The coronavirus pandemic has hit our economy hard, shrinking gross domestic product (GDP) by 9.9% in 2020, something of which we have not seen since the period of the Great Frost in 1709. Therefore, it is crucial we get this right and see a swift economic recovery in order to reduce the deficit without affecting our future economic growth.
Firstly, we must try to avoid austerity until our economy is at a period of growth in order not to hit the recovery and long term economic growth. As a result, we must continue with the fiscal stimulus (Furlough) the Chancellor has outlined in the Budget so that the public sector temporarily takes the slack of the economy where the private sector would otherwise be shrinking due to the lack of spending after the periods of lockdown. This recovery must however be a business lead recovery so businesses, especially small and medium sized enterprises (SMEs), which are the backbone of the economy, must be kept afloat in order to lead this recovery. This is why we must continue with the furlough business grants so that we don’t incur large amounts of debt on the private sector as we need business to invest in the economy as we gradually come out of lockdown. That is why the Super-Deduction is a great example of ways to incentivise investment in plant and machinery assets which will raise productivity. It is also important that in a social market economy (with a welfare state) we aim to retain or retrain people into the workforce as otherwise we will be taking consumers out of the economy and putting them on benefits which would mean more people having to be looked after by the government and therefore a smaller workforce which would damage long term productivity, as George Osborne said in his 2015 Budget speech that he wanted to move Britain ‘from a low wage, high tax, high welfare economy, to a higher wage, lower tax, lower welfare society’.
Secondly, we must have an export lead recovery where both goods and services are exporting at surpluses. In the wake of the Brexit vote, exports skyrocketed due to the pound falling in value. We currently have an overvalued exchange rate so if we reduce the value of the Pound Sterling to a value close to the US Dollar (e.g. £1 = US$1.05), we will have a much more competitive exchange rate with an increase in exports as the UK becomes a more attractive place to invest increasingly in goods such as research and development, innovation and machinery, as well as an increase services exports. This would reduce the UK’s deficit in goods (which is mainly what we export) and would reduce the current account deficit and move the economy to trade and investment so we can afford to pay for our standards of living, rather than trying to pay our way just through the selling of state assets. This will allow the UK to save more relative to what we are spending rather than through borrowing more. An export lead recovery is exactly what China and Germany did post 2008 financial crisis and their rebound to growth was swift. An advantage of Brexit is that we are now trading at a global market base and are not reliant on exports to the eurozone (no more protectionism from Customs Union) which meant we couldn’t grow as fast due to the euro crisis which reduced consumer spending in those countries therefore reducing UK exports.
Thirdly, we should be more open to economic migrants of all skill sets. Lower skilled migrants complement the workforce and don’t compete directly with local workers but instead work with the local workforce as it is proven that local workers then move in to higher skilled, higher paying jobs. This is known as complementarity jobs as jobs are not independent from one another but are instead connected and reliant on one another. Higher skilled migrants are even more valuable for the economy as they improve and accelerate innovation (e.g. patents, tech, science etc) which drives productivity. A business lead immigration system (based on businesses sponsoring migrants), which could be implemented under the points based system, will ensure businesses’ workforce demands are met as migrants will be complementing the flexible labour market, which makes production more efficient and therefore raises productivity, rather than the government choosing what migrants they think the private sector needs. This would also allow for the public sector to get the workforce it needs (e.g. doctors, nurses, teachers etc) in order to aid the pressures on public services which are currently under a lot of strain due to the pandemic.
Finally, we should make it a priority to spread economic growth across the whole of the UK. The government has referred to this as the so called ‘levelling up’ agenda. This would mean the government continuing to invest in digital and physical infrastructure, such as rail and broadband, to increase connectivity across the island of Great Britain and should try to increase cooperation between Northern Ireland and the Republic of Ireland in order to increase connectivity across the island of Ireland as the will boost Northern Ireland’s economy therefore boosting the UK economy. We should focus on connecting cities to one another as a priority. The government should also invest in research and development, which is being accelerated by the vaccine program, and also in skills for young people, which is being aided by the Kickstart Scheme. The government could also look to devolving political power to local government as well, such as VAT, in order to spread growth an innovation on a local and regional level. This would allow for the equality of opportunity, as opposed to the equality of income (done through mass redistribution of wealth), which would increase innovation across the UK, making us less reliant on London and the South East and instead mobilising to whole UK economy to produce growth.