The Economist - USA (2020-11-28)

50 Britain The EconomistNovember 28th 2020

2

1

Office for Budget Responsibility, a fiscal

watchdog, set out three scenarios in which

the economy regains its pre-pandemic size

at the end of 2021, 2022 and 2024 respec-

tively, depending on the path of the virus

and the success of the vaccine. So severe

and strange has the shock to the economy

been that “there is no reasonable basis for

forming a view on the likelihood of any

particular outcome,” it warned.

The public finances are equally hard to

predict, with projected budget deficits in

2025-26 ranging from 1.7% to 6.1% of gdp

(see chart 2). And that is without taking

into account the possible effect of complet-

ing the transition out of the European Un-

ion in January. A “no deal” exit would wors-

en those forecasts. The range of possible

paths for the economy next year is simply

enormous.

Mr Sunak warned that fiscal consolida-

tion may eventually be necessary. He tight-

ened the spigots only slightly, but those

measures hint at rows to come. Public-sec-

tor workers, other than those in the Na-

tional Health Service and the lowest paid,

will see their pay frozen for a year—mean-

ing a real-terms cut once inflation is taken

into account. Local authorities will get less

from the government in grants, making

them more reliant on council-tax revenue,

which will be toughest for poor areas. That

risks leaving Mr Johnson vulnerable to the

charge of a return to austerity in his new,

working-class seats. A £20-a-week in-

crease in unemployment benefits put in

place during the pandemic will be re-

viewed in the new year.

Beyond that lie harder choices, which

will upset other bits of the coalition. Its

southern mps in particular are allergic to

tax rises, and are mobilising to warn Mr Su-

nak against touching taxes on profits, capi-

tal gains or pensions. David Davis, a former

Brexit secretary, has urged him to fuse the

doctrines of Reagan and Roosevelt: steep

tax cuts and big spending on infrastruc-

ture, funded by cheap borrowing.

The government can take confidence

from the fact that, despite massive borrow-

ing, which will reach a peacetime record of

19% of gdpthis year, low interest rates

mean that the cost of servicing its debt will

fall this year. Yet despite the appetite for

spending in its new seats, the Conservative

Party does not like borrowing. The party’s

foot-soldiers view the public purse like a

household’s finances, while mps worry that

the public finances are vulnerable if inter-

est rates do rise.

There are sound tactical reasons for tak-

ing this view, too. The Tories have kept the

Labour Party out of office for a decade by

maintaining that only they can control

public spending. If voters come to believe

that governments can borrow without lim-

its, Mr Sunak warns mps, there is no reason

for them not to vote Labour. Even red-wal-

lers like Mr Holden see the case for pru-

dence. “The worst thing we could possibly

do is make irresponsible promises to peo-

ple, which we can never deliver on,” he

says. Uniting a disparate coalition of old

and new Tories was possible in good times.

After covid-19, a government forced to

choose between spending, taxes and debt

will find it much harder. 7

A mountain of money

Britain, cumulative policy response to coronavirus by announcement date, 2020, £bn

Source:OBR

1

300

250

200

150

100

50

0

Mar Apr May Jun Jul Aug Sep Oct Nov

Welfarespending

Othertaxsupport

Publicservices

Loansandguarantees

Employmentsupport

Business support

Clear as mud

Britain, public-sector net borrowing , % of GDP

Source:OBR

FiscalyearsbeginningApril

2

25

20

15

10

5

0

2003 10 15 20 25

Pessimistic

scenario

Optimistic

scenario

Forecast

made in

Nov 2020

Mar 2020

Actual

FORECAST

L

ast december,councillors Bob Smyth-

erman and Martin McCabe threw a

birthday party—not for a friend, a relation

or a celebrity, but for a pothole. Cars in

Worthing, West Sussex, had been bumping

over it for a full two years, despite pleas that

it be mended. The stunt worked. The fol-

lowing day it was filled in, and a second

party—a lavish affair, with cake and can-

dles—marked its demise. But plenty of its

fellows survive. Mr Smytherman says the

town has so many craters, it’s like “walking

on the moon”.

Potholes arouse passions in Britain—

not surprisingly, since the country’s road

quality ranks 37th in the world, between

Slovenia and Lithuania. Councils received

700,000 complaints about potholes last

year, says the Federation of Small Business-

es. The weather, a topic even more popular

among the natives than potholes, is mostly

to blame. Potholes form when water seeps

under the road surface, breaking the tar-

mac as it expands and contracts. Budget

cuts in the wake of the financial crisis did

not help. The Local Government Associa-

tion (lga) says road maintenance budgets

fell from £1.1bn in 2009 to £701m in 2017—

the equivalent of 8m potholes. The Asphalt

Industry Alliance claims there is a road-re-

pair backlog of £11bn.

But there may be relief in sight for the

suspension of the British motor car. Poli-

tics is one reason. Traditional Tories—who

love cars, particularly fast ones, and tend to

live in the countryside, so rely on roads—

are particularly infuriated by them. North-

ern “red wall” seats that the Tories won

from Labour in the last election tend to be

rural places where the roads are bumpier

and the weather worse. Nottinghamshire,

home to several of those contested seats, is

Britain’s pothole capital, with 253,920 re-

ported in 2017-19. Hence the promise in the

Tory manifesto of the “biggest-ever pot-

hole-filling programme”, and a promise of

£2.5bn over five years.

Covid is also fuelling the drive against

Britain has a massive pothole problem. Help is at hand

Potholes

Revolutionary roads