• Corporation tax debate. A major focus of pre-Budget debate has been the proposed rise in corporation tax, in part because of an apparent, eyebrow-raising reversal of roles - the Conservative government is proposing higher taxes on businesses, while the Labour opposition argues a rise in corporation tax should not be introduced until later in the recovery. The issue is particularly thorny because it speaks to a number of interrelated debates.

‍

• No need for fiscal consolidation... Sunak has outwardly justified the proposed tax increase on fiscal grounds - arguing that there’s a need to ‘repair the public finances’. Labour have cited the IMF and OECD in arguing that the focus now should be on recovery, not on fiscal consolidation. (See e.g. our analysis of fiscal policy narratives and a thread from the BBC’s Andy Verity on why there’s no urgency to “pay down the debt”.)  
• ~~...but would raising corporation tax slow down recovery? Some have argued that given the UK’s low rate of corporation tax and the fact it is only paid on profits, not revenue, raising corporation tax would not unduly dampen recovery if accompanied by a large enough stimulus elsewhere. (See e.g. IPPR’s paper on taxation and the Budget, and Beyond Covid analysis of tax and recovery).

‍

• Narrative and political challenges. Many people now agree that the UK corporation tax rates (19%, down from 30% a decade ago) is too low. It is much lower than other G7 countries, where the average rate is 24%. But among those who support a rise in corporation tax in the long-term, there is disagreement over the politics of supporting the near-term increase.
• ~~Support. Critics of Labour’s strategy, for instance, have argued that opposing corporation tax now risks wasting a time-limited opportunity to reform the tax system to make it more redistributive, and/or that Labour risks landing on the wrong side of public opinion. There is also a danger that opposition to tax rises helps reinforce their perception as anti-business.  
• ~~Opposition. The opposing argument is that supporting a rise in corporation tax now may reinforce the government’s claim that the public finances need to be ‘repaired’ through another round of austerity and fiscal consolidation. Regardless of other reasons to support an increase, it is this austerity narrative (it is argued) which will inevitably dominate debate and public perceptions.  

‍

• Other tax rises. The Government is thought to be proposing a freeze in income tax thresholds. The Resolution Foundation has pointed out that this is progressive in nature, as has the New Economics Foundation, which has previously argued for personal allowance reform. Meanwhile, councils are already being forced to plan increases in council tax - which is highly regressive (see Sun coverage) - due to cuts in their funding from central government, which the Financial Times has branded “austerity by stealth”.
• ~~Tax Day. The Government will signal its long term policy direction on tax on March 23, when it will publish consultations expected to cover capital gains tax, environmental taxation and more.

‍

• Supporting businesses and households. IPPR research has highlighted that more than 500,000 businesses are at risk of bankruptcy (equating to 9 million jobs) and argued for continued support, including through public equity stakes. Meanwhile NEF research estimates that around a third of UK residents will be living in hardship by May, even with the Universal Credit uplift.
• ~~Public attitudes. Surveys indicate that public support for increasing the generosity of social security far outweighs support for cutting benefits - a reversal from in 2014.
• ~~Universal Credit. The New Statesman’s George Eaton has highlighted that the UK’s unemployment benefits as a proportion of previous income are the least generous in the OECD. (See House of Lords review “Universal Credit isn’t working” for a comprehensive overview).

‍

• Size of stimulus? President Biden’s proposed $1.9 trillion economic recovery package has received a huge amount of attention. IPPR has highlighted that the UK faces a deeper recession than the US, but is planning to spend far less as a proportion of GDP on stimulus - and has called for planned spending to be increased 4x to match American ambition. (See FT coverage here)

‍

• ‍Environment. Guardian environment correspondent Fiona Harvey has analysed pre-Budget announcements will mark a test of the government’s green credentials ahead of COP26.‍
• ~~A green and fair recovery. A group of MPs and peers have written to the Chancellor outlining five priorities for a green and fair economic recovery, including investment in social infrastructure and green job creation, reform of the Bank of England mandate, and a move towards wellbeing budgets, echoing the recommendations of the widely-supported Dasgupta Review (which we analysed here).

