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5 February 2021

Why long-term Covid could mean long-term Conservative rule

Unless the left presents an alternative vision for an economy in which Covid-19 is a permanent fixture, the government could exploit the recovery for its own purposes. 

By James Meadway

Government sources claiming over the weekend that ministers are discussing an “endemic recovery plan” for the next “five to ten years” should be a wake-up call for the opposition. The Spring Budget, due on 3 March, is being briefed as the first step in the government’s long-term plans for living permanently with the virus, which will likely involve high state spending for a decade.

The government is adjusting, as it has been since last autumn, to the new realities that Covid-19 has imposed on all of us. This puts it ahead of most of the political left in Britain, from Blairite true believers to Keir Starmer’s team to ardent Jeremy Corbyn supporters, who continue to operate as if Covid-19 were a short, sharp shock.

The need for long-term strategising persists despite the vaccines. Vaccines will make life easier and safer, but they are not a magic wand: new strains of the virus and the uncertainties around length of immunity and effects of vaccination on transmission rates and reinfection make it unlikely that vaccination will provide a simple exit route from Covid-19.

At the very least, it is likely that rounds of revaccination will be necessary to keep the virus at bay – in the UK and across the globe. This will probably need to be combined with ongoing social distancing of various kinds, significantly increased costs for some activities – particularly travel – and a permanently increased state presence in the economy.

Taken together, these changes amount to a deep shift in how the economy operates. Some, including Bank of England chief economist Andy Haldane and management consultancy firm McKinsey, have talked up the potential productivity improvements that could result from companies making necessary changes, such as rapidly introducing digital technology. But although some firms and sectors may make net gains, it is hard to envisage the entire economy benefiting in the long run from the new costs that endemic Covid-19 will impose.

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One of the primary architects of austerity in Britain, the unrepentant former permanent secretary to the Treasury Nicholas Macpherson, has suggested some £50bn more government spending a year might be required to cover the higher costs of running a healthcare system with greater “spare capacity”. The Institute of Fiscal Studies, another austerity hawk, is now urging that the government should not rush to cut spending or raise taxes. With the OECD and IMF – both prominent supporters of austerity in the early 2010s – also insisting on the need for increased government expenditure, it is clear where the balance of elite opinion now lies.

But the shift is not simply a matter of the absolute volume of government spending. The willingness and capacity of the state to intervene in the economy is likely to remain higher, too, with governments across the world actively seeking to shape outcomes and support key businesses and sectors. The Conservatives had already moved in this direction under Theresa May, who created a new department for industrial strategy shortly after the EU referendum in July 2016.

Coronavirus has accelerated this tendency. Britain’s success in producing, testing and distributing vaccines is testament to the industrial policy enjoyed by its pharmaceutical industry. This has had decades of tacit government support in the form of public funding such as the Medical Research Council, alongside a huge, long-term public sector customer in the form of the NHS – a crucial source of market stability. It would be astonishing if this didn’t start to inform wider Conservative thinking on industrial reorganisation.

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With Britain hosting the rescheduled Cop26 UN Climate Change Conference later in the year – which the government considers a key opportunity for post-Brexit Britain to burnish its international credentials – the outline for an investment-led “green industrial revolution”, as set out by Boris Johnson, is clear. Based on the Royal Society for Arts, Manufactures and Commerce (RSA)’s estimates for jobs at risk, forecasts suggest that over 1.9 million jobs may be permanently lost in the UK through the long-term effects of the virus, a similar number to the manufacturing jobs lost for good in the 1980s recession.

Green jobs are the obvious replacement – a win-win-win for the Tories, who will be able to claim success on crucial international climate targets, create new jobs in key constituencies, and promote a major post-Brexit export, perhaps through the expected Freeports. Think South Korea, but with more wind farms.

And weaker unions. With endemic Covid forcing up some costs, there will be significant pressure on government and businesses to cut others: you may have a job, but job security will be stripped away, including rights at work; good healthcare may be available, but access to it will become increasingly regulated. It is also unlikely that the Conservatives will rush to defend non-commercial parts of social life, from parks to high streets.

We’ve already seen elements of this exclusionary principle at work, when Chancellor Rishi Sunak started alluding to “permanent adjustments” to the economy in September 2020 and introduced the now-abandoned Job Support Scheme in October. This curiously designed scheme established a solid insider-outsider mechanism for distributing its support, in effect directing it towards better-paid jobs that typically require more training.

We should expect the same cost-cutting principle to apply to government support in future, creating a two-tier workforce and, ultimately, population: an insider group coddled by the government, and an outsider group left alone. A similar mechanism, applied to welfare spending, has worked well for the Conservatives electorally in the past decade – pensioners have been protected while working-age adults lost out. Expanding the same approach into industrial strategy may benefit them politically too.

[See also: Stephen Bush: A consensus is forming among the commentariat that Keir Starmer is not up the job. Does that matter?

Meanwhile, the left continues to behave as though the pandemic is almost over and the pre-Covid economy will soon be restored. Keir Starmer’s support for the government and lockdowns in the earlier months of the pandemic made political sense at the time, but, because the pandemic didn’t simply end, the same approach has now demobilised him. Gesturing to “patriotism” is empty if you have nothing to say about the future of the country to which you claim to be devoted.

Short-termism has also informed the calls, from opponents to Starmer’s left, for a “zero-Covid strategy”. It is undeniable that a harder, earlier lockdown would have been a shorter and more effective one. A more determined lockdown now would be more effective, too, and it is critical that this one, unlike last year’s, is not eased too soon.

“Zero Covid” makes sense as a crisis response, but lockdown can’t be permanent, and if the broader left can only talk about toughening lockdowns and eliminating the virus – or wave a Union Jack – when the government is plausibly setting out plans for a new future, it will lose. It needs its own “endemic recovery plan”: a programme that builds in protection against this virus (and others, yet to emerge), but that shares the protection fairly, and lands the costs on the broadest shoulders.

The left needs to think not only about creating and defending jobs, but creating and defending our social space. Despite the death toll and failures of the past 11 months, unless an alternative vision is rapidly assembled, permanent Covid could well mean permanent Conservative government.