It’s still far too soon to unwrap ‘Plan B’

If the latest rumours are correct, the UK government will soon announce new Covid restrictions in response to the spread of the Omicron variant. Throughout the pandemic my instinct has been to give the policy-makers and their advisors the benefit of the doubt. But any such move now would make little sense.

Starting with the economics, the costs of any further tightening of restrictions depends on two things. One is the direct impact of the measures themselves. The second – at least as important – is the impact on consumer and business confidence.

The government will presumably bend over backwards to avoid a full national lockdown. It may feel that it has already done enough with the new mandates on face coverings, the additional burden on international travellers, and the stricter enforcement of self-isolation rules (though good luck with that).

But there are still elements of ‘Plan B’ that could be rolled out, notably a renewed injunction to ‘work from home’, and compulsory ‘vaccine passports’ for entertainment venues. This would have a substantial impact on office life and the leisure sector, which were already struggling to get back to business as usual.

Some suggest that ‘vaccine passports’ won’t do much harm to the economy because most people in the UK are now jabbed anyway.. But if this is the right way of looking at it, why bother? This also ignores the additional costs to businesses in checking vaccine status and exemptions, and the deterrent effect on customers from the additional hassle.

What’s more, any further tightening of restrictions, even short of a full lockdown, could have a chilling effect on sentiment and on spending. If the government signals that it is increasingly worried, this is bound to make others more cautious too. Even if each new regulation in isolation is only a small change from where we are now, it’s the cumulative impacts and the direction of travel that really matter.

It is hard to put firm numbers on this. But judging by what happened last winter, the additional Covid restrictions apparently being considered in Whitehall could easily knock 2 per cent off GDP – costing the UK economy at least £4 billion a month. (GDP was 3.7% lower in January 2021 than in October 2020, but that was closer to a full lockdown, and fewer people were vaccinated then.)

The additional restrictions would also force the taxpayer to stump up billions more to prevent a new wave of bankruptcies and job losses.

This isn’t just about the economy, either. These economic costs would come on top of all the social costs and harms to people’s wellbeing and liberties, as well as the risk of further disruption to children’s education.

Many reasonable people will argue that this would be a fair price to pay to clamp down on Omicron. Even just thinking about the economics, it may be worth taking another hit in the short term to secure a stronger recovery in the longer term.

However, this judgement would still require much stronger evidence that the new variant is more deadly, not just more transmissible. This is a particularly high bar to clear in the UK, where most experts agree that the population has now acquired a high degree of immunity due to past infections and from the vaccine booster programme.

So far, this evidence base is missing. Perhaps (and in one way I hope this is true), policy-makers and their advisers have better and more timely information than the rest of us. But then they need to share it.

Instead, we are being bombarded with breathless headlines about the rising number of new Covid cases, but these are doing little more than keeping pace with the increase in the number of tests being taken. As a result, the test ‘positivity rate’ has barely changed.

Of course, the increase in the number of tests that are being taken could itself be a warning that more people are falling ill. But it presumably also reflects an increase in precautionary testing ahead of what remains of the Christmas party season.

We will probably also see plenty more headlines about a spiralling number of Omicron cases (based in part on forecasts from scientists whose track record here would put even an economist to shame). But a surge in cases of Omicron would not be a surprise, just as Delta supplanted previous variants. Do we really have to go through this again every time the virus mutates – as it inevitably will?

In the meantime, the hard evidence on the severity of the Omicron variant is actually reassuring, unless you always want to take the most pessimistic view. In particular, initial data suggest that, if anything, Omicron is less deadly than other strains.

A preliminary South African study on the effectiveness of the Pfizer vaccine against Omicron has also found that it still provides a high level of protection against serious illness, especially in those people with a previous infection.

And while I’m among the first to be sceptical of the consensus in financial markets, it is worth noting that global equity prices have already rebounded. Investors now expect the Omicron scare to pass quickly.

In short, if the government is indeed planning to complete the rollout of ‘Plan B’, it needs to do a damn good job of explaining why it has to do so now.

This is an extended version of an article first published by CapX on 8th December 2021

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