• $1.9 trillion. Biden’s proposed American Rescue Plan (ARP), which if passed by Congress would see an injection of $1.9 trillion into the US economy, would constitute a “huge fiscal experiment”, with government borrowing and spending ($1.9 trillion is around 8.9% of US GDP) on a scale unseen since WW2. The package includes $2000 cheques being sent to most American households.
• ~~Analysis: Economist Professor Steven Fazzari examines the proposal’s four main components for INET (public health funding, unemployment benefit, support for state and local government and stimulus cheques) and argues that we should not be concerned by the public finance implications. The Brookings Institute examines the macroeconomic implications of the package.

‍

• Economists’ support. The proposals have attracted a wide range of support in academia. Indeed, support for ARP unites the unlikely pairing of Paul Krugman and Kenneth Rogoff, who have previously disagreed bitterly over the economics of austerity.
• ~~Opposition. Some high profile economists, including former Obama advisor Lawrence Summers and former Bundesbank head Axel Weber, have argued that the plan would risk large inflationary pressures - though it is worth noting that the latter has a history of being extremely hawkish on inflation (e.g. calling for monetary policy tightening in the Eurozone in 2011). Olivier Blanchard defended concerns over the ARP for the Peterson Institute, while asserting that he still believed in the need to “go big” on fiscal policy.
• ~~Explainer: Vox’s Emily Stewart offers an excellent overview of the economic debate around ARP, arguing on balance that the risks of not going big enough outweigh the risks of timidity.
  

‍

• Inflationary risk? In response to Summers and others’ concerns around inflation (above), Head of the IMF Research Dept Gita Gopinath has argued that “structural factors and central bank liquidity limit inflation risks”. Additionally, Wall Street’s investment banks are “increasingly saying that concerns about runaway inflation are misplaced” (Business Insider).
  

‍

• The politics of stimulus. Paul Krugman has highlighted that Biden’s proposals are “overwhelmingly popular” with both Democrat and Republican voters, despite otherwise deep partisan divisions and efforts by Republican lawmakers to discredit the stimulus package. Additionally, Krugman’s analysis highlights the political risks of undershooting, including undermining trust in the state to deliver security.
  

‍

• Implications for macroeconomics. The outcome of the ARP Act, if passed, would have enormous implications for debates over macroeconomic policy around the world. In recent years, the economic consensus has shifted decisively in favour of fiscal policy (see Lord Skidelsky in Project Syndicate and our overview of macroeconomic policy debates in 2021). If Biden’s “huge fiscal experiment” is successful, we might expect it to further strengthen the case for fiscal spending and against austerity. On the other hand, if it does stoke inflation or fail to create jobs rapidly enough, or if money is perceived to have been ‘wasted’, this is likely to strengthen the arguments of fiscal conservatives everywhere.
  

‍

• Eurozone debate. Already, President of the Peterson Institute Adam Posen is fearful that fiscal conservatives in Europe would jump at the chance to use the Biden plan to undermine efforts to increase fiscal ambition in the Eurozone.
• ~~Europe needs stimulus. The FT Editorial Board, on the other hand, has called for the Eurozone to follow Biden’s lead and “go big” on fiscal policy, arguing that the Eurozone’s deeper recession both increases the need for stimulus and undermines the risk of inflation.
• ~~A new fiscal framework. The debate in the EU is now over the entire fiscal constitution of the EU, in which the Stability and Growth Pact limits deficit spending. Over a hundred civil society leaders and academics have written to EU leaders calling for a review of economic governance, arguing that the bloc’s current fiscal framework is “the exemplar of irresponsibility”.
  

‍

• British debate. In the UK, the American Rescue Plan has inspired calls for the Government to “Boost it like Biden”. IPPR has highlighted that the UK faces a deeper recession than the US, but is planning to spend far less as a proportion of GDP on stimulus - and has called for planned spending to be increased 4x to match American ambition. (See FT coverage here)
  

‍

• Investment. A major difference between the IPPR proposals and the Biden plan is the former’s inclusion of public investment spending - while the Biden plan focuses entirely on Covid-19 relief and support for businesses and households.

March Budget. The Telegraph reported last week that the Chancellor is “thought to be moving away from major tax increases in next month’s Budget… delaying any fiscal pain to a second Budget later this year”. In their coverage, the Financial Times emphasised that while Sunak will focus on supporting the economy through lockdown, he will also use the March Budget to be “open and honest” about what “fiscal discipline” means - introducing some tax rises now and signalling more for the autumn.

