Janette Rutherford, Emeritus Professor of Finance and Financial History at The Open University, reflects on similarities made between the current UK Government’s actions during the current COVID-19 pandemic and those made by the Government at the time of the first world war.
The enormous impact of COVID-19 on the world has drawn comparisons with the first world war. Historian Niall Ferguson, for example, points to the financial panic, global reach, economic dislocation and popular alarm of both crises. Both events have cost the UK enormous sums, driving government debt today to over £2 trillion, equivalent to over 100% of GDP. In 1919, it was even higher at 135% of GDP. Both crises, though, have also generated winners as well as losers with respect to finance, as well as health.
We are now in the second wave of the COVID-19 virus and have no idea how much this pandemic will eventually cost. But we can learn lessons from the first world war and subsequent crises on how to reduce the final bill. Faced with a similar dilemma in 1915, the war cabinet’s solution was to target the financial winners from the war with a special tax. More recently, Margaret Thatcher and Gordon Brown adopted a similar strategy during hard economic times. Today’s government can learn from this approach by targeting those organisations that have profited from the pandemic to help those that are struggling.
During the first world war, despite the suffering, there were some financial winners, even among working-class families. Labour shortages caused wages to rise and women took the absent men’s jobs or worked in the newly established munitions factories. This all added to the household budget. A cartoon in satirical magazine, Punch in 1917 shows a munitions worker at the factory gates wearing a smart overcoat and smoking a cigar, telling his friend he has just bought a piano.
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