Firstly, demographics. Prior to Covid-19 (and, indeed, Brexit), there was a pointed awareness of the expanding cost of an ageing society, given that our fiscal system was designed on the basis of a much stronger workers-to-retirees ratio.
Lively debates were already taking place on how to manage the spiralling price of social care, not to mention the core NHS budget, with the political dilemma arguably costing Theresa May her parliamentary majority thanks to the bungled handling of a proposal dubbed the “dementia tax” by opponents.
This problem has not gone away; in fact, it has worsened to a terrifying extent. In late 2018, the Office for Budget Responsibility expected public debt in 2060 to be roughly the equivalent of 175pc of GDP. Now, its projections show it exceeding 300pc of GDP. The West’s big political challenge, which will still be dominant once we have combated Covid-19, is how to solve this conundrum.
A major baby boom is societally unfeasible, while the levels of immigration required to balance the books remain politically unfeasible.
The state will become deeper, due to the rising costs of social care, healthcare and publicly funded pensions; but in order to be remotely affordable, the state will also have to become narrower. We will increasingly need the political will to say “no” to all manner of tax-funded activities that are not absolutely core to the responsibilities of government.
This does not sit well with the prevailing appetite for state spending which frequently assumes a generous multiplier effect, without pausing for evidence, and ignores the propensity of governments to allocate resources inefficiently and for their own political ends.
Secondly, while the conditions for borrowing are ripe, and have been for much of the past decade, how do we manage a situation in which borrowing costs rise while the state, as outlined above, is becoming more expensive every year? It is possible, albeit not welcome, that many western nations undergo a long period of “Japanification”, with ongoing aggressive monetary and fiscal stimulus required to combat a deflationary swamp. But we simply do not know if this is what the future holds, or if things will move in a sharply different direction.