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6 July 2020updated 07 Jul 2020 4:08pm

Why pub vouchers aren’t the right remedy to help the British economy

The demand shock caused by Covid-19 and its consequences won’t be fixed by boosting disposable incomes. 

By Stephen Bush

How should the government help out struggling businesses in the hospitality industry? One idea being floated by think-tanks, including TEN – The Entrepreneurs Network – and the Resolution Foundation, is that the government should give households a voucher of, say, £300 that can only be spent in pubs, restaurants and hotels, in order to encourage spending.

I understand the thinking here, but I think it wouldn’t work – and in the spirit that you should always write down your bad analyses in order to better understand them later, here’s why.

The economic problem created by the novel coronavirus is a shock to demand. Put simply, the reason why restaurants are empty is that people think that if they go to them, they will die, either from the novel coronavirus, or because a fresh outbreak will cripple healthcare capacity and they will fall foul of an otherwise curable disease.

In addition, there is the knock-on problem that at least some patterns of economic consumption that have changed during the coronavirus lockdown will become permanent. Some people who have taken to doing more elaborate cooking at home and eschewing mid-tier restaurants will continue to do so. Others, who have purchased a TV subscription to allow themselves to watch sport without going to a pub, will continue to watch the football at home.

Neither problem is well-suited to being solved with a voucher scheme. The grim reality is that any permanent change in consumption is going to be economically painful for businesses and households. There are things that governments can and should do to combat this – for example by having a generous and non-punitive welfare state – but it’s not helpful to obscure the extent of the problem through a voucher scheme. 

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A woman with a Sky Sports subscription she plans to keep, will probably take advantage of her £500 to go back to the bar she used to watch Crystal Palace away games at – but once it’s gone, she’s going to go back to being able to watch matches in the comfort of her own home without having to queue for the bar or go through the rigmarole of watching games in the era of social distancing. The government would simply be directing funds it could instead spend on a generous welfare state and retraining for people who are going to lose their jobs. There is a crucial difference between protecting the arts and cultural venues, and other businesses and institutions which cannot operate as normal in the age of the novel coronavirus but who may be viable afterwards, and protecting jobs that are the victim of permanent change in consumer behaviour. Grants and bridging loans do the former well – vouchers to trigger consumption risk sliding into the latter. 

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As for the overall demand shock, if people aren’t opting to go back to pubs, restaurants and hotels,  the problem is not a lack of funds: it’s the belief that the government is unlocking too early because it is prioritising reviving the economy over fighting the virus. (It is too early to tell one way or the other if people are opting to go back in significant numbers: we won’t have a clear picture for a while.)

Any measure designed to encourage people to go out and spend simply highlights that problem. It won’t reassure households who think that the government’s main priority is for them to go out and spend money if the government unveils further incentives to go out and spend money. The demand shock caused by fear of the virus and its consequences can only be fixed by showing progress, whether in palliative treatments, or in the reduction in the number of new Covid-19 cases.