The UK economy has been hit worse by the Coronaviris crisis than any other in the developed world. (1) The OECD projects an 11.5% drop in economic activity.
Under the impact of this economic pressure, the government is compounding its problems by trying to unlock the economy before the virus is contained and without adequate systems for containing it; which sets us up for chaos.
The measures announced by the Chancellor on July 8th are hopelessly tactical, lack any strategic vision capable of mobilising people behind it; and amount to little more than a set of minor bungs to Conservative supporting sectors – the stamp duty holiday primarily benefiting private landlords, the £1000 retention bonus just a top up for firms that are secure enough to retain their workers until January.
The decisive question for any economic recovery is investment. If the government and/or companies invest, the economy is stimulated, work is done, goods are made and services provided, income is generated, tax revenue comes in, workers are hired and so on, in a virtuous cycle.
The problem we have is that we have a government which believes that the purpose of economic activity is not “the greatest happiness of the greatest number”, nor the most efficient use of available resources to enrich the lives of the people, or address deep rooted threats to our civilisation like poverty or ignorance, let alone the degradation of the environment we live in and the breakdown of the climactic conditions we need to survive. They believe that the purpose of the economy, and society come to that, is to produce profits. All else flows from that.
That’s why they are not committed to state led investment to put as many solar panels as possible on as many roofs as we can find and wind farms in all the potential places, to retrofit our housing and public building stock to reduce energy demand and bills, to strategically invest in urban mini forests and rewild swathes of the countryside, to electrify our remaining railways – to mention just four initiatives that could generate jobs while cutting carbon emissions as drastically as we need to. Instead, they are giving tiny nudges to the private sector in the hope that they will invest – in anything, they are not fussed about what – instead.
The problem with that is that they won’t. The private sector is risk averse and will only invest if it thinks a profit can be turned on the investment. If the experience of ten years of austerity – in which this approach was tried to death – isn’t enough to convince, a recent survey of company finance directors by Deloitte should be enough to administer the coup de grace. Sixty five percent of the companies surveyed said that they will be cutting investment in the next three years.
That is because eighty percent of them expect their revenues to decrease in the next year.
This is underlined by the latest projection from the Office for Budget Responsibility. And what a reassuringly anal retentive title that is; conjuring images of mean spirited accountants in their counting house, counting out their money, and taking care of the pennies so the pounds can take care of themselves. They project that – left to itself – the economy will not recover until the end of 2022 and unemployment will rise rapidly to 10% in the meantime. One in ten workers having to claim and scrape by on Universal Benefit.
For the government’s approach, there is an even more serious problem. Investment from the private sector is contingent on profitability, and most of the companies in the survey are cutting dividends to share holders and cutting down on share buybacks, which inflate the salaries of top executives. No profits, no “animal spirits”, no investment. Boris Johnson can wave all the Union Jacks he likes; his patriotic verbal bluster does not affect the hard nosed financial calculations currently being made, except, perhaps negatively as the gap between his “global Britain” rhetoric and the reality of what we are heading for at the end of the year is clearly understood in business circles.
This is overwhelmingly the case for manufacturing, in which 90% cut payments. The Manufacturing and Engineering employers organisation MAKE UK reported on 20 July that only 15% of companies are back to full time working and begged for an extension of the furlough scheme for another six months to help prevent the worst loss of skilled jobs since the 1980s. (2) With the cut off point for the scheme in October, firms are already starting redundancy processes so they can carry out the legally required consultation period before the axes fall. This is on a very large scale in manufacturing, with just over a half of them planning redundancies in the next 6 months. Other hard hit sectors, like hospitality and retail, are not going to be saved by a few half price pizza vouchers for slow days in half of August.
The Chancellor’s statement that “this is not a time for orthodoxy and ideology” is about to be exposed. Without drastic government action, and direct investment, thousands and thousands of workers are about to lose their jobs, which will prevent any recovery taking place at all and put people all over the country into desperate straits. The ending of the eviction ban this week just as this kicks in adds a whole extra layer of insecurity and threat.
No doubt the government considers this bracing and character building because, instead of investing, they are planning to cut regulation and launch twenty Free Ports, which will suck such investment as there is to zones that don’t pay tax and blight everywhere else. As if what is holding these companies back from the scale of investment that is needed is the “red tape” that holds them to minimally acceptable standards of behavior towards their employees and the environment.
Crucially, this is not what the company finance directors told Deloitte. They did not say they were primarily concerned with regulation. They were very clear about the three factors which inhibited any investment plans.
