‘To talk about the future is only useful if it leads to action now.’
E F Schumacher: Small is beautiful: Economics as if people mattered.
The Bank of England in its Monetary Policy Report for May 2020 noted in its summary that the ‘unprecedented situation means that the outlook for the UK and global economies is unusually uncertain. It will depend critically on the evolution of the pandemic, and how governments, households and businesses respond to it’.
Already, the consequences are being felt around the world and there remains great uncertainty about the future.
In April the price of oil plummeted into negative regions as world economies slowed due to COVID-19.
At the end of April, it was reported that two million Bangladeshi jobs could be at risk as western high street clothing shops closed their doors for lockdowns. Bangladesh is a major garment exporter and reliant on European and American orders with some 83% of its export revenue linked to the garment industry.
Factories across the textile sector in countries like Bangladesh and India are still struggling to stay afloat. There have been closures or reduced working hours which have had a devastating effect on jobs and income for those employed in a sector which already relied on poor wages and bad working conditions to compete. The dependence of globalised trade on outsourcing and just in time logistics to be competitive is exposing structural weaknesses and emphasising its exploitative nature on both domestic and foreign populations. Pull one piece from the jigsaw and the whole edifice comes crashing down.
Since lockdown, many high street businesses have been forced to close their doors as well as those with a global reach. Airlines have scaled down their domestic and global operations, grounding planes and staff with the prospect of thousands of job losses. Rolls Royce has also confirmed that it would be making significant redundancies in its civil aerospace business both here and abroad.
In response and across the piece fiscal interventions have become the ‘mot du jour’ not the least in the UK.
Whilst one can argue the detail about how it was done and point out the flaws of the schemes which has left many working people without support, Sunak’s fiscal intervention was the right thing to do. However, whilst the Chancellor acted quickly to protect working people, he did so in line with Conservative neoliberal ideology by channelling money into big business and not just through signing contracts with already discredited companies like Serco to provide government services with no accountability built in.
Last month the Treasury and the Bank of England, following a campaign by Positive Money announced that the names of those companies which have been bailed out through the Covid Corporate Financing Facility would be made public. The scheme allows ‘investment-grade’ companies to sell short term debt to the Bank of England thus allowing access for Britain’s biggest corporations to billions of pounds of cheap funding. Fran Boait from Positive Money said ‘“The Covid Corporate Financing Facility was serving as a secret bailout vehicle, allowing Britain’s biggest corporations to access public money without the public having to know.”
It has been revealed that among the companies which have benefited are Stagecoach, G4S, Rolls Royce, Easy Jet and Intercontinental Hotels. So far 152 companies have taken over £16bn with an expected total bailout of £67.7bn.
However, as the SourcenewsScot reported this week, one in five of firms receiving bailout money are airlines, oil and gas or car manufacturers and ‘the only strings which are tied to this cheap money is a request by the BoE to be restrained in paying dividends. It doesn’t matter if they are climate polluters or tax haven users or have exposed their workers to harm during the pandemic, the BoE will bail them out if they are making a ‘material contribution’ to the UK economy just so long as they are also corporate giants.’ So much for the government’s expressed commitment to a green economic recovery at a time when such commitment is vital.
Positive Money has also warned that it may not be long before they are back for more given that this crisis is unlikely to be over anytime soon.
It is yet again more evidence that the UK government with the power of the public purse can bail out whomsoever it chooses, just as it did the banks in 2008, with not a taxpayer in sight.
For many small high street businesses and medium-sized enterprises which are struggling and desperate to get back to some sort of normality, the future remains an unknown. The economic and employment uncertainty is likely to continue. This, along with the cumulative effects of reduced incomes on salaried workers and reliance on minimal state support for many self-employed (for those who are eligible for it at all) may cause people to be cautious about future spending.
Figures show that during lockdown consumers have been spending around £17.9bn less per month into the economy as spending habits shifted to accommodate the new normal. According to figures published by the Bank of England, in April households also repaid record amounts of debt accumulated on credit cards and personal loans amounting to £7.4bn. Whilst at the other end of the scale, figures from the Bank exposed a sharp increase in business debts as a result of the drop in sales.
At the same time, the New Policy Institute calculated that the richest 20% of UK households will have likely saved £23bn by mid-June, which is more than six times as much as the savings made possible by the poorest 20% of households. Even if the pandemic were to stop dead in its tracks or restrictions were to be eased or lifted, with so much uncertainty confidence may not return for some time yet.
Many businesses, with increased debt and little hope of regaining the sales ground they have lost, may yet go under, thus increasing unemployment. In the light of failing confidence, people may have no alternative but to continue to retrench and/or continue to save. And those who have suffered cuts to their income, been laid off or furloughed or face the prospect of redundancy and who have never been in a position to save, will further be impoverished thus deepening the wide gulf that exists between the rich and poor and those of ethnic origin in what is an already divided country.
Shockingly it was revealed by the Health Service Journal (HSJ) this week that the government had removed a key section from Public Health England’s review of the relative risk of COVID-19 to specific groups which suggested that discrimination and poorer life chances were playing a part in the increased risk of contracting the disease amongst those with BAME backgrounds.
The HSJ noted Matt Hancock’s response articulated at a daily coronavirus briefing this week when he said that ‘he understood why many were ‘understandably angry about injustices’ and that he felt a ‘deep responsibility because this pandemic has exposed huge disparities in the health of our nation’ [saying also] that ‘much more work’ was needed to be done to understand ‘what’s driving these disparities’ before adding: ‘We are absolutely determined to get to the bottom of this and find ways of closing the gap.’
