COVID-19: an overview of the government’s economic priorities so far


Paul Anand highlights the key economic policies announced in response to the ongoing pandemic and assesses their likely implications. He concludes that existential threats to economic systems seem not to be as rare as we believed, and so economists ought to be giving more thought to how we respond to them.

The novel coronavirus pandemic has seen policy-makers shift from pondering whether COVID-19 will have much economic impact to, within two or three weeks, scrabbling around to find policies that address existential threats to economic systems around the world. The economic priorities and problems that emerge are doing so on a daily basis, and it will now be clear to many that conventional policy actions simply do not apply, even if basic underlying principles do.

Businesses

At the time of writing, the major economic challenges concern the likely effectiveness of a series of (fiscal) policies announced by the UK government. Initially, the government and the Bank of England seemed to be focussed on supporting businesses and announced a range of measures including loans to tide businesses over. But it is already becoming clear that the devil is in the detail.

There is still a huge amount of uncertainty about how long social distancing will last – perhaps it will be three weeks or three months; in the UK, emergency powers have been requested for two years. As a result, the massive £350bn package of support – which includes business loans – risks being substantially ineffective. Company directors are being asked to take out loans, but where companies have costs and close to zero revenues for several months, they could face the prospect of being without profits for two or three years. For these reasons, banks offering loans even with substantial underwriting by government will not able to easily judge whether and when many businesses will be clearly solvent.

Inequality

I regularly collaborate with the UN and the World Bank, where the concept of human development is an important driver of economic thinking. The UN has an index which monitors health education and gender equality as well as national income, providing this war a focus for what economies need in a way that goes ‘beyond GDP’, a need that economists have increasingly recognised in recent years. From this perspective, COVID-19 is a human development crisis in the making which also demands immediate policy attention.

In the past few days, one UK charity food bank has reported a quadrupling in referrals over the space of a week. At the same time, other food banks and organisations trying to arrange food deliveries for the most vulnerable have reported thefts of food. Supermarkets have been addressing some of the challenges by creating particular times when older people or front-line workers can shop. These latter initiatives are welcome, but local government does need to be empowered to address the issues of hunger that some families are already facing.

There are also huge short- and long-term implications for education and labour markets. The closure of schools challenges both children’s learning and schools’ abilities to offer learning online. But it also throws into sharp relief the extent to which businesses depend on schools for childcare and we should expect the losses of national income to be significant if closures carry on for several months.

Furthermore, there is evidence that those who find it difficult to enter the labour market for the first time because of economic recessions are scarred and achieve poorer economic outcomes over the longer term. This is yet another source of inequality that we should try to combat.

Healthcare

In terms of health and health services, shortages of protective equipment in the NHS are contributing to staff shortages, as doctors and nurses self-isolate or go sick. Matt Hancock has suggested this reflects a logistics problem but whatever the reason, this is a serious constraint on the country’s response and one that makes understandable the reason thousands of NHS staff have complained about the lack of appropriate masks and gowns.

Currently, medics are also suggesting that by early April there will be a need to make decisions about who gets access to a ventilator. The government has, for several weeks, said that it will purchase all the ventilators that suppliers can produce but there are limits to how quickly their production can be ramped up. The fact that doctors and nurses are being invited out of retirement and back into work is an indication of just how dramatic the demands on the service are expected to be and highlights also the fact that other aspects of healthcare will suffer.

Salaries

The pandemic has created unexpected calls for economic policy responses. Over the course of three budgets in nine days, Chancellor Rishi Sunak has acknowledged that this is not just another recession and this is not a time for ideology. Rather, he has shifted to a position where he is listening and responding to the existential risks to large numbers of jobs, to whole industrial sectors, and to vulnerable groups within society. The offer to underwrite 80% of worker salaries up to £2,500 per month is a potentially sizeable and welcome signal that livelihoods should be the focus of economic policy because they support workers and businesses at the same time. In normal times, policies for both seem to be siloed and disconnected – but we cannot afford to think like that right now.

