Editor's letter

Behind Covid's very dark clouds, we can see a few silver linings

The Cover-19 pandemic has devastated communities and the global economy. But with the vaccine about to bring an end to the worst, Merryn Somerset Webb looks for the positives.

Are there upsides to Covid-19? It’s hard to think about 2020 in these terms. The pandemic has left us with tens of thousands dead. The policies put in place to contain it have cost us huge numbers of jobs and businesses (with more misery to come). They have curtailed our freedom; suspended our democracy; caused an educational crisis; and revealed, all too clearly, that many of our government processes and our health system are woefully inadequate in times of crisis. They have also left us with eye-wateringly high levels of public debt – to say nothing of the trying conversations about how the wealth of “the rich” must be confiscated to pay it off that tend to come with rises in public debt. Not much to like there at all. 

But if we delve behind these very grey clouds, we can see a few silver linings. The economic position is not quite as bad as you might think. UK unemployment has remained reasonably low at just under 5% – only a percentage point higher than last year. There are huge positives to the UK’s flexible labour market in times of sudden change. It also turns out that if you haven’t lost your job, you are very likely to be better off (financially at least) today than you were this time last year. What with never being allowed to leave the house, plus the various government support schemes on the go, Bank of England chief economist Andy Haldane estimates that UK households have built up “excess savings” of around £100bn. That’s real money – and should, he says, lead to the type of spending spree that helps the economy bounce back rather faster than most expect. There is “plenty of pent up demand still in the tank”. 

At the same time, house prices and stockmarkets have recovered at stunning speed: most Sipps and Isas (if they have not been fiddled with too much) will be evens or even up on the year. Not everyone thinks that can last, given how high valuations look. But for now at least it’s going to be hard for anyone with a portfolio that has included US tech stocks for the last nine months to feel particularly poor. 

There’s more. In our latest podcast I talk to economist Julian Jessop. He notes that the pandemic has done at least two useful things in the UK. It has weeded out some companies that were on their way out anyway. And it has offered others the incentive (and in some cases the cover) to restructure and refocus in a way that previously might have taken them years. It has also effectively given every member of the working population a crash course in technology. Combine that with the long-term efficiencies of more people working from home a day or two a week and might we finally get the productivity revolution we have been waiting for in the UK for a decade? Maybe. 

Two final things. First, Covid-19 has reminded us that companies don’t automatically behave badly (many stores have repaid their business rates holiday windfalls). Second, it has reminded us that free markets are a wonderful thing. Companies who can get their hands on the cash they need for investment; who know that they have a ready market, and who have a supportive regulatory environment to work within, can do almost anything. The proof is in the vaccine.

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