Your support keeps us publishing. Follow this link to subscribe to our print magazine.

Rishi Sunak Versus Reality

It was obvious from the start that Covid-19 would have longlasting impacts on the British economy, but Rishi Sunak has insisted on treating it as a temporary blip – and now fantasises about pulling support altogether.

Last week, Chancellor Rishi Sunak gave an ‘economic update’ to the House of Commons. His message was that things are going to get worse before they get better. Despite this, no new measures were announced to counter the coming economic pain.

The scale of the crisis still seems to be dawning on the Chancellor. Since the pandemic struck, nearly a year ago, it has been clear that the economic effects will be deep and long-lasting. This was never going to be a transitory shock. Yet, throughout the crisis, the Chancellor has acted as if the end is just around the corner.

His repeated dithering and reversals over the furlough scheme are a case in point. The scheme was first slated to close at the end of May 2020. After a series of U-turns over the summer, it was extended to the end of October, to be replaced by the ‘winter economic plan’: a flawed wage subsidy scheme that provided strong incentives for smaller firms to lay off workers.

Sunak tinkered with the details for a month, but hours before the furlough was due to end, he was forced to announce that it would be reinstated. This was followed by an extension to March 2021. Then, last week, Sunak refused to rule out extending the furlough past April of this year.

By March this year, we will still be reliant on an emergency package that was conceived and implemented in the space of a few days a year previously.

Instead of working through the implications of Covid-19, planning for contingencies on a sector-by-sector basis, and developing a vision of the post-pandemic—and post-Brexit—low carbon economy, Sunak has spent the last year itching to switch off the life-support.

Given the severe uncertainty currently faced by employers, only the government can provide the backstop that prevents mass redundancy. Instead of reassurance, UK employers have faced a bewildering series of announcements, rowbacks, and reversals. As each cliff edge was approached, redundancies were made, only for employers to find out—sometimes with just hours to go—that decisions were being reversed and support was being extended.

The same pattern is evident with the other measures introduced by Sunak: business grants and loans, self-employed income support, the eviction ban and mortgage support. Sunak moved at commendable speed in the early days of the crisis. Rough sleeping was halted almost overnight, as homeless people were put up in hotels.

But the scale of these interventions—and the message they sent—were deeply uncomfortable for a libertarian like Sunak. He cannot suppress his desire to see the ‘creative destruction’ of the market tear down pre-pandemic business models, clearing the field for the dynamism of the post-pandemic entrepreneur.

Of course, this is fantasy. In reality—alongside the shameless cronyism with which this government is handing out cash to failing corporations—withdrawal of support would mean a tidal wave of bankruptcies and redundancies. But new entrepreneurial activity would not fill the gap: we would get destruction without creation.

Instead of patching the holes in his schemes—of which there are many—Sunak fantasises about pulling the plug. The result has been to worsen the health crisis, prolong the pandemic, and increase the scale and cost of required interventions. Millions of self-employed people have never been eligible for the furlough scheme. Statutory sick pay, inadequate for those who receive it, still does not cover millions of workers. And now the government appears determined—at least until the point of U-turn—to reverse the £20-per-week increase in Universal Credit.

If a person cannot support their family while social distancing, they will leave their house to work and generate income. Every hole in the safety net increases viral transmission, extends the lockdown, and raises the associated costs for the Treasury. Refusing to provide the support needed while the virus is brought under control is a false economy.

Instead of his repeated premature attempts to remove support, Sunak should have introduced unconditional cash payments at the start. He could have spent the next year adjusting support systems to be more effectively targeted. Instead, we still have an emergency system that was put in place last March, with all its gaps and inefficiencies unaddressed.

As the vaccine is rolled out and the infection rate drops, the focus will inevitably shift to the public finances, and the supposed need for cuts to bring the deficit under control. This time, the appetite for austerity—even within the Conservative Party—is substantially lower. Many of the of the new Tory MPs in Northern ex-Labour seats are opposed to renewed cuts. Nonetheless, while Sunak remains in Number 11, the austerians have a foothold. Progressives should prepare for the coming push to impose austerity 2.0.