Ryan Bourne: Sunak should not and cannot try today to restore pre-virus Britain. It’s gone – and we must now adapt.

7 Jul

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

Rishi Sunak earned plaudits for his dealing with the immediate economic fallout from Covid-19. Yet today’s summer statement presents a thornier challenge than playing Emergency Santa, dishing out funds to keep businesses alive. For today requires taking steps to further facilitate the “normalisation” of economic life.

Boris Johnson waded into economics last week, arguing (rather conveniently) that the Coronavirus highlighted the need for his pre-pandemic “leveling-up” agenda. Exactly how Covid-19 proves the need for, say, HS2 is unclear. But underpinning the Prime Minister’s argument was an assumption that, post-lockdowns, we can get back to focusing on pre-virus priorities – in the Government’s case, state-led economic rebalancing.

Similar “back to our future” thinking underpins business representations ahead of this statement. From calls for taxpayer-financed high stcororeet spending vouchers, to VAT cuts for hard-hit sectors, the prevailing discourse appears to be “now the virus is less of a threat, let’s incentivise returning to normal activity,” with “norma”l meaning “what happened in early March 2020.”

Perhaps it’s because I’m in the U.S. and so have been to this reopening BBQ before, but I bear bad news: while the UK can expect a relatively sharp bounce-back in things such as retail activity, “normalisation” will not and should not mean a return to the economy of March 2020.

Before a vaccine, consumers will go where they feel safe, businesses from restaurants to cinemas will be supply constrained by social distancing, and certain behaviors (from the demand shift from restaurants to supermarkets, to the supply shift to working from home) will partially remain. That will bring major reallocation costs: businesses will close and lay off workers, while other sectors grow.

It was understandable that the Chancellor, not knowing which businesses would be viable after lockdown, set up a furlough scheme to avoid companies and jobs perishing. This helped protect important “job-matching capital” and “firm-specific capital” – i.e. people doing jobs they are good at and firms as important bundles of productive relationships. But one risk was always that businesses would interpret support not as mere lockdown relief, but a commitment to ensure their survival through the whole pandemic.

Some aspects of the campaign for arts subsidies, rumblings by MPs for ongoing aerospace supply-chain support, and the Resolution Foundation’s gimmicky “high street vouchers” idea suggest that some now do believe the Government should support sectors, even after full re-openings, precisely because consumers would otherwise continue to reject them, preferring not to fly as much, attend as many in-person events, or go to fewer restaurants or stores.

This is a very different policy proposition. Attempting to keep the March 2020 economy preserved as some eternal truth would mean workers and funds not being where businesses and consumers actually value them given today’s circumstances, bringing large economic costs beyond the fiscal.

For example, if more professionals now work from home semi-permanently, then tastes will shift from buying lunches within cities to local delis, online, or at supermarkets. Hence why Pret is laying off workers.

But as Julian Jessop has said, the purpose of economic policy should not be to protect Pret jobs. What normalisation should instead mean is the return to a functioning market economy where the rise and fall of businesses depends on their ability to meet our wants and needs in today’s circumstances. Sunak’s aim, in other words, should now be “market-led adaptation to the virus.”

We want businesses to figure out how to serve us in safe, cost-effective ways. The alternative – having the government tilt activity towards our early 2020 preferences – would not only encourage activity worse from a public health risk perspective, but also inevitably subsidise much that would take place anyway.

So Sunak should today reject “painting by numbers Keynesianism” that sees industry spending collapses as holes taxpayers should help fill in. He should snub VAT cuts or vouchers. If, with the virus still around, people would rather spend money on food to cook at home, Netflix subscriptions, and a hot tub for the back garden over restaurants, cinemas, and trips to the Lake District, workers and capital should flow accordingly. Economic activity serves consumers, not vice versa.

That’s not to say government cannot make this process less painful. But we need to be clear about the challenge we face: a supply-side shock we hid with relief. New realities mean workers in the wrong jobs, businesses serving customers in the wrong ways, and capital in the wrong places. Government policy should focus on removing barriers that gum up businesses, landlords, workers and entrepreneurs adjusting.

