How will No.11 foot the Covid bill?
- Credit: Archant
The government has racked up a mountain of debt – understandably – dishing out lifeline funds to the nation’s businesses during the coronavirus pandemic.
But having overspent by an eye-watering £246bn in the first six months of the financial year, a rather troubling question is beginning to be whispered in Westminster: “Who will pay it back?”
The figure now stands at three times higher than the worst outcomes since equivalent records began in 1984 – around 40pc of gross domestic product.
And the Institute of Fiscal Studies is braced for the figures to get even worse, warning it could increase to 45pc by the mid-2020s.
The last time we found our economy in such dire straits was in 2008 following the financial crash.
MORE: City’s independent shops fight back with 40 new openingsThe solution then was simple yet brutal: cut spending and balance the books.
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Austerity saw around £30 billion cut in welfare spending and the results were stark.
Homelessness rose by around 60pc between 2010 and 2019 and around 600,000 children fell back into “relative poverty” according to data.
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The United Nations also weighed in on the issue, with UN special rapporteur Philip Alston saying austerity was “entrenching high levels of poverty and inflicting unnecessary misery in one of the richest countries in the world”.
He added that this could get worse with Brexit: “The United Kingdom’s impending exit from the European Union poses particular risks for people in poverty, but the government appears to be treating this as an afterthought.”
Hints are already being dropped that the government will not hold the public’s hand forever – refusing to pay for free school meals during the half-term holiday despite mounting public pressure, for example.
Chancellor Rishi Sunak has also drawn a line in the sand when it comes to continuing job-saving schemes like furlough and job support.
He has frequently said he “cannot save every job and every business”.
Indeed, Tory MP Ben Bradley has raised questions over “dependency on the state” and how far the government can go.
Rebecca White is the chief executive of Your Own Place, a community interest company which supports people in vulnerable positions move into their own accommodation and preventing homelessness.
She said that spending cuts would exacerbate the current crisis, saying: “We are heading into winter – when vulnerable people feel despondent and don’t want to engage in society.”
Cuts to the likes of infrastructure – both transport and digital – as well as welfare would make this even worse.
“A major problem is digital exclusion,” she said. “People who can’t get connectivity because of their rurality or because they can’t afford a connection.
“But it goes beyond that – they can’t pay the fare to get to the local library to get online and even then don’t have the skills to find what they’re looking for.
“On top of this, the jobs market at the moment sees a lot of people in temporary, low paid and low skilled jobs, which gives them very little security.”
The human cost of such measures has been reiterated by Ayobami Ilori, an economics lecturer at the University of East Anglia specialising in dynamic and international macroeconomics.
MORE: ‘People come in for the banter’ - Seaside high street traders reveal why shoppers love going localHe said: “There are two ways you can bring about austerity – either through tax or cutting spending. Tax cannot work – you would be cutting people off at the knees. You cannot pay for people to go on furlough and support them with benefits and then suddenly begin taxing them. The same goes for businesses which were supported with financial aid.”
He went on: “When it comes to cutting spending you have to realise that this is a form of tax. If government cut funding for the welfare state – the NHS for example – we could have people waiting for procedures, for example. As such they’re spending more on prescriptions in the long time while they wait for treatment.”
He added that what is essential is a plan. “There is no forecaster in the world who would want to predict how we will rebalance this spending – but we do need a plan for the future, the phrase ‘no news is good news’ simply does not work here. Businesses need to know what the long-term aims are so they can plan accordingly.
“We’ve got Brexit around the corner and no plans have been revealed yet.
“These things take time and money but directors don’t know where they stand – or where to expect cuts.”