The coronavirus pandemic has worsened inequalities and the measures taken by government, have increased inequalities further. The measures introduced by the Chancellor’s Summer Statement have been yet another ad hoc dose of regressive measures.
It is all very well for the Opposition to look constructive and reasonable. But as with Labour’s lukewarm reaction to the initial phase of austerity a decade ago, there could be a long-term moral and political price to pay.
Elsewhere, I have explained why the flagship Coronavirus Job Retention Scheme (CJRS) is highly regressive, a contributory factor in the sharp drop in production and, as recently shown by research, subject to extensive fraud. Here I just want to highlight the regressive character of Sunak’s ‘plan for jobs’ announced this month in the Summer Statement.
In the Statement, the Chancellor confirmed that the CJRS would end in October, adding ‘Leaving the furlough scheme open forever gives people false hope that it will always be possible to return to the jobs they had before.’ Well, encouraging false hopes is what the scheme had been doing for months. He then added to the confusion by announcing a ‘job retention bonus’, giving firms a gift of £1,000 if they retained furloughed staff beyond October. He said this could cost the Treasury £9bn if every job furloughed was protected.
Since higher-income employees are the most likely to be retained after October, and thus gain £1,000 for their employers, this was another regressive measure, and encourages to employers to keep those they intended to retain anyhow doing nothing with their time during the summer months until the CJRS ends. Could anybody be in any doubt that fraudulent arrangements would be one outcome? Research had already shown
Once lured into wage subsidies, new gimmicky versions usually proliferate. The Summer Statement included a slickly-named Kickstart Job Creation Scheme, promising to pay the wages of new employees under the age of 24 for six months. The initial £2bn put aside for this is intended to fund hundreds of thousands of jobs. The Chancellor said there would be no cap on the number of jobs to be funded in this way.
Among the questions such a scheme should prompt is whether the jobs so subsidised must persist beyond the six months. That was unclear. Either way, there were bound to be problems ahead. There is a long record of youth wage schemes, which should have been enough to dissuade any government from introducing another populist gesture.
What will happen is that many young workers who would have been hired anyhow will gain a nice subsidy for their employer. This is part of the deadweight effect. Probably worse is the substitution effect, whereby firms will take on somebody aged 23 to substitute for somebody aged 53 or even 25. The end result will be that few ‘extra jobs’ will be generated, even though the government will boast that 300,000 jobs were ‘created’ by the scheme. Enough commentators will want to show support for the government to go along with the claims. No proper evaluation will be done. But among the regressive effects will be that youths will be paid a low minimum wage and displace others paid somewhat more.
Another ad hoc measure was a doubling of so-called ‘work coaches’ employed in Jobcentres, to 27,000. What are those coaches doing? What productive role do they fill? As research has shown rather conclusively, they have had no discernible positive effect on the probability of the unemployed obtaining jobs.
Their main function has been on forcing their so-called ‘clients’ to do a lot of job-like activity, spending 35 hours a week doing what they are told and, in the event of being deemed not up to the job, being sanctioned by losing benefits on which they depend. The coaches have a policing role. Doubling their number will not alter that. The measure will increase inequality, further depressing wages and conditions in the lower echelons of the labour market.
The Statement’s Green Investment part sounds attractive, to cut carbon emissions by providing vouchers worth £5,000 for retrofitting homes with insulation, with up to £10,000 for lower-income households. It can be presumed that this will increase the capital value of properties. Insulating houses and other buildings is obviously desirable. But the measure will increase wealth inequality, and lower the cost of living of relatively high-earning households. The precariat do not own homes and thus cannot make use of the scheme.
To coin a phrase a ‘levelling-up’ progressive government would have offered some policy to compensate those being further disadvantaged. There was no such measure.
The same reservation applies to the substantial cut in Stamp Duty, in the form of raising the threshold for paying it from £125,000 to £500,000, to run until next March. As the precariat is not in the housing market, it will not gain anything from this. Only the relatively rich, able to buy and sell houses, will gain. It may be desirable to ‘re-invigorate the housing market’, but once again, the wealthy will gain while the precariat is left further behind.
Then we come to the obnoxiously populist measure, which regrettably will appeal to the think-tank crowd. This is the VAT cut on eating out, staying in hotels and going to ‘attractions’. Which groups in society have the lowest probability of being able to benefit from this largesse? It might lead to some more low-paid short-term jobs. But the precariat mostly cannot afford to go to restaurants or stay in fancy hotels. The affluent who tend to go to expensive restaurants and hotels will gain the most. Among them will be friends of members of the government.
The accompanying whizz of a scheme, Discounts on Eating Out, is clearly a brain wave of some over-heated brain of an adviser. The Chancellor said it is ‘an eat-out to help-out discount’. For the month of August, those eating in participating restaurants or cafés will gain a 50% discount up to £10 per head. The only disappointment for those taking advantage of the gift is that they will have to do so only on Mondays, Tuesdays or Wednesdays. The form-filling and other bureaucratic costs will add to the cost of what is clearly a gimmick.
The edifice of measures introduced since March has been permeated by disregard for their regressive impact. What was needed initially and what is needed now more than ever is recognition that, as the pandemic and lockdown constituted a tremendous demand shock, the way to respond was to stimulate demand while providing economic resilience to everybody.
Schemes that wilfully increase the disadvantages and vulnerabilities of the disadvantaged and vulnerable will not only increase inequalities but will weaken their resilience and that of society as a whole in the likely scenario of a second wave of the pandemic or some other pandemic that will follow sooner rather than later. Labour should not be quiet.
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