Is it enough to avoid a winter of discontent?
The symbolism was striking, the Chancellor flanked by the Director of the CBI and General Secretary of the TUC as he stood on the doorstep on Number 11 and unveiled his winter plan for the economy. Such imagery of a mixed economy is common place in European countries such as Germany but practically unheard of in Britain especially under a Conservative government and a Chancellor who in normal times would have been described as a Thatcherite.
These, however, are not normal times and the unprecedented impact of Coronavirus on the global economy has demanded a radical response. There is an argument that Rishi Sunak has not gone far enough in his response to the current crisis, we'll discuss that in more detail later but it should not be ignored just how extraordinary the level of state intervention has been. Unparalleled since the creation of the modern welfare state, the government is now on track to mirror Germany where they've had a pay top-up scheme since the early 20th century. For the Germans the scheme came to a prominent position in their economic model during the financial crisis of 2008 and has been expanded during the pandemic to such an extent that one point around 50% of employers had staff on the scheme.
Should the UK have considered such a scheme years or decades ago? It's easy with hindsight to say yes but it's worth highlighting though that until recently the UK had been enjoying almost a decade of record low unemployment. That's about to change, the full impact of the redundancy time-bomb has not been realised yet but it can be seen in warnings from the Bank of England and a worrying expansion in Job Centre recruitment, which is due to double its workforce by November.
Under the new scheme which is due to come into force in November when furlough ends eligible workers will receive 55% of their pay from the employer and 22% maximum from the government. Also, unlike the furlough scheme which was paid nearly universally to those who couldn't work, this is only eligible to viable companies and the recipients must work at least a third of their normal hours. In my opinion making the new scheme conditional is a good idea as there have definitely been abuses of the furlough scheme where companies have made a lot of money at the expense of the taxpayer and their own staff. Also viable jobs is key, it is not the place of the government to prop up companies that have no chance of surviving. That being said if the company is struggling to stay afloat because of COVID they should be supported and an essential element to that is sorting out testing as well as track and trace.
However, trade unions and employers have warned that the scheme will not be enough to avoid mass unemployment. Particularly affected will be part time workers as it will be cheaper for companies to have one full time worker on reduced hours than two. Even with the new measures the OBR still expects unemployment to explode to four million by the middle of next year, which is the highest record since the 1930s. Another legitimate concern is the lack of training provision in the scheme to help workers adapt to changing economy.
There's also the small matter of the cost, how does the Chancellor plan to pay for these measures? His decision to delay the budget in favour of this announcement could be seen as prioritising the current crisis over future spending commitments but it is equally true that he is kicking the can down the road and will eventually have to explain how is being paid for. Public spending is predicted to rise by £182 billion while tax receipts are down £130 billion with pretty much every form of tax bringing in smaller revenues.
Those who are solely driven by ideology will see this as either an overstep of government intervention which will shackle future generations with mountains of debt or the first step towards the introduction of universal basic income and new 21st century welfare state. It is undeniable that despite the radicalism of Rishi Sunak's actions, he is a slow convert to this level of state support, this can be seen in his delayed response to the end of furlough and his adamant assertion that these are all temporary measures. However, economic models are evolving, we are in the midst of a new industrial revolution, the pandemic has fast tracked many changes to working patterns that were inevitable. Top-up pay has become the norm in countries such as Germany and it has arguably helped them cope with the current crisis than we have - could this be our new normal?