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Workers lose as the Chancellor gambles on recovery

Published date
Today the Chancellor made a dangerous bet on the economy bouncing back on its own, when he should have acted to create jobs. We are in the worst recession of our lifetimes. But while President Biden acts big, the Chancellor thinks small.

There was nothing like the investment we need to stop unemployment and level-up the UK with millions of new green jobs. Freeports don't create jobs - and around the world they allow freeloading employers to dodge taxes.

And after a year of key workers going above and beyond, it’s an insult that the chancellor announced no new support for our hard-pressed NHS or public services and no guarantee of a decent pay rise for all our public sector key workers.

The last-minute extension of furlough, while welcome, ends too soon, which will risk jobs and businesses. Cutting universal credit in October will risk family incomes. And failing to fix decent sick pay for all risks more infections and another lockdown.

The government promised “fairness at the heart of everything”, but has done nothing for any of the groups so severely disadvantaged by the crisis. Without much more we face the terrible prospect that the forecast 900,000 rise in unemployment since the beginning of the pandemic turns out to be wildly optimistic.

  1. Job and income protection

The Budget was a key opportunity for the Chancellor to set out how he would protect workers’ incomes and help them into new jobs but the chance was largely missed.

Since March 2020, the Coronavirus Job Retention Scheme (CJRS) has supported the wages of 11.2 million people and the Self-Employment Income Support Scheme (SEISS) has helped around 2.7 million self-employed people.

With the economic hangover from the pandemic likely to last well after lockdown is eased, affected workers needed the government to extend these schemes at least to the end of the year. Instead we got a half-hearted approach. The furlough scheme will continue until the end of September, but employers will be told to fork out for 10 per cent of wages for unworked hours from July and 20 per cent in the following two months.

The result could be that sustainable jobs are lost that could have been maintained because firms are still cash-strapped. Meanwhile nothing has been done to make sure that no-one receives less than the minimum wage while on furlough.

The Chancellor has listened to the TUC and others and brought the newly self-employed into the Self Employed Income Support Scheme (SEISS) by extending eligibility to those who have filed a 2019/20 tax return. However, large numbers remain excluded thanks to the scheme’s complex rules.

From late April eligible workers can claim a fourth SEISS grant on current terms of 80 per cent of three months’ average trading profits capped at £7,500. This will be assessed on trading from the past four years.

A fifth grant in late July will cover May to September. But more complexity will be added to the scheme by limiting those whose turnover has fallen by less than 30 per cent to a 30 per cent grant, and the grant will cover just three months profits – for a five month period.

With the under 25s accounting for six in ten of the fall in employee jobs, it is remarkable that the chancellor did nothing to the Kickstart scheme that subsidises jobs for young workers. He claimed that 120,000 jobs had been created through the scheme. But, as of mid-January, fewer than 2,000 workers had started in Kickstart roles and with just two per cent of businesses saying they’re interested in the scheme, it’s clear the government needs to get the public sector involved to meet the scale of the youth unemployment challenge.

Nor was there any indication that the government would provide the necessary support to hard-hit sectors like aviation, retail and the arts to save jobs.

Since the beginning of the covid crisis the TUC has campaigned for the urgent need to fix sick pay. The £96 for statutory sick pay is too low and forces people in to work when they shouldn’t be and potentially spread the virus, as they simply can’t afford to take the time off. Two million do not qualify for statutory sick pay because they earn too little, and the more recent isolation payment simply isn’t good enough. Yet there was nothing on sick pay today.

Universal Credit provides a vital lifeline for many families during difficult times. Extending the £20 uplift for six months only simply pushes the problem of a deeply inadequate safety net further down the line.

  1. Securing recovery

When it came to securing the recovery the Chancellor’s gamble is more reckless still. Not for the first time the Treasury are betting on a private sector reeling from the pandemic, and are failing to back the public sector that we know from bitter experience is best positioned to both lead the way from crisis and deliver real climate action. Rather than expanding investment he cut both investment and departmental spending.

The government has made big promises about green job creation and Building Back Better towards Net Zero. However, the Budget doesn't deliver on the promise. Direct government investments into green infrastructure total £161 million towards projects including hydrogen production, energy storage and a rail testing complex. However, more than half of this is financed through the previously announced Net Zero Innovation Portfolio. At most, £69 million constitutes new funding – a fraction of the £1 billion that the government has quietly cut from its once-flagship domestic energy efficiency Green Homes Grants programme. By not continuing the Green Homes Grant scheme, the government is effectively reducing direct green spending by over £900 million in the 2021-2022 Budget. In the last Budget before the COP climate conference in Glasgow this November, the government threw away an opportunity to demonstrate leadership.

The establishment of the new UK Infrastructure Bank (NIB) is welcome. But the investment target of £40 billion falls well short of the total investment that we need at this time to create jobs and boost economic capacity going forwards, and additional spending will be needed. The TUC has put forward a proposal for £85 billion of specifically public funding to accelerate shovel-ready infrastructure and catalyse further private investment.

We would also question whether the proposed funding model - of £12 billion in capital and £10 billion in guarantees - will generate the £40 billion target. It is important that the government is prepared to allocate additional resources to support NIB investment, should this be needed.

