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. 7O
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 easingshould 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. 7A shock-and-awe response to covid-19
disguises a wider shift in fiscal policyThe BudgetEconomic
medicine
Down, but then upSource:Officefor
BudgetResponsibility*Excludesmeasures
forcovid-19Britain, public-sector net borrowing*, % of GDP0246810122009 11 13 15 17 19 21 24March 2019 RestatedMarch 2020
Post-measuresFORECAST