Sunak appears to get this on the worker side. He is tapering the furlough scheme gradually to give businesses breathing room, but inevitably those with newly uneconomic business models will make some permanent layoffs.

It’s crucial to try to get workers reallocated into new roles quickly to avoid the scarring effects of unemployment. Direct financial incentives for new hiring, even beyond subsidies for traineeships trailed in the papers, would encourage this. The reported plans for expansions of jobcentre capabilities are important too to try to speed up the matching process of unemployed workers to new roles, as would re-training efforts be. Some U.S. states are rolling back licensing restrictions on people shifting to different jobs too. With child-care difficult to come by, now would be a good time to review the UK’s oppressive childcare regulations, for example.

Yet the Conservatives should do more to facilitate the adaptation of businesses as well. Repurposing premises to earn consumers’ confidence often requires upfront investments that the Chancellor should write-off entirely for the basis of tax, through full expensing of investment. The planning law reforms should have an eye to business activities too – if more out-of-town activity is demanded, let it bloom.

The case for allowing existing businesses and property owners more flexibility – on how they operate, opening hours, what premises can be used for etc– is overwhelming as well. With apologies to my Editor, when we are seriously discussing throwing billions at retailers such as John Lewis or Topshop through vouchers, it seems daft to consider it beyond the pale that such retailers open beyond 6pm on a Sunday. Give freedom to businesses to adjust to what customers want: what barriers exist to entrepreneurs developing drive-through cinemas, for example? These are the sorts of supply-side questions that should animate government.

As always with fiscal events, any financial support to industries will be heralded as ‘good news’  and absence of it denounced as throwing sectors to the wolves. But it’s time for Sunak to be bold and honest: his task is not to “normalise” activity by resuscitating the composition of the March 2020 economy, but to “normalise” the market-led economy that makes us rich by meeting our demands.

Ryan Bourne: Sunak should not and cannot try today to restore pre-virus Britain. It’s gone – and we must now adapt.

7 Jul

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

Rishi Sunak earned plaudits for his dealing with the immediate economic fallout from Covid-19. Yet today’s summer statement presents a thornier challenge than playing Emergency Santa, dishing out funds to keep businesses alive. For today requires taking steps to further facilitate the “normalisation” of economic life.

Boris Johnson waded into economics last week, arguing (rather conveniently) that the Coronavirus highlighted the need for his pre-pandemic “leveling-up” agenda. Exactly how Covid-19 proves the need for, say, HS2 is unclear. But underpinning the Prime Minister’s argument was an assumption that, post-lockdowns, we can get back to focusing on pre-virus priorities – in the Government’s case, state-led economic rebalancing.

Similar “back to our future” thinking underpins business representations ahead of this statement. From calls for taxpayer-financed high street spending vouchers, to VAT cuts for hard-hit sectors, the prevailing discourse appears to be “now the virus is less of a threat, let’s incentivise returning to normal activity,” with “normal” meaning “what happened in early March 2020.”

Perhaps it’s because I’m in the U.S. and so have been to this reopening BBQ before, but I bear bad news: while the UK can expect a relatively sharp bounce-back in things such as retail activity, “normalisation” will not and should not mean a return to the economy of March 2020.

Before a vaccine, consumers will go where they feel safe, businesses from restaurants to cinemas will be supply constrained by social distancing, and certain behaviors (from the demand shift from restaurants to supermarkets, to the supply shift to working from home) will partially remain. That will bring major reallocation costs: businesses will close and lay off workers, while other sectors grow.

It was understandable that the Chancellor, not knowing which businesses would be viable after lockdown, set up a furlough scheme to avoid companies and jobs perishing. This helped protect important “job-matching capital” and “firm-specific capital” – i.e. people doing jobs they are good at and firms as important bundles of productive relationships. But one risk was always that businesses would interpret support not as mere lockdown relief, but a commitment to ensure their survival through the whole pandemic.

Some aspects of the campaign for arts subsidies, rumblings by MPs for ongoing aerospace supply-chain support, and the Resolution Foundation’s gimmicky “high street vouchers” idea suggest that some now do believe the Government should support sectors, even after full re-openings, precisely because consumers would otherwise continue to reject them, preferring not to fly as much, attend as many in-person events, or go to fewer restaurants or stores.

