Borrowing to keep the economy afloat is worth every penny

Editorial: The government has so far risen to the economic challenges of the Covid crisis. It’s clear what Rishi Sunak needs to do next

Some of the chancellor’s measures have been welcomed (Reuters)

The direct cost, so far, of the Covid crisis to the exchequer is close to £300bn, equivalent to about a third of normal annual public spending, and about 14 per cent of national income. 

It is war socialism delivered by a Conservative government. All the usual fiscal and monetary rules have been suspended. It will take the national debt to a 60-year high. Much of the borrowing is being funded by the Bank of England creating new money. Some fret about the eventual consequences for inflation and about the tax rises and spending cuts that will be needed, in due course, to put the public finances back on track.  

It is worth every penny, however. Without such free-spending measures, the economy would be mired in an even deeper recession. Economic downturns have a habit of feeding on themselves, and a recession can easily turn into a slump. If confidence drains from an economy, the resultant stagnation can persist for decades. In any case, some of those made redundant will not work again and otherwise healthy businesses will be lost forever. Covid is essentially a short-term economic shock rather than a deep-seated structural problem with the economy. Borrowing to bridge the gap until the return to normal is perfectly sensible.