The coronavirus pandemic is not just a global health crisis – it is an economic emergency. Previous recessions, including the 2008 financial crisis and the Great Depression of the 1930s, may yet be exceeded in damage. On 23 March, James Bullard, the president of the Federal Reserve Bank of St Louis, warned that US unemployment could rise to 30 per cent in the next quarter, while GDP could fall by 50 per cent. For the sake of preserving human life, governments across the world are being forced to place their economies in cryogenic suspension – a state unknown even in wartime.
Perhaps no global finance minister has faced a more forbidding challenge than Rishi Sunak (profiled by Martin Fletcher this week). The 39-year-old politician became Chancellor on 13 February; as recently as last July, he was parliamentary under-secretary of state for local government. When Gordon Brown confronted the 2008 financial crisis he could draw on a decade of experience at the Treasury. Mr Sunak, by contrast, had less than a month to prepare for this global shock.
Yet the Chancellor, who was initially derided as “the puppet” of Boris Johnson and his senior adviser, Dominic Cummings, has impressed. From the beginning, the former hedge fund manager, who only entered parliament in 2015, grasped that “this is not a time for ideology and orthodoxy”.
In 2008, under David Cameron and George Osborne, the Conservatives opposed the fiscal stimulus introduced by the government, before ushering in an “age of austerity”. By contrast, in his first Budget, on 11 March, Mr Sunak announced emergency economic support of £30bn, adopting the mantra of Mr Brown and Mario Draghi, the former president of the European Central Bank: “I will do whatever it takes.”
To honour this pledge, the Chancellor has been forced to adopt progressively more radical measures. On 17 March, he announced £330bn of state-backed loans for business and £20bn of tax breaks and government grants. Most remarkably, three days later, Mr Sunak vowed to pay 80 per cent of the wages of temporarily laid-off workers (up to a maximum of £2,500 a month) and increased welfare spending by £7bn (including a £1,000 rise in annual Universal Credit), taking benefits to their highest real-terms level after years of cuts.
There were limits to Mr Sunak’s munificence. While salaried workers were offered wage subsidies, their self-employed counterparts were initially only guaranteed £94.25 a week (the equivalent of statutory sick pay), despite government demands to self-isolate. Mortgage holders have been offered three-month payment holidays but renters have merely been granted an increased eviction notice period. Greater support for both groups is essential (and was expected as we went to press).
In contrast to Mr Johnson, who has equivocated and confused, Mr Sunak has resonated authority. As Jason Cowley writes on page nine, the Chancellor “seems like a new man: an intellectually nimble and open-minded technocrat and meritocrat, unencumbered by Johnson’s class baggage and past associations”. It is impossible, for instance, to imagine the Prime Minister attracting praise from Len McCluskey, the leftist general secretary of the Unite trade union, as Mr Sunak has. Less than two months after becoming Chancellor, he is being spoken of as a prime minister-in-waiting.
Crises demand pragmatic and innovative policymaking. The historic strength of the Conservative Party has been its capacity to adapt to changed circumstances. But even before the coronavirus pandemic, as we have regularly charted, the state was re-emerging as a pre-eminent economic actor. As the crisis rightly forces the abandonment of doctrinaire free-market economics, we are perhaps witnessing the rebirth of Tory pragmatism. Just as the Second World War hastened the embrace of new norms of full employment and universal welfare, so the coronavirus crisis may presage a new economic settlement. The state has demonstrated its ability to intervene to protect the common good. Whatever future crises Britain confronts, this example will resonate through the ages.
Content from our partners
Related
This article appears in the 25 Mar 2020 issue of the New Statesman, The crisis chancellor