Today, the Chancellor of the Exchequer is making a special announcement about his fiscal plans. We are not allowed to call it an emergency budget though. He does so, primarily to give a bit more detail about how the Government are going to help with the energy crisis. This is part two following on from Liz Truss’ announcement two long weeks ago about an energy freeze.
He will be speaking against the backdrop of Bank of England forecasts that the economy will contract in the final quarter of 2022. It seems that the UK is already in recession. So, he will have one eye on the economic data and it seems that his strategy is going to be to try and get us to spend our way out of the recession, partly through tax cuts and partly through increasing government spending.
I’m not sure it will work. In uncertain times and with interest rates increasing, people may prove reluctant to spend whatever comes to them in cuts. They may prefer to save. But also, I’m generally not convinced that we can avoid downturns. Back in 1988, Nigel Lawson stoked an artificial boom with low interest rates and big tax cuts to stave off a crunch caused by a Stock Market crash. All he did in the end was to also stoke inflation and postpone the recession which ended up being extremely deep and long.
I remember a lecturer, years ago observing that if you look at history, you will see that there is a cycle to things. He argued that you tended to have 50 years of increasing prosperity and 50 of declining prosperity around the world. He argued that the trends were related to things like tidal patterns and climate. His argument was that you might see variations from time to time and place to place but the overall trend would be consistent. I’m afraid that I can’t remember if he said we were in a time of general upward growth or decline though I think it may have been the latter.
I remember being struck at the time with how his observations fitted with the Old Testament pattern of Sabbaths and Jubilees. Whilst, I’m not convinced that the OT Law was meant to be used as a strict economic blueprint, I do think that it linked into the natural reality of things. Israel’s life was meant to be in tune with the rhythms of creation.
If that’s the case, then we would perhaps do better to stop trying to find ways to escape recession and end boom and bust. Instead, we can focus our priorities on how to look after people through the hard times. I think this was meant to be one of the results of the specific measures for Jubilee and Sabbath years. We can also see that principle at work when Joseph advices Pharoah in Egypt on preparing for famine.
Now, this means that we are going to have to respond with emergency provisions now but I hope that the Government will also be thinking about the long term. We’ve had enough experience of recessions to be able to plan for them instead of being surprised when they hit.
My view is that we should build on the furlough scheme concept used to good effect during the COVID pandemic. The brilliant thing about it was that it kept people in employment and perhaps kept businesses running. This is much better than seeing lots of businesses close and high unemployment. In terms of emergency measures, I would reopen the furlough scheme as the recession bites and encourage businesses to consider this before they resort to redundancies.
The question about such schemes is how do we pay for them? That’s where we need to be preparing in advance. In good times, I would increase National Insurance contributions from employers and employees in order to build up funds to support the furlough scheme in the tough times.