The ASI’s latest paper, authored by ASI Deputy Director Matt Kilcoyne and Head of Research Matthew Lesh, explores how to safely unfreeze the economy and unleash British enterprise:
The protection of public health in response to Covid-19 is raising extraordinary economic challenges.
The Government has tried to “freeze” the economy using the Job Retention Scheme, generous business loans, and various handouts. But freezing the economy is the easy part. Just like we have not mastered the second phase in cryogenics — unfreezing a human — we do not know how to successfully unfreeze an economy. Both are complex systems that cannot simply be turned “on” and “off”.
The economic scarring has already begun. Thousands of businesses are shutting down, undermining the productive capacity of the economy. There have already been millions of job losses. Many who lose their job during a recession never find one again. Young people who are trying to enter the workforce could experience long-run lost earnings.
Freezing the economy has also had extraordinary fiscal costs: increasing government debt by hundreds of billions. While this was justified to prevent a total economic collapse, it is simply unaffordable for these sorts of measures or this level of state expenditure to be maintained.
The Government is now loosening the public health restrictions that have undermined economic activity through a phased plan. The focus must now turn to how to successfully unfreeze the British economy.
The next stage of the recovery will require a new approach guided by following principles:
Prosperity: The focus must shift from redistributing a shrinking economic pie to expanding the pie by embracing private sector entrepreneurship and innovation, and earned success to get people back to work.
Temporariness: Extraordinary emergency measures to “freeze” the economy that undermine long-run prosperity must not be allowed to become permanent.
Flexibility: Existing ways of thinking will not suffice, it is necessary to be adaptive to circumstance, pursue industry-specific measures and implement radical policies.
Common sense, not micro-management: The state should not seek to micromanage the reopening of the economy, but rather encourage businesses to adapt to new circumstances.
Supporting people, not businesses: Support should be broad-based and focused on helping individuals, not on bailouts to politically favoured companies.
Accepting failure: The economic structure and businesses must adapt to new circumstances; this will mean accepting some previously viable firms are no longer sustainable.
This paper outlines a plan to help reboot the economy in the short to medium term, to “unfreeze” the economy in the least possible damaging way.
In practice, this means taking steps to reduce the footprint of the government in the economy, boost employment, reform insolvency arrangements, support hospitality and retail, reduce the tax burden on enterprises, support housing reform, improve accessibility to child care, champion trade and immigration, and back innovative new transport.
Recommendations
Fiscal and temporary measures
Abstain from increasing taxes that hamper economic activity
Replace the pension triple lock with a double lock to improve intergenerational fairness and the Government’s fiscal position
Pursue a phased withdrawal of temporary spending and interventions that undermine prosperity
Employment
Phase the Coronavirus Job Retention Scheme into Universal Credit to ensure continued incentive to work
Suspend 45 day redundancy consultation notice to discourage businesses from beginning to make staff redundant and encourage hiring
Exempt microbusinesses from written Covid-19 risk assessments to reduce the red tape burden
Raise the employer’s National Insurance threshold to encourage hiring
Defer the introduction of the single employment regulatory body to avoid new costs to hire
Insolvency and liabilities
Fast-track forthcoming insolvency reforms allowing firms to continue to operate while insolvent for a limited period to allow restructuring
Introduce a temporary Coronavirus Insolvency Limited Liability Forgiveness Scheme to prevent viable businesses from going bankrupt
Hospitality and retail
Allow the world’s largest beer gardens in public parks during the summer to save our pubs and breweries
Fast track approval of drone and robot deliveries for of food, drinks, and shop purchases to support hospitality and retail
Waive the license fee for a new pub that establishes on a site of a previous establishment that has become insolvent to encourage business turnover
Scrap Sunday trading laws to enable greater social distancing and economic activity
Taxation and investment
Abolish the Factory Tax, by allowing for the immediate full write off on capital investments, to encourage business investment
Allow companies to bring back revenue from overseas tax-free for 18-24 months to encourage greater investment in the UK
Combine enterprise investment schemes and refocus on private capital
Scrap the Key Information Document for Investment Trusts to encourage investment
Housing
Extend Permitted Development Rights to allow for dynamic repurposing of office space to housing, with design codes for amenity and external facade
Allow councils to continue charging business rates on property converted from commercial to residential to prevent revenue losses
Provide a temporary suspension of stamp duty to get housing market moving
Reduce time in homesale conveyancing to encourage activity
Child care
Liberalise staff to child ratios to reduce the cost of childcare
Trade and immigration
Unilaterally approve Covid-19 treatments, vaccines and other goods such as personal protective equipment and testing processes from comparable countries to speed up medical innovation
Provide an automatic extension of visas to immigrants to encourage necessary migration and reduce international travel
Instigate amnesty for illegal migrants to encourage proper public health support
Unilaterally recognise qualifications and occupational licenses from other developed countries to help fill skills gaps
Transport
End the Transport for London fare freeze and increase ticket prices for public transport to discourage unnecessary use of public transport
Replace the ‘Congestion Charge’ with a national dynamic road pricing scheme to better manage the flow of people
Pursue a liberal approach to e-scooter legislation to encourage social distanced transport