Labour claim failure to act on Covid ‘circuit breaker’ will cost billions

Sir Keir Starmer

Labour is stepping up the pressure to impose an England-wide “circuit-breaker”, claiming the economy will be billions of pounds worse off if the government fails to act.

Sir Keir Starmer, the Labour leader, last week endorsed calls by the government’s scientific advisers for a two- to three-week shutdown. Rishi Sunak, the chancellor, has opposed the plan, calling it a “blunt instrument” and warning about the damaging economic impact of shuttering many sectors.

But the shadow chancellor, Anneliese Dodds, points to analysis, including by the International Monetary Fund, which suggests much of the economic hit from coronavirus comes from “voluntary distancing” – the changes in people’s behaviour when they believe the disease is rife.

The Labour push for a second nationwide intervention was further bolstered on Tuesday by a Bank of England policymaker who suggested Britain’s virus-stricken economy could benefit from tough controls to bring the disease under control.

Warning that there is no simple trade-off between health and the economy, Gertjan Vlieghe, a member of Threadneedle Street’s rate-setting monetary policy committee, said it was misleading to argue that Britain’s economy would function as normal if there were no government controls on business and social life.

Most of the economic damage has been caused by people voluntarily avoiding their usual activities because of the risk of catching coronavirus, he said, adding: “There is a region where measures to contain the virus actually help both public health and the economy.”

Highlighting a similar decline in consumer spending in Sweden and Denmark this year – despite fewer restrictions imposed by the Swedish government – he added: “Higher virus prevalence is associated with weaker economic performance. But tighter government restrictions do not appear to have a clear additional effect on the economy.”

Escalating demands on the government to take national action as Greater Manchester falls under the strictest localised restrictions, Dodds claimed that failing to bring the R number below 1 could cost as much as 6% of GDP, equating to £110bn in lost economic output or £4,000 a household.

Labour believes that would dwarf the direct costs of the shutdown. “The government is in danger of yet again being too slow to act – and the cost to families across the country could be eye-watering,” Dodds said.

“Every day it delays means more job losses, more shuttered businesses and more livelihoods in ruin. We can’t risk another £110bn hit to our economy – we need a national circuit breaker now to fix testing, protect the NHS and save lives.”

Experts have suggested that tier 3 base measures – including the closure of pubs and restaurants – will not be sufficient.

Labour said a two- to three-week circuit breaker could be used to fix the beleaguered test-and-trace system and create breathing-space for the NHS, which risks being overwhelmed in some parts of the country. Starmer said schools should remain open.

Downing Street has repeatedly said a nationwide shutdown is not off the table but the prime minister is pursuing a three-tier system of restrictions in the hope of containing the virus regionally.

Asked about the possibility of a circuit breaker to coincide with the school half-term holiday in much of England next week, Boris Johnson’s spokesman said: “We believe that the measures that we’ve put in place, which are very targeted and specific, is the right approach.”

That contrasts with decisions in Wales, Scotland, Northern Ireland and the Republic of Ireland, all of which have imposed fixed-term nationwide restrictions involving the closure of many businesses.

Research from the consultancy Capital Economics indicates the extension of tier 3 restrictions to the whole of the UK for two weeks would knock off about 2.5% from Britain’s national output in the month they are applied. If imposed for four weeks, GDP would be cut by about 5%.

While saying the cost of inaction was trickier to calculate, Hande Kucuk, deputy director of the National Institute of Economic and Social Research, said a second full lockdown appeared increasingly inevitable.

“Doing nothing postpones the GDP costs to a later period, while [it] does not add much to the recovery now as it is already stalling due to higher Covid-19 uncertainty,” she said.

She said a circuit breaker would need to be followed by a more advanced test-and-trace system, adding: “Otherwise, we’d be back to pre-circuit break in no time with an abrupt fall in GDP and very weak recovery prospects.”