‍

Conservative disagreement.The FT cites former Cabinet member David Davis and former Thatcherite minister Sir John Redwood as examples of Tory opposition to “fiscal discipline” in the short- to medium-term, e.g. Davis: “I would aim to start thinking about balancing the books in three years’ time. The aim now should be to do everything conceivable to help the economic recovery”.

• ~~Political concerns. Sunak’s motivations are in part political - reflecting a desire to put “clear blue water” between the Conservatives and Labour with his approach. The Chancellor might also hope that bringing forward tax rises will give him the freedom to cut them again before the next election, as reported in September.

‍

‍False trade-offs.The debate around tax rises is characterised by a supposed, binary trade-off between tax rises to ‘pay down the debt’ on one hand, and supporting recovery on the other - but this is misleading. ‍

‍

Do we need to pay down government debt? No - in the short-term, the overwhelming economic consensus is that there is no pressing need for fiscal consolidation, and that the focus should be on supporting recovery, as we have covered here and here. The OECD’s chief economist has expressed concern that the UK and other Western governments remain too fiscally conservative in this respect. ‍

• ~~Even once recovery is well underway, the case for tax rises still does not come from any need to “pay down the debt”. Oxford’s Professor Simon Wren-Lewis has written about how it makes little sense to target government debt reduction in light of its role as a shock absorber. Rather, higher taxes would support an ageing country with better public services in the long term, as SPERI’s Michael Jacobs has highlighted.

‍

‍Will tax rises inhibit recovery? While the case against overall fiscal consolidation, especially with respect to spending cuts, is clear-cut - as above, the economic consensus is that large scale fiscal policy is needed - tax is more complicated. Wealthier households and certain businesses have done disproportionately well during Covid-19 - raising taxes on these groups is unlikely to suppress economic activity, especially if combined with redistribution. Indeed, taxation could play an important role in shaping the recovery to be e.g. more equitable and more green.‍

• ~~Analysis. The Times’s Philip Aldrick and Tax Justice UK’s Robert Palmer both offer good overviews of the role tax can play in recovery.‍
• ~~Excess Profit Duty? Economic historian Norma Cohen writes for the FT on how a tax innovation from after WW1 could be used to target the “outsize profits” some companies have made during Covid-19 to prevent a “K-shaped recovery”.‍
• ~~Green taxation. The Grantham Institute has designed a fiscal framework for climate action, while Common Wealth and the New Economics Foundation have laid out principles for green taxation reform.‍
• ~~Wealth tax? Conservative MP and chair of the Treasury select committee Mel Stride appeared supportive of a wealth tax on Times Radio this week (video and details of proposal on Twitter).‍
• ~~Other forms of wealth taxation. The Chancellor’s review of capital gains tax suggested raising tax rates on income from wealth so they are closer to rates on income from work. (See IPPR for a good overview of wealth taxation.‍

‍

Tax reforms. There is also the opportunity to reform the tax system along these lines without necessarily raising taxes in any individual area, e.g.:‍

• ~~Personal allowances. In view of reports that the Government is looking into freezing the personal allowance, read NEF’s report on a cost-neutral alternative to the allowance that is both highly distributive and better for macroeconomic stabilisation. ‍
• ~~Property taxation. A number of Conservative voices (Onward, the Property Research Group) have made the case for reform of property taxation. As it stands, the present system is highly inequitable and inefficient - which is why coming rises in council tax are of serious concern (FT: “austerity by stealth”). ‍
• ~~Conservative view of tax reform. Last week Kevin Hollinrake MP set out a number of areas for tax reform on ConservativeHome, showing a considerable degree of overlap with progressive proposals. ‍

‍

Tax cuts. Conversely, it is unlikely that tax cuts - which for the most part benefit wealthier households with lower propensities to consume - would spur growth, especially if that entailed lower public spending. For instance, recent analysis of 18 OECD countries over the last half a century suggests, contrary to the promises of trickle-down economics, tax cuts on the rich have had no significant positive impact on growth or employment, while they have exacerbated inequality.

• ~~Corporation tax. ICYMI, the Conversation has an excellent article on ending the “race to the bottom” on corporation tax.

