To Thrive Not Survive, We Need to Spend Big, And Cut Big

Updated: Jun 24, 2020

COVID’s cost to the economy

The primary cost of the COVID-19 Crisis is of course of the cost to life. As of the time of writing the deadly virus has claimed more than 25,000 lives. Though in addition to this there is of course a fiscal cost, and though we do not yet know the final sum, we know the governments bailout package will run in excess of £350 Billion . The slump in productivity will also have disastrous consequences, and estimates now point to a 5-10% drop in the UKs GDP in the year 2020. Just as with the financial crash of 2007/8 there will be robust debate as to how we as a country repay unprecedented government expenditure, and recover lost economic ground.

The Problem with Austerity

There is much hyperbole surrounding the effects of austerity, for example the false claim that the programme overseen by George Osbourne cost 120,000 lives. The truth about austerity is far simpler, and that is: it does not work. Austerity is the epitome of the being penny wise and pound foolish in that it makes cuts which must be reversed down the line, and it’s the reversal of the initial cut which involves a higher cost than having maintained the service in the first instance. Let us look to the cutting of 20,000 police officers under the Cameron government as a teachable case study. Making redundant officers does prima facie make savings to the public purse, there are of course less officers to pay. However when we look at crime in the United Kingdom, we can observe that the ongoing fall in crime that had marked the 2000’s came to a virtual halt in 2010 when the Conservatives were elected, and that 2015,16’,17’ and 19’ all recorded crime levels higher than seen in 2010 .

Off-duty policemen protest against cuts, 2012

Now while we cannot here draw a direct causal link between a reduction in police numbers, and this rise in crime, as that would necessitate a complex multivariate analysis, it would be hard to deny any connection between police numbers and crime. Not only does crime itself have a cost, both to human life and the economy, but the eventual and I would argue inevitable spike in crime which occurs as a result of cutting police numbers, will only force the government of the day to recruit more. Of course, Boris Johnson is recruiting 20,000 more, which is of course a good thing, but the cost in so doing is both large and complex. Newer recruits will require training, this will involve hiring trainers, re-opening training centres, ramping up HR departments, procuring masses of equipment which is now made essential because of the unprecedented pace of recruitment. The list of spiralling costs is endless. It is clear that making compromises on law and order or defence, does material harm on the one hand, and on the other, fails to make credible fiscal savings. What is true for police, is true for virtually all of our vital services, each of which does not exist for its own sake, but because they are key to the continued well-ordered functioning of society.


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The Alternative

The economic recovery to come must be underpinned by stimulus spending. We must increase our borrowing, our tax burden, and yes: make cuts in some areas. The post-COVID recovery must be defined by our willingness to borrow, tax and spend in a way that is likely to generate economic and social returns. By spending huge amounts of money on targeted and key infrastructure we can put tens if not hundreds of thousands of people back to work, increase the tax take, and improve productivity in left behind areas, the latter of which will be key in arresting the rapid fall of GDP. By borrowing money to build bridges, railways and roads we will also create demand for resources that we ourselves can supply such as steel, coal, and natural gas. This will give life to secondary industries, and the workers they employ will in turn give life to a thriving service sector. After all, how can pubs, coffee shops or restaurants hope to thrive, if their customers have no jobs? This approach to industry and infrastructure must be mirrored in our determination to fully fund public services, uphold law and order, social services and so on, which will be key to preventing rises in social disorder in the way of alcoholism or drug abuse, which can rear up in an economic crisis.

However, this approach will not be cost free. Public debt will rise exponentially in the short term, and the tax burden on the richest in society will have to rise. In view of this, there must be a measured approach which also looks at cuts, and adjustments of social policy. Key to this strategy will be moving quickly to achieve a state of full employment, a quick way of doing this will be to reduce the labour pool. Currently around 98% of the 90,000 ~ workers required to pick Britain’s summer fruits come from Eastern Europe. By encouraging British workers to take this seasonal work, we could eliminate the need to pay out 90,000 packets of unemployment pay, reduce air miles, and normalise self-sufficiency.

Additionally, we must look to make temporary savings in areas which are non-essential. One to identify as the foreign aid budget. The UK aims to spend 0.7% of GDP on foreign aid, every year, which in 2016 amounted to some £13.4 Billion. As this figure is tied to GDP, growth in the economy leads to real terms increases in the Foreign Aid budget. Over the course of a parliament the budget alone could cost in excess of £70 Billion; potentially more than double the cost of the UK’s ongoing furlough scheme.This does not mean we eliminate the budget, which provides disaster aid and other essential help across the world, work which is a credit to the UK in and of itself, but it does mean that we must seriously consider cutting in areas such as this, for the foreseeable future.

Moving Forward

Austerity has been proved to be an ineffective project. For a decade of stagnant growth, insecure work, and managed decline, we have little to show for it. What had been achieved has been swiftly wiped out by the Coronavirus Crisis. We must go forward now with a spirit of optimism, unafraid to spend where wise, and bold enough to cut where prudent. We must control our labour supply in a way that maintains our status as an open and welcome nation, but is strategic and serves to deliver full employment. The cost of unemployment and the hardships it will bring, could threaten a second crisis, this time, an infliction of the social fabric of the nation.


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