That said, support for the self-employed and those in the gig economy on zero-hours contracts has been slower to work out. There are some five million workers classed as self-employed in the UK and another million working on zero-hours contracts; these cover a diverse set of groups – from high-paid celebrities to working mums and taxi drivers. When they stop work, currently many are entitled to £94.25 per week, a figure that Matt Hancock accepted that he could not live on.

The issue caused some confusion, particularly in the construction industry where many workers have wondered if they should carry on working on the grounds they cannot work from home and need to put food on the table. As a result, the London underground, supposed to be running for emergency workers with passengers keeping two meters apart, has been crowded and remained a hotspot for transmission that undermined the first days of the three-week lockdown.

Following the initialy delay, on March 26 the Chancellor announced a scheme that would give such workers 80% of normal earnings up to £2,500 per month and subject to a means test of no more than £50,000 per year to ensure benefits are targeted to those in greatest need.

Rents and mortgages

There are also issues concerning rents and mortgage repayments that affect most of society. The agreement between the government and the banks that those paying rent or repaying mortgages would be able to have a three-month holiday was welcome a couple of weeks ago. But it now looks certain that those living on low incomes in high-cost cities like London will need much more help if we are to avoid a rise in evictions further down the line.

The COVID-19 pandemic created a twin economic and human development crisis that standard economic thinking is not well-suited to. The Chancellor is to be applauded for moving quickly and dramatically in the right direction but there is still much evidence of what behavioural economists call anchoring and adjustment – that is, failing to adjust enough because our actions are often based on small incremental steps from where we start. The signs from China suggest severe measures can be effective over a three-month period and it remains to be seen whether Johnson’s libertarian inclinations will allow him to pursue the strategy, even though it seems to be supported by most. Existential threats to economic systems are not commonplace, of course, but experience of the financial crisis, the climate crisis, HIV and AIDS, as well as war is beginning to suggest that economists should give more thought to policies and analysis of such situations, which are perhaps less rare and unusual than we might have thought.


About the Author

Paul Anand is a Professor of Economics at the Open University and Research Associate at Oxford University and London School of Economics.

LSE blog link

COVID-19 and economic lessons from previous pandemics


Looking at past pandemics, Costas Milas expects the economic downturn caused by the novel coronavirus to be significant but temporary. He also explains why some wages rise during such episodes and why unemployment benefits must rise as well.

Diseases cause panic and take a significant social and economic toll. The Black Death, for instance, which lasted between 1348 and 1350, killed between 75 million and 200 million people worldwide and about half of the population in England. It also contributed to a dramatic cumulative GDP fall of 29% and to a ‘flight-to-safety’ increase in the price of gold by 8% between 1348 and 1351. Nevertheless, as a consequence of the scarcity of labour, real farm wages in England went up (cumulatively) by 116.2% whereas real wages of building craftsmen went up by ‘only’ 42.6%, which makes sense if we consider that avoiding a disruption in farm production was a priority. At the same time, flight from cities led to a downward pressure on rents and, therefore, the incomes of the upper class. Last, but not least, the English Parliament was prorogued several times in 1349 and only met again in 1351.

Some of the above observations were repeated during the 1918-1919 Spanish flu pandemic, estimated to have killed 40 million people worldwide. It is difficult to separate the economic effects of the Spanish flu from those of World War I because wartime production arguably put upward pressure on wages as a result of rising labour demand. Nevertheless, research has found that US manufacturing wages increased; indeed, US cities that had greater influenza mortalities experienced higher real wage increases. Data from the UK suggests that the real wages of building labourers in London went up (cumulatively) by 34.2% in 1918-1919, whereas real GDP in the country fell by 6%. On the other hand, house prices increased (cumulatively) by 20.3% in 1918-1919. In Sweden, which was not involved in World War I and so more clear-cut references can be made about the economic consequences of the Spanish flu, the pandemic affected incomes from stocks and rents negatively, whereas wage rates were not affected. Last, but not least, the price of gold increased (cumulatively) by 6.1% in 1918-1919.

