A look at the huge financial commitment
One of the criticisms of the 2008 bank bailouts was that banks had privatised the profits but nationalised the losses. It wasn’t entirely accurate: shareholders and plenty of bank staff lost money and jobs. Had banks failed, plenty of other businesses would have failed too. But it was broadly true. Those whose key job it was to manage risk failed abysmally, took insane risks, pocketed unjustifiably high rewards which did not accurately reflect the cost of those risks and left others – far less able to bear the burden – to pay for it all, for a decade or more. The resulting sense of unfairness, resentment, of the costs being borne by the “little people”, of the “Too Big to Fail Haves” who were at fault getting away with it has informed politics ever since, in ways largely unanticipated at the time.
Is something in reverse happening now? The lockdown policy’s benefits – the containment of the virus and its ability to spread and cause death and harm – are for everyone. But the losses are largely privatised and not equally shared. The economic losses are principally borne by private businesses and individuals, whose ability to earn has been stopped or severely limited, many of them least able to bear such losses and unable to insure themselves against a government decision. Any activity dependent on social interaction unmediated by technology – and that is the majority of them – has been rendered largely unviable. For now. Maybe forever, depending on what decisions government takes to end the lockdown – and thereafter.
There are other losses too: the lives saved in the government’s advertising trinity refer to those not catching this virus. Those with other health conditions have – temporarily – been ignored, a delay which may prove fatal; the harm done done to yet others by these measures is unknowable and may remain largely invisible. The virus’s direct consequences are easy to see. Much harder to draw a clear line between isolation or unemployment and their consequences.
The government has not been blind to these. From a halting start (loans, whether guaranteed or not, have never been the right answer to a permanent loss of income) its furlough scheme (and limited grants) have been an attempt to mitigate some of the losses suffered. It may not have given a sweeping Macron-style reassurance but it is trying to do something to help those affected and ensure consent for the lockdown measures needed.
However welcome these steps are, they are not up to the scale of what is needed. This is not a short-term emergency, even if a vaccine is eventually found. Take-up of the loans has been poor, for obvious reasons: who wants to take on debt when you have no income and may have no viable business. This has now been explicitly recognised with business viability no longer being a criterion for such loans. The government may as well call them grants now and be done with it. Few of them are likely to be repaid. A cynic might say that the scheme suits the government very well: it looks generous while contributing relatively little; it can blame businesses for not availing themselves of the opportunity; it can ignore the scheme’s inherent flaws.
The furlough scheme is better. But it is focused on saving jobs or, more accurately, postponing redundancies. There is little for businesses to replace the permanently lost income and even businesses which are temporarily closed have continuing costs. Postponed taxes still have to be paid. Reserves are being used up; those without will soon need to decide whether to close for good. One worthwhile amendment would be to allow furloughed employees to do some work and provide support for reduced hours up to the full salary or thereabouts, thus allowing some economic activity to continue (as in the Swedish version). Not that the Chancellor has to look that far for an example of something similar. Tax credits anyone?
Whatever the inadequacies, how long can this support can go on for? Financial support and the lockdown have to go hand in hand. A gradual easing of restrictions may permit a gradual easing of financial support. If so, consistency of messages (not a government strong point) is critical. But there are choices to be made which go far beyond the daily “Are we there yet? questioning.
If activities are made lawful again in order to restart, what will the government’s message about them be?
To the public: Yes – they’re lawful but very dangerous so don’t do them.
To businesses: You can operate lawfully so no more support for you.
How can that possibly work? Two-faced would be a polite way of describing such a message. Confusing and brutally dismissive would be more accurate. And what will be the response be?
Public: How can you expect us to work, live, travel in a way that puts us at risk?
Businesses: You’ve made us unviable. Forget the law. We’re shutting down because of what you’re saying. It is a cruel deception to say that it is our choice.
It is an exquisitely painful dilemma. The government could adopt a brutally Darwinian approach. The virus has changed how life is lived. Businesses will have to adapt and if they cannot they die. If that means a big rise in unemployment and bankruptcies and financial hardship and pain for very many voters, too bad. Other businesses will thrive or arise in their place.
True. Eventually. But the economic, social and political costs of such a course of action will be vast. It will likely be the Amazons of this world thriving, exactly those who benefit from the disliked globalisation, those least likely to pay the taxes needed to pay for the transition to this post-virus world. The resentment, bitterness and sense of unfairness will be even greater. The losses will not be equally shared: particular sectors, regions and groups will be hardest hit, many of them in newly Tory constituencies. A decision to withdraw financial support or to make it impossible – whether through law or social pressure – for some businesses to operate is not an Act of God. It is a political choice, for which the government will be held responsible. Just as austerity was or – more importantly – was perceived to be. A government which has declared austerity dead, which talks about levelling up forgotten parts of the country would be inflicting austerity cubed on its voters, would be fatally undermining the promises and hopes on which it was elected.
Continued financial support then? If so, this will likely need to be phased – both by sector and over time – and with the aim of helping restore economic activity and allowing business to adapt to new realities. The sequencing and communication will need to be intelligently planned, competently implemented and sensitively communicated. (Implying – as reported in today’s Times – that people legally ordered not to work have become “addicted” to furlough, as if they had a choice, suggests the government has some work to do in this regard.)
Maybe some of the support will need to be in the form of compensation to those businesses unable to operate – and not just to the legal owners of but the workers within the businesses. There are not many precedents for such compensation. (The payments made to slave owners – but not the slaves – when slavery was abolished, perhaps? Hmmm. When smoking was forbidden, no compensation was paid – but businesses had time to adjust. And smoking was hardly key to most businesses anyway.) Why compensation? Well, why not? Give those entrepreneurs and their staff the opportunity to do something different, develop new businesses, encourage ideas and fresh opportunities. Give them hope.
Lifting lockdown is not just about reopening a few workplaces here and there or allowing people to meet friends. It’s about trying to keep an economy and society going in a way which makes people feel that the government is on their side, is trying to help – not punish – them and is not letting those most affected bear the risks of something which is not their fault and for which they could not have planned.
Unprecedented? Yes. Expensive? Yes. Complicated? Yes. A temporary nationalisation of large parts of the economy? Yes. Problem-free? No. It is all these things and more.
But the cost-free easy alternative is ……..?