More long-term thinking is needed to protect the UK economy

What a difference a matter of weeks makes – in that little time England has gone from eat out to help out to the brink of national lockdown.

After a summer of positive news for the economy as lockdown measures were relaxed and optimism started to return, the autumn is looking set for a painful reprise of the events of earlier this year.

Everything had appeared to going well for Britain’s economic recovery from Covid-19. The worst forecasts for the economy have not been realised, helped by unprecedented levels of government support. Retail sales have risen above pre-pandemic levels, and Britain is set to jump from rockbottom in the G7 growth league table to the top in the third quarter.

This, however, is symptomatic of the dilemma the government currently faces. Good news for the economy is most likely bad news for containing the virus. People leaving their homes for work, school, socialising and spending are sadly the perfect vectors for spreading Covid-19.

Johnson and his ministers are in a situation few would envy, affording the prime minister more leeway than might be usual among voters. But he appears increasingly to be playing a bad hand with unnatural ineptitude – wheeling from one u-turn to the next with increasing speed and frequency.

The past two months of his government’s stewardship of the economy are the latest example: first it pumped more than £500m of public money into encouraging socialising in pubs and restaurants through eat out to help out, now there’s the threat of a stiff fine for mingling.

These rapid gear changes are becoming riskier the longer the coronavirus pandemic continues. It is increasingly clear that Britain is in for the long-haul, and even if a vaccine were to become widely available tomorrow, changes in how we live and work have been set in train that won’t be reversed.

Rather than rapid short-term gear changes, more long-term thinking is required to support Britain’s economy.

Here, the government has an opportunity, as the chancellor, Rishi Sunak, draws up his comprehensive spending review and prepares for the autumn budget – two landmark events for setting out a longer-term vision.

First on his list for better long-term planning must be halting a move to scale back support for businesses and workers. Sunak has been clear that the Treasury’s furlough wage subsidy scheme will end at the end of October, despite repeated warnings from businesses, the Labour party and unions about a tsunami of job losses.

With the coming second wave putting renewed pressure on firms – placing more jobs at risk as unemployment climbs - a wholesale change in tack or a substantial replacement for the furlough scheme is desperately needed.

His second priority must be to put in place measures to embed the country’s transition to the economy of the future.

Here there are two issues in particular that should be at the heart of the government’s agenda: ensuring a green recovery, and reducing the entrenched inequalities that Covid has so badly exposed.

The government has talked-up both of these elements as key to its plans. But, in the same breath, the chancellor has warned his spending round and budget will require “tough choices” – code for higher taxes or cuts in spending. He would be best advised to avoid such a shift.

The worst mistake made in response to the 2008 financial crisis was for Britain and other advanced economies around the world to follow the neoliberal playbook. The policy of “expansionary austerity” delivered the worst decade for growth in two centuries, as an ideologically driven programme of cuts in the name of reducing the deficit allowed long-standing inequalities to fester and ripped apart the fabric of the welfare state that had helped to paper over the cracks.

Importantly, global institutions that backed such policies have changed their tune in recent years, including the International Monetary Fund and the Organisation for Economic Co-operation and Development – both now are far more supportive of fiscal intervention and long-term thinking than they were in 2008.

Last week, in a move underscoring the shift in direction and the change in thinking the government must adopt, the OECD secretary general, Angel Gurría, called for countries to go further in greening the stimulus packages they have announced to tackle the impact of Covid-19. Doing so could drive sustainable, inclusive, resilient economic growth and improve well-being, he said.

“Green recovery measures are a win-win option as they can improve environmental outcomes while boosting economic activity and enhancing well-being for all,” he said.

The problem for Johnson’s government is that Tory ideology for the past four decades has been fundamentally opposed to these needs. It tends to prefer free-market solutions, which are ill-suited to the Covid crisis and the global economy that will emerge as the pandemic recedes.

In a new report, Dr James Nixon of the consultancy Oxford Economics, warns that if governments around the world return to the neoconservative growth agenda of the last four decades – deregulation, privatisation, and austerity – that the post-pandemic recovery will come at the expense of existing environmental protections, leaving the world unable to cope with global heating.

Rather than a decade of fiscal consolidation to “pay for the pandemic”, which would sap investment required to fund a green transformation, he argues for quantitative easing from central banks to be directed to purchasing green bonds, implicitly helping to finance the energy transition.

The next change in direction for Johnson’s government could therefore be his toughest yet: u-turning on four decades of his party’s priorities to meet the priorities of post-pandemic Britain. Rather than rolling back the state, the time now is for longer-term support.