Notice some parallels with today’s economic situation. As stock markets drop on fears of a coronavirus-related economic slump, the flight-to-safety investment strategy repeats itself. Indeed, the price of gold hit a seven-year high before dropping again as investors sold gold to cover their losses elsewhere, which serves as a reminder that although gold is a flight-to-safety investment strategy, there are periods in time that it loses, at least temporarily, its safe haven status.

With Britain’s public becoming increasingly anxious about the novel coronavirus outbreak and both monetary and fiscal authorities responding to address the looming recession, it makes sense to explore how rising financial stress impacts on the economy. As can be seen from Figure 1, there is an adverse relationship between financial stress and economic growth. The financial stress indicator pools information from the volatility of the exchange rate, the volatility of the equity market, the volatility of the bond market and the risk premium that investors demand to hold UK corporate bonds rather than the less risky UK government bonds.

Figure 1: UK GDP growth and financial stress, 1970-2019

Financial stress is a good predictor of future movements in real GDP growth. From a historical point of view, a rise in financial stress signals a slowdown in UK growth between one and three quarters prior to growth turning negative. Although data for the first quarter of 2020 is not yet published, we know that financial volatility is on the rise which suggests a significant hit to the economy.

Nevertheless, it is important to look beyond the negative impact of financial stress on the economy and pay particular attention to those who will lose their jobs or take an income hit if they are quarantined. This is really pressing because unemployment benefits in the UK are much lower than those in other countries or the OECD average. Indeed, unemployment benefits in the UK account for 34% of previous incomes for the first two months. On the other hand, unemployment benefits in the US account for 57% of previous incomes for the first two months. Unemployment benefits rise to 60% of previous incomes in the case of Germany and rise further to 64% of previous incomes for the OECD average.

Many will feel uncomfortable at the prospect of central banks taking additional quantitative easing measures to support the economy. Quantitative easing, or large-scale asset purchases, refers to monetary policy actions whereby central banks purchase predetermined amounts of government and corporate bonds in an attempt to inject money directly into the economy. There is pressing need for policy-related action because economic policy uncertainty, both in the UK and worldwide, is on the rise. This halts investment planning and undermines productivity. At the same time, the confidence of our business leaders in the economy is being affected.

Still, with current government bond yields at extremely low levels, it is questionable whether further quantitative easing is an effective way of suppressing sovereign interest rates further and reviving the economy in terms of injecting additional liquidity. In fact, Chris Martin and I have recently shown that quantitative easing loses its effectiveness at very low interest rates. Notice, however, that sovereign interest rates dictate, to a large extent, corporate interest rates within a particular sovereign. Mid-March saw, at least temporarily, an increase in government yields and an even sharper increase in corporate yields. This forced the Bank of England and other central banks to intervene by authorising additional quantitative easing which, in effect, acted as a ‘catalyst’ in driving (again) government bond yields down. Whether this translates also into lower corporate yields remains to be seen. This is because firms are currently operating in (dangerously) sliding supply and demand conditions which makes it more likely than not that they will have to lay off workers even if they secure temporary government support. This is why, as I mentioned above, unemployment benefits need to rise.

Looking at the history of pandemics, there is hope that some wages will have to rise. This should definitely apply, as a matter of urgency, to those who are currently on the front line, such as nurses, whose starting salaries took a hit in real terms after the last financial crisis.

There is another lesson from the economic effects of past pandemics and earlier recessions. As the Economics Editor of the Sunday Times recently noted, recessions tend to be short-lived. If history were to repeat itself, the chances are that we will witness a deep economic downturn. Forecasters predict that the looming economic downturn will be a ‘V-shaped’ rather than a ‘U-shaped’ one. In other words, the downturn should be significant but temporary. To what extent history will repeat itself remains to be seen.


