Sunak’s largesse may come back to bite us, but it is still the right choice

Linda J. Dodson

And it is also why introducing time limits for his various support measures is a good idea. For a start, this maximises the chance of a relatively large effect in the near term as people bring forward activity into the coming months. It also means that the scale of the fiscal support for the economy is due to fall back later, when, it is hoped, the economy should be stronger.

This also supports the targeted nature of the measures, with money going to the sectors hardest hit, including the hospitality industry and the housing market. But this too involves a balancing act. On the one hand, the overall economy will probably be stronger the more that devastated areas of economic activity are preserved.

On the other hand, the Government shouldn’t be in the business of picking winners – and that includes picking survivors. The forces unleashed by this pandemic will probably have a lasting effect on the structure of the economy and it is important for future productivity and prosperity that the new structure, which cannot be exactly foreseen by anybody, has a chance to unfold of its own accord. This argues against trying to preserve in aspic the economic structure that existed before.

So what will the OBR say this week? Is the high debt ratio sustainable? I am pretty sure that the answer it gives will amount to “yes … but”. Although much increased debt is unwelcome, it is not, in itself, disastrous. Countries have sometimes operated successfully with even higher debt – including ourselves for much of the last 200 years.

Moreover, the current cost of financing this debt is extremely low. Ten-year gilt yields are only 0.16pc. Meanwhile, on the debt that is bought by the Bank of England, the cost is even lower.

It is Bank Rate, currently 0.1pc, which is paid to the commercial banks on their deposit holdings at the Bank that finance its holding of gilts, accumulated through the policy of quantitative easing (QE). And it is likely that market interest rates will stay pretty low for some considerable period.

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