ALEX BRUMMER: Britain’s Covid legacy is making it harder to fight inflation
The furor over the pandemic inquiry over whether Rishi Sunak took scientific advice when he launched ‘eat out to help out’ in the summer of 2020 is clearly crucial if it leads to the spread of disease or death.
Sunak didn’t launch the scheme just to ensure consumers had a good time after the first lockdown.
It was part of a wider strategy to ensure the UK hospitality industry recovered from Covid-19.
Amid the raunchy discussion about the chaos in Downing Street and the lack of preparedness for a pandemic, there has been very little discussion about the economic fallout.
Yet the decisions made in the spring of 2020 and two years later, when Russia invaded Ukraine, are largely responsible for the budget squeeze Jeremy Hunt has faced since taking over the Treasury. It forms much of the background to today’s Autumn Statement.
Key question: The furor over whether Rishi Sunak took scientific advice when he launched the ‘eat out to help out’ scheme is crucial if it leads to the spread of disease
Far from being callous pandemic deniers, Sunak, the Treasury and the Bank of England’s responses to Covid-19 were innovative and instrumental in preventing financial collapse and social deprivation.
Andrew Bailey of the Bank of England was among the first to warn of economic scarring.
His support program for the FTSE 100 and major companies was the only thing that kept some of the UK’s biggest companies from falling into the abyss.
Furlough, the most expensive support program, has been imitated around the world. The hospitality industry was supported by the suspension of business rates.
Costly mistakes were made, such as the attempt to design a British-developed test and trace scheme. The speed with which safety nets were set up created opportunities for fraud and cronyism.
Robert Chote, former head of the Office for Budget Responsibility, noted in the House of Commons that in wartime conditions – the fight against Covid-19 was a conflict – the government’s balance sheet is under pressure.
The impact of Covid-19 subsidies and the bailout of consumers in the energy market after Ukraine was attacked ultimately increased the national debt by £450 billion.
It was the burden of reducing this that led to the tax burden rising to 37 percent of national output, the highest level since the 1940s. Lifting this weight, even modestly, is critical to getting the output spinning.
Bailey and the Bank also have a role to play. The governor has made headlines by pointing out that it is too early to cut the bank rate from 5.25 percent.
He warns that markets are ahead of reality with inflation of 4.6 percent, more than double the target of 2 percent.
As a legacy of the great financial crisis and coronavirus, the Bank still holds £750 billion of government bonds.
Under current plans, this will be reduced by £100 billion by autumn 2024. The Bank will also tighten the credit conditions.
There are already concerns that as the money supply increasingly comes to a standstill, the Bank is exaggerating the tightness.
As crucial as it is to achieving the inflation target, the Bank must be wary of triggering a recession, costing jobs and prosperity, before the general election.
Labor laws
What will Labour’s Angela Rayner make of the High Court’s ruling that Deliveroo delivery drivers are not entitled to union representation?
At the Labor conference in Liverpool last month, the cheers for the deputy leader almost went up when she stood up for workers’ rights and pledged to end zero-hours contracts.
But for many workers, being part of the gig economy is a lifestyle choice of sorts.
The court finds that Deliveroo riders do not have an employment relationship with the food shipping company because they may work for competitors, have no formal working hours, use substitutes to deliver and sometimes not deliver at all.
According to her, this is fundamentally incompatible with an employment relationship.
Primary legislation could reverse the decision. It is difficult to imagine that legal eagle Keir Starmer will feel comfortable challenging the country’s highest court.
Warning shot
Today’s Autumn Statement seeks to follow up on Jeremy Hunt’s Mansion House speech, in which he advocated flexible investment rules for pension funds and ISAs, allowing access to more exotic investments.
How useless is it that the world’s largest investor, Blackstone, has announced that it is closing the Diversified Multi-Strategy Fund, which deals in hedge funds.
Assets in the fund have fallen by 90 percent from £1.7 billion in 2019 to just £190 million. Yes.