Economists warn ministers to treat virus impact ‘like fighting a war’

Leading economists have warned that the Government needs to treat coronavirus like “fighting a war” as it warned over a “huge” hit to the economy in 2020.

Experts also told ministers that the Government should consider a “one-off tax”, potentially on wealth or real estate, to address the long-term damage of the pandemic.

The comments were made by a panel of senior economists who were questioned by the Treasury select committee on Friday afternoon.

Jagcit Chadha, director of the National Institute of Economic and Social Research, said the slump in the economy caused by the virus will be “huge compared to anything we have experienced in our lifetime”.

He said that most economists are forecasting the magnitude of the fall in GDP to be “between 10% and 15%” for the year.

On Wednesday, the Office for National Statistics revealed that GDP slipped 2% overall in the first quarter – the biggest fall since the end of 2008 when Britain was at the height of the financial crisis.

The Bank of England last week warned coronavirus could see the economy plunge by as much as 25% in the second quarter and fall by 14% in 2020.

Adam Posen, former member of the Bank of England’s Monetary Policy Committee, told the ministers he believed the cost virus will be a “huge one-off” and the Government’s response therefore needs to be “like fighting a war”.

He said: “It needs to be paid off over a long span of time.

“The most important thing is to not pay it off quickly through austerity or other measures but to grow the economy quicker than the debt is growing.”

He also suggested that the Government could consider a “one-time tax, perhaps on real estate of wealth”, as a measure to cover the cost over the long-term, instead of austerity measures.

Meanwhile, University College London’s Joshua Ryan-Collins warned that “deflation is biggest risk in short to medium-term” as consumption continues to wane.

He said: “Even if lockdown ends today very few people would going to restaurants, going on holiday, shopping.

“On the other hand, there is a serious insolvency issue with many firms.

“In 2008, you had a fundamental liquidity crisis, they needed injection of liquidity but now a lot of firms are fundamentally insolvent, in aviation, hospitality and retail.

“These being propped up with loans that show they are not feasible businesses in medium term and could collapse.”