The past few days have seen feverish debate over the merits of different proposed lockdowns.
Some are advocating a local approach. Some a regional approach. Others a national “circuit breaker”.
Alongside this is justifiable concern about the impact that a lockdown will have on the economy and the public finances.
According to various sources, the message from the UK government to local leaders has been clear “there is no money”, so you will just have to accept the rules as they are.
This has created an understandable backlash. People are being asked to choose between their health and their livelihoods. This is not sustainable.
Some politicians are concerned about the scale of borrowing that has been required to tackle Covid-19. The Office for Budget Responsibility estimates that the UK could borrow £391bn to tackle this pandemic, which sounds like a huge amount of money. And it is.
Sir Edward Leigh, a Conservative MP, summed up this point for many earlier this week in Parliament when he said that we are “going bankrupt as a nation” and we cannot afford further restrictions.
When you interrogate the figures, however, these fears are simply not grounded in evidence. Yes, the UK’s national debt is sitting at over 100% of GDP due to the financial crisis and now Covid-19. But this is nowhere near the UK’s historic peak of 250% after the Napoleonic wars or the over 200% after the Second World War.
In both instances, the UK was able to grow and pay down the debt over time. This track record has made the UK a safe haven for investors and is part of the reason why we can borrow at cheap levels – currently around half a percent.
Anyone who owns a mortgage will tell you that the key is not the total amount you have borrowed but the repayments. Fortunately for the UK, the cost of debt interest as a percentage of GDP has been falling for decades.
The government is badly misreading the current situation and its own self-interest.
After the Second World War we were spending over 5% of GDP on debt interest payments. Now we are spending close to 2%. In terms of the UK Budget, we are spending around 6% of the budget on debt interest – which is a significant sum of money, but it is hardly the levels of a country on the brink of bankruptcy.
The government has rejected extending the furlough scheme and replaced it with a less generous Job Support Scheme mostly on the grounds of cost.
Yet, even if the UK extended the furlough scheme for an entire extra year, and used the most generous criteria, it would only cost £504m in debt interest a year for the next thirty years.
A national “circuit breaker” could cost even less, potentially around £100m a year in debt interest (depending on the support package given to businesses and workers). This is the “true cost” to the Exchequer, in the short term.
Moreover, by retaining jobs, the cost of debt interest will be offset in the short term by people paying their taxes.
So, the cost of a circuit breaker is effectively the same as building three or four academy schools every year for the next thirty years.
People trust governments that get the basics right – jobs, growth and delivering good quality public services.
We’d all prefer to spend money on building schools rather than paying gilt holders, but if the choice is between significant levels of unemployment (which will cause even larger problems) and the economy crashing (which will leave less money to pay for education in the future), then the choice is a no-brainer.
The government is badly misreading the current situation and its own self-interest. The chancellor started off this crisis in the right way, saying he would do “whatever it takes”. Cue a furlough scheme, business grants and a national consensus behind the Government.
Fast forward a few months and the chancellor told Conservative Party Conference that if “we argue that there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point of us?”
Does any politician seriously believe that the public will support withholding funding to support businesses and jobs because it may reduce their party’s attractiveness of the electorate?
The chancellor also risks fundamentally misinterpreting why any government is trusted on the economy. People trust governments that get the basics right – jobs, growth and delivering good quality public services. Debt is a factor in how the public views the government, but it is not the dominant one.
Greater Manchester leaders are right to criticise the lockdown proposals which come without significant extra funding. Seeing thousands of jobs lost and business closed for lack of support is wrong.
There is still time for the government to get this right. An extension of the “flexible furlough scheme” across the country would be better than the Jobs Support Scheme for most businesses and would protect jobs.
Unlocking the £1.3bn in unspent business grants to local councils to enable them to provide cash support to important local businesses, like local social enterprises, would help to cushion the blow.
People and businesses are much more likely to get behind restrictions when they know that their jobs and livelihoods are safe.
It is up to politicians to decide what kind of restrictions are needed to tackle Covid, based on the science. But there is one thing that is clear, the UK can afford a proper lockdown.
Andrew O’Brien is Director of External Affairs at Social Enterprise UK.