Can we afford another lockdown?

[Huntergreed]

One thing that’s becoming apparent is that as we ease up the current lockdown, scientists and advisors are very worried about the very real prospect of a second wave of the virus spreading throughout the country again.

Coronavirus: UK must prepare for second virus wave - health leaders

The warning comes as the prime minister announced sweeping relaxations to lockdown rules in England.

www.bbc.co.uk

Following the announcement, health leaders called for a "rapid and forward-looking assessment" of how prepared the UK would be for a new outbreak.

"While the future shape of the pandemic in the UK is hard to predict, the available evidence indicates that local flare-ups are increasingly likely and a second wave a real risk," they wrote.

"Many elements of the infrastructure needed to contain the virus are beginning to be put in place, but substantial challenges remain."

Whilst ministers and advisors have in no unclear terms assured us that if the virus runs out of control another national lockdown will be required, can we, economically, afford this? The damage the lockdown has caused to the economy (a 20.4% fall in GDP in April alone) is apparent and hugely concerning, were the virus to spread once again, could we actually afford to lock down again or would we be forced to stay open for the sake of preventing economic collapse, which could be much more damaging than allowing the virus to spread freely?

 

[Starmill]

Currently we've only borrowed around 100% of GDP and still have an AA credit rating. Market conditions make it relatively easy for the government to borrow at a low rate, as long as there's time to react, and the Bank of England's financing facility is there to step in too if necessary.

So on the basis that the only real economic price of "lockdown" is borrowing, and that the current cost of borrowing is very low, the answer is yes. We could borrow potentially another 30- 50% of GDP in new bond issues over the coming year without seeing too much increase in refinancing cost, if done under the right conditions. Japan has exceeded 200% and through very careful market borrowing has kept yeild low. I'm not suggesting we'd need to go that far, but fundamentally the answer to the question 'can we afford pay for it?' is, almost always "yes". The question is not whether the Treasury can get its hands on the money. It is whether the Prime Minister is willing to spend it on us.

In the first 'lockdown' the government borrowed and spent a lot of money, it's true. But it also wasn't nearly enough.

Finally there's the question of future tax revenues. We've been living a lie about how much tax we must pay for years - the government can and should commit now to increase some taxes significantly; but not yet. They could announce a plan and a consultation, and look to get new measures in to significantly increase tax revenues from the 2022-23 tax year. This would give confidence to the market, and the credit rating agencies. I doubt that the Conservatives have the spine to be honest with the public though about the paramount importance of us raising more through tax.

 

[JonathanH]

At the moment we are kind of fortunate that pension schemes and insurance companies are happy to hold UK government debt - indeed they are effectively required to hold it.

Coronavirus: Government debt, an explainer

Government debt will increase as it responds to coronavirus. In this insight we look at the basics of what government debt is, how it is funded and who it is owed to.

commonslibrary.parliament.uk

Since 2009 the Bank of England has become a large holder of debt – by September 2019 it held 23% of the value. The Bank of England has been purchasing gilts as part of its quantitative easing programme which aimed to provide a boost to the economy following the 2007-2009 financial crisis.


The Bank is returning to this approach in response to the coronavirus. It’s expanding its quantitative easing programme by around £200 billion (taking the total value of assets it can own to £645 billion). Most of the £200 billion will be spent on Government gilts, which are being bought from investors. The Bank is not buying gilts directly from the DMO. The Bank will then hold over 30% of Government gilts and bills.

I think that is effectively saying that the pension schemes are paying the government to pay out pensions to people in the future.

The Bank of England holds a large amount too but quite a large amount is held by overseas organisations.

Presumably the issue comes once there is less demand and clearly there is an issue about what future tax revenues might be. All a money go round really.

 

[ForTheLoveOf]

Currently we've only borrowed around 100% of GDP and still have an AA credit rating. Market conditions make it relatively easy for the government to borrow at a low rate, as long as there's time to react, and the Bank of England's financing facility is there to step in too if necessary.

So on the basis that the only real economic price of "lockdown" is borrowing, and that the current cost of borrowing is very low, the answer is yes. We could borrow potentially another 30- 50% of GDP in new bond issues over the coming year without seeing too much increase in refinancing cost, if done under the right conditions. Japan has exceeded 200% and through very careful market borrowing has kept yeild low. I'm not suggesting we'd need to go that far, but fundamentally the answer to the question 'can we afford pay for it?' is, almost always "yes". The question is not whether the Treasury can get its hands on the money. It is whether the Prime Minister is willing to spend it on us.

In the first 'lockdown' the government borrowed and spent a lot of money, it's true. But it also wasn't nearly enough.

