IIn one respect, however, there is a similarity to the policy that followed the financial crash. Just like back then, ministers said they will use quantitative easing to create new money. After the financial crash, the government borrowed £ 435 billion from the Bank of England through quantitative easing, and will now borrow another £ 200 billion. Future governments may choose to repay these debts, or not. If the only consequence of not paying the bill is some inflation, ministers may judge that they can live with it. Treasury bonds can simply collect dust in the Bank of England.
When the crisis passes, or stops, there will be no doubt about the calls from the tax hawks on the conservative desks so that the Prime Minister puts public finances first. The budget deficit, at least for the next year, will be large. The already high debt stock will be even higher. Both will have to go down, they will say. And coronavirus is another reminder, they will add, that we should have a balanced budget to prepare for unexpected shocks and crises. The message to Boris will be: limit your ambitions and don’t spend too much.
But this would be a serious mistake, for three good economic reasons. First, the tax consequences of coronavirus may not be as serious as many fear. Second, deficits can be eliminated through the growth and increase in tax revenues and not just cuts. And thirdly, as Boris said, our economic resilience and future prosperity lies in strengthening the competitiveness and productivity of the regions, which requires investment.
And, of course, a failure to deliver on the conservative promise of leveling up the regions – or worse, reintroducing an austerity program – would cause immense political damage, killing the new nationwide electoral coalition that ran through the Tories. their majority in December.