This is a very different policy proposition. Attempting to keep the March 2020 economy preserved as some eternal truth would mean workers and funds not being where businesses and consumers actually value them given today’s circumstances, bringing large economic costs beyond the fiscal.

For example, if more professionals now work from home semi-permanently, then tastes will shift from buying lunches within cities to local delis, online, or at supermarkets. Hence why Pret is laying off workers.

But as Julian Jessop has said, the purpose of economic policy should not be to protect Pret jobs. What normalisation should instead mean is the return to a functioning market economy where the rise and fall of businesses depends on their ability to meet our wants and needs in today’s circumstances. Sunak’s aim, in other words, should now be “market-led adaptation to the virus.”

We want businesses to figure out how to serve us in safe, cost-effective ways. The alternative – having the government tilt activity towards our early 2020 preferences – would not only encourage activity worse from a public health risk perspective, but also inevitably subsidise much that would take place anyway.

So Sunak should today reject “painting by numbers Keynesianism” that sees industry spending collapses as holes taxpayers should help fill in. He should snub VAT cuts or vouchers. If, with the virus still around, people would rather spend money on food to cook at home, Netflix subscriptions, and a hot tub for the back garden over restaurants, cinemas, and trips to the Lake District, workers and capital should flow accordingly. Economic activity serves consumers, not vice versa.

That’s not to say government cannot make this process less painful. But we need to be clear about the challenge we face: a supply-side shock we hid with relief. New realities mean workers in the wrong jobs, businesses serving customers in the wrong ways, and capital in the wrong places. Government policy should focus on removing barriers that gum up businesses, landlords, workers and entrepreneurs adjusting.

Sunak appears to get this on the worker side. He is tapering the furlough scheme gradually to give businesses breathing room, but inevitably those with newly uneconomic business models will make some permanent layoffs.

It’s crucial to try to get workers reallocated into new roles quickly to avoid the scarring effects of unemployment. Direct financial incentives for new hiring, even beyond subsidies for traineeships trailed in the papers, would encourage this. The reported plans for expansions of jobcentre capabilities are important too to try to speed up the matching process of unemployed workers to new roles, as would re-training efforts be. Some U.S. states are rolling back licensing restrictions on people shifting to different jobs too. With child-care difficult to come by, now would be a good time to review the UK’s oppressive childcare regulations, for example.

Yet the Conservatives should do more to facilitate the adaptation of businesses as well. Repurposing premises to earn consumers’ confidence often requires upfront investments that the Chancellor should write-off entirely for the basis of tax, through full expensing of investment. The planning law reforms should have an eye to business activities too – if more out-of-town activity is demanded, let it bloom.

The case for allowing existing businesses and property owners more flexibility – on how they operate, opening hours, what premises can be used for etc– is overwhelming as well. With apologies to my Editor, when we are seriously discussing throwing billions at retailers such as John Lewis or Topshop through vouchers, it seems daft to consider it beyond the pale that such retailers open beyond 6pm on a Sunday. Give freedom to businesses to adjust to what customers want: what barriers exist to entrepreneurs developing drive-through cinemas, for example? These are the sorts of supply-side questions that should animate government.

As always with fiscal events, any financial support to industries will be heralded as ‘good news’  and absence of it denounced as throwing sectors to the wolves. But it’s time for Sunak to be bold and honest: his task is not to “normalise” activity by resuscitating the composition of the March 2020 economy, but to “normalise” the market-led economy that makes us rich by meeting our demands.

Caroline Nokes: Spare a thought for women. Male ministers have forgotten we exist in their lockdown easing plans.

30 Jun

Caroline Nokes is Member of Parliament for Romsey and Southampton North. 

Covid-19 has taught us many things about the importance of physical and mental wellbeing. We discovered (if we actually needed to be told) that your chances of recovery were greatly improved by being physically fit and in the normal weight range for your height.

We found out that mental resilience was important to cope with long periods of relative isolation, and social contact carried out mainly by Zoom. We were told very firmly that an hour of exercise should be part of our daily routine, and pretty much the only way to escape the house legitimately.