• What is it? Last week, HM Treasury published the landmark Dasgupta Review - the Final Report of the Independent Review on the Economics of Biodiversity. It is the first time a finance ministry has published a comprehensive analysis of the relationship between economics and the protection of Nature (capitalised in the Review).
• ~~Summary. The Review’s own short “headline messages” document can be found here. Our summary: the demands on Nature are dangerously unsustainable as a result of “deep-rooted, widespread institutional failure”. “Transformative change” is needed urgently, and for this “we cannot rely on technology alone: consumption and production patterns will need to be fundamentally restructured”. Key steps are to “change our measures of economic success” - at the very least, de-emphasising GDP - to incorporate the value of Nature and the cost of its degradation, and to transform our finance and education systems.
• ~~Analysis. James Murray, editor-in-chief of Business Green, offers an excellent overview of the report and surrounding debates. UCL IIPP’s Katie Kedward offers a more focussed, in-depth analysis of the Review’s implications for central banks and financial supervisors (Twitter).

‍

• International context. The report is published amidst alarming recent evidence that humans are destroying nature on an unprecedented scale and that none of the world’s internationally agreed targets for 2020 have been met (Leaked UN research).
• ~~British context: The Public Accounts Committee last week published its searing critique of the Government’s progress towards its long-term environmental goals. The report notes that “nine years [from setting these goals] it still does not have the right framework for success”. The Environment Bill’s passing has been delayed again (Guardian) and last week the Government rejected Caroline Lucas MP’s proposed amendment to replace GDP as the headline measure of economic success. It declared that “economic objectives and decision-making processes are already aligned with ambitious commitments to… improving the natural environment”. This is flatly contradicted by the Dasgupta Review.
  

‍

• Reception. The report was welcomed by a wide range of economists and environmentalists, including Nobel Prizewinner Joseph Stiglitz: “It provides, for the first time, a framework for the difficult global decisions we must have on how to restore sustainability, not just in climate but in all dimensions of the environment”.
• ~~Government: Boris Johnson gave the review an “early welcome” but the minister of the department that published the report - Rishi Sunak - has not made any public comment. He left it to a junior Treasury minister.
  

‍

• Natural capital. The most controversial aspect of the Review is its embrace of “natural capital” approaches to giving Nature a monetary value. The Review calls for an alternative headline measure of economic success - “inclusive wealth” - to acknowledge that GDP does not incorporate the value of the natural world. Its rationale is that by putting a value on biodiversity and other key functions, we would move away from the current situation where we “pay people more to exploit Nature than protect it” to the tune, it estimates, of USD $4-6 trillion per year.  
• ~~Background: The idea of natural capital is explained by proponent economist Dieter Helm here.
  

‍

• Critiques and alternatives. George Monbiot issued a searing critique of the Review and attempts to “put a price on nature”, arguing that natural capital approaches encourage a counterproductive “commodification” of the natural world.
• ~~Prior critique of natural capital approaches. UCL IIPP’s Katie Kedward has written on the limits to market-based mechanisms to protect biodiversity, and NEF have published an in-depth critique of natural capital specifically. Writing for CUSP in 2018, Aled Jones argued that natural capital approaches through monetising nature may in fact accelerate diversity loss.
• ~~Natural and man-made capital. One particularly interesting point is that natural capital approaches seem to imply a degree of substitutability both within natural capital and between natural capital and man-made capital, which is fiercely contested (see e.g. research from Oxford Martin School).
• ~~Economists as ecology experts? At the Dasgupta Review launch event, David Attenborough claimed that economists understand the importance of biodiversity more than ecologists do, which was criticised as “galling and absurd” by Doughnut Economics proponent Kate Raworth. Her critique of natural capital approaches is here (video).    
  

‍

• In defence of the Review. Other environmentalists and progressives welcomed the Dasgupta Review, highlighting its calls for complementary approaches to natural capital for protecting Nature.
• ~~Step in the right direction. James Murray in Business Green argues that though “natural capital” approaches are imperfect, the all-too-normal alternative is that the value of the natural world is simply ignored in economic decision-making - the Review’s proposals are a step in the right direction.
• ~~Other approaches to protecting Nature. Environmental campaigner Guy Shrubsole notes that the review does not simply call for the environment to be given a monetary value, but makes the case for “putting large parts of the biosphere off-limits to the market” and - radically for a report published by the Treasury - points out that material economic growth is inevitably bounded by environmental limits.

