Covid-19: Economic Recovery

Lord Lilley Excerpts

Tuesday 20th April 2021 Grand Committee

[Lord Lilley (Con)]

My Lords, I congratulate the Government on the steps they have taken, so eloquently described by my noble friend Lady Penn, to protect jobs and livelihoods during the pandemic. Where they prevented businesses operating, albeit for good reason, they were morally obliged to compensate those prevented from earning a living. But there is something odd about the title of this debate. It refers to the steps taken to

“protect jobs and livelihoods as the economy recovers”.

But it is economic recovery that will effectively protect and replace the jobs that were threatened or destroyed during the pandemic.

The conventional wisdom is that to bring about a recovery we need a fiscal stimulus. Most recessions are caused by a shortfall in demand, and the remedy then is to boost monetary demand. But this recession is unique: it is caused by the suppression of supply. So a precondition of recovery is to end the lockdown as soon as possible, now that all those at risk have been offered the vaccine.

Moreover, while businesses have been prevented from producing the goods and services they normally deliver, most people have been paid, not least through the furlough scheme, and many have been unable to spend all their earnings—so there is considerable pent-up demand. As we relax the lockdown of supply, most sectors will therefore recover quite rapidly. But some will find that part or all of their previous demand has moved elsewhere. To create jobs for people displaced from those sectors, we will need existing businesses to expand and new businesses to be established. I will return to that in a moment.

First, should we—as the slogan has it—build back better? This has been universally accepted as both desirable and possible. But who builds an economy? A market economy is built by myriad interlocking individual decisions: people choosing to produce goods and services that other people want to buy. The alternative would be for government to override those decisions by regulation, taxation, public spending or state provision, and thereby induce people to produce and buy goods and services that they would not otherwise choose to produce and buy.

There are many high-minded people who are convinced that their choice of the goods and services that people ought to produce and consume is morally, aesthetically and economically superior to that which the hoi polloi, left to their own devices, would make. Maybe. But experience teaches that, if we adopt this course, it will probably make people materially poorer, and it will certainly make the recovery slower. That is inevitable, because higher taxation, more burdensome regulation and bureaucratic decision-making inexorably undermine the dynamism of a free economy. Anyone who seriously believes that the economic recovery, let alone the subsequent rate of economic growth, will be accelerated by white elephants such as HS2 or by raising the cost of energy, which is what the advocates of a green economy would do, is living in a dream world.

I mentioned that we need businesses to expand and new businesses to be created. One little-noted positive lesson of the pandemic could help that. During the crisis, under political, public and parliamentary pressure, regulators suddenly discovered that they could take decisions in a fraction of the normal time. New diagnostic tests and vaccines were approved in record time, new designs for ventilators were authorised, local councils permitted restaurants to expand on to the pavement and so on. What slows down business expansion in normal times, and the formation of new ones, more than anything else, is the need to get permits and approvals for a whole range of things: planning, building controls, environmental approvals, health and safety inspections, product authorisations and so on. For a business even to open a new bank account can take weeks because of money-laundering rules.

Regulators are often afraid to make decisions speedily. When I was Trade and Industry Secretary, I was occasionally advised by the department’s lawyers not to give a speedy decision in case there was a judicial review and the courts might be persuaded that I had not given due consideration. But now that we have seen that regulators can make decisions speedily, we must maintain pressure on them. Wherever possible, regulators should be required to reach a decision within a set time, failing which there should be “deemed consent” and the application should be able to go ahead. Every public body with a regulatory function should be required to report at six-monthly intervals on how long it has taken to reach decisions—both the average time and the slowest decile. Select Committees should hold all regulatory bodies within their sphere of influence to account for delays in reaching decisions.

In short, the recovery will come as soon as we end the lockdown. There is enough pent-up demand to ensure a speedy recovery; any additional stimulus risks merely adding to the subsequent inflation. Attempts by government to tailor the recovery to some arm-chair ideal of fairness will inevitably slow it down, and the best way to accelerate it is to speed up decision-making by regulators.