Ian McConnell: Can our leaders avoid further blunders on perilous road?

One of the most curious aspects has been the strength of the housing market, with figures this week from the Bank of England showing UK net mortgage borrowing was a record £11.8 billion in March.

And what has been striking amid this economic crisis, in contrast to past downturns, is that new housebuilding has been relatively robust.

Of course, UK base rates are at rock-bottom, with the Bank of England holding them at an all-time low of 0.1 per cent this week. And we will only find out in coming months the extent to which the stamp duty (or in Scotland the land and buildings transaction tax) holidays have brought forward house moves and fuelled the market throughout the UK.

The LBTT holiday in Scotland came to an end on March 31. In England, Wales and Northern Ireland, the stamp duty holiday has been extended through the second quarter.

Stamp duty or LBTT holidays have enabled many to make huge savings on the normal cost of moving home.

The net mortgage borrowing figure for March was the highest since comparable records began in April 1993. The number of mortgage approvals for house purchases in March, at 82,700, was way ahead of a pre-pandemic figure of 73,000 for February 2020, albeit lower than the recent peak of 103,100 in November last year, the seasonally adjusted figures show.

Much has been made too of the wall of savings built up by some of those fortunate enough to have retained their jobs amid the coronavirus crisis. There are high hopes that large amounts of these savings will be splurged as the economy reopens.

Since last month, we have seen the reopening of “non-essential” retail, as well as much of the hospitality sector, as coronavirus-related restrictions on both sides of the Border have been eased.

And there have this week been some more optimistic noises about the prospects for overseas holidays this summer, although much remains to be seen on this front.

Many people will be enjoying some seasonal springtime optimism. And, anecdotally, it is evident how keen many consumers are to be able to do a lot of the things they previously took for granted, and which have been inaccessible during the protracted restrictions required to save many thousands of lives.

Chancellor Rishi Sunak, in a speech this week, struck an upbeat tone on the economic outlook, citing a rebound in consumer confidence and what he described as an “enormous amount of excess savings” in the household sector and on corporate balance sheets. Seeing reasons to be “cautiously optimistic” on the economic outlook, he made it plain he wants to “unlock some of that cash”.

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Bank of England chief economist Andy Haldane in February likened the UK economy to a “coiled spring”, as he underlined his hopes for its recovery.

International vaccine success has undoubtedly paved the way for a return to greater normality. Much was made of European Union countries being far behind the UK early in the vaccine programme but they are now catching up. This is good news for everyone, regardless of an appalling attitude from some Brexiters who have seemed to almost delight in European countries being behind.

Given all we have been through, it might be easy for many to get carried away on a tide of optimism. However, while we are likely to see a strong

short-term bounce with reopening, recovery from the awful coronavirus pandemic and the economic fallout from it will be a marathon rather than a sprint, especially with the additional heavy weight of the Brexit folly.

And Mr Sunak needs to recognise that the release of “excess savings”, if it happens, will not be enough in itself. It is crucial he recognises the continuing need to support households and businesses hit hardest by the pandemic for a long while yet.

We should also bear in mind that, given the uncertainties, many people will not consider their savings to be “excess” but rather a prudent cushion for the turbulent times ahead.

The huge difficulties yet to come have, of course, been highlighted repeatedly by economic experts and by the likes of those in sectors affected worst by the crisis.

Even if people’s habits do revert to what they were before the pandemic as we emerge from the coronavirus crisis, there will be huge challenges in reviving town and city centres. And there are absolutely no guarantees habits will revert on many fronts such as a return to full-time working in offices or to visiting shops to the extent that prevailed before rather than purchasing online.

The woes of businesses such as nightclubs, at the back of the line for reopening, have been flagged by the owners of such concerns and their representatives. These difficulties are huge, and further financial support should be forthcoming from the UK and Scottish governments until such times as these businesses are able to trade viably.

And, while the signs look brighter on the international travel front, it will be a while before levels of activity for all the businesses operating in this area return to any level of normality.

Crucially, there is also the big overall question of what happens when the music stops, or winds down, in terms of the colossal government support provided and with the ending of holidays on debt repayments for businesses and households.

