We borrowed billions to pay for lockdown but neither Starmer nor Sunak will admit that the resulting debt is holding the public finances in a vice-like grip, says Paul Ormerod
To borrow a famous phrase from Karl Marx, a spectre is haunting the election campaign.
Despite the frantic efforts by the Conservatives to portray Keir Starmer as a puppet of the left, it is not, as it was for Marx, the spectre of communism.
It is the spectre of lockdown. More specifically, the costs of lockdown.
The most obvious aspect of the bill is the huge amount which the public sector borrowed during the years affected by lockdown.
In the calendar years 2017-19, immediately before the pandemic, the UK government borrowed around £50bn each year. This soared to £273bn in 2020, followed by a further £166bn in 2021.
This massive increase in indebtedness continues to hold the public finances in a vice-like grip. It dominates the public policy discourse around the affordability of various schemes.
Any doubts about the scope for substantial unfunded increases in spending, or tax cuts for that matter, in the post-lockdown era were put to rest by the experiment of the Liz Truss government.
There is no hard and fast rule which links the outstanding stock of public sector debt to the level of interest rates. But as a rule of thumb, whenever the debt to GDP ratio rises above 100 per cent, which is effectively where the UK is now, the chances of more debt leading to higher interest rates starts to rise.
As a result, spats between the political parties are over what, in the broad scheme of things, are trivial amounts of money.
For example, Labour’s proposal to levy VAT on private school fees is certainly attracting a lot of heat in the campaign. The amount of light being shone on how much it will actually raise is questionable. Even Labour itself only puts the amount at just under £2bn.
This may seem a large amount. But the British state spends around £1 trillion – trillion – a year, which rather puts the figure into context.
The health service is a key issue in the election. This is hardly surprising given the huge increase in the numbers waiting for treatment.
According to the British Medical Association, in February 2020, the month immediately before the pandemic, there were 4.43m people on a waiting list for consultant-led care. There are now 6.29m on the list, some with more than one health problem. The median waiting time for treatment is more than double its pre-Covid level.
The number of people of working age who do not have jobs now stands at the record level of nearly 11m. There are legitimate reasons for some, such as being a student.
But there is now no doubt at all that the policy of furlough gave many a taste for a life of leisure rather than work.
The list could go on. The costs of lockdown become clearer and clearer, and larger and larger, almost with every passing day, putting conventional policy options into a straightjacket.
In the summer of 2020, distinguished groups of economists carried out standard cost-benefit analyses lockdown. Their conclusions were that on any reasonable set of assumptions the costs exceeded the benefits.
Despite this, and despite the fact that virtually every other aspect of policy is scrutinised through the lens of cost-benefit analysis, the government ploughed on regardless and shuttered the economy. And it did so with the enthusiastic support of the opposition parties and the electorate as a whole.
There appears to be a new trend of people turning up to restaurants, ordering cocktails, expensive dishes and fine wines and then scarpering down the street. Unfortunately, in the case of lockdown, this option is not available. The bill has to be paid.
Paul Ormerod is an economist at Volterra Partners LLP, an Honorary Professor at the Alliance Business School at the University of Manchester and author of Against the Grain: Insights of an Economic Contrarian, published by the IEA in conjunction with City AM