With a deficit approaching £390bn Britain has to find a better way to deal with Covid

It is quite an achievement – as the commentator Dan Hodges noted this week – for the British government to be spending such mind boggling sums of money on the Covid crisis and still to be under fire for penny-pinching. Yet that is the situation on the question of free school meals for children in poverty.

The Manchester United footballer Marcus Rashford has nutmegged Number 10 in his continued campaign to ensure that children in England who qualify for free school meals in term time are provided with the same help during school holidays. The conservative response, that Britain already spends hundreds of billions of pounds on welfare and it is the responsibility of parents to feed children when they are not in school, is futile, and unlikely to get a hearing, when the state is mandating the closure or compression of significant parts of the economy, forcing millions more families into potential poverty. All this to deal with a disease that has killed very few Britons below the age of 60 without an underlying health condition.

This weekend the “R” number is rising. That does not refer to the Covid rate of infection. The Rashford “R” number refers instead to the amount that it will cost the embattled government to settle the fight with a campaigner who is dominating the media and making ministers look like Muppets. So slow-footed has the government’s response been that Rashford can – when ministers call to seek peace – bid the cash settlement number up in negotiation.

What is most fascinating, though, about this episode – beyond the uplifting spectacle of a young, motivated Briton battling for poor children and in the process proving the pessimists wrong when they dismiss that generation – is the way that a crisis of this sort distorts public understanding of money and basic economic value. Unimaginable numbers, along with inconsistencies of logic, are spewed out daily. It’s a blur. What is money anyway? The struggling Test and Trace operation has cost close to £12bn, more than a quarter of the UK’s annual defence budget, though the military that would have done a better job running the whole thing at a fair price, minus vast fees to consultants, was involved only at the margins. In other respects, the Chancellor comes under pressure and another magic £10bn or £20bn appears within days.

Is it any wonder that when the government says it will do whatever it takes, spend any sum of money to alleviate the crisis, and a shortfall is spotted tending to something important and worthy, then the public says that it must be filled because the sum is relatively speaking small, a few coins from the endless supply falling daily from the magic money tree in Whitehall and the global money markets. Those saying “no” can be deemed heartless beasts.

And on it goes. Deeper and deeper we go.

This is the government’s own fault, of course. Beginning the crisis behind and chaotic, it reached in the panic of the Spring for the weapon it knew best how to use – that is campaign propaganda in the manner of Vote Leave, the Brexit campaign. The resulting advertising drives and propaganda messaging, amplified by tens of millions of pounds of taxpayer’s money spent on buying airtime and digital reach, terrified the public out of its wits.  The country has been driven steadily, boiling a frog-style, round the twist until it is begging for the most ludicrous and tyrannical impositions and the First Minister of Wales, the ridiculous Mark Drakeford, announces this week that in the 17 days of the Welsh “circuit breaker” (for which read large bomb aimed at the Welsh economy) supermarkets must only sell “essential items”. How can that be defined? It can’t. But in the creeping manner of the new tyranny, the supermarkets are going along with it and roping off offending aisles. Even the Welsh government’s own scientific advice admits that the closure of services such as hairdressers is estimated (with little confidence) to have a 0.05 reduction in Rt. This is a number so small as to be impossible to measure and meaningless. You would do better putting money on the great JPR Williams (71) scoring the winning try against Scotland next week when the two countries meet in Wales, with no spectators.

Now, the same UK government campaign machine polls, at public expense, incessantly and discovers (shock!) that the public it was paid to terrify out of its wits so that it would stay in doors is now terrified and very much in favour of draconian Covid restrictions stretching on for ever until the economy that pays for pension and welfare will be a smoking ruin. The politicians made the public afraid, very afraid in the case of Nicola Sturgeon in Scotland, and now compete to please the people they made afraid.

The UK government is trapped. The catastrophic process it instigated, a post-modern media feedback loop of doom, makes it hard for the Prime Minister or anyone in authority to admit that a different approach might be required. It also makes most intelligent economic policy-making, balancing the serious health risks with the risks of further economic catastrophe, impossible.

Meanwhile, the warning lights are flashing. In 2019-20, according to the Office for Budget Responsibility, the general government deficit (or net borrowing) was a manageable £60.3 billion.

