The coronavirus lockdown – and the government’s mistakes – will scar people’s finances for years

The benefits of consumers seeking to spend the income saved during the last few months will be outweighed by the millions who have faced financial loss, writes Thomas Smith

High streets across England are starting to re-open in earnest (AFP/Getty)

A welcome new dawn is slowly rising on high streets across the country as they reopen, with retailers allowed to operate while adhering to strict social-distancing rules. The end of dormancy will come as a relief for all small and medium-sized enterprises (SMEs), who will now attempt to recover from the seismic losses – in terms of finances and personnel – incurred as a result of the UK’s lockdown.

The novel coronavirus (Covid-19) has infected a known 300,000 people in the United Kingdom and has claimed the lives of more than 42,000. That the spread of the pandemic and resultant deaths in the UK is a tragedy is unquestionable. However, as the UK gradually begins to untangle itself from its self-imposed restrictions and the lockdown-driven economic costs come to light, scrutiny of the government’s strategy is bound to step up as people across the country face a significant financial hit.

The unfortunate plight of UK businesses is clear: amid the backdrop of the worst-recorded decline in GDP in April (a huge 20.4 per cent) and the UK spending an estimated £14bn per month on its job-retention scheme, small businesses have endured huge hardship. The sombre revelation that the reaction to Covid-19 will cost SMEs an estimated £70bn – almost £12,000 per average business – provides an indication of the massive losses inflicted.

The shocking estimate that almost a quarter of a million SMEs have been forced to permanently cease trading, as well as the finding in a separate study that 65 per cent of business owners stated that they had insufficient funds (or none) to help them during the crisis, further illustrate the dark scenario that SMEs find themselves in.

The furlough scheme introduced by the government is an appropriate and sensible response to putting millions out of work, but concerning aspects surround it. A study found that 17 per cent of self-employed people were unable to claim for the Self-employed Income Support Scheme (SEISS). Indeed, the finding of the Treasury Select Committee this week that more than million people had been “locked out” of the main furlough programmes – thus unable to access vital funds – is further illustrative of some inherent flaws.

Despite the gradual loosening from the rigid restrictions that businesses have had to follow, residual effects from the lockdown will very much continue the damage. The benefits of consumers seeking to spend the money they have saved during lockdown will be outweighed by the millions who have faced financial loss. With a reported 1 in 5 people in the UK “severely impacted” financially by the pandemic; British households facing a decline in disposable income of £515 per month; and the unemployment rate forecast to double to 10 per cent (the highest figure since the 1930s) this year, the outlook for consumer spending in the near future is murky at best, disastrous at worst.

Despite being starved of normal income for the past three months, the fact that retailers are slashing their prices is evidence of the lengths that businesses will go to for the alleviation of their current predicament.

The lockdown-induced economic impact will scar deeply. A report co-published by Ernst & Young projected that—in just nine months—UK businesses will collectively be burdened with £100bn worth of “unsustainable” debt. When businesses are negatively affected, so too are consumers: StepChange, a UK charity, estimates that UK households will accumulate an extra £6bn worth of debt because of lockdown measures, translating to a startling additional £2,000 per adult.

Spiralling business and personal debt are not the only issues: a recent report of the Organisation for Economic Co-operation and Development (OECD) said that, in economic terms, the UK is likely to be one the worst-affected nations. A forecasted GDP contraction of 11.5 per cent for 2020 and public debt rising potentially by more than 10 per cent are serious wounds that current and future generations shall be saddled with.

I believe the lockdown has been too draconian and protracted. Denmark – a country with lower business activity – took just eight weeks from imposing its lockdown to reopening shopping malls. Austria, which entered lockdown on 16 March (only a week before the UK) began reopening its shops only four weeks later. Restaurants, cafes, gyms and hairdressers have all been open since May—despite fears of a “second wave” of infections.

You could sensibly defend of UK policy by saying that such countries do not have a population has high as that of the UK, or that they were not threatened with the high volume of cases that the UK had faced. However, Belgium, with more than 100 more people per square kilometre than the UK, allowed non-essential shops to begin opening as early as 4 May – less than seven weeks before the country entered lockdown. Similarly, the Netherlands–another population-dense country–also began to allow non-essential retailers to operate from 11 May.

Some have argued that the number of cases the UK has faced, and therefore the need to keep lockdown in place, has been down to slow or dithering government policy. Indeed, analysis of nations with higher initial March case counts also reveals a quicker restriction-lifting rate. Italy – despite being one of the worst-affected countries in Europe – took 10 weeks from the initial lockdown to the reopening of cafes, restaurants and hairdressers (with some shops, such as book stores and children’s clothing shops, opening as early as 14 April).

Spain, which had endured one of the strictest lockdowns globally, has also been faster to revive normality compared with the UK: taking just four weeks to allow some non-essential employees back to work and allowing non-essential businesses (such as small retailers, hotels and gyms) as well as museums to resume activity from 11 May.

Concern about this unprecedented occurrence is natural; vigilance and care should be encouraged. However, the government’s relative dithering and the lockdown that has had to follow will bring damage lasting years