In the turbulent times of the last week, to suggest that any nation’s response to COVID-19 should stray beyond quarantine and preservation of life has been to open oneself to castigation. As social media crawls with doom-laden prophesies and multi-coloured ‘Stay The Fuck Home’ banners one would be forgiven to think that this crisis is limited to the health of the world and does not represent an existential threat to the modern way of life.
The controversial truth is that the economic fallout from coronavirus is likely to kill more people and destroy more futures than the virus itself. The current crisis has us trapped in an economic quandary that we cannot simply ignore. At a time when additional resources are needed across the state sector, most notably in health services, governments need more tax revenues than ever. Yet the collapse in economic output that quarantines and lockdowns produce mean that just when an economy needs to be booming, the precise opposite is occurring. Once redundancies and bankruptcies from falling consumer demands are thrown in, politicians worldwide are grappling with how to spend far more when far less is coming in. Failure to do so could lead to extreme spikes in poverty and an unprecedented fall in the general standard of living. In such circumstances the health aspects of coronavirus are not necessarily what are keeping our politicians up at night.
Thankfully even if the general public are ignorant of this existential threat, our government is not. Worldwide the response has been remarkably uniform; immediate and overwhelming increases in spending and the role of government. In the UK £330bn, equivalent to a whopping 15% of pre-virus GDP, has been made available by Chancellor Rishi Sunak. Businesses have been promised major delays in tax burdens and wage protection for furloughed employees. The laudable object of all these reforms is to freeze our economy in time until after this crisis passes.
However, this money didn’t come from any magic tree or from thin air. Instead it spawned from massive government borrowing and quantitative easing. Ultimately then this money will have to be paid back and the cost of doing so will be huge. For perspective, after the financial crash the UK deficit peaked in 2009 at 8.5% of government spending. If the government’s splurge reaches war time levels, as many have argued it will need to do, that figure could reach 20% or even 25%. A decade of hard-fought reductions at the price of rigid austerity could be wiped out literally overnight. This is not to say that the government’s response is wrong. It is absolutely necessary to preserve the UK economy, and thus our society, as we know it. No one is to blame for this horrific crisis. Yet in the years that follow COVID-19, we will all be required to pay the price.
What the government must ensure however is that that burden is divided fairly and intelligently. Raising corporation tax will risk the fragile post-virus recovery and delay the kick-starting of the engines of growth we will need to power out of this malaise. A VAT increase, for the same reasons, ought to be off the cards. Yet the government must also resist the urge to greatly increase income tax or National Insurance contributions. To do so would not only hit working families hardest, but lay the cost of this crisis firmly on the shoulders of our generation.
Millennials have entered the workplace in some of the most adverse economic circumstances this nation has seen in the post war era. Wages are low, interest rates abysmal, and the cost of property has skyrocketed. The ability of young adults to benefit from modern capitalism is disintegrating as governments in the pocket of the pensioner lobby protect generous retirement benefits at the expense of our economic future. We must not allow the government to sanction new workers with a generational debt burden that will make traditional aspirations of home ownership and a comfortable retirement into a pipedream. Nor can they be allowed to kick the can down the road, delaying the tough measures needed to bring our finances back into balance for future governments and future generations. We will need to start paying down this deficit immediately, or we risk saddling our children with a millstone of economic misery.
The only fair solution is for the government to be as ambitious in dealing with the deficit coronavirus will create as it has been in mitigating its economic effects to date. The wealthiest demographics in our society, comfortable retirees insulated from the sub-optimal markets of the last few decades, must be made to pay their fair share, political expediency be damned. Cushy benefits like free bus passes and TV licenses should be the first to face the axe. Something like the unfairly dubbed ‘dementia tax’ should be revisited, as a levy to rapidly restore state coffers to solvency without hamstringing modern workers. For far too long the reckless spending of one generation has been the burden of the next. Let’s hope the unprecedented circumstances created by COVID-19 helps us break the cycle at a time when the gulf between old and young has never been starker.