The Treasury is worrying about economic long Covid

The government’s chief economic adviser discussed the consequences of the pandemic in a significant speech, writes John Rentoul

Economically inactive people can include those who have taken early retirement (PA)

Clare Lombardelli, the government’s chief economic adviser, came to King’s College London on Wednesday to give a speech about the effect of coronavirus on the economy. It offered an insight into Treasury thinking about the pandemic and its consequences.

Most of the speech was about the response to the unprecedented public health crisis, imbued with some pride in the Treasury’s speed and creativity, having little evidence to draw on but a strong assumption that the furlough scheme would protect the interests of millions of people on lower incomes against the temporary shock.

Most interesting to me, however, was the last part of the speech, in which Lombardelli outlined “two things to worry about”. One is the sharp rise in economic inactivity, as about half a million people have left the labour market. She said that this figure is primarily accounted for by people in their fifties and sixties, but is not confined to people taking “financially comfortable” early retirement. The rise in inactivity “is evident in most regions and across all education levels”, she said.

This is both a human problem – it is bad for people to drop out of the labour market on low incomes – and a problem for the country as a whole, because “the fall in labour availability limits the potential size of the economy and increases the pressure on inflation”.

The other thing the Treasury is worried about is the long-term effects of the educational disruption of 2020 and 2021. “This will affect productivity,” she said, bluntly, and will have worse effects on those from disadvantaged backgrounds.

In both cases, she said, the government was working to understand the problem better and to expand help to re-enter the labour market and to catch up on lost learning.

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I thought it was striking how the Treasury takes such a broad view of its responsibilities, and such a socially progressive one – not as the product of political ideology but of the economic interest of the country as a whole. I think it does mark a change from the Treasury orthodoxy before the New Labour years.

The speech was part of the partnership between the Treasury and the Strand Group, the academic centre at King’s run by Professor Jon Davis. Lombardelli is a visiting research fellow who co-teaches a course on the history of the Treasury since the war, part of a range of courses including “The Blair Years”, which I co-teach with Dr Michelle Clement.

I have that interest to declare but I think that Prof Davis has built a remarkable collaboration between government and academia, and that Lombardelli’s speech was a valuable fruit of it.

Yours,

John Rentoul

Chief political commentator