In the first instalment of a Coronavirus Economics blog series from the Young Fabians Economy & Finance Network, Matthew Oulton assesses the controversial ‘Eat Out to Help Out’ policy, exactly two years on from its introduction.
It was a strange time, August 2020. The Pandemic had seemingly abated, Covid levels having declined to 1 in 1500 people, and deaths far below where they are now. The Government was in that now unimaginable period between Dominic Cummings’s trip to Barnard Castle and the discovery of Partygate. Whilst the Government’s net approval was underwater and declining, it was much, much better than it is today. Rishi Sunak was by far the most popular politician in the country. It was during this time that they made the strangest policy decisions. That world, where public money flowed, inflation was below target, and the Conservatives still believed in Boris Johnson’s election-winning potential, feels a decade ago now.
The Chancellor, who has now resigned, took to signing his name everywhere. In an astonishingly obvious attempt to curry personal favour with the country, Sunak plastered his signature on every policy measure he could touch.
Perhaps the boldest of these was ‘Eat Out to Help Out.’
This scheme, in case you have forgotten, subsidised half of the cost (or £10, whichever was lower) of meals in restaurants during August 2020 on Mondays, Tuesdays, or Wednesdays. As we close in on 2 years since this policy, it has become clear that it was a terrible idea.
I’ll admit, I had some practical reservations at the time. Since Government money always carries an opportunity cost, this never felt like a good use of public money to me. The self-employed never received adequate support and the most vulnerable needed more help. I was also very risk averse about covid at this point, which was borne out by the massive resurgence in following months.
I was not alone, IFS also considered the scheme to be inadequate to have the desired impact and too early. The Resolution Foundation also considered it to be inadequate in magnitude, at least on its own.
However, I did think it would be politically effective. I was working in London at the time, and as such had ample opportunity to take advantage of these tax-payer subsidised meals. In an abundance of caution, I spent many evenings sitting with my girlfriend outside restaurants so that we didn’t contribute to the inevitable spread of Covid, but we could still get our money off. This was a policy designed in a hurry with absolutely no thought to the economic consequences. Nevertheless, when London prices were brought into line with those of Merseyside, where I’m from, I could see the appeal. This, I thought, is going to be a problem for the Labour Party.
With the benefit of hindsight, it has turned out to be both a political and an economic disaster.
The cost of the scheme smashed through the Treasury estimate of £500 million at £840 million. It did successfully encourage restaurants to reopen, consumers to return to them, and employers to take their employees off furlough. However, most of these positive changes were temporary, before collapsing later on as covid rates spiked.
The scheme also heavily suppressed inflation in August of last year by lowering average prices in the food sector, which – though it’s hard to believe now – was a bad thing at the time, given inflation was below target. It was rolled out at the same time as a reduction in VAT for the sector, and the two policies together are estimated by ONS to have reduced CPIH from 0.9% to 0.5%.
A study from LSE’s Centre for Economic Performance found that broader benefits of the policy were exceptionally limited. The expected boost to employment did not much outlast the scheme, and the impact on consumer behaviour was also short-lived.
Far from being neutral with respect to Covid rates, a paper by the CAGE institute based at the University of Warwick found that between 8% and 17% of newly detected Covid cases were caused by the policy. The study ingeniously exploited the fact that wet weather decreased uptake of the scheme, allowing researchers to access the causal impact of the policy.
Further, it gave credence to the sense amongst the British people that public money could be, and was being, spent on frivolous things. As the Pandemic wore on and we actually needed that money, the sense of waste in this earlier period made things politically and fiscally difficult for the former Chancellor. Hard decisions became harder because he had thrown a meal-discount-shaped grenade into the public finances.
What can we learn from this escapade?
Firstly, listen to the Civil Servants. The boss of HMRC warned, prior to the roll-out of the policy, that it may not deliver value for money. Doubtless many Economists within the Treasury will have voiced similar concerns. The policy was a blunt instrument, trying to solve a genuine problem, but without thought for unintended consequences. The allure of paying more of families’ bills was too much for the political leadership in Downing Street – both Number 10 and Number 11, and as such good advice was ignored.
Secondly, we need on-tap expansionary measures ready to go in the future. There were specific issues in Pandemic, such as the collapse of the food and accommodation sector and the closure of schools. But there was also an overall issue of collapsing demand. Such a conventional economic crisis should have been addressable by Government and the Bank of England. Unfortunately, monetary policy was inadequate to solve this issue, and the Government did not have enough fiscal measures ready to go. We could have used the money borrowed in this crisis to build new vital infrastructure, update schools and hospitals, or seed new industry, but instead we wasted it on subsidised meals, most of which would probably have been eaten anyway. Instead, the Government designed these schemes in a rush, meaning they were poorly targeted and ineffective.
Finally, policymakers should take heed that, as Ed Balls used to say, ‘good economics is ultimately good politics.’ If you make decisions that seem politically astute, but which are economically dubious, you may thrive for a while. You may even – see George Osborne – pull off an entire career in politics based on daft ideas. But in the end, the economics will catch up with you. In the end, you will be exposed as the Chancellor who wastes public money. Rishi Sunak is no longer in cabinet, but his career is likely far from over. If we end up facing him in a future General Election, as Chancellor or otherwise, you can bet this policy will be brought up. They wasted your money, and now they’re hiking your taxes to pay for it.
Instalments of the Coronavirus Economics blog series will be released weekly each Wednesday over the next month.
Matt is the Vice-Chair of the Economy and Finance Network. He is a recent graduate in Economics, soon to begin postgraduate study. He’s from Merseyside, Labour’s true heartland, and writes frequently on a range of economic and political issues.
His interests in Economics focus on microeconomic theory and Public Policy, and his politics are characterised by a near-pathological obsession with returning Labour to government. He tweets at @matthewoulton.