About the Author

Costas Milas is Professor of Finance, University of Liverpool.

LSE Blog Link

European health systems and COVID-19: Some early lessons



COVID-19 is putting unprecedented pressure on European healthcare systems. Tamara Popic draws together some early lessons, arguing that the crisis should prompt a rethink of the direction of healthcare policies across Europe, and that the principle of solidarity must now move to the forefront as countries seek to mitigate the impact of the outbreak.

The spread of COVID-19 has put new pressures on already strained national health systems across Europe. In Italy, the country reporting the highest number of deaths linked to the virus in Europe so far, hospitals are facing severe crises trying to deliver the necessary care, while doctors are making heart-breaking decisions on how to distribute scarce resources. The usual stereotypes of Italian dysfunctionality notwithstanding, the 2018 Bloomberg ranking of the countries with the most efficient healthcare systems around the world places Italy fourth. The Italian population also ranks as the second healthiest population in the world. As one of the most efficient health systems and one of the healthiest populations in the world is struggling under the pressure, there are at least two lessons that could already be learned from the present crisis.

All that glitters is not gold

First, European governments should re-think the direction they have pursued with their healthcare policies over recent decades. A breakdown of coronavirus risk by demographic factors shows that those most likely to die are the old and the sick, population groups most dependent on the public healthcare system. Yet, European health systems in 2020 are less public than they were 30 or even 10 years ago. The logic behind these developments, guided by the New Public Management approach, has been that scaling down of the public sector would make health systems more efficient and responsive to the population’s needs.

The consequence of this approach has been a slow but steady reduction of public spending for healthcare. OECD Health Data show that since 1990 public spending as a share of the total spending for healthcare has decreased in most European countries. In some countries in Eastern Europe the decline has been even higher than 30 per cent.

While this trend has produced a variety of effects, a reduction of hospital capacity is one of the most important. As hospitals deliver costly specialised care and as European hospitals are still predominantly public hospitals, one of the key cost-containment measures has been to reduce the number of hospital beds. The figure below shows there has been a significant decline in curative hospital beds since 1990 across the whole of Europe (with the notable exception of Finland). In Italy, the number of beds per 1,000 people declined from 7 in 1990 to 2.6 in 2015. The tragedy is that these beds are now among the most needed elements of healthcare system capacity in the context of the present crisis.

Figure: Curative (acute) hospital beds per 1,000 of the population (1990-2015)

Source: OECD Health Data 2019

A call for solidarity

Second, the current crisis underscores the key principle of public healthcare – solidarity. A reduction of public spending for healthcare across Europe was paralleled with a series of policy measures that involved privatisation and the introduction of market-like instruments in the provision of medical care. In the hospital sector, these measures involved the privatisation of hospital beds and changes in the model of hospital ownership, including transformation of public hospitals into private-for-profit hospitals and joint-stock companies. The logic, similar to the one applied to reductions in public funding, has been that replacement of the public sector led by the state with private and competitive, market-oriented care provision would make health systems more efficient and responsive.

However, research shows that these types of policy changes have contributed to the creation of two-tiered healthcare systems. In this kind of system, access to necessary care is dependent on one’s capacity to pay for it and solidarity granted by the public system is eroded. And this is happening at a time when the general trend in inequality has spared neither our health nor our health systems, as countries face persistent inequalities in health and in access to healthcare services.

If these developments were not worrying enough, then the current health crisis caused by the coronavirus demonstrates that solidarity matters now more than ever. A quick look at the United States reminds us that having universal access to care is key in responding to the present crisis. News that the UK’s NHS will use private beds for virus sufferers may have seemed encouraging at first, but the subsequent announcement that private hospitals will be charging the NHS £300 per bed suggests that solidarity risks disappearing at the time when it’s most needed. Having resilient, well-funded public health systems with universal access to healthcare is key not only for solidarity, but also for national if not global salvation. It’s time to come together.


