Three reasons for Lockdown

There are three main reasons for the lockdown. Firstly, to control and eventually reduce the spread of COVID-19, secondly, to build up stocks of PPE and thirdly, to get testing in place so the lockdown could be eased in a controlled manner. The government has partial succeed on the first objective but have failed miserably on the other two. The economic cost of this will be measured against: a £300 billion+ rescue plan, a likely (but hopefully short) world recession and later in the year whatever the outcome of Brexit trade negotiations. As they say in politics we are living in interesting times!

Statistics have started to show that the lockdown has had an impact and we are being told that the peak was reached around 8th April. The Office for National Statistics (ONS) has said that Care homes now report outbreaks, and have indicated that these outbreaks are difficult to control because of the lack of testing and protective equipment. ONS are capturing numbers from death certificates; they feel that since the start of the pandemic, more than 1,000 have died in care homes. The government figures are significantly understating the number of total deaths.

Disgracefully (personal opinion) the government has repeatedly reassured us that they have enough PPE. Repeatedly, Doctors and other health staff interviewed have said there is not enough PPE, only to be accused by the Health Secretary that they are overly using PPE.  During this lockdown period, the government has failed to build up stocks of PPE putting NHS staff life at risk, get in enough ventilators and establish a national distribution system. However, we do seem to have enough IC units ready.

By the end of this month, we are supposed to have the capability for 100,000 tests a day. We currently have, we are told by the government, testing capability for over 38,000 a day, although we only carry out 21,000 tests a day. The community testing that had started has stopped (essential for testing I would have thought). We need a very high level of testing to be carried out so that we can monitor the spread of the virus, and on a controlled release from the lockdown quickly identify any reoccurrence in specific areas. We are clearly, failing here.

We need this to work, the massive undertaking by this government to support businesses by over £300 billion is a breath-taking commitment. If we can’t get the numbers down by controlling the spread of this virus, adequately support the NHS with PPE (how long can doctors/nurses risk their lives and work ridiculous hours) and have testing in place we won’t be able to open up our economy with real underlying reliance.

As the Tories are keen to remind everyone, the money has to be paid back. Before this pandemic, we already had one of the largest debts this country faced, and now with this additional debt, the consequence to our economy could be severe. All this is against a contracting world economy and the likelihood of us going on WTO traffics next year, if negotiations fail with the EU.

The government need to be honest and be realistic in setting their targets. Targets they are going to achieve because as a country, we need to ensure six months down the road we are not facing record bankruptcies and unbearable high levels of unemployment.

* Cllr. Tahir Maher is a member of the LDV editorial team

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14 Comments

  • Laurence Cox 22nd Apr '20 - 12:50pm

    By the end of this month, we are supposed to have the capability for 100,000 tests a day. We currently have, we are told by the government, testing capability for over 38,000 a day, although we only carry out 21,000 tests a day. The community testing that had started has stopped (essential for testing I would have thought). We need a very high level of testing to be carried out so that we can monitor the spread of the virus, and on a controlled release from the lockdown quickly identify any reoccurrence in specific areas. We are clearly, failing here.

    The problem with testing using the standard nasal swab is its 30% false negative rate. See:

    https://www.livescience.com/covid19-coronavirus-tests-false-negatives.html

    Increasing the number of tests doesn’t help if you are sending people back to work when they are still infectious. If you test a population and miss 30% of those infected, then in less than a week you will have more undetected infections than detected infections (the 70%) because each undetected person with covid-19 will have infected another two to three people.

    Dominic Minghella’s blog deals with the issues of false negatives very well.

    https://www.minghella.com/ramping-up-the-rubbish-three-reasons-covid-19-testing-is-useless/

  • Tahir Mahir,

    As the Tories are keen to remind everyone, the money has to be paid back. Before this pandemic, we already had one of the largest debts this country faced, and now with this additional debt, the consequence to our economy could be severe.

