19, not a lack of spending power.

Chancellor of the Exchequer Rishi Sunak visits the Worcester Bosch factory in Worcester, central England, on July 9, 2020. - The UK government on on July 8 committed £30 billion ($37 billion, 33 billion euros) to saving jobs and helping the young find work in an economy ravaged by the coronavirus pandemic. Delivering a mini-budget to parliament, finance minister Rishi Sunak announced bonuses to companies retaining staff and taking on apprentices, investment in eco-friendly jobs and even allowing Britons to enjoy discounted meals in some restaurants. (Photo by PHIL NOBLE / POOL / AFP) (Photo by PHIL NOBLE/POOL/AFP via Getty Images)

Rishi Sunak has unveiled a package of measures to stimulate the economy – a one-off payment of £1,000 to every business that brings a worker back from furlough and employs them until January, a six-month scheme to provide subsidised jobs for people aged 16-24, a temporary cut in stamp duty for properties above £500,000 and government-subsidised dining on Mondays, Tuesdays and Wednesdays in August.

The big argument following the 2008-09 recession was whether the correct fiscal response was for the Treasury to increase or cut public spending. The big argument this time is the extent to which this is a crisis that can be solved by the Treasury at all.

Bluntly, it doesn’t look like it is. Sunak’s statement yesterday felt akin to a government trying to increase the levels of smoking back to say, 1960s levels. Sure, you can slash taxes on cigarettes. You could repeal the ban on smoking in enclosed spaces. You could let cigarette companies advertise on television again. You could even give people money off the cost of a packet in August.

But the single biggest fall in the proportion of smokers in the United Kingdom didn’t come after any of those legal measures, as important as some of them were and are. It came in the 1970s, when the extent of the harm smoking causes became widely understood.

A similar problem is at work in the British economy today: the reason why spending has fallen is people are frightened of the knock-on consequences for their health and that of their loved ones. The biggest lever the government can pull is reassuring households who are saving because they fear for their jobs by increasing the generosity and scope of the welfare state – but that lever remained untouched.

And the problem that Sunak didn’t really grapple with yesterday is that the UK’s economic problems – as with every country, including Sweden, who did not have a formal lockdown but have an economic contraction in any case – are driven by the public, not politicians.

It may be that the clips and photographs of Sunak – currently the UK’s most-trusted and well-liked politician – serving food and eating in restaurants sends a message to the country that it really is safe to go back into the world and resume normal spending habits. Or it may be that the government is bailed out by the most important stimulus package it has at the moment: the billions of pounds it has spent on vaccines and palliative treatments for the novel coronavirus.