Note: This article was first published on LSE EUROPP. Featured image credit: Marcelo Leal on Unsplash.

About the Author

Tamara Popic is a Research Fellow at the Max Weber Programme of the European University Institute.

LSE Blog

How will lessons from Windrush be learned when the Home Office is institutionally resistant to learning?


The essential finding of the Windrush Lessons Learned Review is that the Home Office will not engage in learning from its past, writes Mike Slaven. He discusses the Review’s findings and argues that a value change at the Home Office – the key lesson from the Windrush Scandal – would not serve this government’s policy.

The government’s decision to bury the release of the long-delayed Windrush Lessons Learned Review amidst the COVID-19 crisis – as if they had been waiting for the right pandemic to come along – underscores what an embarrassment it is for them. Wendy Williams’s report is both comprehensive and scathing. Drawing from hundreds of interviews with officials and tens of thousands of pages of archival documents, it paints a portrait of developing institutional myopia and callousness which led ‘Windrush Generation’ immigrants who had every right to be in the UK to be gravely mistreated as suspected ‘illegal immigrants’. But far from bookending the Windrush Scandal, the report also identifies the precise barriers that make remedying the problems that led to it, for now, a remote prospect. When the institutional features of the Home Office which precipitated scandal align with the immigration policy priorities of the government of the day, it raises the spectre of further scandals, and makes it difficult to regard the Windrush Scandal itself as ‘over’ at all.

It is striking that the government is so clearly reluctant to release a report which actually aims most of its fire at the Home Office, which might be written off as a ‘problem department’ with entrenched cultural shortcomings that governments can only change so much. While, of course, the Windrush Scandal is often seen as an indictment of Conservative Party policy, Amber Rudd, who was forced to resign over the case, is no longer an MP, while Theresa May is a backbencher, echoing government apologies of the kind the report itself calls insufficient. Williams also takes a longer view of the political impulse to clamp down on ‘illegal’ immigration while assuming that everyone with status in the UK would have documents to prove it. She does not let the Labour Party off the hook for its restrictive turn in the latter part of the 2000s, but also does place blame at the feet of the Coalition and Conservative governments, which demanded ‘radical thinking’ about meeting migration targets which diminished checks that might have foreseen unintended consequences.

However, it is the culture of the Home Office over the long run which Williams blames most for precipitating the Windrush Scandal. Williams clearly communicates a key finding from our research, which we shared with the Review team: that the history of Commonwealth immigrants under a document-light system before 1973 had been institutionally forgotten. With a clear right to live in Britain, Commonwealth immigrants of that period could not have been expected to monitor the immigration system as it changed rapidly around them. It was the Home Office’s responsibility to remember them – but instead, it developed an increasingly hostile and sceptical view of immigrants and the proof they needed to offer to be allowed to stay in Britain, which inevitably ensnared the Windrush Generation alongside other, more intended targets. With a mindset increasingly dominated by metrics intended to show the public immigration was under control, the quality of decision-making deteriorated, as consciousness that immigration casework was about human lives fell by the wayside. Guardrails which would have kept political impulses in check corroded. While stopping short of finding institutional racism, the report does find a profound lack of reflection in the Home Office about race in immigration policy.

This all leads to a particularly troubling aspect of the report: one of the essential findings of the Review is that the Home Office is institutionally resistant to learning. Williams points out that the Home Office had many opportunities to figure out that something was going to go wrong regarding pre-1973 Commonwealth immigrants, or to detect the scandal as it was unfolding. However, these warnings came from outside advocacy groups who were habitually discounted rather than learned from. Williams concludes that what went wrong in the Home Office can must be fixed by the fostering of a ‘learning culture’, which would amount to a ‘major cultural change for the whole department and all staff’.

