Does the Covid Vaccine Mean the Government Can Soon Lift the Lockdown?

Covid-19

Does the Covid Vaccine Mean the Government Can Soon Lift the Lockdown?

Commentary
Posted on: 17th November 2020
Ian Mulheirn
Executive Director for UK Policy and Chief Economist

What should the government do when its lockdown measures expire on 2 December? For months now, the government has been wrestling with the trade-offs involved in handling the pandemic and its impact on the economy. But it still has made no public assessment of the costs and benefits of its interventions.

Last week Treasury mandarins were on the receiving end of some tough questions from the Treasury Select Committee. Committee Chair, Mel Stride, on receiving confirmation that the Treasury did not have any analysis about the likely economic effects of the second lockdown, dispatched his victims with the instruction that the analysis be ‘pulled together and made public’.

You can’t help sympathising with the Treasury’s view that any such assessment would be based on a truckload of assumptions given how little we know about the interaction of the virus and the economy. Weighing all this up is going to be as much about judgement as hard data. What’s more every intervention or new development changes the calculation in uncertain ways. Most importantly, last week it emerged that Pfizer-BioNTech may have a highly effective vaccine ready to go before the end of the year, and yesterday Moderna reported similarly positive results. This further complicates the decision next month.

But Stride is right that the government needs to lay out its thinking. Any course of action decided upon by ministers is the result of some set of beliefs they hold, evidence they have seen and assumptions they make. And parliament and the public deserve to know what they are. For the sake of accountability the government should set out how it thinks about the problem of minimising the cost to lives and livelihoods between now and mass vaccine coverage.

How then should the government think about the economic effect of restrictions as vaccines are introduced?  

It needs to be able to assess the impact of the measures relative to what would otherwise have occurred. The true impact of asking pubs to close depends on what you think would otherwise have happened. For example if, in the absence of restrictions, case numbers and deaths continued to rise, then most bars would be deserted anyway. While hard evidence is hard to come by, it is possible at least to build a model that expresses how all these factors might interact and allow people to explore it.

Here at TBI we have developed an interactive spreadsheet model that does just that (note: to use the model you need to be signed in to Microsoft and open it in the desktop app for full functionality). HM Treasury could even download it and send it over to the Treasury Committee. It is based on a simple SIR model of how the virus spreads, and assumptions about the relationship between economic activity, suppression measures and fear. While the model can be easily customised to accommodate different perspectives, it contains some baseline assumptions about these relationships grounded in various pieces of evidence from the past eight months. The sources are set out in the spreadsheet. You can also download it and insert your own assumptions on things like the effectiveness of test and trace, the economic impact of suppression measures and the degree to which the economy is harmed by fear of infection as case numbers mount. For more about the way the model works read this.

How the pace of vaccine rollout affects the decision

We first look at two scenarios showing the consequences of different speeds of vaccine rollout on the assumption that lockdown ends on 2 December. In scenario 1 – slower rollout - we assume that a 90% effective vaccine is rolled out at a rate of 30,000 per day during January and 100,000 per day thereafter, with almost 7 million people vaccinated by the end of March. For the faster rollout scenario 2, we assume that 50,000 vaccinations per day occur from 1 December and 140,000 per day (in line with reported government ambitions) from 1 January, leading to 14 million people vaccinated by the end of March. There are a variety of other assumptions involved:

  • In both scenarios we assume that the current policy restrictions remain in place only until 2 December, and thereafter we revert to the kind of limited restrictions seen in September.
  • The test and trace regime is assumed to remain at its October performance level.
  • The economic impact of the current restrictions is assumed to be equivalent to the reduction in GDP seen in July – after the peak lockdown measures had been eased but with tight restrictions in place nonetheless.
  • Economic activity is also assumed to be sensitive to the daily number of coronavirus deaths – on the baseline assumptions (drawn from a range of recent studies of what happened in the spring) this means that when the number of daily deaths is around, say, 500, economic activity would run 13% below its pre-pandemic level in the absence of any policy-imposed restrictions.

The results show that, while the current lockdown is expected to cut case numbers substantially, reverting to September-style restrictions on 3 December can be expected to cause a third spike in cases and deaths, that peak in February and March respectively under both scenarios. The pace of rollout does make a significant difference - under the slow rollout scenario, easing restrictions in early December leads to a total extra death toll of around 90,000 between November and May 2021, while under fast rollout the death toll is less than 60,000. But these figures show that even under the best-case vaccine scenario the Covid crisis is not going away soon.

Daily cases UK 1

Sources: TBI calculations

Note: the chart models the date of infection, reported positive test results are likely to lag

Ian Daily Covid Deaths Uk 2

As well as saving lives, faster rollout reduces the damage to the economy. Taking into account the economic consequences of the lockdown, as well as the subsequent impact of a third wave on economic activity, the baseline results suggest that slower rollout cuts GDP by £156bn between November and June, compared to £143bn under the faster scenario. Either way, these too are eye-wateringly high costs. Chart 3 illustrates the combined cost of each scenario broken down by Covid health costs, non-Covid health costs and economic costs relative to a ‘no Covid’ baseline.

Total Cost breakdown

Despite the vaccine then, both of these scenarios look bleak in terms of lives and livelihoods. Vaccination – even if it turns out to be as effective as we all hope – isn’t going to be rolled out fast enough to avoid some tough decisions next month. So what might a better strategy look like after 2 December? In the next post we explore three options for how the government could proceed.

 

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