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  • Andrew O'Brien

The Chancellor must not talk us into a slow painful recovery

There is a general consensus that during this crisis, Rishi Sunak has been one of the best performing members of the Cabinet. His confident handling of the early stages of the economic response and the bold commitment he made to do “whatever it takes” reassured both the public and markets.


As the crisis has dragged on, however, the Chancellor’s tone has changed from talking more about how he can’t save every business to his latest statement that it is “not obvious” immediate economic bounce back from Coronavirus. The Chancellor must be careful that the pessimism of Treasury orthodoxy doesn’t doom us to a slow, painful recovery as we saw after the last Recession.

"The Chancellor must be careful that the pessimism of Treasury orthodoxy doesn’t doom us to a slow, painful recovery as we saw after the last Recession."

You do not need to have read Keynes to know that a lot of economic activity is based on confidence. People spend because they are confident that they will have an income. Businesses invest because they are confident that demand will grow. Unfortunately, this clashes with politicians’ desire for ‘expectations management’. It is tempting to tell the public that there will be a lot of pain or at least prepare for that, in the hope that if things turn out better you can justify your decision as being better than the alternative.

We can see after 2010 how the constant rhetoric of “austerity” became a self-fulling prophecy. We were told the economy was fragile. So, businesses cut back on investment. People were wary of spending. The animal spirits were tamed. This actually created the conditions that made reducing the deficit harder to achieve as growth was lower. Some would argue that the Conservatives “won” the political debate because of this rhetoric, look at the 2015 Election. But let’s not forget that a public fed up with “austerity” nearly brought about a Corbyn Government in 2017. The surest way to win an election is a booming economy.


Nearly every study of economic history will tell you that what is key to reducing debt and deficits is not belt-tightening, but growth. The more you dampen growth, the harder it is to pay down debt. So, we must gear our crisis response and recovery response to achieving a fast, dynamic recovery to this crisis. Settling for a slow, painful recovery as we saw after 2010 should not be entertained under any circumstances.


Some would question whether government’s have the ability to choose between what sort of recovery we get. Of course, a lot will be down to individual businesses and consumers. But historically decisions about spending, reforms to the economy and how the government chooses to invest have a big impact on the economy. Just look at the last recession, where one respected economist calculated that austerity reduced the size of our economy by over 15% by the end of the decade. We must not make the mistake of assuming fiscal prudence means reading directly from the 2010 playbook.

"Most importantly, we need to treat a major economic shock for what it is, a major economic shock. Tinkering at the edges won’t help you rebuild in that scenario."

Most importantly, we need to treat a major economic shock for what it is, a major economic shock. Tinkering at the edges won’t help you rebuild in that scenario. Despite seeing the biggest financial crash since the Great Depression, the UK chose few, if any, major reforms to our economy. We spent the vital early years of our response splashing tens of billions on businesses tax cuts to boost demand and investment, achieving neither.

"The Chancellor should look at Britain’s best preforming businesses to how we can improve our economic performance. The key pillars would include major tax reform to encourage investment and a green transition; investing in social and cultural infrastructure to improve our skills base and reforming company law itself, to make businesses think longer term and show greater social responsibility."

The last recession shone an unforgiving light on what we already knew – that British business is stuck in a low investment, low productivity, low pay cycle. It wasn’t until years after the crisis that we started to consider reforms. These have been far too timid. The Chancellor should look at Britain’s best preforming businesses to how we can improve our economic performance. The key pillars would include major tax reform to encourage investment and a green transition; investing in social and cultural infrastructure to improve our skills base and reforming company law itself, to make businesses think longer term and show greater social responsibility. Business as usual will just see us repeat the sclerotic recovery we just experienced.


If government can strike the right tone, tough but confident, alongside using this crisis to instigate a programme of economic renewal, then we can have a fast recovery from Coronavirus. More than that, we can build the kind of dynamic, One Nation economy that this government was elected to deliver.

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