The Covid-19 crisis appeared to be the toughest challenge that Rishi Sunak could ever face – the UK’s economy in the deep freeze for the best part of two years thanks to the combination of a deadly virus and a state-mandated shutdown.
But it turned out to have an answer which, if not easy, was at least simple: cash. The Chancellor simply opened the spending taps and lavished billions of pounds in support on households, businesses and banks.
On the face of it, this could have been difficult for the Thatcherite Mr Sunak to swallow. But he justified it on two grounds: that it was only fair for the Treasury to compensate those who were impoverished by state action, and that it was a one-off expense which would therefore not add to the deficit permanently.
The current crisis, which has seen GDP grind to a halt as prices spiral, is much trickier for the Chancellor.
Firstly because inflation – while rare in recent decades – is far less of a freak occurrence than a novel virus pandemic, meaning that any intervention would set a precedent for future times of economic trouble.
And secondly because spending more and more to support struggling families and firms through a possible recession may risk making the root of the problem worse. Economic stimulus, whether cutting taxes or increasing the size of the state, is traditionally thought to increase inflation by stoking demand for goods and services higher than it would otherwise be.
Some see Mr Sunak as a victim of his own timidity, and of the Treasury orthodoxy which tends to see “balancing the books” as the supreme aim of all economic policy. Others may point out that all countries are struggling with this dilemma and none will get it entirely right.
This all makes it all the more urgent for the Chancellor to prepare a comprehensive plan to drive growth in the long term, targeting Britain’s sluggish productivity and ensuring that the inevitable economic hit from Brexit is balanced by a culture of innovation which raises the UK from its current lamentable position of being poorer, measured by GDP per head of population, than any American state.