The OBR estimates for this year borrowing being a whopping £372bn, although it may be a shade lower. Capital Economics goes higher. It estimates that the deficit – the gap between government spending and revenues, the deficit that is funded by borrowing from the markets and added to the pile of national debt – will this year be as high as £390bn. If this carries on, these are becoming wartime-style numbers. Trying this for another six months, or a year or two, is unsustainable without serious damage, to say nothing of the impact on the wellbeing of the bulk of the population.

I hear, and respect, those saying that we can do this for several years and worry about it later. Many good economists have explained to me confidently that these numbers are fine because money is so cheap and will stay so for ever. Really?

Of course a modern state with a trusted central bank and access to the markets can borrow these vast amounts, for now very cheaply.  But just as we did not, and could not, anticipate the shock of the pandemic itself, then we may not spot the next sudden geopolitical shock that freezes the markets we need to keep flowing. Part of the point of constraint, or at least keeping one eye on the threats and starting to make the case for restraint, is concern about the unknown.

Forget Brexit. That’s a blip either way. It is not inconceivable that China will choose now, a moment of American vulnerability, to trigger confrontation and conflict over Taiwan. Imagine the ripple effect on trade, and energy markets, and global confidence mid-pandemic. A European banking crisis next year looks possible, in a sector already vulnerable and now dealing with the impact of exposure to all that newly empty city centre commercial property on its clients’ books.

Against this backdrop, Britain’s national debt, as a share of GDP, has now hit its highest level in 60 years, it was announced this week. A record £208.5 billion was borrowed in the first half of the year.

This is not how some of us hoped it might be on the UK’s public finances. Back in the summer, when the economy was being reopened, it was possible to see an upbeat scenario in which the deficit came in much lower than £300bn. The virus might have faded by now. By, say, September work life would have returned to some form of normality. Growth has soared, after the slump of the Spring, but not by anything like the numbers required to shrink that deficit in a way that closes the gap.

Now, we and other parts of Europe are going back into the second wave of the economic crisis as case numbers (a misnomer for positive tests from scattergun, unreliable sources) rise. In Britain the regional lockdowns are hammering the hospitality industry and the unemployment crisis is kicking in.

Let’s face it. A traumatised government does not know what to do next.

It looks more and more as though fundamental errors of philosophy and medicine were made early on that the government refuses to back away from for fear of admitting its original mistakes. The preponderance on SAGE, the government’s key scientific advisory committee, of mathematicians with a fixation on modelling and no understanding of viruses, was a disaster.

Modelling and data are useful, but I learnt writing about the financial crisis of their vulnerability and the tendency of the people who devise models to put too much faith in what they have built, overlooking the propensity of history and nature to throw up shocks and unexpected trauma. One of Gordon Brown’s former advisors, with financial crisis experience, got in touch this week to make a similar point. As he learnt, the banks before the crisis built their businesses on the modelling of new products and a reliance on data that looked dead right until, knocked off course by human behaviour, it was dead wrong.

You do not have to be a full-blown “lockdown sceptic” to see that some of the core assumptions made by SAGE were and continue to be implausible. They are using a sledgehammer. Does it seem likely that when this started there was zero immunity and equal susceptibility across the population when this virus is related to previous viruses?

The worst decision relates to age, and the continued pretence that this is, outside existing conditions, a plague to which age is irrelevant or a minor consideration. On that basis, economic shutdowns are imposed across wide areas when the overwhelming bulk of the population is not at risk of death.

The best service that someone senior in the government (how about the Prime Minister?) could do would be to announce an urgent, short review into the competing evidence, and to begin constructing a new policy that reopens the economy for the young who are not at risk while creating a nationwide sheltering and shielding programme, a national care service, for the elderly and the vulnerable.

I’m not suggesting it is easy. Shielding, or advising ultra-caution, could involve more than 10m people, although that could also involve treating them and their families like grown-ups, free citizens, exercising their judgment on risk.

The wicked alternative is tens of millions of Britons, among them the most economically productive, being in some form of economic lockdown for months and perhaps years, leading to the liquidation of opportunity and the impoverishment of the nation.

Shouldn’t we try something else?