And, while the housing market is buoyant at the moment, we wait to see what happens after the stamp duty holidays end elsewhere in the UK, and also the effect of the LBTT support measures having come to a close in Scotland. Crucially, the housing market’s fortunes will also depend in large measure on what unfolds on the unemployment front. This remains the big unknown. However, it was heartening yesterday to see the Bank of England cut its forecast of the peak UK unemployment rate significantly to slightly less than 5.5% in the third quarter of this year on the International Labour Organisation measure as it raised its 2021 growth forecast from 5% to 7.25%. ILO unemployment was 4.9% in the December to February period, so there would still be worse to come even on the basis of the reduced forecast of the peak.

Tim Cooper, who chairs insolvency trade body R3 in Scotland, last week described the current situation as one of “suspended animation”.

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His comments came after figures from the Accountant in Bankruptcy showed the number of Scottish corporate insolvencies in the January to March period totalled 91, down from 246 in the first quarter of 2020 and from 133 in the final three months of last year.

Mr Cooper said: “We are still seeing levels of corporate and personal insolvencies which are far below where they were this time last year, and even below where they were in the previous quarter, in a form of suspended animation.

“This cannot last forever, though, and it is clear that there are many businesses whose entire operating model has been holed below the waterline by the pandemic – at some point, they are very likely to sink.”

This is a stark warning, and Mr Cooper emphasised the temporary nature of what was supporting businesses.

He declared: “The operation of the courts, which are required for many types of insolvency procedure, has been severely curtailed for over a year now, which has limited the number of insolvencies which can proceed.

“Another crucial reason for lower-than-expected levels of insolvency is the direct and indirect support that has been provided to businesses and individuals, from straight cash transfers, such as the furlough scheme, to less visible but just as important interventions, like the ban on commercial evictions.

“However, we now have end points in sight for all of these support mechanisms … This will be an especially acute point for any companies which have taken on Covid-related government loans, with repayments starting a year after they were first taken out – which will be right about now for many businesses.”

Anyone in doubt about the scale of the challenges ahead should reflect on Mr Cooper’s comments.

The Office for National Statistics reported last week that the proportion of the workforce of all UK businesses, excluding those which have permanently ceased trading, on furlough decreased to 13% in April, from 17% in late March.

There has been a sharp reduction in the number of workers on furlough since last spring, when the economic shutdown was at its height, although, sadly, Mr Sunak’s tardiness on extending the coronavirus job retention scheme last year cost the jobs of many people who had been supported by the programme.

What is crucial looking forward is that the proportion of workers still on furlough is still mind-boggling. This situation will have to be unwound in a careful manner, with shrewd long-term planning.

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Mr Sunak should think hard about whether the furlough scheme might need to be extended beyond September for some sectors which may still by then be unable to operate at anything close to normality.

He should also reflect on what further support will be required as existing measures are unwound. The “stitch in time saves nine” wisdom remains as appropriate as ever in terms of minimising the dislocation for the

long-term economic and social good.

On the unemployment front, the UK claimant-count figures paint a grim picture, even if the situation would have been far worse without the furlough support. And much has been made, rightly, about the colossal toll on young people in terms of unemployment.

Sadly, Mr Sunak’s repeated refusals last year to extend the coronavirus job retention scheme, eventually reversed as he was overtaken by the reality of the situation, exposed dramatic shortcomings in his planning for the long term. They also, from an external perspective, seemed to demonstrate a lack of awareness of, or detachment from, the enormous challenges the UK economy was facing.

The UK Government’s policymaking on the hoof contrasted starkly with two-year approaches adopted by France and Germany from the onset of the pandemic. Of course, we have also seen woeful lack of planning from this UK Government in relation to its chosen hard Brexit. Sadly, so many businesses in Scotland and elsewhere in the UK are paying the price for this shambles at the worst of times.

All of this gives rise to major worries about what the future might hold as we hope against hope that the misery can be mitigated to the maximum possible extent on the long road back to economic recovery from the pandemic.

It raises fears about the potential for further major policy mistakes from a UK Government that has shown a stunning inability at times to think ahead at key points in the coronavirus crisis. Here is hoping it has learned some lessons, and will support households and businesses over the long haul.