    When compared to historic ratios of national debt to GDP our February ratio was not abnormal and even if the ratio increases to 100% we have often had much higher ratios. We should reject the Tories assertion that any of the national debt has to be paid back. It is rare that a country reduces its national debt in monetary terms, but over time it can reduce the national debt to GDP ratio.

    We need to be clear that austerity was the wrong policy in 2010 and it will be the wrong policy after the lockdown.

  • “…we need to ensure six months down the road we are not facing record bankruptcies and unbearable high levels of unemployment” – this would be funny if it were not so tragic. Johnson’s lockdown, endorsed with varying degrees of enthusiasm by most Lib Dems, is and will continue to destroy lives, livelihoods, communities and institutions (and freedoms). I have been avoiding LDV because of the groupthink but hoped that Jane Dodds’s piece was a signal that reality was beginning to dawn on the party. Seems there is some way to go yet.

  • In a typical year, the government pays back about 1/15th of the national debt. This year approximately £100 billion will be repaid and refinanced. As this HofC Library https://commonslibrary.parliament.uk/insights/coronavirus-government-debt-an-explainer/ notes:
    “Even before the coronavirus outbreak, the UK Government planned to borrow over £160 billion this year: £60 billion to finance the difference between its annual spending and tax receipts and nearly £100 billion to pay back previous debt.”
    “Insurance companies and pension funds are the biggest holders of gilts and bills with around 32% of the total value. A further 28% are held overseas.”
    “Going into the coronavirus outbreak, markets were willing to lend to the Government at historically low rates. The Government was set to take advantage of the low rates and borrow for investment spending.The yields are now as low as they’ve been over the past 60 years. There was speculation – and some signs – that the coronavirus crisis might lead to markets increasing the price at which they would lend to the Government. However, this fear seems to have subsided. Markets continue to invest in gilts which are seen as some of the safest assets around. The Bank of England’s purchases have helped to increase demand for gilts.”
    We do need to ensure six months down the road we are not facing record bankruptcies and unbearable high levels of unemployment. That has to be achieved by calibrating the level of stimulus with the capacity of the economy to satisfy domestic demand (not met by imports) and export demand while avoiding another significant fall in the purchasing power of sterling and setting-off an inflationary spiral.

  • Peter Martin 23rd Apr '20 - 5:51am

    @ Joe B,

    “In a typical year, the government pays back about 1/15th of the national debt. This year approximately £100 billion will be repaid and refinanced.”

    OK but so what? If I sell some Premium bonds to buy a car I swap the bonds for the cash and the National Debt falls. The Govt’s deficit falls when they collect the VAT on the sale of the car. Plus there will be collections of fuel duty and other VAT payments on the insurance and car servicing etc. So, would it be a good thing if everyone reduced their savings, reducing the National Debt, to spend in this way? Probably not.

    But this doesn’t happen. For everyone selling bonds there is someone else buying them. Not just Premium bonds but gilts too. The debt rarely falls in total.

    So is the Government in debt because people want to buy the bonds, and therefore become lenders, or is it in debt because it wants to borrow some money? That’s a question you seem unable to answer.

  • Peter Martin 23rd Apr '20 - 6:08am

    @JoeB,

    All this “how are we going to pay for it? “nonsense isn’t the right way to look at the problem. Money isn’t the main issue.

    The partial shutdown of the economy is causing both a reduction in aggregate demand and aggregate supply. The much predicted coming recession won’t be like the post 2008 GFC period. That was mainly a problem of lack of demand. If there are supply reductions due to factories closing down, and crops not being harvested in the fields, the amount of produce which is available for the Government and everyone else to buy is going to be reduced too. A reduction in aggregate supply will inevitably make us worse off in total but the extent of the reduction, left to the workings of the ‘market’, is likely to be very uneven and add to an already previously high degree of inequality with all the political consequences that will bring.

