by Peter Franklin
Wednesday, 21
October 2020

Send helicopter money to the North

A targeted cash stimulus can help local economies weather lockdown
by Peter Franklin
Mayor of Manchester Andy Burnham has pushed back against moving to Tier 3

Officially, it’s a tiered ‘alert’ system. But, let’s call it what it really is: a tiered lockdown system — which is why Greater Manchester is so reluctant to move up to tier 3.

It’s right that the severity of lockdown in each area should vary with the Covid facts on the ground, but the problem is that there isn’t a similarly objective system of financial support. The ad hoc haggling between central and local government threatens to disrupt the Covid response — while driving a wedge between the Government and its new friends in the North.

What’s needed is a system for automatically directing stimulus funds to whichever local economies are under the heaviest restrictions. That won’t be cheap, of course — but compared to letting cities and regions suffer long-term, structural damage, it’s the least worst option.

So, how best to provide that geographically-specific shot in the arm? One way would be to put money directly into people’s pockets depending on where they live. However, while this might help with household finances, it won’t help the wider local economy if the cash ends up sitting in savings accounts or drains away to Amazon.

Any ‘helicopter drop’ of money needs to be spent soon — and spent locally. The Eat Out to Help Out scheme was a dry run for the principle of directing stimulus funds to a chosen target; in this case to a particular sector. Other countries have trialled systems for directing spending money to particular places.

Reporting for This Is Money, George Nixon writes about a scheme in the Chinese city of Shenzhen. Last week, 50,000 people were randomly selected to receive 200 yuan (£23) which was transferred to them via a mobile app. With that money, they were allowed to spend it in thousands of local shops by scanning a QR code.

Another example is a scheme in the South Korean province of Gyeonggi. This started off as a Universal Basic Income experiment involving 200,000 recipients. However, during the Covid crisis it was expanded as an emergency measure to Gyeonggi’s entire population of 13 million. The payments are received in a local currency that not only has to be spent locally, but also within a set timeframe.

This last feature ought to be of particular interest to the British government. In trying to jump start the economy it faces a major obstacle, which is that the UK household savings ratio has risen to record levels. It’s an understandable response to a time of great uncertainty, but a counterproductive one. Reduced consumer spending will only prolong the economic downturn and thus further undermine consumer confidence — a vicious cycle that has the potential to overwhelm any conventional stimulus that the government tries to throw at it.

When Rishi Sunak announced the innovative Eat Out to Help Out scheme back in July he made the point that “this moment unique” and that therefore “we need to be creative”. I hope he understands just how right he was about that.

Join the discussion

  • This is a fundamental misunderstanding of the problem, which is not lack of funds, but the forced closure of businesses. There is a case for compensating the firms the state has compelled to stop operating or to operate at reduced capacity, and the workers who’ve lost jobs as a result. But this is not demand management, but reimbursing government mandated losses.
    The rise in household saving has been more than matched by the increase in government dissaving (i.e. borrowing and printing money to finance spending), but in any case the problem is not lack of demand, but suppressed supply.

  • The point you seem to be missing here, Fraser, is that deaths may be the same as they were this time last year, but that’s with fairly severe anti-COVID measures (rule of six, two-metre distancing, masks) in place across the whole country and even more severe ones in various localities. If none of those measures were in place, there’s every chance the death rate would be significantly higher.

  • Last year in the week in question 1620 people died of respiratory illnesses. This year it was 1621 including covd 19. Is this now a mouse casting a big shadow? I’m no fan of Trump, he’s a bit of a loon but in March he made one very good statement….the cure can’t be worse than the disease.
    Excess deaths in the home are however a national scandal on the scale of care homes but will get almost no focus at all as it’s outside the narrative.

  • To get involved in the discussion and stay up to date, become a registered user.

    It's simple, quick and free.

    Sign me up