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Coronavirus: UK/EMEA Weekly Update – Call Briefing and Recording from 5.27.20

May 27, 2020

Below please find key take-outs from our May 20th senior panel with Lord Jim O'Neil, former Treasury Minister and former Chairman of Goldman Sach's Division of Asset Management; Lord Andrew Cooper, co-founder of Populus and former Downing Street Adviser, Amber Rudd, Teneo Senior Adviser and former Home Secretary and Wolfango Piccoli, Co-President of Teneo’s Risk Practice and chaired by Principal of Teneo’s Situations and Politics practice and former Downing Street Director of Politics and Communications, Craig Oliver.

 

Listen to the Call

 

COVID-19 and the Outlook for the Economy (led by Lord Jim O'Neill
  • Issues including a lack of productivity, shared wealth and lack of investment in technology and R&D has compounded the problem in the UK –countries that previously rated highly in the Sustainable Development Index have the lowest deaths to population ratio.
  • Looking ahead, there is a great opportunity for the UK to give the Bank of England a different remit, one that focuses on nominal GDP targeting that tries to target inflation and growth. Whilst this won’t guarantee a stronger economic recovery it would almost certainly help, and would help manage debt to GDP.
  • The economy has collapsed because the government chose to shut it down –but there is a “societal obligation” to support it as things could be even worse.
  • There wasn’t any choice but to create the debt that we now have. People have questioned the scale of emphasis on debt reduction in the UK, but debt reduction in its own right doesn’t serve much purpose without considering other areas such as nominal GDP growth.
  • This may be the right way to present the post-COVID fiscal framework –as well as boosting nominal GDP, it allows government advisers to look at when might be the point to slow down government spending and/or raise taxes, rather than obsessing over these huge debt numbers.
  • It would be unconventional for a Conservative government, but there is an argument to consider setting up some kind of Sovereign Wealth Fund in the UK.There’s an opportunity to think differently here.
  • We could have learnt from previous frameworks and built a 3D optimisation model that would look at different variants of lockdown and the economic consequences this would have. The furlough scheme being linked to the loan programme could have also been done differently, to avoid any ‘gaming’ of the system.
    • But it’s important to remember that given the lack of capacity and fast-changing circumstances, the government have responded relatively well.
  • Going forward, business needs to be involved in optimising its goals, rather than just pure maximisation of profit. Business is still detached from normal human beings –they need more skin in the game than just the bottom line and we need a system where there is more collective interest to stop market failures.
Public Attitudes Towards the Crisis and the Political Situation in the UK (Led by Amber Rudd and Lord Andrew Cooper)
  • The public has been incredibly engaged on the issue of Dominic Cummings and this has triggered a steep decline in government popularity.70% of the public think Cummings did break lockdown, and almost 60% think he should resign.
  • Meanwhile, support for the government handling of the crisis and approval ratings has plummeted –the former was down from 70% in March to 40% on Monday, whilst the latter has dropped from 53% to 0%. The PM’s own favourability ratings dropped from 66% 8 weeks ago to –1% this weekend.
  • The  way  the government has handled the Cummings issue demonstrates just how influential he is in government, and how close he is to Boris Johnson.
  • Many of the Cabinet will also feel they owe their jobs to Dominic Cummings and their support for him is unlikely to dwindle. The Chancellor in effect works for Dominic Cummings.
  • But how Conservative MPs respond to him staying will be interesting – many are receiving incredibly angry letters and it will be hard for them to continue supporting the government’s line on Cummings if these continue.
  • While government’s ratings may be low, Johnson will be thinking that he can weather this storm (remember he is only six months into the job) but the huge decline in his popularity will be difficult to recover from - gaining voters’ trust is difficult. So long as they don’t have more than 40 MPs rebelling the government should be able to continue. This is also indicative of the way they are likely to continue handling Brexit.
  • Johnson has had to grapple with his desire to limit nanny-statism vs what needs to be done in lockdown, which has created these mixed messages to the public and caused confusion.
  • People will be increasingly sceptical of government advice – and are beginning to doubt their competence in managing this crisis.
  • The UK’s bureaucratic system also raises questions – such as why Public Health England was not forced into more testing earlier, or the lack of technological capabilities here despite our world-class universities having led on things like vaccine development.
  • The best way out of this for Government and Dominic Cummings is to have a big and ambitious offer for the future and the sooner they do this, the better.
The International Perspective: Coming out of Lockdown (Led by Wolfango Piccoli)
  • The risk of a second wave is extremely high, as evidenced in South Korea, where 1 person triggered 247 cases on a night out. To establish this, 83,000 tests were carried out via detailed tracking and tracing. This demonstrates the real challenge of tracing and isolating once activities have restarted,and how much damage one  can do even in a country where the crisis has been managed well.
  • Denmark and Greece are two very different European countries that both handled the crisis well, and where taking action much quicker than the UK made a big difference - this has allowed them to come out of lockdown sooner.
  • On the whole, despite countries in continental Europe opening up, none of them have a credible testing, tracking and isolating system in place – instead they are opening up as a result of economic concerns, and this entails significant risk. Germany is the one potential exception here due to its mass testing ability and localised health system.
  • As soon as you start lifting restrictions there are behavioural changes – Italy for example had to stop selling alcohol after 7pm after seeing huddles of people.
  • From an economic perspective, there is a huge issue of confidence, with people not spending and massively increasing saving in Europe – in March, this was up to €20bn from €4bn per month in France, €16bn from €3.5bn in Italy and €10bn from €2.3bn in Spain. If this trajectory continues, there will be €400bn of extra savings in Europe by the end of the year, accounting for a very significant 3% of EU GDP.
  • In terms of approach, a clear differentiator for the UK vs its European neighbours has been the political emphasis – whereas other countries largely relied on scientists and economists to lead press conferences and public communication, the UK has led this politically from day one, and in some instances has used scientists for political cover.
  • Going forward, the move from the EU to announce a new plan today to support the economy’s recovery from COVID is a major development and hopefully a positive step.
The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.

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