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Sunak is Making up His Own Rules to Give Bosses a Handout – the Left Needs a Smart Response

by James Meadway

@meadwaj
10 July 2020
  • Estimated read time: 5 mins

Rishi Sunak’s ‘summer event’ is out of the way, and it is much as was briefed by Treasury sources in the weeks beforehand: some additional handouts, allegedly to preserve jobs; a 1980s-style make-work scheme, offering temporary jobs on poverty pay to the young unemployed; and a money-off restaurant voucher for August.

What it didn’t do was get anywhere near addressing the scale of the crisis: both in terms of the immediate shock to spending, which is now rolling through the economy, driving up unemployment and bankruptcies, and, more fundamentally, the overhaul of how, where and in which jobs we work that is now being forced upon us by Covid-19.

Cumulatively, the sums being spent look large, but they are dwarfed by the pandemic crisis. The chancellor’s statement was mostly an exercise in can-kicking, perhaps with a little heel-flip on restaurants to get some press attention – doing just enough to stave off outright disaster for the next few months. Essentially, Sunak wanted to buy enough time to get through to the autumn, when a full-blown budget and spending review are scheduled.

There are, however, already serious questions being raised about two of the most eye-catching announcements – the Job Retention Scheme Bonus and the restaurant vouchers.

In both cases, Sunak had to overrule his department’s own principal accounting officer to push the scheme through, with HMRC’s top beancounter refusing to sign off two schemes that appeared to breach the government’s own value-for-money guidelines. The complaint made, for both, was the same: that it was impossible to know beforehand if the schemes would be well-targeted, and therefore (in Treasury terms) represented a fair use of money. Citing exceptional circumstances, Sunak used his ministerial prerogative to drive both through.

The Treasury’s rules are indeed something of an issue, acting to bias investment decisions towards London and the south-east, and away from longer-term environmental spending. In 2019 the Tories promised to rewrite them, as did Labour. But it’s one thing to replace a set of rules and another to override those which currently exist – it creates a serious political risk for Sunak that, if something goes wrong, the blame falls entirely on his head. And whilst the £10 virus vouchers are a month-long political gimmick – although £500m is a lot for a stunt – the Job Retention Scheme Bonus is both a huge amount of money (potentially coming to around £9bn) and involves potentially life-changing decisions around 8.7m people’s employment.

If anything goes wrong, it lands unavoidably on the chancellor.

And at least two things could go wrong. The first, already causing problems and admitted by Sunak the morning of the announcement, is that the government will be handing out large amounts of cash to companies that would have kept workers coming off furlough anyway, without needing the additional payment. (This is known as the ‘deadweight’ cost of the scheme.) In addition, most of these will be the larger employers, who have furloughed the most people. This would make the scheme a waste of money but, politically, for as long as at least some people are actually employed, the government can try to wave it away.

The second is further away, and kicks in when the requirement to maintain employment until January wears off. A sudden spike in redundancies early next year, after warnings about the scheme had been flagged, would create problems for Sunak – at least it would do, if it didn’t seem pretty certain that the scheme will be brushed aside by further announcements in the autumn budget.

Bosses’ handout.

The basic issue is this: it’s a handout – a large one – for purposes the Treasury’s own civil servants couldn’t fathom, to be paid to companies that even the chancellor admits are likely to be rehiring people anyway. For those companies that weren’t going to be taking people back, it’s not sure that £1,000 is going to make much difference to their behaviour: the cost of paying someone until January is significantly more than £1,000 for all but the very poorest-paid, part-time and insecure work.

Put it another way: this is corporate welfare far more than it is workers’ welfare. It’s a handout for bosses, not a helping hand for workers. If the government was serious about supporting work, it would be more useful to turn the Job Retention Scheme, over time, into something closer to an income support mechanism, enabling people to have more flexibility about when and how work is performed as the economy is reorganised. It would expand the range of support offered, to cover the 3m people left outside the current schemes – Sunak, when confronted directly by just one of these people, fudged the question miserably. And it would begin to provide detailed, sector-by-sector plans showing how the transition into new ways of working, with a much greater focus on green jobs and care work, would take place. It’d take equity stakes in companies where needed, too, and apply strict conditions to firms getting bailouts.

Sunak’s plan is not doing those things. At best, it is getting dragged into doing half-cocked versions of some of them. (The announcement on bailout conditions last week was good, and shows the government responding to pressure – but where were the details?) Instead we have a very large amount of cash being paid to try to keep everything the same. The furlough scheme preserves the existing labour market in aspic; it’s good that the protection is there for those receiving it, but it doesn’t do the work of rebuilding and restructuring (and retraining) that is becoming essential. That’s partly why simply winding it down is such a problem.

This creates a problem for Labour, and the left in general. We’re quite used to a world in which the government persistently cuts spending. We’ve got a set of well-used, but pretty effective, set of criticisms for when that happens. What creates difficulties is when the government is dramatically increasing spending, but doing so in ways that are not usually actively harmful, but which have the effect of preserving the existing power structures – even when these have catastrophically failed, as they have in Britain in the last six months.

Stepping back a little, what we’re looking at is something economists have warned about: a growing dependency of private capital on the state, in conditions where costs are rising – because that’s the most obvious long-term impact of the pandemic – and future growth looks uncertain. These are the perfect conditions for favour-mongering and rent-seeking: if you own a business (particularly a large, politically-connected business), chasing quick returns from government handouts is much easier than trying to deliver costly new investment or create new jobs. Over the next few years, as the Tories expand state spending, we should expect more large sums going to little-known companies for opaque reasons; weird, semi-privatised (but government-funded) contracts for public services; and, when it comes down to it, simple outright graft and corruption.

The alternative.

The political challenge for Labour looks like this: first, holding the government to account will mean digging into the detail of what it is up to and chasing down every pound spent. This money is and will be getting diverted into some pockets over others, but demonstrating it requires the hard work of research. A mass membership could be engaged in reporting and flagging questionable spending, particularly when local and regional newspapers have been so cut back – there’s a potential army of eyes and ears out there. Over time – and the Tories now have four years of graft ahead of them – the evidence will mount.

Second, relatedly, Labour needs to develop a rhetoric around fair play and a programme for constitutional reform: the opacity of government structures, a longstanding feature of the British system, are being exploited as perhaps never before by this administration. Transparency, openness and accountability should be the watchwords applied to every economic decision taken by the government.

Third, Labour has to get out of demanding only that the government spends more – not least because, in some cases, spending more will merely mean more corruption and waste. It’s right to challenge this, but to get to a point where Labour is not only chasing around after the Conservatives, but starting to shape the discussion, more will have to be done. The technical language of economics (‘deadweight’) does not necessarily help – something, incidentally, Sunak and the people round him seem to have grasped, if his own rhetoric is any guide.

The whole left needs to reframe the conversation around the purpose of government and the economy, and locate both in meeting real needs: not just delivering secure, well-paid jobs, but in giving people the opportunity to lead fulfilling lives.

Sometimes this will mean more spending – chronic underfunding in the care system cannot be dealt with any other way, for example – and sometimes it will mean a wider range of interventions, such as placing bailout conditions on airlines, for instance, to preserve jobs and develop plans for decarbonisation. Other times it will mean calls for regulation in the quality and purpose of the work we are doing – as in growing demands for reduced working time. Technocratic language is politically no good for this; we have to show we understand the economy at a human scale.

James Meadway is an economist and Novara Media columnist.

Published 10 July 2020

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