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Rebuilding after recession: a plan for jobs

Report type
Research and reports
Issue date
Sectoral and business support packages that support better jobs

The coronavirus and the public health measures taken in response have had a dramatic impact on the economy, as demonstrated by the 20.4 per cent decline in GDP in April 2020[1]. This economic impact has not, however, been evenly distributed across sectors and different areas of the economy have been affected very differently by the crisis. As the chart below shows, in two industries – accommodation and food services and arts, entertainment and recreation – the vast majority of businesses have temporarily closed or paused trading. Unsurprisingly, these two sectors also have the highest proportion of workers on furlough.


[1] The consensus view is for a decline of 8% in 2020 as a whole, which would be the largest decline for a hundred years (since 1921 when it fell by 9.7%). It should be noted that such estimates are highly uncertain and achieving recovery will require continued and strong support from government.

The table below sets out those industries where total output has declined by more than half between February and April:

Industry

Percentage change in output, February-April 2020

Air transport

-96

Travel agencies and tour operators

-95

Accommodation

-93

Food and beverage service activities

-91

Rail transport

-77

Other personal service activities

-70

Transport equipment

-60

Textiles, wearing apparel and leather products

-59

Sports and recreation activities

-57

Creative arts and entertainment activities

-54

Other service activities

-52

Motion pictures, TV production, sound and music activities

-51

Source: ONS, Indices of Production and Services

Even as the economy starts slowly to reopen, the disparity between sectors in the extent to which they can start to return to something like normal, or can restart operations by putting in place adaptions, or still cannot open at all, remains huge. Looking ahead years, rather than months, this is still likely to be the case, with some sectors permanently changed by this crisis while others will – eventually at least – have bounced back. This means there are significant differences in the kind of economic support packages that different sectors and businesses will need going forwards.

Bring together sectoral recovery panels to design support

To guide and inform decisions on support, sectoral route maps are needed that look ahead to the likely scenario for each sector in three months, six months, a year and three years’ time. These should be drawn up by sectoral recovery panels that bring together representatives of both workers and employers and other relevant sectoral bodies. Sectoral route maps will create a baseline of analysis on which government can base its ongoing assessment of the resources and measures needed to support the economy in the different phases ahead.

Based on the conditions each sector is likely to face, strategies for support and adaptation should be drawn up by the sectoral recovery panels to create sectoral support plans that are tailored to the circumstances and needs of each sector. Factors that the sector recovery panels will need to consider include:

  • The long-term viability of the sector – will the sector eventually return to pre-crisis levels?
  • Will permanent adaptations be required for businesses to become viable again? Are these likely to be affordable without support?
  • What is the economic contribution of the sector, in terms of value-added, skills, pay and impact on local economies and supply chains?

In addition, all sector support plans must include a strategy for:

  • how to improve job quality across the sector, in terms of pay, skills, security and voice at work; and
  • how the sector can adapt to reduce carbon emissions to support the UK’s move to a net-zero economy.

Areas where a sectoral approach would be beneficial include:

  • For sectors planning to reopen soon, what measures are needed to ensure safety? Are there economies of scale and shared planning that can help put these in place?
  • For sectors where reduced demand is likely to remain for several years, are there particular products or services which would be a good match in terms of diversification strategies? Are there investments in these that could be made on a sectoral basis, with the learning shared through the sectoral recovery panels?
  • For sectors predicting reduced job numbers for a significant period or permanently, what would be the most appropriate training and retraining programmes to put in place to help workers transition to new work, should that be necessary, based on the existing skills and experience of the workforce?
  • Are there any sectoral initiatives that could be appropriate for workers who are shielding or vulnerable to work on – to enable these workers to come off the furlough scheme while making an economic contribution and remaining safe?
  • If the economy falters in the months and years ahead, some businesses within a sector may be able to survive the altered conditions better than others. Sectoral redeployment schemes, even if informal, could be hugely beneficial to laid off staff and to businesses that could save vital funds on recruitment and training.

Taking equity stakes to support individual businesses

Across the economy, government support for individual businesses that remain viable in the medium-term but cannot operate profitably in the current circumstances will be needed. Without this, there is a risk that many businesses could needlessly fail, leading to a significant loss of jobs, skills and economic and social value.

For large businesses in particular, much of the government support to date has been in the form of loans. [1] As has now been suggested by a wide range of commentators, the most suitable mechanism for support over the medium-term would be for the government to take equity stakes in such businesses. This has already been done in Germany, where the government has taken a 20% stake in Lufthansa in order to save the airline. [2] There are three main reasons why this is the right approach for the UK government to take.

Firstly, as businesses return to profitability, an equity stake will generate a return to the government for its support – creating an income stream in the future that is flexible for each business depending on their future success. Secondly, an equity stake will enable government support to influence corporate behaviour going forwards in a way that generates a public interest return in exchange for the support of public funds. Thirdly, from the perspective of a business, an injection of cash in exchange for equity is a less risky way of keeping afloat financially than taking out a loan.

There are significant economic benefits for the government in supporting business in this way. It has the potential to create an important future income stream for the Treasury as the economy recovers over the months and years ahead. Importantly, it avoids creating additional financial pressure on businesses that could ultimately make it more likely that directors decide to either scale down or close the business, helping more businesses ultimately to maintain viability.

