Who Will Pay for a Changing World? We’re Starting to See This Government’s Answer

by James Meadway

8 July 2020

HM Treasury/Flickr

The government’s planned ‘summer event’ for 8 July, when chancellor Rishi Sunak will stand up and announce measures to deal with the developing economic crisis, should be an opportunity to fundamentally redirect the British economy away from low-paid, insecure, high-damage work.

With the shock of the first wave of coronavirus still washing through the economy, and serious forecasts of millions unemployed by the autumn – even before a potential second wave hits – it is essential that the government intervenes now to maintain activity, and chart a path to the future. In her pre-budget intervention (and first major speech), shadow chancellor Anneliese Dodds was right to direct the focus here – and to demand action.

On Tuesday morning it was announced that the Conservative government would be offering what is essentially a watered-down version of Labour’s full-fat offer on home insulation. £5,000 vouchers to homeowners to help with the costs of retrofitting is not nothing, and nor are the sums promised to social housing and public buildings. Retrofitting and insulating buildings properly is low-hanging fruit when it comes to tackling climate change: it cuts heating bills, reduces emissions and creates jobs – relatively quickly and easily. But the £3bn promised is a long way short of the sums Labour was proposing, and it’s even a long way short of the £9.2bn originally pledged by the Tories during last year’s election. Crucially (if predictably), the scheme here will miss out on those in private rented accommodation – who are now also facing a return to evictions.

But, importantly, this isn’t a rerun of the last decade. The Tories have stepped away from general austerity, a point Boris Johnson was keen to stress in his own speech last week. That doesn’t mean they’ve stepped too far anywhere else: after the inevitable Number 10 sources promising “the manifesto on steroids” a month ago, the prime minister’s actual announcements last week were a slightly feeble squib. Bringing forward up to £5bn of the £100bn already lined up for investment spending is not nothing, however, and we should be in no doubt that this spending will be very focused on some parts of the country of pressing political concern to the Number 10 operation – those 29 road schemes, plus the £900m for the ‘towns fund’, are going to be primed to deliver a clear political message.

And these new investments won’t seem like nothing to the voters Downing Street is targeting, either, particularly if they are carefully branded and fanfared – which, of course, they will be. For those parts of the country that have seen cuts for a decade, and underinvestment for longer, this spending is likely to look like generosity: if you’re in a desert, a glass of tepid water can seem like a miracle. The Conservatives can triumph on the back of low expectations.

The problem for Labour is that ‘do this, but do more of it’ is not (by itself) a particularly convincing political argument: the difference between (say) £5bn and £50bn for most people is the difference between one unimaginably vast sum and another – which is to say, in terms of perception, potentially very little difference at all. This is one reason why highlighting the gap between the original, Franklin D. Roosevelt New Deal (£800bn of government spending, in today’s money) and the pale Boris de Pfeffell Johnson ‘New Deal’ (£5bn of government spending, also in today’s money) won’t be enough. Nor will stressing the gap between reality and rhetoric on the environment, or on ‘levelling up’. These are all points that have to be made, and need making, but they still leave Labour trailing behind the Tory agenda.

The bias, in the first half of the year, has been for the Treasury to underspend relative to the scale of the crisis – Sunak had to make three separate announcements of big fiscal interventions, of increasing size, in the first months of the year before he finally hit upon the furlough scheme. On each occasion, expectations were managed downwards by briefings ahead of the announcement, which, when it arrived, was then bigger than expected. This is a cheap and easy comms trick, and it creates the impression of significant largesse whilst still leaving every successive intervention falling short of what is actually needed – including on the most recent parliamentary announcements, which introduced the furlough scheme and other forms of support, but which still left 3m people without adequate support.

This time, it’s likely that since there are few immediate costs to doing so, and (as he has discovered) largesse has made him popular, the chancellor will once again want to go bigger than Treasury expectations management has implied. But given the opportunity – currently being talked up by the Treasury – of coming back to the question of investment and the recovery in the autumn budget, and with the chancellor wanting to allow himself the political room to do so, he’s unlikely to do too much more this time.

There is a broader reason for this delay. This is the slow realisation that we are very unlikely to be out of this crisis any time soon – certainly beyond the, say, 6-12 month timeframe the Treasury wants to think about – and that whilst the various issues British capitalism has developed can be parked for now, thanks largely to the furlough scheme, they cannot be parked indefinitely. Other economies, with governments who have less spectacularly bungled the initial phase of the crisis and are quicker to reopen, are asserting a competitive pressure.

The Treasury may be focused on shorter-term crisis management, but Number 10 has its sights set further ahead, with intentions – based on the 2019 manifesto – to overhaul the structures of British capitalism through significant infrastructure investment, especially outside of London and the south-east, and leaning towards green technology. If you listen to (for example) Teesside metro mayor Ben Houchen wax lyrical about the jobs potential in the north east from decarbonisation, it’s clear at least some of the Tories grasp what is at stake here. But moving seriously in this direction – or any other, in response to the crisis – is costly, and therefore politically harder to achieve.

One way to think about this is in terms of dumping the costs of transition. If Covid-19 imposes new costs on the economy – and it does, in terms of additional protections and security measures needed, now and, with future pandemics a racing certainty, with risks stretching into the future – the key question is: who pays? And, relatedly, how will they pay: with additional, costly protection provided by their employer or government – or would they pay with their own health and, perhaps, lives? The same goes for climate change more generally: adaptation to climate change has barely entered as a political concern in this country, but will surely do so soon enough; and there are jobs threatened by decarbonisation. Who pays for a changing world?

We are starting to see an answer under this government, as across the planet: those made to pay will be those who are already marginalised and excluded. You can see, already, in the way the government’s income protection plans have played out. For a set of people able to work from home, the situation has, for many, not been too bad. For those furloughed, the immediate crisis has at least been postponed, although redundancies now loom. But for those on the frontline and, especially, for those in the most marginal occupations, it has been brutal.

The revelations over the last week of conditions in Leicester garment factories, where overtime was being worked to meet demand, but minimal to protection offered, and the link between those conditions and the Covid-19 spike in the city should drum the message home. The crisis is reinforcing hierarchies in the labour market, building on existing discriminations, with different groups of workers more or less protected whilst other are hopelessly exposed. Expect, in the future, Tory policy to play up to this: protecting preferred groups, but becoming increasingly blunt about the lines of exclusion, which will also be politically determined – the state acting to pick and choose amongst individuals, rather than the market acting to do so alone. Private renters and migrants are already seeing how this can start to apply.

The question of the economic costs of the transition into a pandemic-ridden world cannot be avoided, even with ultra-low interest rates. At some point, a real, permanent shift in how we work will take place – indeed, already is taking place, as the redundancies rise and bankruptcies threaten. The shadow chancellor was right to float the possibility of wealth taxes as part of the answer to the question of ‘who pays?’ in the medium-term, and should hold her nerve on the question. But another part of the answer has to be a reassertion of the merits of universalism – not of picking preferred client groups for favours, but the recognition that, facing the humanity-wide challenges of future pandemics and environmental collapse, the only workable, humane responses are those that are available to all – whether in public services or, as supported by Manchester mayor Andy Burnham this week, universal basic income.

James Meadway is an economist and a Novara Media columnist.

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