8 December 2021

It’s way too soon for ‘Plan B’

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If the latest rumours are correct, the UK government will soon announce new restrictions in response to the spread of the Omicron variant. Throughout the pandemic my instinct has been to give the policymakers and their advisors the benefit of the doubt. But clamping down 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.

What’s more, any further tightening of restrictions, even short of a full lockdown, could have a chilling effect on both sentiment and spending. If the Government signals that it is increasingly worried, this is bound to make others more cautious too.

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% off GDP – costing the UK economy at least £4 billion a month. They 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 in narrow economic terms, it may be worth taking another hit in the short term to secure a stronger recovery in the longer term.

However, this judgement would 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 thanks to past infections and vaccines.

So far, the evidence base for Omicron being more deadly 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 if so, 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. But this alone should 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 suggests 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.

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Julian Jessop is an independent economist.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.