Significant differences between regions in the availability of skilled, good quality jobs and training is both a symptom and a cause of regional inequality. It is welcome that “opportunities for new jobs” is included in the NIB’s mission statement, but for the NIB to contribute successfully to the levelling up agenda, it is essential that the jobs it creates are good quality jobs, with all NIB projects including good jobs plans developed with unions.

The Chancellor made much of a “super deduction” capital allowance of 130% for investment in “qualifying new plant and machinery”. This means that the government is effectively paying businesses to invest in new machines – but not in new jobs. Capital investment is of course an important part of long-term economic development and used well this measure could help businesses to invest in new green production methods and products. But there is a risk that the allowances will fund investments that would have taken place anyway, rather than creating additional investment. The qualification specifications must address these issues and ensure that the “super deduction” is limited to additional investment and does not inadvertently lead to job cuts, which would damage the recovery and fragile household incomes.

We heard nothing about filling the 600,000 current gaps and vacancies in the public sector. Or about a family stimulus’ package that would have delivered for families and kids. And if the chancellor wanted to secure the recovery, imposing a real terms pay cut on millions of key workers is a funny way of showing it. Despite hundreds of key workers lobbying their MPs and sharing their stories of how the pay freeze will hurt them and their families, there was no mention of reversing it today.

We calculated that the freeze will cut £1.3bn from key worker settlements this year. An average of £3.2 million per constituency. That’s a poor way to reward the key workers who put their lives on the line for all of us over the last year. But it’s not just the workers and their families who suffer. Money in their pay packets get spent in their communities, supporting employment and driving the recovery in sectors like hospitality that have been so badly affected by the crisis. By effectively cutting their pay, the chancellor is holding back the recovery in communities across the country.

The highlight in the Chancellor’s speech on skills was the new ‘Help to Grow’ management training programme aimed at SMEs. That says a lot about the underwhelming nature of the announcements today. Comparative international analyses have consistently flagged up the shortcomings in our management skills and the need to tackle this. But it’s wrong to spend an additional £220m on management skills over the next three years while cutting the Union Learning Fund and its support for thousands of workers with few or no qualifications.

There was nothing new on retraining or giving furloughed workers greater access to training, as is the case in other countries. The other announcements on skills had all been trailed well in advance of today. These include increasing (to £3,000) and extending (to the end of September) the financial incentive for employers to recruit apprentices and additional funding for traineeships. And there are concerns about the proposed ‘flexi-apprenticeships’ – which could create the potential for exploitation when apprentices are working for multiple employers. Unions must be consulted on just how these work.

  1. A better recovery

This was an opportunity for the Chancellor to deliver a transformative budget, that helps build a greener and fairer UK. A hands-on industrial strategy that matches the government’s rhetoric of a Green Industrial Revolution could have created 1.24 million quality green jobs in electrifying our railways, rolling out broadband and insulating our homes. Committing real investment and harnessing the public sector’s potential could have improved people’s day-to-day lives, accelerated our climate progress and ensured we emerge with a stronger economy from the COVID crisis.

With no action, inequalities will be worsened. The unemployment rates among BME people, disabled people, and young people are currently significantly above the 6.5% peak forecast by the OBR. Insufficient job protection and the total lack of job creation have implications for equality. The public sector pay freeze will hit women and BME workers harder because both groups are more likely to work in these sectors. The government must address the structural issues that cause large disparities in employment for women, BME and disabled people.

We know from OECD analysis that that countries with policies and institutions that promote job quality, job quantity and greater inclusiveness perform better than countries where the focus of policy is predominantly on enhancing (or preserving) market flexibility. Yet despite promises to “protect and enhance” workers’ rights there is no sign of the Employment Bill we were promised more than a year ago. A ban on zero hours contracts, a right to real flexible work for all, and the ability for trade unions to access workplaces are desperately needed to improve workers’ lives and support economic growth.

  1. Fiscal policy, the economy and the public finances

According to the official forecasts the economy will be back to where it was before the pandemic by the middle of next year. While we still face a rise in unemployment to 2.2 million – a rise of 900,000 from the start of the pandemic - this has been downgraded from the November view of 2.6 million.

Like Andy Haldane of the Bank of England, the OBR expect household spending to lead the way, backed up by a revival in business investment. Government expenditure still supports the recovery, but the level of this support has been withdrawn rather than increased - final consumption expenditure (broadly departmental spending) has been cut by around £5 billion a year.

Public sector net investment continues to be eroded. At the start of the Johnson government spending was increased to average 3.0% over the next five years, in November it was reduced to 2.9% and now to 2.8% a year.

On revenues the Chancellor from 2023 raises corporation tax to 25% from 19%, reversing George Osborne’s reckless cuts. Households face an earlier change, with income tax thresholds frozen from this year. 

The sum of the parts of spending cuts and tax increases allows him to boast of improved public finances into the future relative to November - so that for example public sector net borrowing is back down to around 3% of GDP at the end of his forecast when previously it was around 4%.

But gambling on recovery will not repair the public finances. The lack of investment will mean an underperforming economy and like we saw in the austerity decade, the public finances will deteriorate not improve.

There was an opportunity here to create work, protect disadvantaged groups and start building back better.

Instead the Chancellor gambled, and workers will lose.

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