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Christmas concerns

With the threat of the Omicron variant looming, policymakers around the world face a familiar challenge to protect their healthcare systems as well as their economies. Lessons from overseas, as well as local case studies, are essential for understanding how best to respond.

Last Christmas, there was the Alpha variant. This year, a new strain of the virus that causes Covid-19 – Omicron – looks set to spoil the party. There is not enough data yet to know exactly how dangerous it is, but the 50 mutations are alarming.

Reacting quickly to South African scientists raising the alarm last week, the UK government has re-introduced compulsory mask wearing in shops and other public places, and put ten southern African countries onto its travel red list. Trying to contain the new strain will be difficult. Over 30 cases had already been identified in the UK by Wednesday this week, and the actual number of infections is likely to be much higher.

One country where testing, tracing and quarantining has been successful throughout the pandemic is Taiwan. Up to October 2021, the country ranked lowest for total number of Covid-19 cases and second lowest in deaths per 100,000 population among comparable OECD countries. As Tsung-Mei Cheng (Princeton) explains in a new piece for the Economics Observatory, public trust in the government and acting early based on the experience of SARS were crucial.

For the first 18 months of the crisis, both Taiwan’s health and economy benefitted from tight travel rules and restricted civil liberties. Global GDP fell 3.4% in 2020, but Taiwan bucked the trend with 3.1% growth – higher than previous years.

But the second phase of their Covid-19 experience was less benign. For two months between May and July 2021, rising cases in the major urban areas of Taipei City and New Taipei City meant that the entire country was put into level 3-4 emergency alert. This brought with it the full suite of containment measures: closure of schools, shops and cinemas; and limited gatherings. Hospitals became overwhelmed and unemployment rocketed to a ten-year high.

Success against the virus is fragile without universal vaccination, and particularly so when other countries are not pursuing a zero-Covid strategy.

Closer to home, Heidi Karjalainen of the Institute for Fiscal Studies (IFS) provided an update on how the Covid-19 crisis has affected the National Health Service. The backlog is colossal: in May 2021, 5.3 million people were waiting to start NHS treatment, with over 336,000 of those waiting for more than a year. The corresponding figures for January 2020 were 4.3 million and fewer than 1,700 respectively.

Investment to increase the productivity of the healthcare workforce can only do so much if staffing levels are falling sharply. UK secretary of state for health Sajid Javid noted last week that the NHS had recruited more workers. But acute shortages remain, for example, in nursing, where there is an 11% vacancy rate.

Heidi also warns of how behavioural changes will increase pressure on health services. Public Health England estimates that more than 40% of adults in England gained weight during the pandemic, with the average gain being half a stone (around 3kg). If these lifestyle changes persist, the NHS will have to tackle rising obesity-related issues too.

Running the NHS hot may also increase demand for private healthcare provision. The opportunity cost of treating thousands of Covid-19 patients has been the collapse in regular treatment. Between March and December 2020, there were 2.9 million fewer elective in-patient admissions and 1.2 million fewer non-Covid-19 emergency in-patient admissions, compared with the same period in 2019 (IFS, 2021). This may mean that higher-income individuals who have accumulated savings during the pandemic will be tempted by the prospect of skipping the queue for elective surgeries such as hip and knee operations.

Turning to the future crisis facing economies, on Thursday this week on the Observatory, Mirabelle Muûls (Imperial College London) explored how climate change policies are affecting firms’ competitiveness. Highly polluting firms are paying a price for their emissions, and this means more efficient rivals will have a competitive advantage as the economy makes the transition to a sustainable future.

One example of this, Mirabelle explains, is the European Union’s Emissions Trading System. The ETS is the largest carbon cap-and-trade scheme in the world, and now covers more than 12,000 polluting installations across the EU.

Putting a price on carbon makes economic sense, but there are political ramifications too. Politicians are worried about the relocation of emissions and emissions-intensive activities abroad – something known as ‘carbon leakage’. But research suggests that the effect may be small, and global cooperation in the style of the commonly agreed minimum corporation tax could prevent this too.

Like new coronavirus variants, the effects of the climate crisis will continue to loom for many Christmases to come. Ensuring that policy-makers are well equipped with the latest economic research remains vital if we are to respond effectively to these challenges. For all the rhetoric around ‘saving Christmas’, the UK government’s best move may be to continue to listen to (and act on) expert advice.

Observatory news

  • Our first annual conference – Talking Economics – took place a couple of weeks ago, at We the Curious, in a partnership with Bristol Ideas’ festival of economics. The event was a fantastic success, and it was amazing to hear from experts from across the UK. You can listen back to a selection of the talks here.
  • To find out more about Talking Economics, check out recent articles by Bethan Staton (Financial Times) and Soumaya Keynes (The Economist) who joined us for the event.
  • And if you haven’t yet got your hands on the second edition of ECO magazine, make sure you order your free copy here. A free digital version is also available here.
Author: Ben Pimley
Picture by Arthur Franklin
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