Some lingering impacts of COVID

COVID and lockdown will one day be history. Some of its effects will linger for a long time. Here I will look at just a few that spring to mind.

Introduction

Millions of people worldwide have been infected by the coronavirus Sars-CoV-2. A quarter of a million have died from it. Overlooking the platitudes about each being a personal tragedy, in the grand scale of things it isn’t very many, just 1 in 31,200 people, perhaps eventually rising to 1 in 20,000. At some point in the future humans may have to cope with a plague that kills as many as 1 in 4 people. We’ve known about the huge pandemic threat for decades, especially how fast it can spread around the world and in our big cities, but it has still caught some countries unforgivably unprepared.

Governments have behaved very differently. Some, like South Korea, did the sensible things at the outset, restricting its means of entry, tracking down and isolating people with symptoms and those they had been in recent contact with. Others, like the UK, watched as large numbers of infected people entered the country, allowed them to infect lots of other people, allowed large sports events to continue, infecting many more, and took no actions to limit people being crowded together in transport systems, such as in London underground and airport passport control. Only once infection rates were already sky high and many people were dying did government act and because they were far too late, the only option they were left with was lockdown, effectively shutting down much of the economy for months.

 

Easing Lockdown

Lockdown can’t last forever, since the economy takes a big financial hit every day. In the UK, the headline cost is £2.5Bn but that needs to be doubled to account for the interest costs in the decades paying it back, and it will be decades. £5Bn per day is a lot. Government still refuses to say when they will start to lift it, even saying that discussing it is too early. It is therefore realistic to assume it will stay in effect for a few more weeks, 10 weeks total with a gradual lifting over several more, we could optimistically assume an effective economic shutdown of 13-15 weeks. Lockdown may start to be lifted gradually for some small sectors such as DIY/garden centres in the next week or two, and in restricted form with extra spacing in restaurants and pubs later. People will be slowly encouraged to return to work. My prediction is that a return to work in cities will cause another large rise in infections, and government will panic and reintroduce lockdown for a few more. Government seems locked in to a mode of thinking that forces everywhere them to treat everyone the same, so the concept of having different controls in areas of different risk seems beyond them. A more sensible approach would be to restrict travel between areas of different infection rates and greatly restrict use of public transport in cities to limit cross-infection.

The UK government expects the economy to bounce back very quickly, everyone united in wartime spirit, all pulling together, the economy leaping back on its feet and everyone enthusiastically rebuilding every sector, leading to an even bigger and better economy that will easily pay back the debts built up. The future will be even brighter than before.

That is naïve at best.

 

For sure, there are a few winners

With most of us working from home, the big IT companies have done well so far. People have needed buy more IT kit and more subscriptions to more products and services. Getting involved in development of COVID tracking apps and AI assistance will create extra revenue streams for the likes of Google and Apple, while simultaneously giving them more of our intimate data and grater market control. With huge cash reserves and increasing income, they are perfectly placed to buy up many other companies and further increase their scope and power. Other rich people and companies in other sector with good reserves can similarly capitalise, increasing market share and breadth at the expense of those less well placed or able. The rich will get even richer, by eating the poor (albeit it not quite literally). So there will be some winners.

We might even spin the coming turbulence as a weeding out of the economy, allowing greater efficiency, enabling engagement in new technology, new systems, throwing away the old and putting in the new, steering us towards the lands of milk and honey. But it is mainly just spin.

 