    We can, generally speaking, divide up stay-at-home individuals according to whether their income has been significantly reduced, or even been lost completely, or whether they have managed to carry on nearly as usual, and are still receiving close to a full income. For the latter group, which might include both wealthy retirees and well paid footballers, life may be somewhat boring in that they don’t have much to spend their money on right now. They are therefore very likely to notice a considerable improvement in their bank accounts. They are accumulating spending power they would otherwise have used on holidays, restaurant meals, clothing, hairdressing, drinks in night clubs and pubs, petrol for their cars, air travel etc. Those who are less fortunate will probably include those who were previously working in hotels, restaurants, retail, night clubs and pubs etc. There will likely be significant exceptions but, generally speaking, the ones who are doing well at the moment were the ones doing well previously. Those who weren’t doing so well are now likely to be doing even worse.

  • Peter Martin 23rd Apr '20 - 6:09am

    (cont)

    Instead of worrying about things that don’t matter, like where the money is going to come from, we should be asking if tax rises are going to be needed to prevent a surge in inflation when the economy starts to get underway again but productive capacity hasn’t fully caught up with aggregate demand. This is not certain but it is possible and even likely if the shutdown is longer than expected. Those lucky enough to have received their full incomes during the lock-down may well decide to catch up with their spending. Their healthier bank accounts will allow them to do just that. On the other hand those who have been struggling won’t be able to compete and so they could lose out again in a flurry of price rises. It will be important to direct any tax rises that may be necessary towards the lucky group, and some thought should be given to making sure that those who have had it relatively easy during the lock-down do lose some of their spending power afterwards. Those who have had a harder time should be given a little more help, should overall higher taxes be temporarily needed.

  • Joe Bourke,

    When government debt matures it is highly likely that the lender will purchase new gilts or bills to the same value.

    It is good to read that your view of what will happen in the future is coming more in line with mine.

    Peter Martin,

    I expect you are correct the government will try to control inflation by increasing taxes assuming it recognises that there is likely to be inflationary pressure. I think a better way would have been to produce coronavirus bonds and to encourage those whose savings have increased because of the coronavirus to buy them. However, I saw reported recently an opinion poll saying that people think they will not return to their pre-lockdown spending patterns. It could be possible that if lockdown is reduced gradually, consumer spending will also increase gradually. After the Second World War rationing continued and I do wonder if some form of rationing might be needed as lockdown is reduced gradually and production only increases gradually.

  • Peter Hirst 23rd Apr '20 - 3:39pm

    Lockdown and social distancing should have reduced the transmission of Covid 19 and so lowered infection rates. How are those currently presenting with symptoms being infected? It must be by shopping for food and other essential activities. Without widespread testing for immunity and without a vaccine I don’t see how we can be confident of controlling the outbreak without assuming everyone is infectious and continuing social distancing. If we don’t know how people are being infected it must be due to the infectiousness of the virus and its survival outside the body.

  • Peter Martin 23rd Apr '20 - 7:54pm

    @ Michael BG,

    “I think a better way (than taxation) would have been to produce coronavirus bonds and to encourage those whose savings have increased because of the coronavirus to buy them.”

    This would only work, and be anti inflation measure if those who were buying them would otherwise have spent that money into the economy. It’s the reduction in spending that has the anti-inflation effect. To achieve that, there would almost certainly need to be an element of compulsion as happened during WW2 with the sale of war bonds. There would have to be a no-sell clause on them for a period of time too. There’d be no point making someone buy them if they could immediately sell to someone, with some spare cash, that they weren’t planning to spend anyway.

    I wouldn’t be against that but I’m not sure about many Lib Dems.

  • Peter Martin 23rd Apr '20 - 8:14pm

    @ Joe B,

    Possibly you might think my last comment was somewhat churlish because you were make the argument that Government debt is always repaid. Which is true. But it doesn’t get the point over that lenders don’t really want the debt repaid unless they specifically ask it to be. So, for example, I’m happy keeping my Premium Bonds until I want to sell them. I wouldn’t welcome getting a cheque from the Government with a letter saying they had been compulsorily purchased.