1. The Coronavirus pandemic.
2. The prospect of a No Deal Brexit.
3. Worsening Geo-political conflicts (for which read Trump’s trade war with China and the fear that worse could follow). (3)
So, the three big issues preventing the private sector from investing are the central plank of the government’s agenda – “get Brexit done”- their willingness to be dragooned into a fight with China by the USA and their failure to get on top of the virus.
The paradox of this is that had a Corbyn Labour government been elected in December neither a supine response to pressure from the USA to engage in a trade war, nor a no deal Brexit would have been on the agenda. Nor is it possible to imagine that such a government would have handled the Coronavirus crisis worse than this one has. Almost without exception, the countries that have performed most catastrophically have been wedded to neo-liberalism. The allegiance of the business class to Conservative rule therefore comes across as a form of self harm, but underlines the essential perception that, for them, economic well being, even of their own firms, comes second to continued control of the economy by their class. If they are prepared to hammer themselves in this way, the harm done to the rest of us is collateral damage that barely registers on their radar.
Faced with the scale of this crisis, the response to all these issues from the Labour opposition should be clearer, louder and sharper and demonstrate the vision that the Conservatives lack.
- The Coronavirus pandemic. Its clear from this that squashing the virus down to nothing is a precondition for a serious economic recovery. That’s what was done and is happening in China. And New Zealand. That should be Labour policy. Not hinting that the UK will be “left behind” if it tries to do so. Particularly because the government here is instead hoping that the number of cases will continue to decline, even as they remove the conditions that enabled it to do so. Scientific advice, including from SAGE, is that this is rash and unlikely to come off. Countries in Europe that reopened when their level of infections was lower than the UK are now facing a rebound. While the UK is as yet nowhere near being in the sort of mess the USA is in, with exponentially rising infections and a daily death rate double what it was last month, there’s a sense that Johnson is looking down the barrel of the threat is crossing his fingers, touching wood and feels lucky. Labour has called for the furlough scheme to be maintained in specific sectors, which is a sensible bottom line and the least that could be expected from a half competent government, but to retain jobs we need a far stronger commitment to a jobs guarantee that involves retraining and redeployment from sectors that are going belly up and to actually put the vision and plans for a green transformation right up front as an alternative to the collapse that the Conservatives are about to preside over. A Green Jobs campaign is imperative. The UK commitment to this – £3 billion -is excruciatingly small.
- No Deal Brexit. 65% of companies have made no preparation for conditions after 31 December because they don’t know what they are going to be. Here we go, over the cliff. What the wreckage will look like on the beach next year is anyone’s guess. Labour made a mistake in not pushing for a transition extension. We should argue for a unilateral declaration of continuity with existing arrangements until a deal can be made and ask the EU to reciprocate.
- Connivance in the growing US Cold War with China. This is already impacting on inward investment. Tik Tok has already shelved plans to build its HQ outside of China in London – losing a potential 5 000 jobs. The removal of Huawei from the 5G network, and proposals to extend this to 4 and 3 G, will both cost directly and cut the efficiency of the broad band service available (because Huawei technology is in advance of any of its competitors). The increasingly aggressive campaign from Ian Duncan Smith and his allies on the right of the Conservative Party to join with the US in breaking the world economy into two spheres of influence will be very damaging for all concerned – even if, as too often happens, trade war does not lead to the real thing as it escalates. A nervousness about this on the part of the government, who have given quite a slow time scale to strip out Huawei technology and hinted to the company that they are doing so under duress and might back off once no longer under Donald Trump’s heel (so much for taking back control), has not been matched by any doubts from Labour’s foriegn policy team, who are trying to prove to the US that they are back to being Atlanticist true believers and have been urging the government on. This is a disastrous policy that should be reversed.
Anneliese Dodd’s comment “If people felt Labour was only criticising and not suggesting solutions, they would question what on earth we’re doing” is quite right, but requires some solutions to actually be put. That would mean
- Argue for whatever action is necessary to protect public health and eliminate the virus as the fastest way to be able to regenerate social activity (not just the “economy”).
- Put forward a plan for massive state led investment in green transition both as an end in itself and a way of generating the employment we need to avoid economic collapse.
- Resist the demands from Trump for the world economy to be broken in two and for the UK to tie itself to the less dynamic half – with the USA projected to account for 3.3% of world growth in the next two years to China’s 51%, according to the IMF, and developing countries, most of which will align with China, accounting for over 40% of the rest.
- Argue against a No Deal Brexit and for an extension of current arrangements to prevent even further economic disruption as we go into 2021.
- Figures and quotes from the Guardian 20/7/20. Few signs of optimism in boardrooms as firms cut investment, dividends and jobs.