The chancellor’s plans work for his class, not ours, writes Chris Nineham

Multi-millionaire former investment banker Rishi Sunak is trying to convince us that we have to accept ‘hard times’ and that government is powerless in the face of what is now officially recession. He is obstinately insisting on ending the furlough scheme in October and winding down other support as quickly as he can. 

In reality, the British ruling class is nervous. The government’s response to the pandemic has been amongst the most disastrous in the world. As well as causing huge numbers of unnecessary deaths and immense extra suffering, the Tories’ failure to act effectively has maximised the economic damage caused by the pandemic.

All the same, a combination of panic and popular pressure forced the government to intervene in the economy in ways that they have long told us would be disastrous for all concerned. Now, just as the recession is really kicking in the government wants to get back to business as usual and let the market rip. 

This is going to be hard. Millions risk losing their jobs at a time when the government has shown that economic intervention is an option. Mass unemployment will be something new to a whole generation, many of whom will be shocked by the brute reality of having to live on benefits of less than £100 a week. Meanwhile, poll after poll shows that a majority don’t buy the back to normal message and want to see radical change.

A recent editorial in the Financial Times accepts that many businesses will be ‘restructuring’, partly as a result of the pandemic, but it contains a warning to business leaders:  

‘Handling restructuring badly will amplify voices calling for more government intervention and labour protections. Many businesses have relied on support from wider society to make it this far through the pandemic. If companies are seen to prioritise only the interests of shareholders, while protecting management rewards and failing to treat employees fairly, they will contribute to the perception that while losses are socialised, profits are privatised.’

Options

Two things are important here. The first is that other economic policies are available. The second is that while the virus has made matters considerably worse, it isn’t the main cause of Britain’s economic problems. 

Other comparable countries are guaranteeing incomes for much longer than Britain. Chancellor Rishi Sunak started winding down the UK furlough scheme on 1 August and insists he will end it altogether from October. 

This compares poorly with France where all laid off workers will get 60% of wages paid by government until at least next March. The French government has also announced a new programme which will be available from Oct 1 for two years. It will allow a company to reduce an employee’s work by up to 40%, while workers will receive up to 70% of gross wages for the period out of work.

Spain’s government is expected to bring forward plans to extend its job retention programme until at least the end of the year and possibly into 2021. The Italian government looks set to do the same. 

The German scheme is more comprehensive still. Its guarantee of between 60% and 80% of income has been extended for 21 months since the coronavirus emerged. 

There is also little doubt too that higher levels of debts are sustainable. Despite all the warnings of Sunak and the tight money brigade, the current dramatic increase in government spending has had no detrimental impact on the economy. Interest rates remain at an all-time low, inflation is low for now and there is no shortage of lenders to the government. 

Britain is one of the most unequal societies in the so-called developed world. It is also well down the bottom half of the table of OECD countries measuring tax income. Twenty four countries out of the forty listed raise proportionately more taxes than the UK, including Estonia, Greece and Italy. 

A redistributive policy could free up vast sums of money for jobs, welfare and investment. Instead, Sunak’s has put profit flow first. One very interesting comparative survey shows that  the bulk of UK government spending during the pandemic was directed towards export guarantees, liquidity assistance, and credit lines for businesses.

Measures in his summer mini-budget were designed to wean workers off government furlough subsidies, to boost the already inflated housing market and get people out spending money in restaurants. 

Unlike in many other countries there was no state jobs project and only a very limited investment programme. The weak measures to incentivise businesses to keep workers on relied on private companies to make decisions about re-employing workers.  

As Clare McNeil from the Institute for Public Policy Research pointed out in July, Sunak’s summer announcements amounted to a “halfway house reform — not a proper wage subsidy and not enough to persuade an employer to keep someone in work for six months if they are in financial distress”.

A really radical programme of government funded investment and job retention could have limited the increase in unemployment and significantly reduced the impact of the recession on working people.  This kind of response is just not on Rishi Sunak’s radar. 

The damage done

The truth is however that Britain was heading for recession before the virus struck. A survey in February this year revealed UK-listed company profits fell by 10.4 per cent between October and December 2019 – the second three-month period of whole market declines in a row.

This was also the third quarter in a row in which more than half of companies reported lower profits. Low profitability has effected western economies in general since the banking crisis but is particularly marked in Britain where UK profits have only grown by 5.8 per cent since 2007. 

By the end of 2019 a long period of low growth was tipping into recession. The pandemic has pushed the economy over the edge. Not only has Britain had the highest Coronavirus death rate in Europe, according to the Organization for Economic Cooperation and Development, it now faces probably the worst recession of any developed country.  

This twin disaster is not just the result of a bungling government, although Johnson’s crew has been spectacularly incompetent. Britain’s economic reliance on finance and the service sector over the last few decades – backed by every government since Thatcher -  has had a catastrophic, cumulative impact. A bloated finance sector has increased inequality by inflating the price of assets, created a skills imbalance by skewing pay and rewards towards a relatively small number of jobs and increased exposure to global crises. By boosting demand for sterling, financial sector growth has also led to currency appreciation, negatively impacting exports.

One of the results is that investment in the UK is low by international standards. The UK also trails behind its competitors in R&D spending, a strong predictor of future growth. Compared to other major western countries the UK both invests less in capital today and has also accumulated less capital over time than comparable economies.

As a consequence, the UK’s average productivity is lagging behind, including within the service industries which employ the majority of the UK workforce. Bosses have attempted to deal with these underlying problems by trying to force down wages including encouraging casual labour which has surged over the last two decades. Meanwhile successive governments have used any and every excuse to cut and privatise public services.  

The result is that wages have declined faster than in the majority of other OECD countries, and in the words of a survey by academics at the LSE, ‘Since the global financial crisis of 2007/08, workers’ real wages and family living standards in the UK have suffered to an extent unprecedented in modern history.’

A series of governments promoting privatisation, austerity and relentless attacks on workers living standards have generated a broken economy. Even mainstream commentators are laying much of the blame for the UK’s catastrophic Coronavirus performance on cutbacks and the obsession with the free market. But the rot goes much deeper, hollowing out institutions and services across the board leaving a society that is dysfunctional in so many respects.    

The majority are absolutely right to oppose the rush back to what used to pass for normal. 

Sunak’s economic orthodoxy is driven by class-interest and political ideology, not by any economic necessity. There are much saner, safer and better ways to organise society. But with Labour under Starmer now adopting the role of loyal opposition, we are going to have to fight for them ourselves.