‘The times they are a-changing’, but are they?

Financing Prosperity PROCOL UK Social Prosperity Food Health Public Services Work

Juan Manuel Moreno responds to the UK Government Budget 2020 and COVID-19 rescue packages

“Unprecedented measures for unprecedented times.” This was the phrase used by Chancellor Rishi Sunak on Friday 20 March as he announced the UK government’s massive rescue package to protect jobs and provide a safety net to those affected by the COVID-19 crisis. The UK Government, he said, had never done such a thing. This is not an overstatement.

To protect those at risk of losing their jobs, a new Coronavirus Business Interruption Loan Scheme will now give out grants to businesses to cover up to 80% of salaries for employees furloughed rather than made redundant. State-backed loans will be interest-free for 12 months, and VAT payments deferred to mid-June, an injection equal to £30 billion for businesses. This is topped up with a strengthening of the welfare system: an overall £6bn safety net which including increases to the Universal Credit standard allowance and the Working Tax Credit basic element, rent support of £1bn for renters, as well as assurances for the self-employed.

Massive fiscal measures, Friday’s announcement was celebrated as a “breakthrough” by TUC general secretary Frances O’Grady, and as a “landmark package” by CBI director-general Carolyn Fairbairn. Mr Sunak’s address, which came as PM Boris Johnson stepped up measures to fight the COVID-19 outbreak, quickly superseded the Budget 2020 package announced on Wednesday 11 March. Together with concerted moves by the Bank of England to lower interest rates and release bonds, the Budget signalled a departure from austerity politics towards a fiscal policy with ‘Keynesian’ features aiming to drive the economy forward, a spending spree to get the job donethe size of which the country has not seen in 75 years. On Friday, if tardily, the government went further towards protecting people’s livelihoods.

The numbers are certainly colossal and unprecedented, but what about the long view? Can such measures be a transformative push towards a more fair, inclusive and sustainable society or just temporary sticking plasters?

While economic and political analysis as to whether these measures are enough to address the current emergency will have to wait until the dust of coronavirus pandemonium settles, I find both the detail and form of these announcements to be blind to long-term consequences and thus non-transformative.

Both Friday’s rescue package and last week’s Budget are debt promises without any major reformulation of the tax and benefits system. Yet they need separate analysis. Arguably, we do not have the time to embark on a major change of fiscal policy to fight the socio-economic impacts of the pandemic; borrowing is the most sensible approach. But we must understand this as the result of ten years of austerity politics and social and economic damage that cannot be brushed off with one budget.

The government is now having to allocate a lot of money in different places to save a lot of people from becoming destitute. For all its grandiosity, Budget 2020 remains a centralised and short-lived attempt at trying to keep things as they are. Not only do these measures leave many existential challenges unaddressed – think social care and poverty, labour market realignment, technological change, automation and ‘atypical’ jobs, migration, the green economy and climate emergency – , they also bypass local government.

Last week, the Budget promised investments in the NHS, colleges, further education and R&D, as well as public infrastructure through capital investment projects in transport, roads and railways. What about communities and social fabric? What will happen to the nurseries, the local libraries, the day centres, the sports grounds, the prison system, ex-offender’s community reinsertion programmes, and the conservation efforts? What about community food programmes to ensure the security of food to the most vulnerable? These are all issues that have been repeatedly hit year after year since the implementation of austerity politics.

The level of borrowing proposed is also dangerous. It is unclear how, without any tax raises and the pre-COVID-19 low levels of productivity, any of the existing socio-economic issues and the collection of capital investments promised for the NHS and public infrastructure will be accomplished. The government’s economic forecaster, the Office for Budget Responsibility, commenting on the Budget already warned last week “while the level of borrowing might look sustainable in the medium term with the favourable financing conditions, it makes public finances much more vulnerable to adverse inflation and sudden rises in interest rates.” Friday’s announcement does not seem to heed this advice.

The UK government must stop its borrowing spree and design social and economic mechanisms that centre social justice and prosperity well beyond the immediate response to this public health crisis. Continuing with deficit-led policies might instead hinder more than help people once the virus has moved on. The situation makes the need for a transformative strategy even more apparent. Such a strategy requires locally-situated and coordinated approaches that include local government and community stakeholders, and take into account the complexities of each place.

Levelling-up requires a great deal more than investing in capital projects through borrowing. It needs a serious reformulation of the tax and benefits system consistent industrial strategy, policy on education, local government spending and much more besides over a generation. An extended system of universal public services (UBS), funded by a progressive tax regime and able to reach and improve people’s day-to-day lives – through the provision of free social housing, free public transport, free social care, free internet – would have the ability to reduce people’s cost of living and improve their wellbeing in much more effective, inclusive and sustainable ways.

Such a system would be transformative, it is economically feasible and would reinforce the capacities and capabilities of individuals and communities to respond and adapt to sudden shocks such as the one we are currently experiencing.

Juan Manuel Moreno is a Research Fellow working on the Social Prosperity Team at the IGP. All IGP’s reports on UBS are available here.

22.03.2020

Top image from pxfuel Creative Commons Zero - CC0 license