Hamish McRae: Cash isn't the only way to cure countryside ills

'There's no magic wand. Rural people must help themselves'

How much will the foot-and-mouth epidemic really cost the economy, and where will those costs be carried? It is very early to make such a calculation, for we still do not know the extent or duration of the problem.

How much will the foot-and-mouth epidemic really cost the economy, and where will those costs be carried? It is very early to make such a calculation, for we still do not know the extent or duration of the problem.

But we do know enough about the functioning of the economy to draw conclusions about the places of impact and make a first cut at the scale of the problem. We can also begin to think though the longer-term consequences on the economy and what might offset these.

The most surprising conclusion is that the hit taken by agriculture is a small part of the costs. In emotional and human terms the blow to farmers is enormous. But farming is only 3 per cent of the whole economy and the meat trade is only a slice of that. So the overall numbers in loss of national output are not large.

The Centre for Economics and Business Research (CEBR) has made rough estimates and puts this at £3.6bn this year. That may or may not prove right but in the context of a GDP of some £1,000bn and government revenues of nearly £400bn, it is not unbearable.

There is always a danger of "billionitis". The figures are so enormous they become unreal. Besides, a billion here and a billion there add up to serious money, even for a Government whose revenues look like exceeding the target by more than £4bn this fiscal year. Still, the manageable scale of loss argues for fair compensation for the financial losses of farmers.

Sadly, the loss to farmers is only the starting point of the loss to the economy. The costs to the rural community are much larger. The CEBR comes in at £9bn in total, made up largely of losses to travel and tourism, though offset to some extent by higher spending elsewhere. Again it is early to be making such estimates and the CEBR deserves credit for its courage. But even if the numbers prove wrong the sharing of the burden - 40 per cent agriculture, 60 per cent the rest - feels right.

This is important. There is an immediate practical point in that there will be many losers in the rural areas who will receive no compensation. Worse, the burden is being concentrated on a sector of the economy already in trouble. Agricultural incomes have been in decline for five years, leaving large swaths of the country excluded from the benefits of growth some urban areas have enjoyed.

So even if there is a speedy conclusion to the epidemic, there will be lasting effects on the rural economy. Some rural businesses will close. Others will have to cut investment. Some land will be taken out of production. Rural unemployment will rise.

This pain is widely spread. But there will be a qualitative change thoughtful visitors to the countryside will notice: the place will become more depressed relative to cities. If we are not careful, the social problems evident in many rural areas will become harder to manage.

How can the countryside fight back? There is no magic wand but you can begin to glimpse ways in which it might. The Government has begun its plan to help the countrside and deserves credit for that. But there are limits to its likely effectiveness. Here are five further ideas.

First, once the epidemic is over we have to get British people to go to the countryside more frequently. So we have to use this time to look at all the activities that draw people to the country and see how these might be enhanced. How do we get more people spending a short break in the British countryside rather than heading abroad to a foreign city? How do we encourage rural pursuits, hill-walking, fishing, gliding?

Obviously we need to think about hunting. It is not a large industry and this is not the place to debate its rights and wrongs. But it is a significant activity and the economic impact needs to be reassessed in the light of the hit the rural economy has taken.

Second, we need to get those foreign visitors back. Better, we need to look at why we have been losing market share in world tourism, identify the problems and tackle them. (Yes, I know we cannot do anything about the weather.) There is no simple fix. This needs attention to detail, but we cannot attend to the detail until we know more about the problems. Research please.

Third, countryside representatives - councils, chambers of commerce and the like - need to lure business back from urban areas. Mass does matter and cities which are successful tend to increase their lead. But there are specialist areas where the countryside has a competitive advantage: fine foods for example. And lifestyle attractions will surely become stronger for people who run their own business and hence have the freedom to locate anywhere.

Four, communications matter. There is little a rural community itself can do about its road and rail links in a few months, but it can encourage communications in other ways. Old communications were moving people and goods about. New communications are moving ideas about. Getting rural towns onto high-speed fibre-optic cables is a practical way of boosting the rural economy.

Finally rural areas need to ask themselves what practical things they might do to remove blockages to their prosperity. This has to be self-help. They have to assume the Government is not really going to be much help, preoccupied by the need to please urban focus groups and the chattering classes. That is unfair, but it is a useful working assumption. The countryside knows the countryside. Westminster doesn't. Rebuilding the rural economy will mostly be bottom-up. There's one qualification. A lot of people in towns would like to help but don't know how. The more the countryside does to help itself, the more the townies will join in.