• ‍What’s going on? r/WallStreetBets (WSB) – an irreverent Reddit forum (or ‘subreddit’) where users discuss stock and options trading – has dominated financial news over the past week, as retail investors from the forum piled into the shares of games retailer GameStop in a ‘short squeeze’ aimed at hedge funds betting against the company.
• ~~Short squeeze? Redditors identified that a number of hedge funds held significant short positions on GameStop - that is, they were betting its share price would fall. By coordinating the buying of shares in enormous quantities, retail investors sent the price skyrocketing, making short sellers lose money – e.g. as of Sunday, hedge fund Melvin Capital had sustained a 53% loss of $4.5bn.
• ~~Explainers. Vox’s Emily Stewart offers a good overview of the situation, as does economist and trader Gary Stevenson on LBC (video here).‍

‍

• Next stop, silver? Retail investors also poured into silver markets– seemingly in an attempt to apply the same tactics – but this market is much harder to influence and, unlike GameStop, there is no significant short position on silver amongst speculators. Hedge funds and other speculators would likely gain from a rising silver price.‍
• ~~Who is driving the squeeze? Many WSB members have objected to the media narrative that the forum is behind the silver squeeze – indeed, posts warning against the squeeze dominate the forum, unlike with GameStop stock – and have alleged some sort of false flag operation. FT coverage raises the possibility that “silver promoters may have used Reddit to advance their own agenda”, speaking to broader dangers (see below).‍

‍

• Why is this happening? The astronomic rise of GameStop’s share price clearly transcends any argument based on “business fundamentals” – yesterday’s falls suggest the bubble may already be bursting. What explains the rise, and what lessons can we draw from it?‍
• ~~David and Goliath? It is tempting to project an underdog narrative onto these events – ordinary people taking on the hedge funds. The fact these funds were “betting against” the fortunes of a bricks-and-mortar store adds to its memetic/political charge. Indeed, it’s notable that the companies targeted by Redditors (GameStop, Blackberry, Nokia) have nostalgic appeal. But this is an oversimplification:‍
• ~~Goliath wins. Investment management firms (e.g. BlackRock), as owners of GameStop stock, stand to benefit hugely from the saga. FT Alphaville suggests the saga is probably “a phenomenon born of a clandestine action between several hedge funds”. Financial institutions will almost certainly have got in on the Reddit action, perhaps in bad faith (see silver, above), for their own gains. All this undercuts the populist narrative.‍
• ~~David loses. When the bubble bursts, the danger is that amateur investors are left holding the bag, losing savings they cannot afford to lose – and while the saga benefits GameStop’s owners, it’s unclear how it benefits its workers.‍

‍

• Money to burn. Some traders have been motivated by political cause, perhaps enough to bear a loss, but most are looking to make money. Covid-19 has dramatically reduced consumer spending and, for those who haven’t lost their jobs and incomes, this has translated into a rise in savings. Stimulus cheques have given middle-class Americans even more money to burn, and interest rates are at record lows. These factors all increase the appeal of riding the GameStop wave in an attempt to outsmart other, amateur investors and make a quick buck.‍
• ~~Decade of asset price inflation. The backdrop to this exuberance is that since 2008, a reliance on monetary policy and protection of the financial system in times of crisis has pushed asset prices – including stocks – up, as wages have stagnated, driving wealth inequality. This has been true during Covid-19 too, as stock markets have performed well despite a shutdown of the real economy and spiralling unemployment.
• ~~Where to channel this money? James Meadway proposed "recovery bonds" as a vehicle for increased middle-class savings in the UK - highlighting how increased public investment (and "crowded-in" private investment) could provide an alternative destination for these savings to financial speculation.‍

‍

• Regulation. Trading of meme stocks will not address the fundamental problems of wealth inequality and financialisation. But the saga has shone a light on hedge funds and is expected to expedite a regulatory review under Treasury Sec Janet Yellen.‍
• ~~Politicisation. More broadly, the perceived hypocrisy of hedge funds complaining after they have “treated the stock market like their own personal casino” (Sen. Warren) and the decision of Robinhood to stop GameStop stock trading – whether or not this was the result of a regulatory need to cover the risk from volatile trading – has strengthened the narrative that it is one rule for ordinary people, and another for the hedge funds. Alexandria Ocasio-Cortez and Ted Cruz have both sided with the former. The question is how this diffuse political force translates into addressing wealth inequality.