Opening itself up to outside criticism and to a broader view of its role in British society, the Home Office would re-centre fairness and humanity in its decisions. The staff of the Review whom I met, largely seconded from other parts of the Home Office, showed me that there are indeed individuals within the department who value these principles. Nonetheless, there is little question among those who deal frequently with the Home Office – including advocacy organisations – that this is not the case for department culture. In short, how will lessons be learned by a department whose problem is that it will not engage in learning?

The only clear answer is political leadership. This clearly will not be coming soon: the government will not even make amends for the scandal in the only way the report identifies as possibly making a difference, and compensation for the victims remains stalled. Beyond this, the reality is that a value change at the Home Office would not serve this government’s policy. Why would the Home Office centre the humanity of immigrants when the government’s new points-based system intends to treat them as economic assets? Why would the Home Office engage in learning when this might only reveal the shortcomings and fallacies of the government’s drive to (symbolically, at least) ‘take back control’? The narrowness of the Home Office’s view befits this government’s policy intentions, as it has previous governments’. Indeed, it mirrors a certain narrowness of the Windrush Scandal itself, which has focused less on merits of the ‘hostile environment’ in general, than on the ways in which particular groups of immigrants with wide public sympathy were swept up in it. Construing the scandal in such a narrow way, as the current government and earlier responsible ministers have done, means a real risk of further scandals down the line, particularly regarding the status of settled EU immigrants.

Learning lessons from the Windrush Scandal will be a tall order when the department responsible lacks a ‘learning culture’. This will take political leadership which at the moment we lack, as what critics see as bureaucratic shortcomings are, for current government policy, actually virtues. Williams has put forward a brave and sweeping vision of reform at the Home Office. Hopefully it will be a cornerstone for reform at a moment when British politics can turn its attention again to these issues.


About the Author

Mike Slaven is Lecturer in International Politics at the University of Lincoln.

https://blogs.lse.ac.uk/politicsandpolicy/windrush-lessons/

Budget 2020: why the Conservatives are placing more emphasis on redistribution

Thomas Prosser explains that the government’s turn towards more redistributive policies is an attempt to appeal to its changing support base, specifically those who combine more authoritarian cultural views with left-wing economic ones. He writes that there are nonetheless limits to how far a Conservative government can go on redistribution.

Blogs.lse.ac.uk

The Conservative Party is not associated with redistribution. This is changing. Not only was the party successful among lower classes in the 2019 election, but the Johnson Government has made signals about redistribution, and the 2020 Budget confirmed initial prognoses. Aside from major investments in public services and housing, the Budget raised the National Living Wage and loosened conditions attached to welfare. Treasury analysis shows considerable increases in spending per household, concentrated among lower-income deciles.

Yet there are limits to Conservative ability to achieve redistribution. Not only does the party continue to be supported by businesses and the rich, but the March Budget made less progress on tax and benefits. In this area, gains were concentrated among richer deciles. Despite limitations, the Conservatives are placing more emphasis on redistribution. Some disagree on this, yet there is a need for interpretations which move beyond older conceptions of the party. Important parts of the Conservative base are now low-income voters, not to mention swing voters in 30 or so Labour seats with small majorities. Theories of redistribution predict that parties target such groups.

This kind of politics has precedent. In Poland and Hungary, right-populists have implemented major redistribution. The Polish case is particularly notable, the PiS Government implementing welfare reforms which have transformed conditions for the poorest. Though redistribution and cultural conservatism are not usually associated, this is a Western anomaly: a recent study of 99 countries found that it was more common for right-wing cultural views to be coupled with left-wing economic views, particularly among poorer citizens. In Poland and Hungary, right-populist governments are better known for attacks on institutions such as the courts and media. The Johnson Government appears to have similar designs, recently threatening reform of the BBC and courts.

