As lockdown measures ease, people return to work, and retailers open their doors once again, a big question is looming large in the background.
How are we going to pay for all this?
I am of course talking about expensive government policies such as the furlough scheme, small business rates relief grants, bounce back loans, self-employed income support payments, and the many other measures which were introduced to try and nurse the UK economy through the devastation caused by the Covid-19 pandemic, and associated lockdown.
The conventional knowledge is that public spending will have to be drastically decreased (which would harm public services), or taxes substantially increased (which would likely harm growth), in order to make a dent in the debt mountain which has piled up over the past few months.
For example, on July 11th 2020, The Observer published an article by former Treasury minister David Gauke, which was entitled ‘Tax Rises and Cuts Only Way to Pay for Covid-19’.
In it, Gauke stated that, ‘Once we are through the economic shock, the government will have to fill this gap with tax increases or spending cuts.’
Similarly, in an article published on the BBC website on July 9th 2020, which was called ‘Coronavirus: How much will it cost the UK?’ a conclusion of the article was that, ‘The deficit leaves the government with a choice: increase borrowing, raise taxes, or cut spending.’
However, the conventional wisdom is sometimes incomplete at best, and entirely wrong at worst. For example, it was once conventional wisdom that Earth, and not the Sun, was at the centre of the solar system.
In terms of the post Covid-19 recovery, inaccurate conventional wisdom has reared its head once again.