Coronavirus and the Economy
Coronavirus (Covid-19) has had major implications for the UK economy. There have been debates about a number of possible changes to economic policy when the UK enters the recovery phase. These include: possible major reforms to fiscal policy; whether the Government should facilitate the reallocation of jobs and capital away from the hardest hit sectors of the economy; what measures could be taken if the virus exacerbates inequalities in the UK; and whether the recovery is an opportunity to bring about fundamental changes in the economy and society.
On 4 June 2020, the House of Lords is due to debate a motion moved by Lord Eatwell (Labour) that “the virtual proceedings do consider (1) the economic lessons learned from the Covid-19 pandemic, and (2) the measures necessary to repair the United Kingdom economy”.
The Office for Budget Responsibility (OBR) and the Bank of England have analysed possible economic scenarios taking into account the impact of coronavirus (Covid-19). Both showed falls in the size of the economy. The Chancellor of the Exchequer, Rishi Sunak, has implemented a range of support measures and said that a key issue would be how much long-term productive capacity would be lost from the economy (“scarring”).
The Institute for Fiscal Studies (IFS) has argued that once the worst effects of the virus have passed, “tough decisions” will be needed on fiscal policy. The Institute for Government has called for longer-term reform of the UK tax system, while the Chancellor has stated that higher growth should be prioritised over the repayment of debt. Turning to monetary policy, some commentators have argued that the expansion of quantitative easing could compromise the Bank of England’s independence.
Other issues have been raised about the management of the economy as it recovers from the coronavirus. These include whether the Government should:
- facilitate the reallocation of jobs and capital away from the hardest hit sectors of the economy;
- invest further in schools, post-school education and apprenticeships, in light of perceived damage to the prospects of younger generations;
- continue to increase minimum wages;
- help to manage the debt burden on companies emerging from the pandemic;
- encourage business investment at a time when many companies are financially weakened;
- support mortgage holders and renters if household finances have suffered; and
- seek to extend the Brexit transition period.
Some commentators have also discussed whether the virus will exacerbate inequalities in the UK and, if so, what measures could be taken. This includes possible major reforms of welfare systems. Others have debated whether the recovery is an opportunity to bring about fundamental changes in the economy and society; for example, to build a more environmentally friendly economy.