James Forsyth James Forsyth

The legacy of Covid: a much bigger state

Covid transformed the role of the state. During the pandemic, the government did things it would never normally even contemplate. At the same time as it restricted civil liberties, it intervened in the economy to an extent never before seen in peacetime. Through the furlough scheme, close to £70 billion was spent on paying people’s wages.

Other government economic interventions seem minor in comparison. What is a few hundred million here and there when the state has been spending billions so regularly?

History suggests that when the state expands in a crisis, it doesn’t revert to its pre-crisis level once the emergency is over. The second world war led to the industry nationalisations of the Attlee government, along with the creation of the National Health Service and the modern welfare state. After the first world war, the Lloyd George government extended unemployment insurance to most of the workforce, fixed wages for farm workers and introduced rent controls.

Last year, state spending exceeded 50 per cent of GDP for the first time since 1945-46. The question for the Conservatives is how quickly that share should be reduced, and how big, and active, government should be.

‘This little piggy got slaughtered, this little piggy got culled…’

This philosophical question is what lies beneath the row in government over what to do about rising energy prices for businesses. The Business Department, supported by No. 10, wants state support for the industries hit hardest by the rise in the gas price. The logic is that the huge increase in costs is making otherwise viable businesses unsustainable, so the sensible thing for the state to do is to intervene, as it did during the pandemic. The Treasury, however, is nervous about the precedent.

There are significant differences between the energy price increase and the pandemic.

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