Massive redundancies ahead, but entrepreneurialism has also taken a big hit

With a gradual lifting of lockdown, sectors gradually being reintroduced, social distancing very gradually eased, and some groups such as older and vulnerable people kept isolated for months longer, the economy will not bounce back quickly. Many companies are already going bust, their staff made redundant. Very many more will follow. Business owners in some sectors have received government grants, but most have had to take out loans or use their own money to keep their businesses alive, hoping for an early end to lockdown. A prolonged lockdown will find many of those companies running out of money and going out of business. Many people have been furloughed, but that is only a holding stage before redundancy if their company isn’t restored to normal working soon, and for many that furloughing will soon become a redundancy notice. There will be millions of redundancies, and a lot of previously comfortable or wealthy people now poor or very much less wealthy. Very many small businesses have found they were excluded from any government support. Self-employed people using Limited Companies would only have received compensation on the small part of their income taken as salary so would have seen incomes reduced enormously, other self-employed earning more than the £50,000 threshold would also have been abandoned. Having been burned badly by government, those businesspeople will think hard before deciding to take on such huge personal risk again, knowing it is they themselves to will have to bear the risk of government reintroducing another lockdown. It seems fair to assume that a lot of entrepreneurs have already made that personal assessment and will pull out and close their companies while they still have enough wealth left to survive. Their staff will be left jobless, and they will not be rushing to rebuild. Large market segments will be left empty, full of potential, but with very few entrepreneurs willing to take big personal risks to address that potential. Of course, some dead or dying companies will be bought out by better-funded competitors, but with such high risks and so little guarantee of survival, the enthusiasm to do so might be limited.

The post-lockdown economy will therefore have very high unemployment, a lot of dead companies and a shortage of willing entrepreneurs. Many low and medium income people will be on welfare, many previously wealthy people now unable to afford their previous luxuries, with reduced income and reduced savings. Older people with high savings might remain locked up for much longer, greatly delaying their much-needed cash injection.

 

Looking forward to the sales?

Most people on lockdown have been on full or 80% salaries and many seem to believe they will be unaffected; some are even asking for lockdown to continue much longer until it is totally safe. They have saved lots of spare cash and are eager to go back out and spend, and for a short time that will offset the impacts of the many others on much lower incomes, but it will be a short term boost. While they may reasonably expect to encounter lots of closing down sales and fill their wardrobes, it may come as a shock to them that many of the places they want to spend at will no longer exist. Beyond clearance sales, any remaining outlets will have higher infrastructure costs to cope with social distancing, some will have to pay higher prices on the markets and all will have to repay large bills, so they will have no choice but to greatly increase their prices. Those high prices might well deter much of their enthusiasm, and even in areas where prices don’t sky-rocket, buyers will soon catch up with their spending. So there will be some clearance sales, some high prices, a lot of companies closing down, much merging and acquisition activity and a huge amount of shrinking, with national chains closing many of their outlets.

In short, a lot of turbulence for several months while the post-lockdown economy settles down. All of that is already guaranteed, the only remaining question being how much worse it will get as lockdown lingers. Not quite something to look forward to.

 

Some secondary effects are obvious too:

Again, most people have remained employed, on full pay of 80%, and many feel unaffected economically. However, at a cost of £5Bn per day, national debt during a 15-week lockdown will increase by £525Bn, let’s say £500Bn since accuracy here is impossible. The economy will also have shrunk significantly. Many dead companies will take years to replace. Lost savings will greatly impede recovery in luxury sectors. Even supermarkets will not be safe, even though they sell essentials. Sainsbury’s has just announced that although it made a lot of extra sales during the panic buying, it has taken a £500M hit overall, already. Other supermarkets likely have been similarly affected. With several million more people unemployed and on universal credit, sales of absolute basics may remain, but premium brands will have reduced markets. Premium brands normally account for much of the profits, so it will be harder to cross-subsidise basic prices. Prices across the board are likely to rise, especially as other costs are increased.

Prices will also rise in restaurants, pubs, bars and coffee shops, where people will need to be far more spread out. Rents and rates may fall somewhat, but prices will still need to go up. This will ripple through into hotel and tourism costs, where air travel will also be much more expensive, a double hit.

We can therefore expect to see much higher prices for many of the things we buy, especially on the high street. In many town centres, cascading effects of closing stores and high prices elsewhere will lead to less footfall, less income and even more closures and redundancies, for at least several months after lockdown is lifted. That means less business rates and car park income for councils, leading to higher council taxes for us all. Combined with many closures of business right across the economy, government income will also be greatly reduced. Money available to pay public sector workers their traditionally generous premium over their private sector counterparts will not be there. With severe austerity ahead, public sector wage rises will be squeezed badly, except perhaps for NHS staff (annoyingly, probably even the administrators whose incompetence got us into this mess) and MPs, who will likely be able to keep their extra expense allowances.