In the light of his response one has to ask oneself the question where has the government been? The last 10 years of government-imposed austerity, cuts to spending on public sector services, its ideological attachment to low wages and precarious employment to serve the business agenda had already taken their toll before COVID-19 even arrived into our midst. It is incomprehensible that politicians and their appointees don’t know where the inequality and poverty have come from! Wilful ignorance comes to mind.
So where might we be going now?
Rishi Sunak, the Chancellor, announced last week that the Coronavirus Job Retention Scheme (aka the furlough scheme) which has helped protect 8.4 million jobs is to be extended until October and those who were eligible for Self-Employment Support will be able to claim a second and final grant in August. However, his plan to taper pay-outs from August onwards from the current 80% will mean that employers will have to cover the difference.
The ending of the furlough scheme at such a crucial moment will, without doubt, have exactly the opposite effect to the one desired. It is likely to lead to a steep increase in unemployment as businesses are forced to downsize their operations or go bust; making people redundant just at the time when the world is entering a recession, or worse. The UK does not exist in a bubble – it is also affected by world economic conditions, which are equally distressed.
The impact is likely to be devastating. An analysis published by The Institute for Public Policy Research (IPPR) this week suggests that by the end of 2020, 1.1million more people face poverty as a result of the coronavirus pandemic and that 200,000 more children will be among those expected to be below the pre-virus poverty line as job losses hit family incomes. It says that without urgent action to protect families from financial hardship it would bring the total number of children living in poverty in the UK to 4.5 million – an increase of almost 5%.
Its figures are drawn from Bank of England estimates that unemployment is likely to reach just under 10%, or around 3.3 million people, by the final quarter of the year. Claire McNeil, Associate Director of the IPPR, said ‘The government must apply the same level of ambition it had for supporting businesses and workers … to prevent a new generation of children and their families falling into poverty through no fault of their own.’
What we need now is the combined and continued power of the state and the public purse, to both stave off further damage and begin the vital move towards globally sustainable economies and the pursuit of a more equitable and sustainable sharing of global resources.
The economic policies of the preceding decades have been framed around three false narratives: That global corporations and financial institutions are the wealth makers and must be privileged, that the State is powerless to act in the public interest and that the public accounts are like our own household budgets with spending limited to income (in this case taxation) which requires a firm hand and iron fiscal discipline to keep them in balance.
We are now by dint of this tragedy discovering that the magic money tree, like the magic porridge pot, is showing no signs of running out of funds as Rishi Sunak is also apparently contemplating yet another package of measures to help the economy. The release of information about the details of this package have now been put back until the autumn as Sunak seemingly waits to see what happens. Perhaps he’s expecting an economic miracle! It has to be said that this is a moment for bold thinking, not delay or prevarication.
In fact, what we now need is a revolution in thinking, not the stale economic orthodoxy which has already done so much damage down the decades. It is disappointing when three former Chancellors of the Exchequer still frame their arguments in household budget terms when talking about the challenges ahead. It is also disappointing to read the OBR’s analysis of the furlough scheme which speaks in terms of costs to the public finances and debt, when the focus should be on the real benefits of government spending to the nation and its economic health at a crucial time and in terms of investment in the future.
In the case of Osborne, the architect of austerity, it was frustrating to note his continuing adherence to ‘handbag’ economics when he commented in an article in the Telegraph that ‘sadly we are poorer than we thought we were, and either we’re going to have to raise more in revenue or spend less than we were planning’.
It is clear that whilst the cash is being splashed for the moment, the magic money tree is likely to have a limited life or perhaps more accurately will only bear fruit to serve the interests of the global corporations and other wealthy elites. If this remains unchallenged it will not bode well for the future of the UK, not to mention the planet.
If some of us thought that COVID-19 might act as a wake-up call for the future, that scenario is still unclear. Not only in terms of the government’s priorities about who is to benefit from government spending but also looking at the general situation. Pollution levels are once again rising in China and it is expected that Europe will follow suit. The pictures of long queues outside Ikea paint a depressing picture as do the piles of rubbish left in beauty spots by people who travelled hundreds of miles in their cars to get there. It seems that while people were obliged to stay at home, they would bake, connect with one another through Zoom or contemplate a different way of doing things, they are still just as eager to pick up where they left off once the restrictions are lifted.
And yet while we are all dying to get back to normal there is still an ‘existential threat to civilisation’ which we must address swiftly if we care at all for the fate of future generations whilst we still have some time left.
COVID-19 offers an opportunity to rethink everything and most importantly to challenge the received wisdom that ultimately there will be a financial price to pay for government spending too much! The price we will really pay for continuing with the narrative of financial unaffordability will be the health of our ecosystem and all those who depend upon its resources to enable and enrich their lives in every sense.
We can all play a part in bringing about positive change. However, it is only government with the power of the public purse and an understanding of the resource constraints that all governments face, that can demonstrate the real resolve through its legislative powers at national and local level to deliver public purpose goals. A green recovery is only possible with a government committed to real change in its spending priorities and through pursuing full employment policies. This could be through a combination of an expansion of the public sector combined with a Job Guarantee to allow the transition towards the green economy we need by providing the necessary economic stability.
Let’s not let this opportunity slip through our fingers. It is only the people that can demand the change we need. It is only people with the correct knowledge that can pour scorn on politicians who continue to adhere to false narratives about how governments spend. The future is at stake now more than ever before.
If you want to know more the GIMMS website is a good place to start the journey to that challenge
https://gimms.org.uk/mmtbasics/
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