The ‘Eat Out to Help Out’ Scheme was the Summer Calm Before the Economic Blizzard Ahead

As one of the youngest chancellors in history, Rishi Sunak faces an unenviable task.

Events often seem so recent and yet so far away. Most of us probably recall the evening the Prime Minister Boris Johnson declared that the UK would enter lockdown. It seemed almost inevitable. Nearly all our European friends and neighbours – apart from Sweden – had done so. Businesses, theatres and schools had closed. The number of daily cases was rapidly increasing. It was an event that will go down in history, a moment people remember precisely where they heard the news (in all honesty, probably in their front rooms). 

At the same time, that evening seems so long ago. That is partially the result of time; March was many months ago. It is also the result, as Harold Macmillan would say, of events. From Boris Johnson contracting coronavirus to huge numbers of excess deaths, protests for social equality to Dominic Cummings breaking lockdown rules, countries imposing on quarantine lists to A-level disaster, we’ve lurched from one awful event to another. 

There have been glimmers of hope in these dreadful times. Families have met up once again after months apart using Zoom. Individuals have returned to work and been taken off the furlough scheme, meaning their wages can be paid by the company. And, in August only, individuals enjoyed the ‘Eat Out to Help Out’ scheme, where every Monday to Wednesday, the public received 50% off their food and non-alcoholic drinks. 

The scheme was extremely popular. Used over 64 million times in the first three weeks alone, its existence had multiple justifications. It tried to reassure people that, in restaurants, pubs and cafes that adhered to social distancing, it was safe to eat out again. By reinforcing this message, places of hospitality could attract customers, which they rely on for survival. The spending would generate VAT – which received a temporary reduction from 20% to 5% for hospitality ventures – for the government. Quite frankly, the public deserved some pleasure in the long summer and, if you’re anything like me, eating out delivers that.

The cynical individual would, of course, say that the scheme was designed to generate government support. The generosity of ‘Rishi’s Dishes’ was plastered over different restaurant brands, suggesting the Chancellor was extremely altruistic by letting the public eat for a reduced price. Quite frankly, this is a dangerous and naive move. The extra 50% which businesses were given did not come from Rishi Sunak. It didn’t even come from the government. For governments have no money. Instead, it came from the taxpayer. That will most likely be how the country recovers from the economic crisis.

The economy shrank by a quarter during the pandemic. The national debt now exceeds over 100% of GDP for the first time since 1963. The deficit will likely increase dramatically with the government borrowing hundreds of billions of pounds to try and protect employment and ensure economic confidence. In May 2020, the government borrowed £55.2 billion, which was nine times higher than May 2019’s borrowing and the highest since records began in 1993.  It makes the 2008 global financial crash, which the UK still hasn’t recovered from, look like nothing. 

There is no economic confidence. As the furlough scheme winds down, unemployment will only increase. This sets in motion a dangerous chain. More people will likely need Universal Credit, their safety net while finding new employment. Universal Credit, like all government spending, is funded by taxation. Yet, because of rising unemployment, fewer people will be paying income tax or national insurance. What is the solution?

Rishi Sunak must find one. He had largely proven himself adept during the height of the pandemic. Even when he was appointed in February and the coronavirus disease was spreading around the world, nobody could have predicted how much it would damage our economy. Even if we hadn’t entered lockdown, the huge decline in international trade would have inevitably meant the UK faced economic catastrophe. 

His autumn budget is unlikely to bring smiles. In a way, this is a good thing. Whatever Boris Johnson might say, the role of government is not to entertain people. It is to be honest and present a serious assessment about the risks facing the country. There are many strains and demands on the Chancellor’s attention. He must urgently combat the rise in unemployment. Consumer confidence and spending that has emerged must be maintained. And, most importantly in my view, the government must deal with the huge levels of debt.

Record low interest rates provide some solace for the government. While the size of the debt is astronomical, the scale of increase will be smaller than if interest rates were higher. However, it is also indirectly troubling. Low interest rates disincentive savers. Think about it. Why would someone want to put a large amount of money away for a rainy day like, say, another pandemic, if they’re going to receive a pitiful return? The greater incentive is to spend. While this generates VAT for the government and helps businesses, governments should be encouraging individuals to be careful with their personal finances. 

The debt cannot just be ignored. I am no Thatcherite and support government spending and investment to boost the economy. However, it is financially unsustainable to ignore our debts. Just as it is economically unsustainable to ignore the threat of climate change and socially unsustainable to have no controls on immigration, forgetting about our debt doesn’t make it disappear. It simply passes it onto the next generation. 

Tax rises are rumoured to be around the corner. If they are introduced, they must be progressive. One of the key objections to Margaret Thatcher’s poll tax in the 1990s was the same charge being applied to everyone, regardless of wealth or income. Extra taxes to pay off the coronavirus debt must fall upon those who can most afford them, not least during such economic insecurity. 

The government have already promised to pay £1,000 to companies for every worker retained after the furlough scheme. Inadvertently, this will probably benefit big businesses, who likely have the financial security to retain their work force. Although we hear in the news every day about large companies letting some workers go, only the complete abolition of a company – like BHS – is seriously threatening and dangerous. While every job loss is saddening, it will have more impact in smaller businesses which, no matter the government support, won’t have survived the pandemic. 

What is the answer? Tax rises or, whisper it, tax cuts. In a way, the world in which we now live, where, until a vaccine, we simply have to adjust to the virus, could be an inspiration for new businesses. It has been widely repeated that, for those furloughed or working from home, the pandemic has provided more time for the future. Perhaps government incentives like tax cuts could provide an idea that had been on the back burner for years? 

Small and medium sized enterprises are the lifeblood and beacon of local communities. They transcend wealth by bringing belonging to their area. Their close connections and individual approach means they are likely to know what local consumers want and provide the necessary service. While big businesses provide security, they can rip the individuality out of towns that become chain cities.

Individuals were never going to start spending until they felt the risk of catching coronavirus was small enough to feel comfortable purchasing items. It should reassure us that, in June, when non-essential shops reopened, the economy grew by 8.7%. We have to hope that continues. But an economy cannot be built simply on spending. In the end, that is financially unsustainable. Similarly, new businesses will only survive if people go to them, which given many businesses have enforced working from home, looks unlikely. 

Nobody should envy Rishi Sunak’s task. Although he has been talked about as a future Prime Minister, that title is far from inevitable. His short term popularity could be replaced by long term resentment if he gets the recovery wrong. Dealing with the economy is so important. It is not an abstract entity but based on the actions of humans. The pain will most notably be felt if inflation increases alongside unemployment.

Sunak is the new man on the wire, walking a thin tightrope to bring certainty. This may be impossible when the international economy is uncertain, the leader of the free world for the next four years is unknown and relations with China sour in the wake of their treatment of Uyghur Muslims, Hong Kong citizens and its failure to deal with coronavirus. Edmund Burke said that society was ‘a partnership…between those who are living, those who are dead, and those who are to be born’. The Chancellor’s decisions this November and beyond will quite literally adhere to this.

As one of the youngest chancellors in history, Rishi Sunak faces an unenviable task.