THE National Audit Office estimate additional public spending directly attributable to Covid-19 up to May at £372billion. As we are now at the beginning of August in all probability the £400billion mark will have been easily surpassed.
The Office of National Statistics (ONS) say there are 27.8million households in the UK. So direct Covid-19 spending is equivalent to £13,381 per household to May. It will be well over £15k by now and rising.
These sums are staggering. To put them in context, £13k is not far off half the average employee’s take-home pay. £372billion is almost double the £194billion of income tax receipts raised by HMRC in 2019-20. It is four times the entire education budget and eight times the defence budget.
The money has been spent in four primary ways. First, £150billion in ‘support for business’. Some of this should theoretically be repaid as a proportion of it is in the form of soft loans but in reality how much will be ever repaid and where is the accountability for such large sums?
Second, £97billion has gone on additional emergency spending for health and social care. This extra money spent seems almost inversely correlated with the ease of getting even a simple GP appointment let alone more serious tests. Now the NHS waiting list is allegedly 11million with numerous negative side effects on quality of life and longevity. Doubtless vast sums will be further spent on vainly trying to bring down this lockdown-imposed figure.
Third, £55billion has been spent on furlough. While there may have been an initial justification for such a scheme, given that the Government, effectively locked down private choice, it has gone on far too long. It is impacting the pool of available labour with almost 3million remaining on the scheme 16 months after it was initiated, despite significant labour shortages in numerous industries.
As an example, 40 per cent of hospitality workers remain furloughed but the restaurant and hotels industry can’t find staff. People act rationally and I don’t blame them from doing so. What would be the incentive to find alternative work for only a modest pay rise when HMG picks up the tab?
Little wonder it is proving hugely wage inflationary. The scheme is due to end in September, and it probably will, but all the political pressure is for furlough mark II in the form of some kind of guaranteed minimum wage, which only weakens the public purse further and would be largely counter-productive.
Fourth, £65billion has been spent on ‘support for other public services and emergency response’. This has been sprayed through the public sector widely from support for education, where the lockdown effectively removed the service for many in the first place, to the lamentable Transport for London and others whose need, if we are to work in the office but three days a week, will be permanently impaired. The list is endless with very little clear tangible benefit.
Despite this extraordinary largesse, the media and opposition claim it is not enough. The reality is Britain has spent vastly more in support than almost any other significant nation on earth. Almost certainly as a result of these ‘public sector first’ policies the results have been poor. The economy has been one of the weakest in the G20 (only Spain has done worse) and the public sector outcomes wasteful and weak.
Few ask if was it necessary and effectively spent. The dirty secret of course is that this has been funded entirely by Quantitative Easing with almost all the new debt being funded directly by the Bank of England. It seems it’s a free lunch and the Treasury seem to be acting as if this can continue apace, with infrastructure spending, levelling up, vast ‘net zero’ ambition, significant public sector wage increases, doubtless a step change in NHS spending and exciting plans for some form of Social Welfare Service!
This is simply not safely sustainable. Before the pandemic this Government had taken taxation to the highest levels since 1984. The Budget cemented more tax rises and the Treasury hint darkly more are on the way. Public spending growth at 32 per cent almost perfectly matched the collapse of private sector activity in 2020 and while some private sector recovery is under way, public spending is largely embedded. The state now accounts for 54 per cent of GDP and in large parts of the country well over 60 per cent. This Conservative Government has tested centralised planning and control to the limit. Tragically it seems to rather like it.
Frankly over this pandemic the productivity of the public sector has collapsed. The Government’s own statistics suggest than public sector productivity is some 13 per cent lower than 1998.That is a national disgrace. As a comparative, over that period manufacturing productivity is up 48 per cent.
We all understand the complexities, pressures and novelty of the challenge Covid-19 poses, and while there is a range of views on the necessity and nature of lockdown, on any measure the contrast between the private sector ‘can do’ attitude and the public sector’s ‘hide behind the mask, cancel the appointment, close the museum’ stance could not be starker.
HMG urgently needs to control its spending, simplify and reduce regulation and encourage the private sector. The best thing the Government could do to restore the collapse in private activity would be to trust it to make its own decisions and to set out a clear plan for medium-term tax cuts to stimulate employment and hope. More, Government needs immediately to return all our pre-pandemic liberties. All of them. Free societies prosper; controlled, statist ones wither.