The new and more transmissible omicron variant threatens to be a tsunami for the NHS and the British economy. Reluctantly, the UK government passed new “plan B” COVID restrictions, requiring masks to be worn in shops and public transport, with a diktat to work from home if possible. The devolved administrations have gone further, including placing limits on indoor and outdoor gatherings.
So far, another national lockdown has not been announced. But the prime minister, Boris Johnson, has warned that further restrictions may be forthcoming some time after Christmas Day, if the number of omicron cases and hospitalisations get out of control.
Yet while the government is deliberating on whether – or when – to impose new COVID restrictions, the public appear to be one step ahead. Concerns about omicron have led to a dramatic fall in high-street footfall at the traditionally busiest time of the year. Hospitality has been especially hit, with bookings for Christmas parties and lunches cancelled and omicron probably also affecting the sector’s food supply chain. Businesses in the sector are estimated to have lost 40% to 60% of their trade in December.
In response, the chancellor of the exchequer, Rishi Sunak, has announced an emergency support package of £1 billion for business, with a focus on the leisure and hospitality sector. These businesses can apply for cash grants of up to £6,000, while there is also some assistance to cover staff sick pay.
While welcome, however, this package is unlikely to be sufficient. Many pubs and clubs could be expected to take in this sort of revenue (and more) in an evening or over a weekend – especially during the festive period. There is no furlough scheme for displaced employees in the sector or support for those on zero-hour contracts, whose hours will be reduced due to falling demand. There is also no support for the retail sector.
If omicron is as severe as some projections suggest, then a post-Christmas lockdown is very much on the cards. If that happens, more government support will need to be forthcoming. Yet it might come too late for the thousands of businesses and livelihoods that are already struggling with the impact of the new variant, so it would have been wiser for the government to do more for businesses earlier.
Misapprehensions around public debt
Sunak is reportedly keen to establish his fiscal conservative credentials and has been one of the voices around the cabinet table arguing against further COVID restrictions. But prioritising fiscal conservatism at present feels like a misunderstanding of where we are in this crisis.
The pandemic is a once in a lifetime shock that requires bold and decisive action on both health measures and on the economy. In this regard, the government is not as fiscally constrained as the mainstream media often portrays. While government borrowing is at post-war highs, UK gilt yields are very low, which means the cost of servicing any new debt (as a proportion of GDP) is negligible.
It is also important to stress that the government does not operate like a typical household. Treasury bonds or gilts are largely purchased by the Bank of England, which is owned by the government even though it acts independently, so technically the government can never really run out of money. We also saw how economies that took quick, tough action on COVID in the early stages of the pandemic performed relatively better.
Failure to act now, and decisively, on both COVID and the economy, not only threatens the long-term health but also the wealth of the nation.