I’ve not wanted to stray too much into the economics of the Covid crisis, as it usually requires my writing more background than seems appropriate for a blog post.
But the fact that the Chancellor has had to make three attempts (so far) to set his winter budget for the second wave of Covid is worthy of some comment.
Of course, these are difficult times and anyone in a position of authority needs to be able to change their mind and develop new ways of working. The virus is still having a surprising impact.
I think there are two aspects of these three rapid budgets that are important to note.
When introduced, the second and third budgets both considerably increased the amounts of money being spent by the Exchequer. Each was described at the time of delivery as being ‘generous’ and ‘capable of saving both jobs and the economy over the winter’.
As I said earlier, things change, and being open to change is good, but presenting each new budget as both comprehensive and a definitive solution to the problem has been problematic.
Whilst it is a good and necessary thing for Chancellors to learn as they go along, the benefits of learning from changed circumstances are undermined if each new budget is represented as being a complete and final answer. On successive occasions increasing amounts of money were being described as sufficient to see the economy through the winter. And every time this was presented as being the complete answer.
And it wasn’t.
As announcements morphed into iterations one increasingly realised that each one was not going to be the final answer. There would be another – going further than the last, and, yes, probably yet another after that.
But, in its own estimation of itself, this government sees it as vital that at any given moment it must be seen to be right. It cannot ever be seen to be entertaining the slightest doubt about its actions.
So on each of three occasions it had no doubts about the budget it was delivering. So each had to be reassessed, recalibrated and recognised as insufficient before being updated a few weeks later.
One might have imagined that a more honest way of working would be to describe everything as ‘the best we can do today but which may have to change in the near future if things get worse’. But no, this government apparently thinks it’s better to project omniscience and false certainty.
This approach is in keeping with the optimism bias has led so many people to lose faith in what the government says and does. At the time of presentation this optimism bias has led the government to argue that each budget has been the product of careful planning and assessment designed to deliver salvation for us all, only for it to realise a few days later that reality is in fact rather worse and that bigger and wider interventions – spending more money – will be needed. And then have to repeat the exercise a few days later.
But it’s the second reason for the frequent budget changes which throws a stranger light upon their thinking.
On one level the detrimental impact of optimism bias results in each budget having to do more than its predecessor because the virus infects more people than anticipated but these are packages designed to mitigate the impact of lockdowns on the economy and their ever growing impact is a bit odder than that.
Take the third budget. The reason the hospitality industry needed more support in mid-October than in mid-September was that fewer people went to pubs and clubs under Tier 2 restrictions. Tier 3 was given its financial support in the second budget.
So the problem the third budget had to deal with was the drop in public demand for going out to eat and drink under Tier 2 restrictions. It was needed because a few days earlier, the government had underestimated the impact on people’s behaviour of living under Tier 2.
Let’s not forget Tier 2 doesn’t ban people from going to pubs and restaurants (that’s Tier 3) but it does ban them from going to pubs and restaurants with other households. When the government announced this ban in Tier 2 it appears many more people stopped going out than the government had envisaged in their first and second budgets.
Given that the real behaviour of real people under Tier 2 saw them making far fewer trips to the pubs and restaurants than the government had expected, indicated that the government had calculated that more people would engage in a greater number of what may be small risks, but given the numbers of infections under Tier 2, still real risks.
Overall then when the government considered what we, as members of the public, would do under Tier 2 it consistently anticipated that we would take more risks than we have. It ‘baked in’ to its public health model the economic belief that even under Tier 2 we would go out to pubs and restaurants much more than we did – and when we didn’t it had to increase subsidies to an underused sector.
This is an odd paradox. The government is asking us, especially under Tier 2, to be very careful and reduce risks. However, up until last week its modelling of our behaviour was that we would, nonetheless, take more risks and spend more money.
It’s as if the government is disappointed in our taking fewer risks (since our taking fewer risks requires more subsidies). But wouldn’t you think that – in a public health crisis with so many infections – they would be delighted that we are taking fewer risks and going out less?
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