Finally there's the question of future tax revenues. We've been living a lie about how much tax we must pay for years - the government can and should commit now to increase some taxes significantly; but not yet. They could announce a plan and a consultation, and look to get new measures in to significantly increase tax revenues from the 2022-23 tax year. This would give confidence to the market, and the credit rating agencies. I doubt that the Conservatives have the spine to be honest with the public though about the paramount importance of us raising more through tax.

Raising taxes would involve breaching their Manifesto, not that that would really mean much.

 

[adc82140]

There won't be another national lockdown, no matter what. The public won't stand for it, and no government will tank the economy for a second time (the Irish PM has in fact formally ruled one out). We know a lot more about this than in March. What we could see is localised restrictions, like in Germany. A bit like whack a mole.

 

[Huntergreed]

Thee won't be another national lockdown, no matter what. The public won't stand for it (the Irish PM has in fact formally ruled one out). What we could see is localised restrictions, like in Germany. A bit like whack a mole.

Do we have sufficient contact tracing to prevent exponential spread on a national scale again though? I agree that there shouldn't be a second lockdown, but ministers and advisors have both confirmed in this country this will be done if cases rise again.

 

[adc82140]

We would be the only country to do that. The reason we got away with it before was that other countries were doing it at the same time. Can you really imagine the government, for example closing down cancer services again? The government would fall, and I'm sure they know it. The threat of further lockdown is just that--a threat.

 

[Starmill]

Raising taxes would involve breaching their Manifesto, not that that would really mean much.

It's easily possible for them to significantly increase tax revenues by compliance with the letter of Manifesto, although clearly this would breach its spirit. If I were a Conservative voter, however, I would prefer honesty: the party could admit that circumstances have changed so much since it was written that they've no choice but to set it aside now.

I think just not doing much, and sitting with the debt piling up around us at the same time as our economy well underperforms is the much more likely outcome from the Conservatives than honesty, however.

 

[mmh]

Do we have sufficient contact tracing to prevent exponential spread on a national scale again though? I agree that there shouldn't be a second lockdown, but ministers and advisors have both confirmed in this country this will be done if cases rise again.

Contact tracing is largely a placebo. It has to be, given that some estimate that up to 80% of infections may have no symptoms. More conservatively, even the WHO think around 40%

 

[nlogax]

Technically we could probably afford a 'National Lockdown 2.0' as @Starmill outlined above.

Should we? No. We need to get better at managing this. Local lockdowns, contact tracing, a working app and a general understanding that we need to balance risk with better infection management (testing, new drug regimes and the like).

 

[Starmill]

At the moment we are kind of fortunate that pension schemes and insurance companies are happy to hold UK government debt - indeed they are effectively required to hold it.

Coronavirus: Government debt, an explainer

Government debt will increase as it responds to coronavirus. In this insight we look at the basics of what government debt is, how it is funded and who it is owed to.

commonslibrary.parliament.uk

I think that is effectively saying that the pension schemes are paying the government to pay out pensions to people in the future.

The Bank of England holds a large amount too but quite a large amount is held by overseas organisations.

Presumably the issue comes once there is less demand and clearly there is an issue about what future tax revenues might be. All a money go round really.

If they want to, lots of ordinary people can hold UK Treasury bonds or lend to the government through deposits at NS&I. The government could move to make this a little easier and more well known about. My Stocks & Shares ISA always has a proportion of short dated British and American Treasury bonds in it.

 

[43066]

Whilst ministers and advisors have in no unclear terms assured us that if the virus runs out of control another national lockdown will be required, can we, economically, afford this? The damage the lockdown has caused to the economy (a 20.4% fall in GDP in April alone) is apparent and hugely concerning, were the virus to spread once again, could we actually afford to lock down again or would we be forced to stay open for the sake of preventing economic collapse, which could be much more damaging than allowing the virus to spread freely?

No, we cannot afford another lockdown. We couldn’t really afford the first one! It was a one shot deal, which the government was fully aware of. As 500,000 people at Bournemouth beach today shows, people are getting fed up of restrictions, so compliance the second time around would be much lower.

The government now needs to get the furlough scheme wound down as quickly as possible, in my view, as it is haemorrhaging money. Raising taxes would also further suppress economic activity and “tax and spend” is not why people vote conservative. That is something the government needs to remember.

 

[Mag_seven]

Raising taxes would involve breaching their Manifesto, not that that would really mean much.

Manifesto commitments are regularly torn up the moment a party gets into office!

The government now needs to get the furlough scheme wound down as quickly as possible, in my view, as it is haemorrhaging money.

Indeed - we need to get Britain back to work otherwise future generations will be saddled with high taxes etc for years to come.

 

[bramling]

No, we cannot afford another lockdown. We couldn’t really afford the first one! It was a one shot deal, which the government was fully aware of. As 500,000 people at Bournemouth beach today shows, people are getting fed up of restrictions, so compliance the second time around would be much lower.

