This has been a big week for economic policy. Faced with the prospect of their economies grinding to a halt in the face of measures to reduce the spread of coronavirus—not to mention the immediate reality of financial markets in freefall—central banks and governments around the world have been busy announcing support packages. These efforts are obviously a distant second priority to the job of protecting the population from infection and treating the sick. But if this turns into a full-blown economic crisis too, then this will deepen the misery coronavirus causes, with those on lower incomes most vulnerable.
So, how have they done?
First, both the new chancellor, Rishi Sunak, and the Bank of England announced support for the overall economy. The Bank got the ball rolling at 7am by announcing an emergency cut in its policy rate on the morning of Budget day, from 0.75 per cent to 0.25 per cent. This was the first unscheduled rate cut since the financial crisis, taking rates back to their all-time lowest levels. And the chancellor announced a £12bn package which, when combined with additional spending announced last September, amounted to £30bn of extra spending this year.
The new funding included an extra £6.7bn towards health services, and Sunak promised that “whatever extra resources our NHS needs… it will get.” Whether this will prove to be enough will ultimately be down to the extent of the spread of the virus. And it may be that the big problem for the NHS will be staff shortages rather than a lack of financial resources.
Even so, this substantial and timely support is most welcome. Some commentators have criticised rate cuts as ineffective in the face of the specific threat from coronavirus. But such a policy will make it cheaper for firms and households to borrow to get through the tough time ahead, and so reduce the risk that the temporary effects of the virus end up becoming permanent.
But it’s true that rate cuts aren’t targeted enough to help those families and businesses most affected by the outbreak—so the next part of the policy response was more targeted measures to help them.
In this context there were a lot of announcements. The government announced…