Covid-19: Economic Recovery

Lord Hannan of Kingsclere Excerpts

Tuesday 20th April 2021 Grand Committee

[Lord Hannan of Kingsclere (Con)]

My Lords, it is a pleasure to follow the noble Lord, Lord Lea of Crondall. I do not have the FDI figures in front of me and I do not have a hat either, but I am glad he raised the vital question of higher education. I would like to associate myself with all the remarks made by my noble friends Lord Horam, Lord Vaizey and Lady Noakes, and the noble Lord, Lord Bilimoria, about the impact of closing colleges and universities.

I should declare my interest as someone who teaches at the University of Buckingham, which makes me acutely aware of how unsatisfactory it is to try to teach through the medium of Teams. It seems that, by keeping young people from their studies, we are exacting an especially high toll on the people who are least at risk from the epidemic itself.

I wish I could share the optimism expressed by so many of my noble friends about the condition of our economy as we come out of the lockdown. However, I fear that when things reopen, they will not go back to normal. The malign psychological changes wrought by the epidemic and its associated closures will last long after the immediate threat of the virus has passed. The world into which we emerge after lockdown will be poorer, colder, more pinched and more authoritarian. As we haul ourselves from the pupa, the chrysalis, of these closures, we will be transformed and—the evidence suggests—not in a good way.

I am not really talking about the economics. I have nothing to add to what my noble friend Lady Noakes said. She quoted figures on our debt, our deficit level and the hit we have taken. The hit last year was worse than in any equivalent period during either of the two world wars or the great depression. But eventually, after many years or decades, we will be able to make good that damage. What alarms me more is a phenomenon well attested to by behavioural psychologists: the way a collective threat, or a perceived collective threat, throws people back on their palaeolithic heuristics. It makes us warier, more suspicious, more illiberal, more hierarchical and more demanding of the smack of firm government.

My noble friend Lord Vaizey drew a parallel with 1945 and the Beveridge report. In general I think that parallels with the Second World War should be used sparingly in politics, but on this occasion it seems a quite valid linkage to make, because that was the last time we felt the experience of a collective threat of similar magnitude.

The result was that, once the emergency had passed, the demand for collectivist measures, which had been brought about by the changes in our economy and psychology during the Blitz and the mobilisation, endured. So, long after their notional justification was no longer there, we still had identity cards until 1952, food rationing until 1954 and full male conscription until 1960. Indeed, when it comes to some of the economic controls put in place in the first half of the 1940s, in many cases they lasted until the Thatcher reforms of the 1980s. Indeed, some aspects of education and healthcare are still there—products, essentially, of wartime thinking and full mobilisation.

What alarms me is that a similar change in public psychology and, therefore, in electoral calculations will endure long after the passing of this disease, and that Governments will cling on to powers that were taken on a supposedly contingent basis and will be reluctant to return them when the emergency passes.

After 1945, there was a demand for big spending and big government. People were not in the mood to listen to the argument that we were bankrupt, our Treasury was empty, our credit was exhausted and we had spent all our resources in the course of defeating Hitler. People felt that they had earned something more. So we went about an extraordinary expansion of the remit of the state. I can see similar arguments creeping in now. When was the last time that we heard anyone, either in this House or another place, make the case that we should cut grants to businesses or charities, or the uplifts in public sector pay or in benefits—pick pretty much any of them? It becomes almost impossible and pointless to make that argument when the mood is as it is. So debates in both Chambers come to resemble a kind of prolonged episode of the “Today” programme: a series of demands for additional spending, each individually defensible but collectively unaffordable.

I was very pleased to hear my noble friend the Minister say that the Government intend to move back to a balanced budget when circumstances allow, but I am equally very alarmed by the widespread view that this will have to be through tax rises. When you try to balance the budget with tax rises, you find that you are reducing the revenue-generating bit of the economy to sustain a rise in the revenue-consuming bit. That is no way to get rid of a structural debt; the way to get rid of that is for the economy to grow. How do you get the economy to grow? There is no magic formula; we have seen it happen every time it has been applied. You get an economy to grow by applying the principles of secure property, an independent judiciary, competitive regulations, free trade, open markets, and lower, flatter and simpler taxes. I was very pleased to hear what my noble friend Lord Carrington said about the simplification as well as the lowering and, in some cases, the abolition of taxes, particular on employment. If our priority is to get the economy moving again, then, far from raising taxes on investment and employment, we should look to reduce or at least suspend those taxes so that we get companies hiring again.

Of course, these were difficult enough arguments to make in normal times, even before we had the changes to our outlook wrought by the prolonged lockdown and we were thrown back on these palaeolithic instincts of wanting to keep things close, and to become more protectionist and introverted. If we could not win these arguments two years ago, is there any chance coming out of this that the country will have an appetite for significant deregulation or tax cuts? As the poet says:

“forward, tho’ I canna see,


I guess an’ fear!”