The world is in the midst of a pandemic. As the infection and death toll from the coronavirus continues to rise, it is absolutely essential that steps are taken to treat those who are suffering, stop the spread of the disease, and work to find a cure. As such, the UK government should do whatever it takes to achieve this. Whatever resources the health and social care sector needs to defeat this virus, it should get.
However, although this is a major health crisis, it would be wrong to ignore the economic impact. By the reckoning of most economists, the world is heading for a recession due to the pandemic. Therefore, it is important that the government does what it can to ensure that the recession is as short as possible and that things can return to normal once the temporary measures that have been implemented are lifted.
This recession will not be like other recessions where the correct response is to encourage people to act as they normally would by spending their wages in pubs and theatres or by booking holidays. This is done in the hope that businesses stay solvent, expand and create more jobs. During a pandemic, that’s the last thing we need. Very soon it will be necessary to ban people from doing these things. As such, lots of talk about fiscal stimulus packages which are currently being touted would be inappropriate.
However, that does not mean that the government should do nothing. On the contrary, it is going to need to spend a lot of money. I’m not talking about Keynesian approaches such as paying people to dig ditches or build roads (remember, we want people to stay inside). The money should instead be spent on supporting households.
Therefore, the government should implement an immediate universal basic income. I have written for 1828 before on why a UBI would be preferable to our current welfare model, but now it really is essential. Many people are going to lose their jobs or find themselves receiving statutory sick pay. As a result, they will struggle to pay for daily essentials and their rent or mortgage payments. A payment to every household will be the most efficient and effective way of helping people to make ends meet without putting them in the impossible situation where they have to choose between keeping themselves and others safe by not working and putting food on the table.
The government also needs to give money to businesses. In normal situations, it is wrong for governments to bail out failing firms or industries. It’s also generally inappropriate to do so during normal economic downturns. However, nothing about the current situation is normal. We do not want otherwise viable businesses and industries to go bust. The idea of giving money to people such as Richard Branson is not appealing, but sadly it has to be done. We want to prevent firms from failing so that once the pandemic is over, things can get back to normal. As such, the government should approve substantial financial measures for businesses and industries, with the provision that it will be paid back once the economy recovers.
On a related note, we want to do everything we can to incentivise businesses to keep people in work, even if they have nothing to do. Businesses already have an incentive to do this as it’s very costly to hire and train new employees, but the government should incentivise them further.
And while it is right that the government has already promised to help small businesses with covering the cost of sick pay, it should go further. It should promise to reimburse every firm for the cost of sick pay. Moreover, it should also scrap employers’ national insurance contributions.
Not only should these plans be implemented, but they should be communicated clearly to the public and there should be coordination between countries. The Federal Reserve, the Bank of England, and other central banks around the world should be applauded for their coordinated and well-publicised efforts over the weekend. Boris Johnson should encourage other world leaders to follow these measures rather than those of President Trump, whose actions and statements have simply exacerbated the situation by spooking markets and causing panic.
This situation, in general, should also be seen as a wake-up call for the government. The pandemic has shown how woeful our welfare system is. As such, any universal basic income should remain once the crisis is over.
The measures I’ve suggested are going to be incredibly expensive and will require the government to borrow huge sums of money. Such moves will increase the national debt and have the potential to be economically damaging in the future. As such, the government needs to launch a major review and cut spending on wasteful projects so it can keep the national debt under control, keep borrowing low, and have an efficient tax system so that it will be able to respond to future shocks.
We are going through unprecedented times, both socially and economically. Hopefully, the pandemic will be less devastating than feared and will pass quickly. The world will probably go into recession as a result, but if the government takes the right steps, the economy should be able to recover quickly.