    “trying to stimulate spending in the economy beyond its productive capacity is counter-productive”

    You’re still resorting to misrepresentation. Because no-one is saying this. However, if the economy is running at less than its productive capacity then the Government should try to stimulate spending, or rather do some extra spending itself, to nudge it closer to its full productive capacity and at the same time create growth. There is an acknowledgement that inflationary problems can arise before this is reached and that’s where the Job Guarantee comes in.

  • Peter Martin,

    I am afraid there are many who do say that the government can cure any problem by simply creating money and spending it into the economy. This ignores the fact that it was tried in the 1970s after the OPEC oil shock resulting in a decade of stagflation and ultimately a painful recession in the early eighties that created mass long-term unemployment. Japan has been unsuccessfully trying to grow its economy for three decades with what is effectively the use of monetisation techniques to keep insolvent companies afloat rather than addressing the more radical restructuring required in many cases.
    Nouriel Roubini was writing about this last October Only a matter of time before some shock triggers a new recession. He makes valid points when he comments:
    “In the case of the 2008 financial crisis, which was triggered by a negative aggregate demand shock and a credit crunch on illiquid but solvent agents, massive monetary and fiscal stimulus and private-sector bailouts made sense. But what if the next recession is triggered by a permanent negative supply shock that produces stagflation (slower growth and rising inflation)?
    Fiscal and monetary loosening is not an appropriate response to a permanent supply shock. Policy easing in response to the oil shocks of the 1970s resulted in double-digit inflation and a sharp, risky increase in public debt. Moreover, if a downturn renders some corporations, banks, or sovereign entities insolvent – not just illiquid – it makes no sense to keep them alive. In these cases, a bail-in of creditors (debt restructuring and write-offs) is more appropriate than a “zombifying” bailout.”
    “In short, a semi-permanent monetization of fiscal deficits in the event of another downturn may or may not be the appropriate policy response. It all depends on the nature of the shock. But, because policymakers will be pressured to do something, “crazy” policy responses will become a foregone conclusion. The question is whether they will do more harm than good over the long term.”

  • Peter Martin 24th Apr '20 - 1:40pm

    @ JoeB,

    There’s no proven correlation between the size of the government’s budget deficit and the level of inflation. The last couple of times we had a surplus was in 2000 and 1990. Yes inflation was low in 2000, this fits your theory, but it wasn’t low in 1990. This doesn’t fit your theory. There was a big spike upwards.

    https://beta.grafiti.io/facts/7892-uk-inflation-rate-economics-help

    When economies are doing well they tend to generate revenue for the Government meaning that we can simultaneously have an overheated, inflation prone economy, and one with low Government deficits.

    The OPEC oil shock affected all western economies. It wasn’t just the UK that had high inflation. If you have a near monopoly supplier of an essential product which has raised prices to an unreasonably high level the only rational response has to be to raise the price of what the supplier is hoping to spend the proceeds on. So the inflation in the price of oil and the inflation in the price of manufactured goods can be a seen as a tit for tat response.

    There were other things going on at the same time of course. Capital wanted the oil price rises to be compensated by lower wage rises to maintain profit levels. The workers wanted their wages not to be eroded by inflation. There was a fair bit of class conflict in the 70s, as we all remember too well!

    Nouriel Roubini wasn’t the only one predicting a bursting of the private debt bubble. I don’t think anyone would know just what the ‘pin’ would turn out to be. Yes, as it happens there could well be a supply shock involved too. The solution isn’t simply more Government spending but there has to be a significant redistribution of wealth and spending power – and quickly too. I’m not holding my breath on that.

    Japan is an interesting problem. They’ve tried to keep their economy going after their bubble economy of the 80s burst. Instead of the Government taking the initiative they tried to re-inflate the bubble by monetary means. It hasn’t worked. This is Prof Bill Mitchell:

    “The government had fallen prey to the deficit terrorists who have been consistently bullying them into believing that their fiscal position is about to collapse and the bond markets would desert them.”

    That sounds a familiar line of argument!

    http://bilbo.economicoutlook.net/blog/?cat=33

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