There is no doubt that the Coronavirus outbreak holds significant threat to the UK economy with the possibility of significant rises in unemployment, the bankruptcies of many small business and many undergraduates seeking postgraduate degrees rather than entering the world of work due to the precariousness of the economy for the next two years.
However, Chancellor of the Exchequer, Rishi Sunak has set forward unprecedented levels of spending in order to protect businesses, workers and the economy. In many ways this can be seen to be Sunak’s ‘New Deal’ as the government will effectively be paying people’s wages. Yet, unlike Roosevelt’s responsive New Deal, Sunak is enacting measures in anticipation of recession in order to ease the burden on the economy. The emphasis Sunak places on relief is indeed similar to Roosevelt’s measures from 1933 to 1939.
Rishi Sunak has been a Member of Parliament for merely five years, but his rise to one of the great offices of state is testament to his intelligence and his energetic persona. Not only was Sunak’s decision to back Leave in the 2016 referendum the moment that “Dave and George had their heads in their hands”, but now even Frances O’Grady, head of the Trade Union Congress, has championed his work whilst at Number II.
His entry into politics is typical of many Conservative MPs, a privately educated man who then went onto to graduate with a first-class degree in Politics, Philosophy and Economics from Lincoln College, Oxford. Followed by an MBA from Stanford University before entering the world of finance working for Goldman Sachs.
However, he very much is the perfect man for Boris Johnson’s new style of cabinet as he is the son of immigrants, his father was a GP while his mother ran a local chemist, very much fitting with a possible intention from the Prime Minister to shift the image of the cabinet from inherited wealth from city millionaires to what can be seen to be the average person.
Made Chancellor in Johnson’s reshuffle in February, Sunak inherited a precarious position brought about by Coronavirus, but he has not sat still. Not for many years has any Chancellor had to take such drastic spending measures in order to counter a real and significant threat to the economy and to people’s lives. On the 17th of March he announced £330 billion worth of government backed loans for businesses across the country to help them through the pandemic. This measure cannot be understated, it is over 10% of the country’s GDP and I struggle to remember a time when such levels of spending have been introduced at a single moment.
Not only this but Sunak has effectively nationalised the whole nation. On the 20th of March he announced further measures to pay 80% of the salary of people who are out of work due to the crisis, up to £2,500. These measures have since been extended to help the self-employed by covering 80% of their trading profits could cost the government tens of billions.
Such measures must be a welcome change for the critics of austerity, Sunak is enacting rather leftist spending measures in order to counteract the rising threat. But for some this is still not enough, John McDonnell has criticised Sunak claiming that he had not gone far enough, fast enough. This claim by the outgoing Shadow Chancellor is frankly absurd. It really shows that even when the Conservatives do something rather leftist, it is still not good enough for Labour.
Sunak’s measures do remind one of Franklin Delano Roosevelt’s New Deal. Historians emphasise the ‘three R’s’, relief, recovery and reform. The measures placed so far are enormous measures of relief for the currently unemployed and those effected financially by the pandemic, which may well be over half of the population. Rather than making public programmes in order to provide employment and wages for workers, Sunak is merely paying the workers while they are not working, so in many ways he is in fact expanding on Keynesian policies of public spending.
The second ‘R’ of FDR’s New Deal was an emphasis on recovering the economy from the Great Depression. Sunak on the other hand is anticipating a recession which the majority of economists are projecting due to many business having its doors closed for many weeks. His levels of public spending especially in ensuring workers wages are paid are provisions to maintain public spending and to allow it to increase once the pandemic passes, it is a means to lessen the extent of a recession.
If these measures were not to be put in place, then it is incredibly likely that public spending would be at an all time low due to the extraordinary number of people who had not received pay for many weeks and possibly months. Although exceptionally drastic approaches, perhaps they are necessary in order to lessen the detriment of a recession. For someone who has traditionally been against such high spending measures to then introduce them, it does show the impact that this virus will have on the economy, of which some are yet to realise.
Importantly though, what happens next? Do the Conservatives continue in a path of bigger government with larger spending projects that had been promised by Boris Johnson in the lead up to the 2019 election? Or will the Conservatives be forced back onto a path of austerity due to the outstanding deficit that will undoubtedly be left following this crisis? Only time will tell.
By T. Nurcombe