Income tax and many hidden taxes will have to rise a lot to make up for greatly reduced income to government, while costs will remain higher than normal for some time. Faced with massive extra debt, we can also be certain government will resort to printing money, or quantitative easing as they call it, effectively stealing from people’s pensions and savings even more than a decade of near-zero interest has already done.

In short, everyone will have to pay higher taxes, higher local taxes, higher inheritance taxes, higher VAT, higher prices, and have their cash reserves eroded away by inflation and quantitative easing. Even if you’ve worked from home on full pay throughout, you are still going to take a big financial hit. Your pay will not rise as fast, but your outgoings will accelerate and you’ll get less for your money.

 

The UK will tumble down the world tables

The UK government has made some very bad and expensive decisions. With very many dead and badly wounded companies, and some sectors barely functioning, with a lot of missing and broken links, our economy will be greatly reduced in size, our national debt will be greatly increased, and the severely ill economy will be far less able to recover quickly than government assumes. For many years, the UK will be much less prosperous than it was. We started the COVID crisis in early January in 5^th place in the global wealth table. By not doing anything but watch until March, the UK government and its poor advisers have badly damaged our economy. Many other countries that made better decisions earlier will have overtaken us. I have no models to predict how far we will fall, but it will be several places at least.

 

Social gains and losses

After months of near solitary confinement, most people will be looking forward to seeing their families and friends again. Lots of hugs and kissed are ahead. We will almost certainly value our friends even more, and feel closer as a result of being kept apart so long. How long that will all last is anyone’s guess. A month? A year? We’ll see.

On the downside, lots of relationships are breaking up or suffering due to the stresses of living together constantly. Many marriages will die, many children will see their parents split up. There have already been lots of mental breakdowns and suicides and there will be many more. Some people will suffer many years from mental problems arising from this crisis and the lockdown. Even though children have been virtually immune to the direct effects of COVID, many of them will suffer mental effects for years, perhaps the rest of their lives.

There will be some lingering resentments. Some people have been able to work normally, still going out and meeting colleagues, still having lots of social interaction. Some have worked from home doing their normal job. Some have been furloughed so are at home doing no work but remained on full pay, others on 80% of pay. Imagine if you work for a company with 50 workers and 25 of them are at home furloughed, being paid the same or 80% while you still have to go to work and risk being infected for no extra pay. You might well feel resentful. Bad feeling between workers or between neighbours treated very differently by the state might last for a long time.

Young people will face economic consequences for decades to come. Given that the people most vulnerable to COVID were older people, and that the economy was wrecked to protect them, they may well feel justified resentment to older people, especially since many of those older people were the Boomers who younger people already considered to have had an easy go in life. Inter-generational conflict will inevitably rise, permanently.

Immunity passports could cause issues too, creating two tribes, clean and unclean. Some people want them because they imagine they’d be in the clean camp and can use their passport to resume normal life again, while laughing at the others held in captivity. It’s pretty obvious they are not a good idea, but our leaders may well add them to their already long list of bad decisions.

Privacy is threatened by the NHS COVID tracking scheme. As with many previous NHS decisions, they have gone for centralisation in spite of history repeatedly showing that is the wrong way to go. They are also sharing all their data with GCHQ. Once they have an extra means of gathering masses of personal data, they are unlikely to relinquish it, so privacy loss may well be permanent. Such schemes might even be adapted and extended as future crises of various kinds emerge.

The police will also see a lingering drop in respect as a result of their sometimes questionable behaviour during lockdown.

Perhaps the biggest cost though is the knowledge that our government is quite prepared to put the entire population under house arrest on the flimsy recommendations of proven inaccurate computer models and advisers new to their posts. We used to think the UK superior to countries like China who would treat their people in such a way. Now we know as fact that our country really is no better.