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Britain may be a nation of shopaholics, but they can't save our economy alone

June 16, 2020 5:49 PM
By Vince Cable in The Independent

shops queues

For a nation of shopkeepers, and shopaholics, the reopening of non-essential retail this week has been a moment of singular importance. The British government has urged us all to do our patriotic duty and go out and spend.

It was only weeks ago that shops were scrabbling to restock shelves emptied by panic buyers; now the priority is to help shops clear their shelves of stock to help get the British economy moving again. I recognise the problem, after three months spending little money other than on food and bike repairs.

This is a good moment to review where we are with the economy. The preliminary GDP figures, published last week, told us what we had been led to expect: the steepest fall in economic activity recorded for centuries and perhaps, ever. At the end of April, the economy was 25 per cent smaller than it was three months earlier. But the figures are six weeks out of date - an eternity in such an emergency. We need data in real time even if they are crude and partial.

After the bank collapse, which felt apocalyptic at the time, there was a comparable decline of 7 per cent. It seems plausible to expect an annual fall of around 10 per cent and several years before we catch up to pre-coronavirus levels of activity.

The data on job hiring is particularly alarming. It suggests that - unlike China, the US, Germany and France, where there signs of real recovery in employment - the UK is going backwards. The August phase-out of the furlough scheme, supporting 9 million workers, is still to come.

So, what can be done? The speed of exit from lockdown is crucial. The UK suffers from two related problems. The first was the delay in starting the lock-down and the high reinfection rate (known as the 'R rate') which has resulted.

The second is the lack of trust in government advice and regulation. The latter may owe a lot to crass political misjudgements like the Cummings affair, but Britain has also suffered from a cacophony of contradictory expert voices and equivocal scientific advice. By contrast, smaller, less well-endowed countries such as Slovakia and Greece had just one or two key people who seemed to know what they were doing.

The upshot is that the government lacks the confidence and credibility to reduce social distancing to World Health Organisation recommended levels of one metre - crucial to the hospitality sector - and to push ahead with school opening, which is critical for children and for parents returning to work. Even if the go ahead is given, the public might well decide to play safe and stay away.

With the benefit of hindsight, it is clear that the government has fallen between two stools. It failed to act decisively and quickly to impose lockdown, in the manner of Germany and other European "success stories", and also lacked the testing and tracing infrastructure of the more sophisticated Asian responses. Nor did it have the courage of its convictions to pursue a more relaxed lockdown.

Those countries that took the latter route have a mixed story to tell. Japan seems miraculously unscathed which is variously attributed to a non-fattening diet (leading to less obesity), bowing in preference to handshaking and hugging and a smart system of localised lock-downs. The United States seems to be less damaged medically or economically than the doomsters predicted in spite of their wildly erratic President and some very badly affected hotspots like New York. Sweden has become a Nordic pariah, with excess deaths per capita near UK levels, and its economy has still suffered a hit. The jury is still out on the Swedish experiment. And these are early days, generally. If we get to a second and third wave of the pandemic, definitions of success and failure may be quite different..

Where the UK government has failed on controlling the virus, it may argue it has succeeded on the economy. The UK is credited with one of the quickest and most effective financial packages providing help for families, protecting jobs and businesses. And the willingness to put aside debt and deficit concerns is clearly right, for now. Even right-wing think tanks are sensibly putting economic survival and recovery before balanced budgets.

As we get to the next stage of the pandemic there are however some important questions to be resolved. One is how to progress from smart improvisation to strategy. The Chancellor is waiting until July to make his next move and until autumn for a full budget.

First, the government will need a long-term plan for the public finances, governed by some clear political priorities. In the absence of one, I hear from officials in Whitehall that the Treasury is wielding its axe in areas of government spending they consider non-essential. Battening down the hatches is their default position, and could have some dire consequences.

A second issue of real concern is the labour market. There are massive job losses in the pipeline and the phased removal of the furlough scheme may precipitate more. The emphasis will have to switch from protecting old jobs to supporting new jobs, perhaps through a hefty cut in employers' national insurance. A combination of publicly subsidised part-time employment linked to adult education and retraining will be necessary to keep millions out of long-term unemployment.

The government is reported to be hunting for "shovel ready" capital projects to fund. If this is to mean more than a few roundabouts and station improvements, there will have to be a much greater willingness by the Treasury to leave its comfort zone, funding projects with much longer term environmental and social benefits.

A third and related problem is the reliance on private consumption to drive recovery, hence the push to get us all back into the shops again. In the short term, it is obviously sensible to look at how to boost the two thirds of GDP accounted for by household consumption, but in the longer term there has to be support for investment and exports.

Yet last week Michael Gove confirmed that the government is pressing ahead with the Brexit timetable whether or nor there is agreement on a new trade deal. In the event of no agreement, exporters will face far-reaching tariff and non-tariff barriers, starting on 1 January 2021. But the government will keep imports flowing freely. The public will not feel immediate pain from a no-deal Brexit but exporters certainly will. That isn't much encouragement for those companies we will look to for investment in high value services and manufacturing

In the next few weeks we can expect to see some signs of economic recovery as shopaholics rediscover their addiction. But if Britain is ever to become a high-productivity, high-wage economy again it will require a lot more than ministerial demands for the public to get back into Primark and John Lewis.

The government cannot choke off the country's ability to sell to the world and hope UK consumers will plug the gap.

Vince Cable is the former leader of the Liberal Democrats