6 weeks ago there was optimism econ could bounce back quickly post-lockdown. Reality is now that next phase will be “new normal” of learning to live with Covid until a long-term exit (eg vaccine, comprehensive test + trace). Clearly has big implications for econ response (THREAD)

Challenge is how we get the economy from where we are now (operating maybe at 2/3rd normal levels) to as close to full capacity as possible while keeping people safe, until that long-term exit is achieved.

Econ impact will be determined by interaction b/w: 1/ timing + phasing of ending lockdown; 2/ continued restrictions we need to live with; and 3/ nature of ongoing HMG support. Lots of focus on first 2, but 3 will be absolutely crucial to how successfully we manage the next phase

On timing - too simplistic to see this as health-focussed “doves” v econ focussed “hawks”. For business a 2nd lockdown triggered by exiting too early from this one could be even worse. See this from @rbrharrison and Andrew Bailey comments last week https://twitter.com/rbrharrison/status/1254669738032144384

Second timing Q is then how to phase the opening up of the economy – very good exposition of the various sectoral / regional / age related approaches from @ianmulheirn et al last week. Clearly lots to learn from what other countries are doing too https://institute.global/sites/default/files/inline-files/A%20Sustainable%20Exit%20Strategy,%20Managing%20Uncertainty,%20Minimising%20Harm.pdf

On ongoing restrictions, some may apply economy wide. But as Adair Turner says in this @resfoundation event, this needs sectoral thinking about what restrictions might be needed / work. Sounds like HMG + business groups already working closely on this https://www.resolutionfoundation.org/events/the-corona-crisis/

But these restrictions will have a big impact on businesses' cost / revenues. For many opening up but w/ restrictions will mean revenues still way down. If HMG support is also lost, perversely they may have been better off under lockdown with HMG covering the bulk of cost

Which is why the final issue is so important: what will the continued nature of HMG support be in this next phase? To start with, there are Qs around existing schemes – how long will the furlough last? If it continues, will it be at same level, and still be economy wide?

Next, early evidence from China indicates real reluctance post-lockdown from consumers + businesses to spend. Will some form of demand stimulus be needed (and would it even work)? And given different sector impacts, will HMT be more willing to pursue sector schemes than to date?

Not all support need be financial: policy + regulatory asks can help too. But ultimately there will be continued big demands on HMT, which will be increasingly worried about how long support can go on for - and not just (or even mainly) because of concerns re: the fiscal position

One thing to throw the kitchen sink at supporting the econ through a 3 month shock, another to continue to support it for a year plus: temporary measures more likely to become permanent; much less confidence that the businesses being supported have a viable post-crisis future...

…and one of the main tools so far (loans) become increasingly likely to impede recovery by piling debts on companies. So underlying Qs about how broad support goes, and whether to evolve it (e.g. away from loans to grants/equity). See this from @Gilesyb https://www.instituteforgovernment.org.uk/blog/governments-coronavirus-bailout-should-not-be-built-unaffordable-loans

Cleary there is no playbook for this. Important for HMG both to engage extensively with business and to iterate as they go, which all the evidence to date (e.g. around design and implementation of existing schemes) suggests they will /ends