But for women in particular the importance of wellbeing seems to have gone well and truly out of the window as lockdown is relaxed.

Why oh why have we seen the urge to get football back, support for golf and fishing, but a lack of recognition that individual pilates studios can operate in a safe socially-distanced way, rigorously cleaned between clients?

Barbers have been allowed to return from July 4 because guess what – men with hair need it cut. They tend not to think of a pedicure before they brave a pair of sandals, although perhaps the world would be a better place if they did. Dare I say the great gender divide is writ large through all this?

Before anyone gets excited that women enjoy football and men do pilates can we please just look at the stats? Football audiences are (according to 2016 statistics) 67 per cent male and don’t even get me started on the failure of the leading proponents of restarting football to mention the women’s game.

Pilates and yoga (yes I know they are not the same thing) have a client base that is predominantly women and in the region of 80 per cent of yoga instructors are women. These are female-led businesses, employing women, supporting the physical and mental wellbeing of women, and still they are given no clue as to when the end of lockdown will be in sight.

Could it be that the decisions are still being driven by men, for men, ignoring the voices of women round the Cabinet table, precious few of them though there are? I have hassled ministers on this subject, and they tell me they have been pressing the point that relaxation has looked more pro-men than women, but it looks like the message isn’t getting through.

I will declare an interest. Since I first adopted Grapefruit Sparkle as a suitably inoffensive nail colour for an election campaign in 2015, I have been a Shellac addict. The three weekly trip to Unique Nails is one of life’s little pleasures, an hour out, sitting with constituents, chatting, laughing, drinking tea.

It is good for the soul, a chance to recharge and chill out. And for many of the customers it is their chance to not have to bend to get their toenails trimmed, it is a boost to their mood, that can last for a full three weeks until it is time for a change.

And it is a fairly harmless change to go from Waterpark to Tartan Punk in an hour. Natural nails have done very little for my mood since a nice chap from Goldman Sachs told me: “you could go far if only you opted for a neutral nail, perhaps a nice peach.”

At school I was described as a “non-participant” in sport – I hated it, and it has taken decades to find the activities I can tolerate to keep my weight partially under control. Walking the dog is a great way, but nothing is as effective as the individual work-out rooms in a personal training studio – where it is perfectly possible for those of us who do not like to be seen in lycra to exercise in isolation and then have the place cleaned for the next victim.

I am not suggesting it is only women who do not like to exercise in vast gyms, there are men with similar phobias, but what I cannot get over is the lack of recognition that a one-to-one session in a studio is not the same as toddling off to your local treadmill factory.

The Pilates studio owners of Romsey and Southampton North are deeply frustrated at the apparent inability to draw the distinction between their carefully controlled environments and much larger facilities where, to be blunt, there is a lot of sweat in the atmosphere.

I know I get criticised for being obsessed about women – it goes hand in hand with the job description – but I cannot help but feel this relaxation has forgotten we exist. Or just assumed that women will be happy to stay home and do the childcare and home schooling, because the sectors they work in are last to be let out of lockdown, while their husbands go back to work, resume their lives and celebrate by having a pint with their mates.

(And yes I do know women drink beer too, but there is a gender pint gap, with only one in six women drinking beer each week compared to half of men.)

Crucially, women want their careers back and they want their children in school or nursery. Of course home working has been great for some, but much harder if you are also juggling childcare and impossible if your work requires you to be physically present, like in retail, hairdressing, hospitality.

These are sectors where employees are largely women, and which are now opening up while childcare providers are still struggling to open fully – with reduced numbers due to social distancing requirements. It is a massive problem, which I worry has still not been fully recognised or addressed.

Perhaps if the PM needed to sort the childcare, get his nails done and his legs waxed it might be different. But it does seem that the Health Secretary, the Chancellor, the Business Secretary and the Secretary of State for Sport and Culture, who all have a very obvious thing in common, have overlooked the need to help their female constituents get out of lockdown on a par with their male ones.

Am I going to have to turn up to work with hairy legs to persuade them that women’s wellbeing matters?