Whatever It Takes

By Ross Alexander Hutton

Situated deep in the heart of Whitehall, on Horse Guards Road, is Britain’s most cautious and meticulous institution: HM Treasury. Steeped in decades of intellectual excellence and robust economic debate, the ‘inner sanctum’ of the Treasury is occupied by the ‘high priests’ of the economy who rarely divulge their scrupulously devised policy proposals. With a rich history teeming with examples of ‘holding its cards close to its chest’, the Treasury has appropriately earned the epithet of the ‘keeper of secrets’. Perhaps, above all else, the steward of the public purse has been characterised by its long-held hostilities toward public spending – an idiosyncrasy silenced by the upheaval of economic crises.

In a speech dubbed as a ‘summer economic statement’ but transpired to be more like a budget on steroids, the Chancellor broke with the traditional wisdom of tight fiscal spending as he announced the second instalment of the Treasury’s intervention into the coronavirus-ridden economy. The deviation from the Chancellor’s (big-C) Conservative nature and the Treasury’s default fiscal position, is evident in Rishi Sunak’s own words: “this is not a time for ideology”. Notably, this new-found philosophy failed to restrain his belief in the union as he praised the might of the UK Treasury – planting the seed for the government’s rebuke of nationalism on these shores. Nevertheless, with this spirit in mind, Sunak took advantage of every opportunity to impart his intention to do “all we can” in the fight to prevent mass unemployment as a means to project confidence into the economy and lay the ground work for the prized V-shaped recovery.

Unsurprisingly, the far-reaching Jobs Retention scheme was the first aspect of the Treasury’s intervention to be addressed in the statement. Having acknowledged the dependency of millions on the scheme to keep their livelihoods afloat during the height of this crisis and the fiscal realities of maintaining the programme, the Chancellor confirmed his intention to phase-out the states’ temporary payment of private sector wages. To plaster over the unemployment gaps created in the absence of the furlough scheme, a Job Retention Bonus of £1,000 per furloughed employee kept on the books through to January was announced. Interestingly, Rishi Sunak opted for a ‘one-size-fits-all’ approach by allowing companies which were always going to bring (or have already brought) their workers back, access to the bonus as opposed to a sectorial approach with a more attractive bonus – creating the possibility for deadweight loss. Although the Treasury’s well-founded aim is to minimise redundancies post-furlough, there will no doubt be a profound sense of anxiety permeating the grandeurs of 1 Horse Guards Road. The question facing the businesses of furloughed workers is whether the bonus will be enough of an incentive to continue to employ their staff whilst paying some of their wages until October – only time will tell.

From the dispatch box, the Chancellor set out an unparalleled three-point plan, worth up to £30 billion, to address the severe employment issues facing multiple sectors of the economy. The first pillar of the Treasury’s strategy is devoted to supporting people to find jobs. Specifically aimed at under 25-year-olds merely beginning their working lives, the £2 billion Kickstart Scheme pays their wages for 6 months in order to protect them from the long-term ills yielded by unemployment. Despite possessing similarities to the Future Jobs Fund introduced during the Great Recession, which did not live up to expectations, there is hope on both sides of the dispatch box that British business will seize the incentives laid out by the Chancellor, preventing a whole generation of young workers from ever reaching the dole.

It was only a week before Sunak’s Summer Statement that the Prime Minister, in a speech in the Midlands, promised a ‘Rooseveltian-style new deal’ which (in reality) paled in comparison to the acclaimed American stimulus of the 1930s. The reheated rhetoric and hollow hyperbole dominating Boris Johnson’s attempt to re-focus his government’s purpose left most of the detail for his neighbour in number 11 to draft – and draft he did. A £3 billion ‘green recovery’ aimed at creating jobs was introduced in which households can apply for vouchers to improve their homes energy efficiency. Compared with Germany’s £36 billion investment in building back greener, the Treasury’s proposals – keeping somewhat true to its stringent nature – are far from the ‘green sunlit uplands’ picture painted by the Prime Minister.

Of all the stimulus measures introduced, the effective subsidisation of restaurant bills by a Conservative Chancellor may well be the most eye-brow raising. In a bid to protect some of the hardest hit jobs in the hospitality sector, the government has committed to discounting our bills when we ‘Eat out to Help out’ by up to £10 per person, alongside a 15% reduction in VAT for hospitality & tourism. Evidently, the Treasury holds serious concerns about the post-lockdown viability of the hospitality sector given the double blow of significant financial strain and diminished demand. Therefore, as tempting as it is to succumb to the ‘Rishi-Dishi’ jokes of the tabloids, it is crucial to fathom the rationale behind the consumer incentives. The Chancellor had no option but to find inventive ways to reverse the broad distrust and acute lack of confidence in the government’s handling of the health crisis, demonstrated by a majority of Britons feeling uncomfortable at the prospect of eating at a restaurant in an Office for National Statistics survey. The cards are also stacked against the Treasury by the ‘animal spirits’ of the economy hampering the recovery through too much saving and thus, not enough spending. By bribing rather than banning consumers to support the hospitality sector, the Treasury will be hoping the cards dealt to consumers are the winning ones in the continuously shuffling deck of this economic crisis.

Buried within the impetus of the Chancellor’s speech was the admission that he fully expects to return to the Commons in the autumn to unveil further measures in the mission to prevent the levels of unemployment seen during the Great Depression. The source of the Treasury’s rationale, to hold back some tools for the coming months rather than utilising all the ‘bells and whistles’, is the raison d’être of ensuring ‘no one is left without hope’. With the ‘ball now in the court’ of consumers and businesses, the cautious Treasury awaits to judge the effectiveness of the Summer measures before intervening again to re-build the economy. Of course, the billion-pound question (pun intended) of how the government intends to address the public finances looms large over Horse Guards Road.

Regardless of the herculean tactics deployed to navigate a recovery from the current economic crisis, there still remains an unprecedented variable completely out of the Treasury’s control: the virus. Epidemiologists will be quick to remind the Chancellor that the virus has not surrendered – in fact, if given the right conditions this summer, will take hold of the nation once again. Given that the UK’s eye-watering budget deficit has already taken a beating, the threat of a second wave reversing all the progress made in suppressing the virus, must send shivers down the spines of Treasury economists. Hence, Britain is in an incredibly fragile position: the rebirth of the economy depends upon conditional lockdown easings which are wholly reliant on the prevalence of the virus. The ‘Whatever It Takes’ approach is set for an arduous test as Britain lives through an economic recovery based on a multitude of ‘ifs’ and prerequisites.

Image Source: The Independent

The views expressed in this article are the author’s own, and may not reflect the opinions of the St Andrews Economist.

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