There is a link between redistribution and attack on liberal-democratic institutions. Because low to middle-income groups tend to prefer redistribution yet also hold more authoritarian values, these demographics are natural supporters of movements which advocate such measures. Admittedly, the Johnson Government has restricted ability to combine authoritarianism and redistribution. Aside from the maturity of British liberal-democratic institutions, richer Conservative voters will frustrate the development of redistributive policies. These differences mean that the Polish case will not be fully replicated; support for the PiS Government is concentrated among low-income groups. The government will also eschew the welfare chauvinism found in Hungary, the Orbán Government combining expansive policies with sanctioning of out-groups such as the unemployed and Roma. Though the Budget contained chauvinistic measures, restricting the access of European migrants to benefits, these are comparatively mild.

Despite differences with other countries, the British political space increasingly lends itself to this kind of agenda. Because of the declining popularity of Labour among low-income groups, the Conservative Party have greater scope to appeal to voters who favour authoritarianism and redistribution. Most obviously, there are lower-class Brexit enthusiasts, many of whom are first-time Conservative supporters. Given their wider sympathies, hardened during post-referendum battles, such voters would relish attacks on the BBC and courts. Redistributive measures would increase Johnson’s appeal, locking these voters into the Johnson support base. Aside from such cases, redistributive policies will satisfy voters who hold mixed opinions on cultural issues associated with Brexit.

Authoritarians are successful when key sectors of society remain silent. Groups placated by redistribution historically gravitated towards Labour, creating a virtuous circle of redistribution and liberal-democratic standards; this is unravelling, with attitudes of Conservative voters towards democracy being particularly troubling. In a recent British Election Study, respondents were asked whether a country is best run by a strong leader who ignores parliament and elections; less than 50% of Conservative voters disagreed.

Any ‘great realignment’ of British politics will remain incomplete. Many lower-income voters will stay with Labour, particularly ethnic minorities and young people. Were the Labour Party to be competently led, there would be further resistance. British politics nonetheless appears likely to move towards this equilibrium. This is associated with Brexit. Even if redistributive authoritarianism can develop within the EU, as Poland and Hungary show, Brexit has created a new authoritarian-liberal cleavage, largely favourable to a right-populist Conservative Party. For the moment, most other Western European countries will resist sweeping changes. Though similar trends exist in the region, the endurance of established politics means that changes will remain incremental. Brexit has nonetheless transformed British politics, creating space for unforeseen alliances.


About the Author

Thomas Prosser (@prossertj) is Reader in European social policy at Cardiff University.

Budget 2020: is talk of the ‘safety net’ back?


This week’s budget included measures to mitigate the effects of COVID-19. Laura Richards-Gray identifies a change in rhetoric by new Chancellor of the Exchequer Rishi Sunak in his announcements about this, but argues that much more substantial changes to welfare and social care policies would be required to repair the country’s depleted social safety net.

LSE blog

On Wednesday Rishi Sunak made his first budget statement in the House of Commons. These are strange and testing times and the budget included increased investment in the NHS in response to the growing threat of COVID-19, as well as investment in infrastructure and services pledged during the general election campaign last year. Even though increased investment was promised, and therefore expected, the level of spending proposed by the government still surprised many, especially against the backdrop of almost ten years of cuts to public spending led by previous Conservative administrations.

The level of proposed spending wasn’t the only surprising thing about his speech. In this Sunak revived the use of rhetoric that has been relatively rare in government discourse in recent times: that of a ‘safety net’. In relation to the virus he said: ‘…the right immediate policy response is to provide security and support for those who get sick or can’t work through funding our public services, and a strengthened safety net.’ Later he claimed: ‘during this immediate crisis, if people fall ill or can’t work, we’ll support their finances. We’ll make sure that our safety net remains strong enough to fall back on.’ Strange times indeed. And strange language…particularly for a budget speech.