• Singapore-on-Thames... The Times reported last week that the Prime Minister was “pushing for Britain to become a low-tax, low-regulation regime like Singapore” in the aftermath of Brexit. Some suspect Chancellor Rishi Sunak - who now leads a Whitehall committee on regulatory reform - will use the March Budget to set out “substantive ‘divergence’ plans from the EU”, though this conflicts with previous reports that this will be “just another emergency statement”.‍

‍

• ...but with tax rises? At the same time, it is reported that the Government plans to raise corporation tax and make progressive reforms to property taxation (Times). ‍
• ~~Political divides. The mixed messaging reflects ideological divisions within the Conservative Party (small state versus “levelling up” interventionism, in brief), and indeed a tension between the free market libertarianism of the party’s most prominent Eurosceptics and its new electoral base (see Unchecked UK's research on public attitudes to regulation in Red Wall seats).‍
• ~~Electoral strategy. The FT reports that Sunak hopes to put “clear blue water” between the Conservatives and Labour with his proposed tax rises (and spending cuts). The Chancellor might also hope that bringing forward tax rises will give him the freedom to cut them again before the next election, as reported in September.‍
• ~~Need for stimulus. The progressive tax changes Sunak is considering could well support recovery, but the Chancellor’s hopes for restrained spending in the near-term go against consensus among the IMF, OECD and others on the need for large-scale fiscal stimulus. Read our analysis here.

‍

• Labour market deregulation. New Business Secretary Kwasi Kwarteng has confirmed his department is reviewing EU employment protections, following reports that “worker protections enshrined in EU law… would be ripped up” under proposals for a post-Brexit labour market overhaul. ‍
• ~~“Own goal for Britain”. The measures reportedly under consideration - ending the 48-hour work week, excluding overtime in holiday calculations, changing rules around rest breaks and logging of work hours - have been roundly criticised by the Financial Times as unaligned with the needs of both employers and workers.‍
• ~~UK labour market standards. In defence, Conservative MPs are pushing the line that the UK’s labour market standards currently compare favourably with the EU’s (e.g. here). The category error here is comparing the UK with an EU-wide floor. Most individual EU countries go beyond this minimum and more so than the UK, which has “one of the most lightly regulated markets in the OECD in terms of employment protection”.‍
• ~~Britannia Unchained. Kwarteng has insisted that the Government is not trying to “whittle down standards”. Sceptics point out that he - alongside fellow Cabinet members Priti Patel, Dominic Raab and Liz Truss - advocated strongly for the removal of worker protections in Britannia Unchained, a publication which accused British workers of being “among the worst idlers in the world”.‍

‍

• Environmental protections. IPPR has warned that the Government’s Brexit deal leaves both workers’ rights and environmental protections at risk of erosion. It is worth noting that the “build back better council” of business leaders being consulted by Johnson on regulatory reforms include the CEO of BP, the Chairman of Heathrow and other representatives from big polluters. (Independent)‍
• ~~Level playing field? While safeguards in the UK-EU deal are meant to prevent too much regulatory divergence on e.g. labour market and environmental measures, IPPR argue that the bar for proof of infringement is so high that enforcement would be rare. ‍

‍

• Financial deregulation. This month, the Chancellor promised the UK financial sector a “Big Bang 2.0”, harking back to the explosion of financial deregulation in the 1980s. City of London bosses have welcomed the Government’s keenness to engage with businesses, but have argued there is “little need for wholesale deregulation in the UK” and the focus should be on “reregulation”.  ‍

‍

• Freeports. The Government hopes to establish its first freeports this year, and we may see announcements on these in the Budget as part of the Government’s deregulatory stance, Meanwhile the SNP have proposed “green ports”, though it is unclear how much these differ in substance. ‍
• ~~Analysis. The criticism of freeports is that these encourage a politically costly race to the bottom, while the “advantages to business are almost non-existent”, as argued by the UK Trade Policy Observatory. Tax Justice UK’s submission to the Government’s freeports consultation highlights significant money-laundering risks in addition. ‍

‍

• Red tape. The irony is that Brexit has, in some cases, led to a lot more red tape for British businesses. Over the weekend, the Times reported that “tens of thousands of small British firms are being crippled” by the new administrative burden of trade with the EU, while the Observer revealed that the Department for International Trade has advised British firms to set up in the EU to avoid extra costs resulting from Brexit. ‍
• ~~Northern Ireland. Earlier this month, NI first minister Arlene Foster came under fire as Brexit red tape has left the country facing the prospect of prolonged shortages.

