Don’t let pandemic losers slide further in a K-shaped recovery


It’s time we talked about “K”. Britain, it’s now commonly agreed, will be climbing out of our economic nadir in the months ahead even if the rate of recovery is unclear – but what worries thoughtful economists, notably but not only the new US treasury secretary Janet Yellen, is its Covid-dominated K character.

Essentially winners from the pandemic – the better-off, hi-tech companies, leading brands, the healthy, those whose work held up over lockdown and live in prosperous neighbourhoods – are going to do even better, moving up the upward-sloping part of the K.

At the same time others – the disadvantaged, small- and medium-sized companies, the digitally challenged, those working in stricken sectors such as hospitality and who live in less well-off neighbourhoods, the young – are going to have it tough, sliding down the downward slope of the K. To put it at its most graphic, some will be partying while simultaneously the numbers sleeping rough and using food banks will reach epidemic proportions. On some estimates destitution is set to double.

Yellen worries this threatened K recovery would be superimposed on an already vicious K economy and society, and is the chief reason for both the size and character of the US’s $1.9tn stimulus package – trying to transform the country’s K recovery into a more normal one by injecting greater resilience and income security to those on the lower slope of the K, and as a building block thereafter for less K generally. The EU’s ambitious recovery plan is also aimed at mitigating the K. In Wednesday’s budget the British government, instead of its politicised preoccupation with creating dividing lines over tax and fiscal responsibility four years from a general election – trying to catch the Labour party out over proposed corporation tax increases – should be doing the same.

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For as matters stand Covid and Brexit together will turn Britain into even more of a K economy and society – reducing the size of our economy by as much 8% in the medium term while deepening stark inequalities. No chancellor wants anything other than sustainable public finances, but they result from a healthy, resilient economy and society. Build that, and sound public finance will follow, aided and abetted by a well-designed broad tax base. We are far from that now.

Far too many conservatives are neuralgic about public debt and not about the condition of the society in which we live. Public activism to create public goods – great training, less child poverty, more innovation, liveable affordable housing – is to be avoided as far as possible; instead the instinct is to use tax breaks to incentivise the private sector to achieve public ends, one of the reasons the UK tax code is among the most riddled with loopholes in the world – and most abused.

So the schemes supporting work and society during the pandemic – from furlough to the £20 a week increase in universal credit – must be extended. The question is what follows. It should be to reduce, if not end, the K. At least another £100bn should be earmarked for major investment in “building back bolder” – in turning round disadvantaged children’s early years where the paybacks are remarkable, for a proper system of lifelong learning, for Rooseveltian job creation programmes, for massive housebuilding focused on Covid blackspots, for supporting innovation modelled on how vaccine production has been magicked into being, for vouchers to be spent in ailing high streets.

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Tax increases should be introduced only as recovery takes hold and as part of a root and branch reform of our addled tax system. Welfare must be designed to end the scandals of malnutrition, systemic overcrowding and disease. Determined government can make a difference. In the quest to end the K, Britain should not be the west’s odd one out.



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