Don’t panic, Rishi! You just need to hold your nerve, says PATRICK O’FLYNN

Considering he took charge at the Treasury only a few weeks before the Covid-19 epidemic, his crucial ability to bolster confidence among the public and financial markets has been particularly impressive. Scheme after scheme to assist those facing plummeting incomes was rolled out in double-quick time. Sunak understood immediately that in such an emergency the worst thing he could be was a stereotypical bean counter who knew the cost of everything but the value of nothing.

So it is to be hoped that he is not now spooked by the first hard evidence of the full, horrendous extent of the damage that has been done to the national balance sheet.

The massive cost of his economic aid schemes and slumping tax revenues has led to the Government borrowing a mind-boggling £62.1billion in the month of April – as much in a single month as in all last year.

Public sector debt is on course to hit £2trillion by Christmas, the equivalent of an entire year of British economic output in normal times.

Though almost nobody is calling on Sunak to lurch into cuts mode while we are still in an emergency that has forced the Government to mothball huge swathes of the economy, the first warning shots from those who style themselves as “fiscal Conservatives” are already being heard.

Former chancellor George Osborne has declared that the Government will have to face the fact that it is presiding over an economy that is smaller than it expected and a balance sheet far weaker and work out how to adjust to this unpleasant reality.

Osborne, who oversaw the austerity that brought down the deficit after the 2008 financial crisis, predicted “hard choices about what we can afford, how much we want to spend and how many taxes we want to raise to pay for it”.

He is, of course, right that the giant hole that has been blown in the national finances cannot simply be wished away. But a second protracted round of underfunding key public services and cutting income support for the poorest families would probably lead to the economy chasing its tail in a downward spiral, as well as exacerbating social divisions.

Boris Johnson has already ruled out a new period of austerity and there is no need for one. Historic low interest rates mean a much bigger national debt can be comfortably serviced and the lack of inflationary pressure is also allowing the Bank of England in effect simply to create extra money to help fund Government spending programmes – the equivalent of the “magic money tree” we were all told did not exist.

So while hopes of a very rapid V-shaped recovery have faded, by maintaining a sense of normality and ensuring consumer confidence in the economic future does not crash, there is still every chance of undergoing a tick-shaped recovery that restores output levels within a year or so.

Mr Sunak has already shown himself to be capable of implementing innovative ideas and should keep his mind open to fresh thinking about how to deal with our debt. It would make no sense to treat what has happened as being an inevitable product of unsustainable weaknesses and lose confidence in our economy’s capacity to generate revenues.

It was doing quite well, with employment levels at a record high, wages rising and growth prospects looking good. What has taken place is a phenomenon known in the insurance industry as an act of God, a rare natural catastrophe. It could have occurred at any point in our century.

Its costs should logically be met over the very long-term, contained in a separate account and financed by bonds with a 30-60 year maturity that spread the load sufficiently to allow our fundamentally sound economy to continue to grow.

Had Britain not so recently lived through a full decade of austerity because of excesses within the financial sector there might be the semblance of an argument for now reaching for the fiscal hair shirt. But we did. And what has happened is not the result of any spendthrift recklessness on our part.

So Mr Sunak should hold his nerve, ignore the alarmists and keep faith in the creativity, ingenuity and wealth-generating capacity of the British people. There is absolutely no need to panic.