• OECD: “Rethink constraints on public spending”. At the beginning of the year, OECD chief economist Laurence Boone made headlines for pushing governments to revolutionise their approach to macroeconomic policy - and showing concern that the UK government among others has not yet made this leap.‍
• ~~No return to 2010. Boone argued that the mistake following the 2008 financial crisis was to withdraw stimulus too early, and that fiscal tightening should be avoided for the first one or two years of recovery. Fiscal, not monetary policy, should do the heavy lifting, for macroeconomic and distributional reasons. ‍
• ~~IMF: “Spend as much as you can. Then spend a little more.” IMF MD Kristalina Georgieva made similar appeals to governments to push ahead with stimulus, and in particular for global coordination in green stimulus packages.‍
• ~~Sunak’s approach. The IMF and OECD’s position - both former cheerleaders for austerity - lies in contrast to the Chancellor’s narratives around a “fiscal emergency”, deployed to support e.g. the public sector pay freeze and potential cuts to Universal Credit. (Read our analysis here.)‍

‍

• Ditch deficit and debt targets. Beyond immediate stimulus, Boone argued that “one-size-fits-all” fiscal rules based on short-term deficit/debt targets are unfit for purpose, and that governments should “embrace long-term sustainability goals”. ‍
• ~~No more rules! In the same vein, a recent paper from an unlikely trio of authors - former US Treasury Sec Robert Rubin, former head of Congressional Budget Office Peter Orszag, and Joseph Stiglitz - outlines a new approach to fiscal policy that abandons top-down anchors or rules, which they argue are unfit to deal with radical uncertainty.‍
• ~~New buzzwords: “Semiautonomous discretion”. Their proposals focus on significantly increasing the budget’s responsiveness to broader economic changes - e.g. through beefing up “automatic stabilisers” - thereby making the task of discretionary fiscal policy easier and more streamlined. Read the paper here.

‍

• Mais lecture. Shadow Chancellor Anneliese Dodds addressed these themes in her Mais lecture. Her proposals included testing “every single budget line” against the Government’s net zero goal - part of centring resilience in economic policymaking - and asking the National Audit Office to submit an annual report to Parliament on the effectiveness of public spending, which the Government must respond to.‍
• ~~Fiscal responsibility. Glowing Financial Times coverage emphasises Dodds’ responsible approach to spending - it is worth noting that this fiscal framework appears more expansionary than Labour’s 2016 Fiscal Credibility Rule, doing away with a debt-GDP target but maintaining the current spending balance target. (See Stephen Bush on the politics of her speech.)‍
• ~~Fiscal anchor? Dodds does propose a “fiscal anchor” that would limit increases in discretionary current spending during a crisis - the rigidity of this goes against Stiglitz et al's approach (above) to fiscal policy-making “in a deeply uncertain world”, and is based on an Institute for Fiscal Studies paper written before the Covid-19 pandemic.‍
• ~~Public sector net worth. While a lot of coverage has contrasted Dodds’ approach to the Fiscal Credibility Rule, relatively little has touched on the “public sector net worth” approach adopted by Labour in 2019, based on a paper written by the now head of the Office for Budget Responsibility. This would take a broader view of public sector liabilities and, crucially, assets. James Mills picks up on this for the Independent.

‍

• Financial Times mea culpa. In their coverage of the emerging fiscal consensus, the FT editorial board acknowledged their mistake in supporting fiscal retrenchment after 2008, though a number of prominent economists, including Oxford’s Simon Wren-Lewis and Lord Robert Skidelsky, question the FT’s assertion that “the facts have changed” as an explanation. (See Laurie Macfarlane’s Twitter thread on the FT position here).‍

‍

• Weird QE. A graph showing that QE bond purchases have “perfectly tracked government borrowing needs” raised some eyebrows earlier this month, as did the assertion - by its own internal watchdog - that “the Bank of England does not understand its own flagship quantitative easing programme”. ‍
• ~~Would monetary financing be so bad? The CIO of BlueBay argued that monetising the debt needs to be “an option in the toolkit”, citing the successful Canadian monetisation of its debt in the 1930s as precedent. (See IIPPs review of fiscal-monetary coordination for other examples.) Before Covid-19, Blackrock published an article on how monetary financing could help us “deal with the next downturn”.‍

‍

• Financial Times U-turn. In their editorial on fiscal policy(above), the FT draws a line between QE and monetary financing, and argues the latter cannot be part of the policy toolkit. This contrasts with their April editorial - in which they argue “there is no clear distinction between QE and monetary financing” and that “printing money is a valid response to the coronavirus crisis”.

