Jagjit Chadha's picture
Affiliation: 
National Institute of Economic and Social Research
Credentials: 
Professor of economics

Voting history

Will COVID-19 Cause Permanent Damage to the UK Economy?

Question 2: Which aspect of the economy poses the greatest risk for a slow recovery?

Answer:
Firms’ productive capacity (e.g. business failures)
Confidence level:
Confident
Comment:
Firm births (and deaths) are critical to the re-orientation to the "new economy". They will provide the jobs for those moving between sectors and those joining the labour market. The other factors are also important, as is the provision of key public goods that will complement positive firm dynamics and the availability of finance.

Question 1: How quickly will the economy rebound (e.g. to the pre-pandemic trend) once the COVID-19 pandemic has been contained and absent major policy interventions? 

Answer:
The economy will rapidly return to its pre-crisis growth trend, but there will be a permanent effect on the level of GDP
Confidence level:
Not confident
Comment:
The central case of a rapid return once lockdowns are eased across the world is feasible but will require there to be no subsequent peaks in the rate of infections and Covid-related deaths. Even in this case and to limit infections social distancing will to remain in place until a virus is found or herd immunity is achieved. This means that we cannot return to the way we did things particularly in industries where face to face interactions are critical. This means that some significant changes in our practices will be needed and some permanent loss of activity will result. But it also means that I cannot be terribly certain about any path I pick.

COVID-19 and UK Public Finances

Question 2: What is the best way to (eventually) reduce public deficits and debt?

Answer:
Tax increases
Confidence level:
Extremely confident
Comment:
We have a sustained increase in the demand for the provision of public goods. If they take up a larger share of income, then I am afraid there is little alternative to increasing taxes (by which I mean revenues relative to income) by a similar amount. Given low borrowing rates though there is no immediate need, by which I mean this year or next. Once we can be sure that lockdowns are going to re-emerge (i.e. this "war" is over) we can think about how to pay for it.

Question 1: How urgently should the UK government address the rise in public debt?

Answer:
HM Treasury should present a long-term plan to reduce the deficit as soon as possible, but not introduce measures to do so in the upcoming budget
Confidence level:
Very confident
Comment:
Fiscal policy events have become quixotic. The framework needs serious re-working. We are planing a review of the "rules" this Autumn and I would also encourage a careful examination of revenues. By paying more careful attention to the framework, targets and instruments as well as committing to a clear timetable for fiscal events, there is a lot of time to consider the appropriate degree of tax smoothing in response to this period of heightened expenditures.

The Eurozone COVID-19 Crisis: EU Policy Options

Question 2: What is the best mechanism to pay for economic support provided by and to EU member states to combat the COVID-19 crisis?

Answer:
Member states themselves (no additional EU support)
Confidence level:
Very confident
Comment:
Member states need to be able to plot an appropriate path for their public debt and to target domestic expenditure to limit the size of the impact of lockdowns on the economy. There are though likely to be large positive multipliers from expansionary policies, given the nature of the lockdown, from those countries that do not already have worryingly high levels of public debt. There is not strictly speaking a need for a centralised response providing surplus countries try to inject more demand into the system.

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