The government now needs to get the furlough scheme wound down as quickly as possible, in my view, as it is haemorrhaging money. Raising taxes would also further suppress economic activity and “tax and spend” is not why people vote conservative. That is something the government needs to remember.

Agree 100% with all of the above. 500,000 people on Bournemouth beach simply isn't compatible with billions being spent on furlough, it's certainly not what I voted for.

 

[adc82140]

Vikki Slade from ChristBournePoo Council or whatever it's called has said that it'll all be "safe" on 4th July. How clever of her to know that.

 

[C J Snarzell]

The ultimate answer to this question is a big fat NO.

Many people (myself included) have been more than prepared to adhere to lockdown and tow the line but to sacrifice many things again I would use the phrase 'get on your bike!'.

Several problems have come about from lockdown such as soaring mental heath, unemployment, relationship breakdowns,..... the list goes on.

I'll be blunt here and speak for myself and many others I know and say that if the UK was unfortunate enough to get a second wave I would be fully prepared to get the virus and take my chances rather than living in a prolonged state of limbo.

I do appreciate my attitude may be a selfish one if say I passed on the infection to a vulnerable person. However, my argument would be - if we had a second wave, are we likely to get a third wave, then maybe a forth wave? You can see my point here.

We all have to be realistic - if like Chris Whitty predicts we get a second 'Winter' wave can we honestly cope again not seeing love ones at Christmas & suffering limited daylight locked up, while also stood outside shops in sub zero temperatures. I rest my case.

The government knows this country will never adhere to a second lockdown anyway and even the most patient of people (like myself) wouldn't do it.

CJ

 

[Starmill]

Indeed - we need to get Britain back to work otherwise future generations will be saddled with high taxes etc for years to come.

We need to be paying much more tax than we do today regardless of what happens - it's just that Covid-19 will ensure that there's even more to pay the worse it's handled now.

 

[bramling]

We need to be paying much more tax than we do today regardless of what happens - it's just that Covid-19 will ensure that there's even more to pay the worse it's handled now.

Unfortunately it's going to prove very hard to sell that to those who have worked through this.

One wonders how things might have panned out if furlough payments had been given out like student loans - to be repaid once income reaches, or in this case recovers, to a certain level. There's certainly a case to say that those on the receiving end should bear a greater share of the cost.

 

[MikeWM]

Business investment requires confidence that the business isn't going to be forced to close down by government dictat. It's going to be tough enough having the courage to start a small business in the near future, let alone get people to invest in it. The threat of further lockdowns will make that all the more difficult.

The only result in that area of further lockdowns will be increased consolidation towards massive multinationals that have deep pockets and can afford to ride out dramatic economic shocks. Do we really want that?

That's without talking about unemployment, which is already a ticking timebomb that is going to go off as year progresses.

(and for those who feel the economy should work another way from the way it does - yes it probably should, but we have what we have, and an economic crisis isn't going to fix the deep problems and divisions we had before, it is going to make them all the worse).

 

[JonathanH]

One wonders how things might have panned out if furlough payments had been given out like student loans - to be repaid once income reaches, or in this case recovers, to a certain level. There's certainly a case to say that those on the receiving end should bear a greater share of the cost.

Yes and No. The people on furlough aren't necessarily a cross section of the UK payroll. What you suggest might also have been a bit of a hard sell. Remember that the furlough pay was capped.

 

[43066]

Unfortunately it's going to prove very hard to sell that to those who have worked through this.

One wonders how things might have panned out if furlough payments had been given out like student loans - to be repaid once income reaches, or in this case recovers, to a certain level. There's certainly a case to say that those on the receiving end should bear a greater share of the cost.

I agree completely agree. The Furlough was necessary, on balance, but it needs to be unwound QuickSmart.

It’s also richly ironic that the poster you quoted has said he wants us all to pay more tax, but has also referred to having a stocks and shares ISA himself, so clearly isn’t above indulging in a little tax avoidance when it suits!

 

[Bletchleyite]

I think calling an ISA "tax avoidance" is pushing it, as it's an official Government scheme to encourage savings and investment, not a sneaky workaround.

 

[Starmill]

I think calling an ISA "tax avoidance" is pushing it, as it's an official Government scheme to encourage savings and investment, not a sneaky workaround.

Quite. And also, importantly, if they were withdrawn permemently there would be almost no extra tax revenue generated, but there would be a reduction in that particular source of funds for investments. It would probably be a net negative to the economy, unlike most actual tax avoidance schemes, and certainly unlike the crimes of tax evasion.

 

[HSTEd]

We couldn't really afford the first lockdown.

But the government will order it out of panic, just like the first time.

Question is whether people will obey again.

 

[43066]

I think calling an ISA "tax avoidance" is pushing it, as it's an official Government scheme to encourage savings and investment, not a sneaky workaround.

