One day soon, the Coronavirus will be over. But when we do finally emerge from our homes, the world outside is going to look very different.
Even if the virus goes away, we’ll still be stuck in the biggest economic crisis of our lifetimes.
The predictions are dire: The Office of Budget Responsibility is estimating that GDP could fall by a jaw-dropping 35% in the second quarter, and unemployment could spike by two million.
And while there will be some bounce-back once the lockdown is eased, there will still be lost jobs, lower spending and firms put out of business.
It’s for this reason that now the government has turned on the spending taps.
One of the first measures announced by Chancellor Rishi Sunak when the crisis began was a £350bn stimulus package for business. Plus the government is now essentially underwriting the entire British economy, and will pay the wages of furloughed workers.
Amazingly, this may not go far enough, and the government will be forced to continue spending to stimulate demand for some time yet. We can already see old assumptions about how politics works or what is politically possible are already being thrown out. Ideas that seemed abstract or impractical a few months ago, like Universal Basic Income, are now being taken seriously by policymakers around the world.
And this is why I think that despite everything, the coronavirus has presented Britain with an enormous opportunity.
The government shouldn’t let a good crisis go to waste, and should use the political space created by COVID-19 to look ahead and tackle the next crisis, long before it becomes a problem. It’s time for a “green stimulus”.
The Green Stimulus
Simply put, the government should leave the spending taps on and spend big on green technology:
It should build out the network of charging points for cars to make electric vehicles as convenient as petrol vehicles. It should retrofit heat-pumps and insulation into homes to make them more efficient. It should build out solar and wind power around the country, it should make battery storage part of the grid – and it should make the National Grid a true “smart grid”, to enable electricity to be sold back and moved from where it is stored to where it is needed.
Expensive? Undoubtedly. Necessary?
This is what the country is going to have to look like anyway, if we want to meet our obligations under the Paris Climate Agreement, where the goal is to hit net-zero carbon emissions by 2050. So let’s do it now while the economy could use the help.
Think about what it would entail. It would require the creation of thousands of jobs.
The jobs wouldn’t be London centric, or in sectors that can easily concentrate into big cities. A workforce would be required to go into homes and offices to manually install equipment, so couldn’t be outsourced or automated.
This would be a stimulus that helps the so-called “left behind” towns in the north that make up the infamous “red wall” that crumbled in the 2019 election, just as much as it helps everywhere else.
More importantly, this wouldn’t be spending for the sake of spending. It would be an investment in the future.
When we get a chance to take stock of what has happened, it seems likely that we’re going to start worrying more about resilience. We’ll want to know that in a future pandemic there will be a supply of PPE, and that Britain will have the ability to scale up manufacturing of specialist medical equipment quickly.
But another pandemic is not the only challenge.
We will want to be more resilient against a wide range of threats. By building our green energy system, we’ll end in a place that is less reliant on imported fuels, with a reduced risk of catastrophic climate change, rising sea levels, and all of the second-order chaos that doing nothing will entail in the medium-term future.
There is also one additional upshot:
If we’re willing to spend big, then at the end of the process, we may end up with a new “national champion” – a world leading company in renewable energy that can export technology and knowledge around the world. Just as Huawei has transformed the world with China’s telecoms knowhow, Britain could become the country that helps the world reach net-zero.
Paying For It
So how exactly would it work? Exactly what infrastructure to target, whether to deliver it by the public or private sector, and whether it should be partial subsidies or outright government spending are for the politicians and economists to figure out. The crucial part is that however the cash gets there it would be injecting cash into the economy and doing something unarguably good with it.
There’s also an obvious question: How much?
It’s hard to estimate without having decided on further details, but one study by Capital Economics, which pitched 25m new electric charging points and 22m new heat pumps, plus upgrades to the grid, but it at an eye-watering £286bn.
But this is why spending now is important.
“The faster you spend the most amount of money, the faster your economy will return to normal,” says Kaleb Nygaard, a central bank researcher at Yale University, who explains that during the current crisis, economists are arguing that we need not worry about the normal risks of inflation and government debt.
“It is an investment in the future and should make the economy more productive,” he argues.
So given everything, isn’t the time right for this? Despite everything, the political and economic stars are in alignment. Now is the time for the green stimulus.