The economic consequences of the lockdown

The lockdown is an economic and social catastrophe for the UK. The damage it has done will be so profound that it will be remembered as the moment in which the UK effectively died.

In the space of about 10 minutes Boris Johnson did more damage to the UK than any of our enemies have ever achieved collectively. By announcing a lockdown on 23 March 2020 and promoting the Coronavirus Act 2020 and associated regulations he has destroyed centuries of freedom and the rule of law and turned the UK into a totalitarian police state.

By doing this he has destroyed the basis of the entire UK economy. Without the rule of law the UK’s entire legal, financial and professional services industry has no basis for existence. These industries and the associated jobs in the services sector (accounting for 70% of GDP) only exist and are only located in the UK because of the long and deeply held commitment to freedom and the rule of law. Without this commitment the UK is no different to any other developing jurisdiction.

By implementing the Coronavirus regulations the UK has signalled the total destruction of its own rule of law. How will anyone ever take a ruling from an English court seriously again? English law has become instantly meaningless as a concept — instead we have become a country based on the rule of power, in which the law is made up by the police. We will never be able to speak of freedom, democracy and human rights with a straight face again.

The destruction of English law will fatally damage the equity-based UK economy and the asset that underpins the balance sheet of almost every citizen in the UK: residential housing. The Coronavirus regulations prohibit transfers of title during the lockdown: private property has effectively been suspended, perhaps forever. Doing this has brought all secured property lending to a standstill, probably without possibility of recovery.

Secured lending and private home ownership is only possible in developed economies with protections for private property, the rule of law, the upholding of long term contracts and non-arbitrary government. In developing countries that are totalitarian police states none of this exists, as it now no longer exists in the UK. The availability of secured lending, coupled with the rule of law, is what gives value to illiquid assets like residential housing.

Without these fundamental elements UK housing can scarcely be worth more than a few years average salary at best, as an “owner” runs the risk of confiscation at any time at the hands of an arbitrary totalitarian government and its policemen, and a lender will be unable to enforce a claim and accordingly will not lend. Hence UK mortgage lenders are reported to have cancelled all outstanding mortgage offers as soon as the Coronoravirus regulations were enacted.

On this basis we can expect that UK house prices will fall immediately by at least 60%, if and when the period of ‘house arrest’ ends. A fall of this extent in house prices, coupled with the destruction of all small and medium sized businesses would be likely to result in the immediate insolvency of all UK banks, as almost none of the banks’ outstanding business loans or mortgages are likely to be repaid.

So in addition to the stated cost of 15% of GDP from the UK government’s ‘stimulus’ programme to reimburse UK employees and businesses for the lockdown losses - caused the government’s own actions - we will also have the costs of bailing out the banks and possibly directly repaying insured bank deposits (£2 trillion). In 2008 the financial crisis and bank bailout amounted to just 30% of GDP. As this is a much greater crisis than 2008 it seems likely that the overall cost of the disastrous UK lockdown will exceed 100% of GDP, well in excess of £2 trillion.

The UK government is already planning to issue £45bn of gilts in April, an annual run rate of £540bn. Over a year this is equivalent to a third of all the gilts already outstanding. No doubt soon they will be issuing £100bn+ every month, more than doubling the national debt in the next 18 months. The only solution will be direct monetisation by the Bank of England: the gilts will be issued and bought with money printed out of thin air, but the currency will take the hit. Sterling will fall rapidly below parity with the dollar, onwards and downwards in a Venezuelan style spiral to cents on the dollar.

Effectively, by abandoning the rule of law and becoming a police state, the UK has gone from being AAA rated to B overnight, from being an advanced developed country to being a developing basket case, a country with nothing but debt and a (soon to be) hyperinflating currency. All of the UK’s competitive advantages, everything that holds it together and made it a desirable jurisdiction to live and to do business has been destroyed with one destructive, cowardly piece of emergency legislation.

And all this was done to “protect the NHS” — to save the Conservative Party from being embarrassed by photographs in the media. And to save lives, reportedly. Without any balancing consideration of the far larger number of lives that will be lost from a huge economic depression which will be far greater than the Great Depression, the bailout of banks, the loss of millions of jobs and the livelihoods of small business owners, and the bankruptcy of thousands of small businesses.

Regrettably there is no way back from this abyss. Once destroyed the fragile trust that underpins democracy, freedom and the rule of law cannot be easily recovered. Humpty Dumpty cannot be put back together again. The unthinking collective hysteria of the media and the public and the hasty reactive incompetent panic of the Prime Minister and the Conservative Party hierarchy has done for us all.