The Guardian view on Covid's widening gaps: the rich are getting richer | Editorial

Rishi Sunak ought to make it clear that it is the real economy that needs rescuing, not the City

For speculators, the cryptocurrency party was just starting. At the beginning of last year one bitcoin was worth £5,614 before almost reaching £30,000 at the end of last week. On Monday, Britain’s financial watchdog took the punch bowl away, by warning bitcoin investors that they could lose all their money. While it may sober up a few of the partygoers many will find solace in their bank balances. Anyone who bought cryptoassets at the beginning of 2020 was sitting potentially on a 400% gain, an extraordinary return in a year when a health crisis has morphed into an economic one.

Thanks to the government’s actions, owners of assets have had a very good pandemic. Shares in London are back to where they were in late February last year. House prices in 2020 rose by 6%, helped by the chancellor’s temporary stamp duty holiday. Economic euphoria needs a drug. It turns out that the dealer with the best supply of credit is the government. Its central bank has flooded the financial system with cash meant to be loaned to chase a positive rate of return. In Britain’s distorted economy investors, even in the midst of Covid, prefer to make outlandish short-term capital gains rather than income from productive investment.

There are rich pickings in a pandemic. Rocket boosters have been bolted on to wealth inequality by substantially increasing the net worth of the top 10% richest people who control half of Britain’s assets, such as shares, houses and bitcoins. Rishi Sunak, the chancellor, seems curiously uninterested in what’s going on. Mr Sunak spoke in parliament as if he were a bystander watching a car crash rather than having his hands on the steering wheel. As the lockdown bites more and more people face increasing financial hardship and mounting levels of debt. When one in six small businesses in the UK warn they are on the brink of closure, you’d expect a better response from Mr Sunak than just telling MPs that “the economy is going to get worse before it gets better”.

The reality, which is becoming conventional wisdom, is that what is required is a better designed fiscal policy rather than the monetary acrobatics we have so far seen to keep the real economy from recession. Coronavirus has shown the best way of avoiding a crisis is to get ahead of it. One way that the government could find itself in front of the pandemic’s curve is to bring forward the budget from early March. The chancellor, no doubt, would like to use the parliamentary set piece to reset the government’s image. But that’s not going to happen given the path of the pandemic. Neither will anyone be surprised by the measures Mr Sunak will surely announce: such as an extension of the furlough, a further one-year business rates holiday and a continuation of more generous universal credit. To do otherwise would turn illiquidity into insolvency for many small companies and ordinary households.

The Bank of England’s defence is that it is trying to hit its inflation target. This is difficult to believe when it looks like the Bank is financing the government’s borrowing. It is a good thing that there has been oodles of cash to pay for furlough wages, nationalise railways, bailout businesses – from airlines to hairdressers. Mr Sunak, however, waits until a crisis is upon the country before doing the right thing. He has no alibi for delaying tough choices. Instead he touts, post a successful vaccine rollout, a “big bang” for the City to energise the economy. Worryingly, Mr Sunak seems to have counted his chickens before they have hatched. The government’s handling of the pandemic has been marked by incompetence – resulting in one of the worst death tolls in Europe and the worst economic recession among large advanced economies. Instead of pushing yet another lurch towards an economic policy paradigm that advantages deregulated finance, there is an urgent need for Mr Sunak to outline a funded plan to support the Covid-stricken real economy.

• This article was amended on 12 January 2021. Mentions of cryptocurrency values at the “beginning of the year” meant to refer to early 2020.

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