Nearly 80 years ago William Beveridge presented his report to Parliament suggesting a ‘national minimum’ provided for through the creation of the social security system. The idea was simple: that there would be a safety net for those who need it; a level below which the state would not let you fall. What form this safety net should take, and what level it should be set at, has been the subject of much political debate since then. However, across both sides of the political divide, talk of a safety net has largely fallen out of favour. The last time the phrase was used in a budget speech was almost 20 years ago, in Gordon Brown’s statement in 2001.

Under New Labour talk of the safety net waned in the context of their programme of welfare-to-work reforms, which shifted focus from collective action to individual responsibility to find paid work. A more dominant theme in political discourse in recent years has related to promoting ‘fairness’ through the welfare system, largely by making life harder on benefits to end the perceived ‘something for nothing’ culture and tackle ‘worklessness’.

In particular, this ‘fairness’ discourse was relied upon heavily by the Coalition government of 2010 to 2015 to justify large-scale cuts to welfare benefits alongside rises in the personal tax allowances to allow ‘hardworking taxpayers’ to keep more of their earnings. Indeed, analysis has shown that cuts to benefits and tax credits implemented between 2010 and 2015 financed cuts in direct taxes – in effect undermining the safety net relied upon by the poorest and most vulnerable in our society to the benefit of the better off. Policy changes since 2015 – under Conservative-only administrations – have intensified this impact on the poorest (including the introduction of the benefit freeze, the introduction of the two-child limit under Universal Credit and Tax Credits, and the continued roll out of Universal Credit).

In light of this, Sunak’s speech raises the question: is talk of a ‘safety net’ back and, if so, is it here to stay? It will be interesting to see if this signals an ideological shift on the part of the Conservative party. Will it continue to show such concern for investment to protect society’s most vulnerable after this crisis has passed? Will COVID-19 act as a lasting reminder to us all that the state has a role to play in protecting us from events out of our control, and will the government continue to put its money where its mouth is to protect our safety net beyond this crisis? We might hope that the value attached in the budget speech on Wednesday to investment in the NHS will continue beyond COVID-19. The government was certainly promising greater investment in the lead up to the general election, before the virus was the issue it is today.

One glaring omission from the budget, however, was talk of any significant additional money for social care. Inadequate investment over the past ten years, coupled with increased demand, has fuelled the current social care crisis in the UK. Only time will tell whether this government will be the one to begin addressing this crisis, one that – like COVID-19 – is leaving elderly, ill and disabled people most vulnerable.

Emergency measures were introduced in the budget to make access to benefits ‘quicker and easier’. Again, however, this comes after ten years of making access to support slower and harder for the most vulnerable – including cuts and/or increased conditionality targeted at the ill, the disabled, carers and lone parents. Although the four-year benefit freeze comes to an end in April, this has resulted in a 6% cut in real terms to many benefits for the poorest over that period. Analysis shows that the benefit freeze and other cuts have significantly weakened the social security safety net. Furthermore, claimants of Universal Credit continue to wait five weeks for their first payment, pushing many into debt. With the full economic impact of Brexit yet to bite, if the government is serious about strengthening the safety net, investment in benefits for those on the lowest incomes should also be a priority.


About the Author

Laura Richards-Gray is a Lecturer in Politics at Birkbeck, University of London.

Did Labour really lose for this reason?

Worth reflecting on.

Ricky Coxon's Blog

Remember when 4 million new voters registered? When 2 in 3 of those registrations were under the age of 35? Remember when the polls predicted a hung parliament (or maybe only a very small Tory majority)? Even the private Tory poll had the gap at just 4pts. And the queues of young people at polling stations on election day?

So why then, when every single poll in the last 2 years suggested that if there was another referendum ‘REMAIN’ would win, did we vote for a bunch of hard-right rabid Brexiteers?

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Also, how did just 300,000 more votes than in 2017 deliver such a massive victory for the Tories (they went from 13.6m to 13.9m)? And how did Labour win a majority in 2005 with 9.5m votes but got virtually wiped out in 2019 with 10.3m votes?

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So what happened? Why did we lose? Where did all the voters go?…

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