Rishi’s gamble

Will you be off out for your half-priced meal in August? Don’t forget “eat out to help out.”  Rishi Sunak has turned into a kind of 21st Century milky bar kid, Nandos Chicken and your Beefeater steak are on him.

Yesterday, the Chancellor announced some significant measures to help the economy avoid a deep recession caused by Coronavirus. His mini emergency package included.

  • A Freeze of Stamp duty for those buying houses up to the value of £500,000
  • The aforementioned half-priced meal scheme
  • A £1000 bonus per furloughed employee retained after the scheme ends.
  • A scheme to help young people into work by paying the first six months of their salary.

What you make of the measures is likely to reflect your political outlook. If you are naturally sceptical of the Conservatives, you are likely to see this as a gimmick. It will also reflect your economic outlook too.  The approach is essentially Keynesian.   In other words, it is an economic approach where the Government puts more money into the economy. It can do that by printing money and by spending money through building projects, grants, subsidies and benefits. The aim is that if people have more money to spend, that will increase demand and so the economy will grow to meet that demand. In this case, the hope is that by in effect giving everyone £10 to spend in restaurants, that will increase the demand for eating out and so places to eat that risked closing down will stay open. 

The problem with Keynesian economics is that it focuses on inflating demand. However, if the supply does not increase to meet the demand then its value goes up.  If the restaurant can only serve 5 people and 10 people want to buy dinner, then it can afford to charge more.  We see this in the housing market.  Supply of homes is outstripped by the demand for houses and so house prices have gone up consistently for many years.

So, the result is high inflation which we have seen at different stages in our history. Therefore, the Government has two choices. One option is to find ways in which to increase the provision of supply. In fact, this is why the Government is also providing schemes to maintain employment levels because if it cuts taxation on house purchases and gives people cheap meals but this is too late to stop house builders and caterers laying off staff, then demand will outstrip supply creating inflation.

The alternative to this is monetarism which was the policy followed by the first Thatcher administration in the  80s, it brough inflation under control but there was a cost through high unemployment. To some extent it was also followed by John Major’s government and by New Labour at least in its early years.  The idea here is that the Government’s first job is to control inflation. This is because inflation by putting prices up excessively leads to poverty as the cost of living outstrips what people can afford. Therefore, you control inflation by controlling the flow of money into the economy.  You have two ways of doing this, the first is to control government spending and the other is to increase interest rates which dampens borrowing, the other major source of new money into any economy. Of course this is going to suppress demand too and lead to economic slow-down, hence higher unemployment.

Now, it is important at this stage to note that because monetarism is about controlling the money supply, it does not mean that it wants to stop it altogether. Indeed Governments following monetarist measures have been happy to open the taps and pour money in when they felt it was needed.  Whilst Gordon Brown relied primarily on tax benefits, by cutting taxes, subsidising council house purchases and privatising nationalised industries through discounted share schemes, Margaret Thatcher was in effect putting money into the economy. It was a delicate balancing act and towards the end of her government, inflation was rising again leading to John Major putting the breaks on through interest rate rises leading to a downturn and high unemployment again.

What has all of this got to do with us as Christians and why am I writing about it on a theology/pastoral care blog? Well, whilst this may not immediately sound like it is directly linked to theology or pastoral care, it is intrinsically linked. There are two reasons for this.

The first is that we want to do everything to the glory of God and therefore what we believe about God, this world and humanity has something to say about all areas of life. Therefore, our thinking about economics will be led by a belief that money is not the solution to everything and in fact the love of money is described as the root of all kinds of evil. Furthermore, we know that it is possible to make economic decisions because this world was made good, is sustained by God and therefore has order and meaning so that it will respond in predictable ways to economic intervention.

The second is that we want to love our neighbours with our economic choices.  Therefore, our concern should be about the way that economic decisions affect the vulnerable and needy in our society. So, when we look the budget, we should be asking two questions. The first is “are these measures, designed and intended to help those most at need. The second is “will they succeed or will they cause worse problems?”

When I look at the Chancellor’s decisions, I am not sure.  I am more favourable towards th stamp duty cut and the support for people going to work. I am however not at all convinced by the “eat out to help out” measure which looks more like a headline grabber. The risk with it is that the Government will end up paying for meals that would have been eaten anyway. People will eat out because they feel it is safe to do so. It will take more than £10 to get those who are still wary of the illness out of self-isolation. The measure could fail to help the hospitality industry whilst at the same time leading to future tax increases or cuts to services.

My personal gut feeling is that the economy has shrunk because we put everything on pause for a while, however demand is still there. People still want homes, leisure, food, equipment and they will return to buying those things once they feel safe. Therefore, we should be able to expect things to bounce back quickly.  However, if the Chancellor makes the wrong call, he may end up adding complications in that delay or dampen that recovery. A long term recession or even depression will hit the poorest hard.

So, for us as Christians, it is not merely about being in favour of helping the poor and giving to the needy. It is also important to use wisdom to think carefully about how this can best be done.

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