Choosing to save into an account with a tax efficient wrapper the very definition of tax avoidance. In so doing you are choosing to avoid the tax that you would incur if you used a normal savings account. The fact it’s government sanctioned is neither here nor there.

There’s absolutely nothing wrong with that, of course, I have a few myself! But I don’t go around telling other people that they should be paying more tax.

EDIT: and some of the most aggressive “schemes” for high net worth individuals have centred around government backed tax reliefs. Film partnerships being a huge historical one (mostly now closed down). Green energy is another area where the same thing has been done.

 

[43066]

We couldn't really afford the first lockdown.

But the government will order it out of panic, just like the first time.

Agreed on the first point, although I don’t think they will order another one; at least not on a national level. They’ve shot their bolt, so to speak

Question is whether people will obey again.

I strongly doubt they would, to anything like the same extent.

 

[Bletchleyite]

Choosing to save into an account with a tax efficient wrapper the very definition of tax avoidance. In so doing you are choosing to avoid the tax that you would incur if you used a normal savings account. The fact it’s government sanctioned is neither here nor there.

Ah, I suppose if you use that definition...personally I'd call it avoidance if you avoided tax the Government really wanted you to pay, but not if you take advantage of a scheme the Government promotes, which is more the Government saying that the tax is not due (and indeed the personal allowance on savings has been whacked right up, so it isn't due on any savings for most people).

 

[al78]

Choosing to save into an account with a tax efficient wrapper the very definition of tax avoidance. In so doing you are choosing to avoid the tax that you would incur if you used a normal savings account. The fact it’s government sanctioned is neither here nor there.

There’s absolutely nothing wrong with that, of course, I have a few myself! But I don’t go around telling other people that they should be paying more tax.

EDIT: and some of the most aggressive “schemes” for high net worth individuals have centred around government backed tax reliefs. Film partnerships being a huge historical one (mostly now closed down). Green energy is another area where the same thing has been done.

The tax avoidance is a minor seconday benefit of a stocks and shares ISA. The main attraction is a decent return on investment, which you can't get with a standard savings account in the current climate of super low interest rates. Saving for the future like this reduces the chances of someone being dependant on government handouts later in life, which may well save the government more money than they would theoretically get from tax. If the so-called tax evasion really made any significant difference to the government budget, it wouldn't have been brought out in the first place and it would be closed now.

Trying to say someone can't advocate tax rises because they have a stocks and shares ISA is a ridiculous thing to say. It is a variant on the silly tu-quoque fallacy. Are you next going to say I can't advocate low carbon living if I own a car or use gas central heating? Am I a tax avoider if I ride a bicycle instead of driving a car? Trying to appeal to hyprocrisy is a logical fallacy however you try to frame it.

 

[ForTheLoveOf]

The tax avoidance is a minor seconday benefit of a stocks and shares ISA. The main attraction is a decent return on investment, which you can't get with a standard savings account in the current climate of super low interest rates. Saving for the future like this reduces the chances of someone being dependant on government handouts later in life, which may well save the government more money than they would theoretically get from tax. If the so-called tax evasion really made any significant difference to the government budget, it wouldn't have been brought out in the first place and it would be closed now.

Trying to say someone can't advocate tax rises because they have a stocks and shares ISA is a ridiculous thing to say. It is a variant on the silly tu-quoque fallacy. Are you next going to say I can't advocate low carbon living if I own a car or use gas central heating? Am I a tax avoider if I ride a bicycle instead of driving a car? Trying to appeal to hyprocrisy is a logical fallacy however you try to frame it.

You can invest in stocks and shares in many ways that don't involve using an ISA.

 

[43066]

The tax avoidance is a minor seconday benefit of a stocks and shares ISA. The main attraction is a decent return on investment, which you can't get with a standard savings account in the current climate of super low interest rates. Saving for the future like this reduces the chances of someone being dependant on government handouts later in life, which may well save the government more money than they would theoretically get from tax. If the so-called tax evasion really made any significant difference to the government budget, it wouldn't have been brought out in the first place and it would be closed now.

Trying to say someone can't advocate tax rises because they have a stocks and shares ISA is a ridiculous thing to say. It is a variant on the silly tu-quoque fallacy. Are you next going to say I can't advocate low carbon living if I own a car or use gas central heating? Am I a tax avoider if I ride a bicycle instead of driving a car? Trying to appeal to hyprocrisy is a logical fallacy however you try to frame it.

I’ve never said there’s anything wrong with saving for the future.

But yes, arranging your affairs so as to minimise your own tax liability and then saying that others should be paying more tax smacks of “do as I say, not as I do”.

And yes, moaning about Carbon emissions while choosing to drive a gas guzzling car, or being a celebrity who jet sets around and bangs on about climate change is the same. And it stinks.

If you were prepared to call out Dominic Cummings for his recent hypocritical activities (as I was), but aren’t prepared to call this out, then maybe you should ask yourself why!