• Lockdown. UK hospitals are facing their “worst crisis in living memory” (infographic Twitter thread here) and the situation will likely deteriorate further, as the effects of mixing over the Christmas break emerge. Politico reports government projections of a peak of 2,000 deaths per day. This points to an extended lockdown to begin 2021, with March 23 seen as the date “coronavirus restrictions might realistically begin to be eased” within Whitehall (Sunday Times).‍

‍

• Is low compliance to blame? Aside from the highly-transmissible new strain of the virus and the easing of restrictions in December, reduced public compliance is being blamed for this most recent wave of infections. While strict compliance is increasingly crucial, recent evidence suggests that adherence to and support of regulations remains high. Psychologists writing for the BMJ Opinion blog argue that “the narratives of blame… project the real frailties of government policy onto the imagined frailties of public psychology”.
• ~~One exception is low adherence to self-isolation rules, e.g. following a positive test or contact with a Covid-positive person. But here, the authors argue this has “less to do with psychological motivation than with the availability of resources''. ‍

‍

• Support for self-isolation is therefore crucial. Dr Alex Crozier (UCL) profiles the workers who cannot afford to self-isolate and argues for:‍
• ~~Increasing the rate and coverage of statutory sick pay (SSP). UK SSP is amongst the least generous in Europe, and millions of low-paid and migrant workers do not qualify. ‍
• ~~Increased practical support - e.g. New York has made use of the thousands of empty hotel rooms to offer free accommodation, food and care to support self-isolation.
• ~~(ICYMI: The British Medical Association and other health bodies wrote to the Prime Minister last month on the measures needed to tackle financial insecurity and improve compliance.)‍

‍

• Protecting household incomes. The Government has extended the evictions ban in a welcome move, but it is still due to cut Universal Credit by £1,040 per year in April. Back in October, the Resolution Foundation argued this would have an “unimaginable” impact on the living standards of the poorest households and on the wider economy - read their analysis here.
• ~~Child Poverty Action Group analysis has revealed that over 1m households face “debt deductions” on their UC payments, leaving them with up to 30% less in benefits than their Government-assessed need.‍
• ~~Gaps in coverage: Up to 3 million people are estimated to have fallen through the gaps in Government support schemes (Financial Times), with no new measures in the Chancellor’s recent announcements to address this (ExcludedUK).‍

‍

• Protecting businesses. The CBI welcomed the Chancellor’s “swift” response to the changing circumstances, but argued for an extension of the furlough scheme until at least the end of June. Delaying this decision could lead to unnecessary redundancies, as it did last autumn.‍
• ~~Fragility. Recent surveys suggest a large number of businesses face collapse, including up to 250,000 small businesses (Financial Times) and 4,000 City firms (Guardian).‍
• ~~Public equity stakes. IPPR has argued that cash support for businesses should be approximately 10x more generous to help firms handle the £180m drop in cash flow they face according to December Bank of England figures. They, along with think tank Common Wealth, argue this support should take the form of an equity stake, as is normal in Germany. (Explainer thread on Twitter.)‍
• ~~Tighter lockdown? The New Statesman’s Stephen Bush has argued that the continued spread of the virus is explained not by lack of compliance, but by the range of legally allowed economic activity. This could be targeted by tighter lockdown measures, necessitating further support measures.

‍

• ‍Light at the end of the tunnel? The Government’s vaccination roll-out has been lauded, with the UK far outstripping its European peers. ‍
• ~~Room for improvement? Nevertheless, a range of voices, including the University of Oxford’s regius chair of medicine and the IEA’s Christopher Snowdon, have argued that roll-out could be much faster - though the vaccination plan published yesterday may go some way to allaying those concerns.‍
• ~~Safety. There is also concern over the Covid-protection measures in vaccination sites (UnHerd). ‍
• ~~Beyond the vaccine. A successful roll-out is not a guaranteed silver bullet. Professor Devi Sridhar spoke to the New Statesman on the path out of lockdown, and argued for a “zero Covid” strategy.