Given the significant level of taxpayers’ money spent on pandemic related supports to individuals and businesses, it is reasonable to ask if this money has delivered an equivalent economic benefit to society. Intuitively, economies supported by their governments during the pandemic would be better placed to recover and be more resilient to the current economic challenges than those not supported, but this has not been tested.
A report published today by the Ulster University Economic Policy Centre (UUEPC) considers a potential ‘COVID counterfactual’ scenario to estimate the impact of the pandemic on the economy in the absence of government interventions.
The key findings show that:
- In the absence of government supports, the economic outcome would have been significantly worse. By Q4 2022, the economy would have been 4.3% (£1.9 billion) below its current/ outturn level and would have taken an additional 2 years to return to pre-pandemic levels of economic activity.
- Without policy measures, it is estimated that employment would be approximately 4.6% lower than current levels, equivalent to approximately 40k people in employment.
- The number of employees is now approximately 30k higher than the pre-pandemic peak, but the number of self-employed remains significantly below pre-pandemic levels.
- The number of students and those economically inactive due to sickness has increased, but the number inactive because of caring responsibilities and those who have retired before the age of 65 both decreased.
- The high level of vacancies experienced for much of 2022 highlights an important lesson for employers in terms of retaining skilled staff in challenging economic times.
Gareth Hetherington, Director of the Ulster University Economic Policy Centre said:
“It is clear from the analysis that although pandemic supports were provided at a significant cost to the public purse, the economic outcome in the absence of supports would have been much worse. This is particularly so for sectors such as hospitality, arts & leisure and non-food retail.
“It is also clear that the furlough scheme was more effective at supporting employees than the Self-Employed Income Support Scheme (SEISS) supported the self-employed. The analysis suggests that many self-employed individuals ceased trading to be employed in larger businesses. This may have a longer term impact on business start-up activity and entrepreneurialism.”
Governments may not be able to afford similar scale interventions in future
Gareth added:
“The last three economic shocks were the Global Financial Crisis, COVID and most recently the energy crisis and each of these has resulted in very significant government interventions. As a result public expectations about the role of government in response to economic shocks has substantially changed. However, UK Government debt was 34% of GDP in 2007/08 and is now approaching 100% and it is a similar trend across the developed world. Therefore Governments’ ability to respond to future shocks will face very real affordability constraints and that does not appear to be sufficiently in the public consciousness.”
Lessons to be learned for the future
This research does not seek to be critical of governments with the benefit of hindsight, but identifies lessons to inform any potential future response to a large scale economic shock. Gareth explained:
“It is important to recognise that policy measures which would usually take months and years to implement, had to be rolled-out in days and weeks. As a consequence there are lessons to be learned. For example, improving the ability of individual government departments to access information held by other parts of government. Amongst other things this would have made it easier to target government supports to those in greatest need rather than universal supports which came at a much greater cost to the taxpayer.”
Those with caring responsibilities returned to the labour market
The number of people economically inactive due to caring responsibilities fell from 65k pre-pandemic to a low of 45k in Q4 2021, but has since increased again to 53k.
Dr Eoin Magennis, one of the report’s authors and Senior Economist in the UUEPC said:
“Given the dramatic drop in the number of economically inactive people with caring responsibilities, it begs the question: what happened during the pandemic that allowed people who were looking after family members to return to work? The obvious answer is the significant increase in home working. Also, as people have returned to the office in 2022, the economically inactive with caring responsibilities has started to increase again.”
Find out more: UUEPC Publications - Economic Policy Centre (ulster.ac.uk)