How will the UK emerge financially from the Covid-19 Pandemic?
In the second of a three part series, Tim Sadka, Partner in Rix & Kay’s Corporate Team, looks back at past economic struggles and how today’s government might tackle the debt crisis created by Covid-19.
The UK Government has decided to borrow at unprecedented levels to support the UK economy against the challenges the Covid-19 Pandemic has brought. This against a recent history of being committed to austerity for longer than some would have liked. While national debt is not at WWII levels yet, it is going that way. Of course, the UK Government may decide to respond by increasing taxation as a means of addressing the new levels of borrowing sooner than later. I hope that is not the direction of travel, at least until there is an established and sustainable recovery in train.
The cost of debt is at a historically low level, there has never been a better time to borrow and increasing taxation on businesses and individuals prematurely, in my view, risks the Country falling further into a depression. While not an economist, history tends to repeat itself and there may be lessons to be taken from the Great Depression in the 1930s’. In the UK, a government led by Ramsay Macdonald managed to double unemployment trying to balance the budget and with an ill-judged attempt to maintain sterling on the gold standard.
While unemployment levels are currently well below the levels existing when the Great Depression took hold, and interest rates were far higher then, a slow and sustainable recovery was only achieved once the government stimulated growth and reduced unemployment by taking on debt to invest. In those times, a positive change and a slow emergence was only achieved when the focus turned to building roads, financing certain strategic heavy industries and by imposing tariffs to ward off steel imports.
The US did much the same with President Franklin D. Roosevelt’s ‘New Deal’ who, as he faced the Great Depression, famously said in 1933 ‘’I shall ask the Congress for one remaining instrument to meet the crisis [the Great Depression] – broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.’’
History suggests that Investment in core priorities and a cautious approach to taxation should be the priorities for the UK. Arguably, some of the areas for investment now, and in the next few years, are not as they were in the 1930s’. Instead, maybe universal improvement in internet connectivity, electric connectivity for vehicles, a focus on sustainability, onshoring manufacturing of anything mission critical to UKs ability to withstand future pandemics and investment in defence and related skills to counter risks of cyber and chemical terrorism, should be the focus to ensure our future security.
With colleagues in the team, we have extensive experience of navigating the uncertainties of past recessions and the collapse of the financial sector – all vivid memories. If you read this and would like to discuss the commercial and legal challenges and opportunities you are addressing, to get an insight and support from someone not caught up in your circumstances, please do contact me, email@example.com or by phone to +44 (0)800 276 1151, or any other member of Rix & Kay’s Corporate Team.
Read more insight from Tim Sadka as he reflects on how agile businesses are adapting to realise opportunities as Covid-19 lockdown unfolds.