The Economist 14Mar2020

44 Britain The EconomistMarch 14th 2020

2 treatment were seen within four hours,

against a target of 95%. A report last year es-

timated that there were some 100,000 va-

cancies across the health service. Staff

shortages could quickly be exacerbated by

covid-19. If schools are closed, lots of work-

ers will have to stay at home to look after

children. The government is preparing

emergency legislation to protect the em-

ployment of those who volunteer to help

out. Recently retired medics may be

brought back and trainees brought in. The

majority of covid-19 patients will be asked

to recover at home.

Two areas are of particular concern. Ali-

son Pittard, dean of the Faculty of Intensive

Care Medicine, notes that Britain has his-

torically spent relatively little on intensive

care. It has fewer beds than other countries

in Europe, with just 4,048 in England, of

which three-quarters are already full. The

nhshopes vastly to increase capacity. But

doing so will require looser rules on staff

numbers and lots of new equipment,

which there is limited time to buy. “You

can’t share a monitor, you can’t share an

oxygen pipe,” says Dr Pittard. The other

worry among health wonks is social care,

which is already running on empty. If lots

of carers are unable to work, it will be even

more difficult to get people out of hospital.

If conditions deteriorate in care homes,

there could be more hospitalisations.

Officials hope the health service will be

able smoothly to reallocate resources. Most

people are not aware of the “degree to

which hospital capacity can be flexed

pretty significantly,” says Chris Hopson,

chief executive of nhsProviders, a mem-

bership group. Lots of hospital traffic is ei-

ther elective surgery, which can be delayed,

or people who have had surgery and can be

discharged rapidly if necessary, he adds. So

far, nhsEngland has not said when or if it

will consider such moves, although it has

put in place measures to reduce workload.

Health-care leaders have also asked the

government to consider whether they

might adopt more radical measures, like

not allowing those blocking beds a choice

of care home, to free up space in a worst-

case scenario.

Speaking on March 5th, Dr Whitty, the

chief medical officer, said that “depending

on how high the peak is, this could be any-

thing from a rather bad winter but in spring

and summer...to huge numbers way over-

topping the ability of the nhsrealistically

to put everyone in beds.” Vigorous tracing

of those who potentially contracted the vi-

rus in its early stages was put in place partly

to push the peak back to a time when the

nhsis not under typical winter pressure.

The weeks and months ahead will push an

already stretched health service to its lim-

its. Officials will be praying that their prep-

arations are enough to ensure it is not

pushed beyond them. 7

O

n march 11 thpolicymakers took deci-

sive action to inoculate the economy

from the effects of covid-19. The Bank of

England eased monetary policy. And Rishi

Sunak, the chancellor, unveiled the largest

sustained fiscal loosening since the early

1990s. He announced a £30bn ($39bn), or

1.3% of gdp, giveaway for the coming year,

made up of £12bn of immediate virus-relat-

ed spending and £18bn of other measures.

Fiscal prudence would appear to have been

an early casualty of this government—and

of the virus.

In his budget speech Mr Sunak noted

that one in five workers may be simulta-

neously absent in the coming weeks, creat-

ing a concurrent shock to both supply and

demand. He argued that, because the hit to

supply was likely to be transitory, the best

response was a “temporary, targeted and

timely” boost to support demand in the

short run and try to stop hard-hit firms go-

ing out of business. The mutation of co-

vid-19 from a Chinese crisis into a global

one came too recently for it to be reflected

in the forecasts of the Office of Budget Re-

sponsibility, the fiscal watchdog. So policy-

makers are, to a greater extent than usual,

flying blind.

The bank reduced base rates by 50 basis

points back to the post-crisis low of 0.25%,

a bigger cut than investors had expected. It

also introduced a new facility to give banks

access to cheap liquidity to sustain lending

for small- and medium-sized businesses

and it cut capital requirements. City econo-

mists were quick to note that, although in-

terest rates cannot be reduced much fur-

ther, the bank could still choose to restart

its programme of quantitative easing

should the outlook darken.

The real action came on the fiscal side.

Mr Sunak outlined a three-pronged strat-

egy to cushion the blow from the virus on

the public services, on households and on

businesses. For the first he essentially

wrote a short-term blank cheque, pledging

to give the nhs whatever financial re-

sources it required. Some £5bn has been set

aside as an emergency-response fund.

Support for households will take the form

of early entitlement to sick pay for those re-

quired to isolate themselves and easier ac-

cess to welfare payments for the self-em-

ployed and those working in the gig

economy.

The support for businesses, especially

smaller ones, was the most substantial ele-

ment. The main goal was to ease potential

cashflow problems. Firms with fewer than

250 employees will have any statutory sick

pay picked up by the government. The

“time to pay” scheme, which lets firms re-

structure tax payments, will be extended.

Business rates, a property tax, will be cut to

zero for the coming year for most small

firms in industries such as retailing, hospi-

tality and leisure. Some 700,000 especially

tiny firms eligible for small-business-rate

relief will receive a one-off payment of

£3,000 to help them manage.

The reaction from the main business

lobbies was positive. The British Chambers

of Commerce welcomed the chancellor’s

efforts to help firms manage their cash-

flow. Ian Stewart, chief economist of De-

loitte, a professional-services firm, hailed

the Treasury’s and the bank’s actions as “a

forceful and convincing response to the

crisis”. According to one corporate restruc-

turing specialist, easier credit conditions

and a delayed schedule of tax payments

should help to prevent “thousands of in-

solvencies over the next few months. There

are firms that would have gone to the wall

that now won’t.”

Whether these measures will prove suf-

ficient will depend as much on epidemiol-

ogy as on economics. The ultimate impact

of the virus is still impossible to quantify.

But the emergency measures masked a

wider shift in the government’s fiscal strat-

egy. Even excluding any covid-19 related

economic slowdown, as well as the £12bn

response package announced so far, the

government is set to borrow significantly

more in the next five years than it had pre-

viously planned (see chart). The deficits

planned in 2019 for the years from 2021 to

2024 have all been revised up by more than

1% of gdp.

For the past decade British fiscal policy

has aimed at reducing the ratio of public

debt to gdpover the medium term. This

target has been quietly dumped in favour of

stabilising the debt ratios. Such a long-

term shift in policy may ultimately matter

more than any emergency medicine. 7

A shock-and-awe response to covid-19

disguises a wider shift in fiscal policy

The Budget

Economic

medicine

Down, but then up

Source:Officefor

BudgetResponsibility

*Excludesmeasures

forcovid-19

Britain, public-sector net borrowing*, % of GDP

0

2

4

6

8

10

12

2009 11 13 15 17 19 21 24

March 2019 Restated

March 2020

Post-measures

FORECAST