I strongly commend the boldness of the £350bn UK budget package last week as well as the further measures by the Treasury and Bank of England to shore up companies and the economy against the effects of coronavirus.
However, I believe the authorities should go further by considering direct cash injections into citizens’ pockets and bank accounts through a form of ‘helicopter money’, geared to the self-employed sections of the economy.
I have had misgivings about helicopter money in the past, but I am convinced that it now needs to be considered. One of the reasons for this is because of the rise of the self-employed and the ‘gig economy’. Self-employed people make up 15% of the labour force. I appreciate the measures on statutory sick pay, but I question whether they really are going to be enough. We do not want people to have to choose between continuing to work when they are sick or staying at home with no money; we do not want sick people to be forced to work.
Moreover, I am not convinced that universal credit or the employment support allowance will be wholly effective. We need to find a mechanism – although I appreciate that that is extremely difficult – to get money to those people who do not have any savings in reserve. Helicopter money, which could be by sending cheques to citizens, would be one way forward.
The world economy resembles a slow-motion apocalypse. We face simultaneously both a supply and a demand shock. This was originally a health crisis, but the measures that governments worldwide are forced to take to combat it add to the economic problems and to the crisis. We will get through this, but there could be long-term damage to the world economy. In the last quarter of last year, the world economy was already teetering on the verge of recession; figures for Germany, Italy, Japan, China and the UK indicate that.
A longer-term consequence might be a degree of de-globalisation, which I would regret. There are products that might have been launched that may never be. As a result of the measures yesterday, there will be loans to be repaid, which will be a big burden on the corporate sector, which in many countries in the world was already highly leveraged.
The world is not necessarily going to go back to exactly where it was before. People talk about a V-shaped recovery but it could be a U-shaped one or indeed L-shaped. People’s behaviour is going to change from what it was before. It may be that younger people will go back to how they behaved before but older people will behave differently.
The chancellor was quite right to take advantage of low interest rates to invest in infrastructure, and for the package generally. The UK can now borrow for 30 years at less than 1%, so in real terms lenders are actually paying the borrowers for the privilege of lending. Of course, people are sometimes inclined to argue that that is not without risk – for example, if we move into a period of deflation.
Since the Budget, markets have collapsed further, confidence has fallen further and businesses have begun to realise that the isolation of customers has huge consequences for them. The combined efforts of the Federal Reserve, European Central Bank and Bank of England have had little effect.
This is not surprising. A rate cut cannot stop the spread of a virus. This is not the sort of crisis that monetary policy can do a huge amount to ameliorate; it requires a fiscal response.
It was therefore right that the chancellor deployed his big bazooka with £350bn-worth of guarantees, a business rates holiday and the business interruption scheme. Confidence is not going to return quickly – it probably will not return until progress is made in combating the virus – but the measures will be a bridge to that confidence.
Lord (Norman) Lamont, a member of the UK House of Lords, was UK Chancellor of the Exchequer in 1990-93. He is a member of the OMFIF Advisory Council.