Old pandemics, new taxes and the return of being tired of experts

I’m a little confused. Lee Cain was definitely offered Boris’ Chief of Staff job, but resigned. Dominic Cumming has most definitely not resigned, but will be leaving Downing Street before Christmas. It’s almost like some people think that reality is shaped by the words you say, rather than what you actually do. That can work in political campaigns, persist as a minor character flaw in politicians of all parties, but it’s dangerous in government, and a disaster in a pandemic.

Anyway, this is all slightly small fry beside the reality of an economy still a staggering eight per cent below pre-crisis levels (and likely to be shrinking again right now) and the real business of delivering a vaccine. In fact, so long as the scientists working on that don’t jump on the bandwagon, I reckon we can get through this epidemic of resignations. So, ignore all the short-term nonsense and get some longer-term perspective from our reads, which have a definite historical bent to them.

Have a great weekend all,

Torsten Bell
Chief Executive, Resolution Foundation

Remembering Flu. Earlier this week I was pondering why history and literature basically forgot the 1918 ‘Spanish Flu’, despite it killing almost a quarter of a million Brits. In response someone sent me an interesting new blog on the issue of how those deaths were thought of at the time. The main takeaway is a surprising lack of public or political focus on the deaths, which fed into a total lack of commemorating them – or what the authors call “a silencing of grief”. Given how many memorials/statues we have as a nation (the less said about this week’s addition the better), the fact that there was no public memorial to the influenza pandemic stands out. Does any of this matter for today? The authors argue that our failure to collectively remember it contributed to our lack of preparedness for this pandemic. It’s also certainly true that we seem to be doing a good job as a country of pretending that the disgraceful (and preventable) number of deaths in care homes never happened.

Home taxing. In ambitious suggestion of the week,  Deutsche Bank researchers have set out a bold (nuts) solution to the government’s public finance woes: a working from home tax. The theory goes that work-from-home staff contribute less to the rest of the economy (i.e. no paying for public transport/eating at Pret) and so should be taxed an extra 5 per cent if they wish to continue doing so post-pandemic. Obviously this is never going to happen, but the authors should get a gold star for creativity. In the real world, it’s not going to be one silver bullet tax rise that solves our public finance challenges – so we’ve got a new 150 page report stuffed full of proposals (see COTW).

Biden-onomics. (Almost) everyone has now worked out that Joe Biden will be the next US President. He faces lots of challenges, all of them more serious than the legal ones from the soon to be ex-President. As his transition team gets to work, there is a LOT of advice out there. Our friends at the Peterson Institute have a whole website of great memos written by leading thinkers to those soon to take up key roles in the new administration (and indeed to other leaders). There are lots of good reads, but Jason Furman’s contribution is a great place to start – especially for his call for a return to a degree of international coordination on fiscal stimulus. The total lack of such coordination (or even discussing the possibility of it) has been staggering over the past year – we can and should do much better in 2021. On the trade side of things, have a listen to the latest edition of the great Trade Talks podcast on what Biden’s win might mean (hopefully more trade, fewer trade wars).

(In)flexible working. An interesting new report digs into the (disproportionately awful) experience of the self-employed in this crisis. Among the new findings is the fact that those who work through apps were among the LEAST negatively affected in terms of work volume (lots got more work than usual). This makes sense, given demand for parcel delivery and Deliveroo – and fits with what we have seen in our surveys, where the hit to the self-employed has been less focused on lower earners than it has among employees. However, it’s not all good news – half of parcel delivery and taxi drivers said they continued working despite health risks because they were worried about losing future work, pointing to a rather one-sided kind of ‘flexibility’.

Chart of the Week

The debate around post-covid tax rises returned this week – via a Treasury-commissioned review recommending (generally) welcome capital gains tax reforms, and our own offering. Why are taxes going to rise? Not because of paying back the huge borrowing this year (which everyone focuses on), but because of the lasting hit to our economy from the pandemic, the need to prepare for future recessions and the reality of an ageing population requiring higher spending on health and social care. Some argue however that we can’t possibly raise taxes, noting that the taxes as a share of GDP have been rising in recent decades back towards the levels of the early 1980s. The usual counter, of course, is that we’re well below the European average, so tax rises are clearly possible. But the more interesting point is that it’s far from clear that the tax burden has actually been rising in terms of how families actually experience it. As shown in this week’s chart, effective direct tax rates on the typical employee have actually been falling hugely in recent years – from 30 per cent in 1975, to 25 per cent in 1990 and 18 per cent by 2019. So there are important debates to be had about whether, how and how far taxes should rise – but saying they just aren’t possible shouldn’t be part of them.