Britain must turn its attention to the economy now it is through the peak of the coronavirus crisis, Sajid Javid has told Sky News.
In his first exclusive television interview since stepping down as chancellor, he said the government “rightly put public health first”.
But he urged Boris Johnson to now focus on economic recovery after questioning the Bank of England’s prediction that the economy will bounce back from what it predicts will be the deepest recession in 300 years.
“I think a V-shaped recovery will be challenging. And I know the Bank of England has said it’s possible,” Mr Javid said.
“It has made a whole set of assumptions around relaxing the lockdown and ending it completely in three months. And it says itself that it’s at best uncertain.
“I do think it’s just like the virus itself, let’s hope for the best but let’s plan for the worst, and that means you’re taking whatever action you think is necessary and possible right now to make sure we do get the fastest recovery possible.”
Mr Javid is full of praise for his protege and successor Rishi Sunak, who he said was “absolutely right” to “use fiscal firepower to intervene and mitigate” in the short term.
However, he said attention should now be paid to ensuring the health of the banking system to aid economic recovery, while urging ministers to “run the economy hot” in order to balance controlling the coronavirus outbreak with the wider impact of a prolonged lockdown.
When it comes to the banking system, the former chancellor and investment banker said he is “worried about the health of our banks” and said they might have to be forced to raise more capital to ensure they do not just absorb losses but also continue lending.
“Because of the action that has taken place over the last 10 years since the last financial crisis, the banks are capitalised, they’ve got more sort of buffers, as it were, than ever before, so they can absorb the expected losses based on the Bank of England scenario.
“But we don’t need banks that are just able to absorb losses. We need banks that are able to lend to British businesses particularly our SMEs, over half of SMEs rely only on bank loans they’re their main source of debt.
“So, we need to have banks that aren’t taking let’s say sort of a ‘safety-first crash position’. We have to stand up tall, be confident and lend to British business. That’s what I’m concerned about.”
Ministers might also need to provide some sort of support for banks for their worst-performing loans.
“The second thing is that maybe the government should dust off some of the plans that existed after the last financial crisis on what was called a sort of ‘bad bank’ policy, which was never properly implemented in the end because it wasn’t needed,” he said.
“You might need something. You have some kind of support for banks with some of the worst-performing loans and try to help the banks in that way, so that they can in turn help the economy and lend.”
Mr Javid is the most prominent Conservative to also publicly call for the economy to be opened as swiftly as possible so that new cases and casualties of the virus would continue but within the capacity of the NHS to cope.
“We’re going to have to co-exist with this virus for I think many months, if not potentially years. But we’ve got to find a way forward and that does mean you’re relaxing, as much as you can,” he said.
“Running the economy hot you could say, in a way that you are trying to take into account, not just the sort of necessity to control the virus, but also the wider impact on society – those job losses, those opportunities foregone, particularly for younger people.
“The rise of domestic violence, child abuse, of mental health cases. All of that needs to be taken into account.”
He is publicly making the argument that the current chancellor and Michael Gove, the Cabinet Office minister, have been reportedly been making privately in recent weeks – echoing the concerns of Conservative MPs and donors.
Mr Javid is of the view that the government should begin lifting restrictions if the R number is below 1 – the rate where new infections are no longer rising – rather than waiting until the virus has been completely suppressed.
“As well as listening to the scientists we also need to think carefully about the impact on the rest of society and the economy and jobs and wider social impacts and that does mean, I think, that when it comes to opening up you want to go as far and as quick as you can,” the former chancellor said.
But Mr Javid also knows that reigniting the economy risks reigniting the spread of the disease.
One option might be to have different rules for different age groups in order to both try to protect the elderly and those more vulnerable to COVID-19 while also getting the economy, and the younger workforce moving once more.
“We shouldn’t rule out an option that focuses on protecting the most vulnerable but gives more freedom to others,” he added.
“We know now that the mortality rate of younger people, say under the age of 45, is a lot lower than others. And it might be the case that in the future we can find a way that we focus our protection on those that are most vulnerable.”
In the longer term, Mr Javid, an instinctive Thatcherite, wants Britain to find a way to return to fiscal rules and live within its means.
The Institute of Fiscal Studies (IFS) has estimated the UK could be sitting on a debt pile of £250bn at the end of the year – five times the amount predicted before the coronavirus crisis hit.
The prime minister has made it clear he is opposed to any more austerity to balance the books.
His former chancellor is clear he is opposed – and in this he speaks for many Conservative MPs – to tax rises which he warns will be “self-defeating” and “strangle any economic recovery”.
“Many things will change as a result of this crisis one thing that shouldn’t change is our understanding of the economic model that leads to the highest growth rate possible which is still going to be a free-enterprise, low tax, competitive economy.
“This is the best way to make sure that we are earning enough as a country to pay for the public services we all rely on.
“It was true then, and it’s true now. And that’s going to be critical, that we stick with the economic model that we know works.”