As published in the Daily Mail:
Last night in his sombre address to the nation, the Prime Minister told us that he was putting the safety of the country before the economy, and was only going to marginally relax the lockdown.
His judgement on that may be right, and it accords with the public mood. But it means that many more businesses will not survive the crisis.
The Bank of England, which warns that the UK is facing the worst recession for 300 years, and the Treasury have to recognise that all the old economic paradigms are defunct.
Because this crisis will take nothing less than a once-in-a-life-time economic strategy to overcome and we have to pillage recent economic history to prevent our own Great Depression. We will have to countenance deficit funding like never before, and debt horizons never seen in peacetime to make this work.
Small and medium-sized companies make up 99.9 percent of all businesses in the UK, employ 60 per cent of all workers and account for more than half of all turnover in the UK private sector.
According to the Corporate Finance Network, almost a fifth of these small businesses are at risk of collapse. We cannot let that happen because it will rip out the beating heart of the economy.
Analysis from the Enterprise Research Group showed 61,472 businesses have already gone under between March and mid-April. No doubt the updated numbers will be even more stark.
Those that survive the crisis – and it is nimble, innovative small businesses that will eventually pull us out of it – will face severe cash-flow problems, rent arrears, mounting debts, a population of understandably nervous consumers, and a damaged global economy.
What we need is a well-thought-out, long-term economic strategy – a combination of ‘Reaganomics’ and President Roosevelt’s New Deal. Put simply – big tax cuts and a large volume of low-cost, high-impact infrastructure projects.
In the Eighties, Reaganomics transformed the US economy with a series of large tax cuts – from 70 per cent to 50 per cent to 28 per cent by 1986. President Reagan’s reforms were widely criticised for being deficit funded, but they led to great leaps forward for the US economy.
At the same time, Margaret Thatcher – the UK’s last truly transformative prime minister – also looked to income tax cuts to stimulate the economy.
In the first decade of her premiership she reduced the basic rate of income tax to 25 per cent, down from 33 per cent. The top rate was cut to 40 per cent, down from 83 per cent under the previous Labour government. Tax receipts doubled. In an earlier era, Roosevelt’s New Deal of the 1930s was equally revolutionary, spending $7billion (around $130billion – or £105billion – in today’s money) on thousands of small infrastructure projects around the country. A total of 78,000 bridges were built, there were 11,428 road projects and 7,488 school building projects.
Along with electrification of rural America, the building of canals, tunnels, sewage systems, and housing, it created the infrastructure upon which the US built its long-running economic growth.
So we should take inspiration from Roosevelt and dramatically up our game. We should invest tens of billions on infrastructure up and down the country for economic benefits in the long term.
We could finally roll out rural broadband and boost the connectivity of the nation; build inner-city trams and dual carriageways; electrify railway lines; create a network of walking and cycling paths; and carry out countless other small-scale projects that together would add up to a transformative change.
Not only will this upgrade our infrastructure and put thousands back to work, it will inspire a truly national effort to get Britain back on track to being a global trading power.
So we should be prepared to borrow significant sums and add to our national deficit to pay for it. With record low global interest rates, this is an excellent time to be borrowing for capital investment.
And our domestic economic strategy will have to be matched by a bold global trade strategy. If we are not careful the desperation of many governments, and anger at China, will lead to a new protectionism.
We need to organise ourselves to prevent this – a New World Order – whilst also enforcing a new rules-based international trading system. Everybody, China included, will have to obey international law.
That means proper openness and transparency about disease control, respect for property and trading rights, and an acceptance that to take part in a global free market you have to respect the norms of the free market.
The coronavirus crisis is of historic proportions. We need an economic strategy of historic proportions to overcome it.
If Boris Johnson gets this right, he can secure his place in history and put himself firmly in the ranks of Reagan and Roosevelt.