The US Troubled Assets Relief Programme (TARP) scheme set up to support the financial sector in the wake of the financial crisis demonstrates the potential benefits of using equity injections as a means of business support. Despite the fact the many of the ‘toxic’ financial assets supported by this programme never recovered, overall the scheme generated a healthy surplus to the US government of over eight billion dollars between 2008 when the scheme was established and 2016. [3]

Many businesses – understandably – are very wary of taking on further debt at such an uncertain time. This has been acknowledged by the Bank of England’s Monetary Policy Committee, which in its June meeting noted that some businesses are reluctant to take on extra debt and that “For some of those firms, equity-like solutions might be preferable to additional debt”. [4]

For business, the government taking an equity stake gives them the cash input that they need, with the repayments aligned to the future profitability of the business and the interests of other shareholders. It is also likely to benefit creditors and suppliers, who could otherwise find their stake in the company, were the business ultimately to fail, diluted by additional government loans, if support were generated through that means. From the perspective of many businesses, cash for equity is likely to be hugely preferable to a loan system. It is also a relatively simple measure and one that removes the need for time-based hurdles such as would usually accompany a loan system.

Conditionality and influence

It is important, however, that clear conditionality and an effective channel for influence is attached to such support. Government funds are generated primarily by the contributions of working people, including through income tax (25 per cent of total government revenue in 2017), national insurance (19 per cent) and value added taxes (18 per cent). [5] If significant amounts of government revenues are to be used to support individual businesses, it is important that this support is used to encourage companies to take the high road, rather than the low road, to business success and drives improvements in the social and environmental performance of companies.

The three areas of conditionality set out below should be used as forward-looking conditionality in order to influence corporate behaviour in the future, rather than as exclusions on the basis of past behaviour. The aim is for government support to save businesses and drive responsible performance behaviour at the same time.

Fair pay plans

The corona crisis has demonstrated clearly the importance of everyday jobs and work. While health staff, carers, cleaners and others have worked tirelessly to stem the health crisis, staff in supermarkets, refuse collectors, bus drivers and very many others have ensured that people can access what they need in safety. It has shown that while leadership is important, it is one role among many and every job has an important role to play within an organisation that should be properly valued and rewarded.

The pay gaps within the private sector remain very high, despite some reduction over recent years. Average total CEO remuneration for 2018 (the most recent year for which all the data is available) in the FTSE 100 was £3.46m and in the FTSE 250 it was £1.58m. [6] These vast sums are 117 and 53 times median full-time earnings. When compared with the legal minimum, the National Living Wage (for those aged 25 or more - lower rates apply for workers under the age of 25), the gap widens to around 218:1 and 100:1 respectively. [7]

Before the corona crisis, average earnings in the UK had still not reached their pre-financial crisis level in real terms. It is a matter of justice and of economic necessity that companies should develop fair remuneration plans that include both company directors and outsourced workers and tackle pay inequalities based on race and gender to ensure that company resources are deployed in a way that is both fairer and more effective than is currently the case.

Businesses that access government support should commit to putting in place fair pay plans. These should be discussed and agreed with trade unions where they are present in the company and where they are not businesses should engage with staff collectively in a way that enables staff to discuss the issues fully without management present and feed back through staff representatives. Companies should commit to initiating these discussions within three months, and putting Fair Pay Plans in place in time for 2021.

All fair pay plans should include:

  • Executive pay packages should include no cash bonuses, long-term incentive plans or other incentive-related remuneration for the duration of the support.
  • No staff whose work contributes to the company, including those who are employed through agencies and/or support the company through outsourced roles, should be paid less than the Real Living Wage.
  • The maximum pay ratio between top and bottom of the organisation should be no more than 20:1.

Corporation tax should be paid in the UK

If businesses are accepting support from the UK government, it is not acceptable for them to be registered in tax havens and thus avoiding paying corporation tax in the UK. This principle has been widely accepted in the debate [8] around conditionality that has already taken place.

Businesses that accept government support should commit to acquiring Fair Tax Mark accreditation within the next three years. Those that are currently not registered in the UK for tax purposes should commit to changing their tax registration status as soon as is practically possible and to setting out a timeline for this in their 2020 annual report.

Decent jobs

For the vast majority of businesses, their most significant social and economic impact is their role as an employer. Promoting “sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all” is one of the Sustainable Development Goals adopted by all United Nations Member States, including the UK, in 2015. The TUC has developed six principles for decent work, which encompass voice at work, fair and decent pay, regular hours, learning and progression, fair treatment and respect and healthy workplaces. [9]

Businesses that accept government support must commit to promoting decent work throughout their direct and indirect operations. Making this commitment must be a condition of receiving government support and businesses should produce a timed plan for putting in place the steps that they need to take.

Long-term, sustainable business success

In addition to these three areas of conditionality for accessing government support, the government should use its stake in companies to foster a long-term approach to decision-making focused on creating a fair and sustainable model of business success. There is widespread recognition that the UK’s business culture often focuses on short-term financial results, rather than investing in skills, positive employment relationships and innovation to create long-term organic growth. There is also an urgent need for adaptations and business transformation to move to a net-zero economy. Through taking a stake in companies, the government will have an opportunity to influence business culture and decision-making to foster a more inclusive and long-term approach and enable it to work with companies to put in place policies for a Just Transition to net-zero.

Extend the furlough scheme for potentially viable businesses and vulnerable workers

For some businesses that are unable to operate when the current furlough scheme is scheduled to end in October, but which maintain a viable future, the continuation of some form of furlough scheme could be the most effective way of supporting their survival. Maintaining a form of furlough scheme for those businesses that can demonstrate viability could be an important part of a wider package of support. This is the model for short-time working schemes in, for example, the Netherlands and Germany.

In addition, even in businesses that are up and running, there are likely to be some workers who cannot safely work outside the home, including those who are shielding, caring for someone shielding, some who are in clinically vulnerable groups and those whose caring responsibilities mean they cannot work outside the home. These workers are likely to face a significant threat of redundancy, and a particularly hard time finding new work in a difficult labour market. A form of furlough scheme enabling their jobs to be protected should remain in place beyond October.

 

[3] Rob Runyan, 3 Conclusions on TARP 8 Years Later, US Treasury Notes Blog 10. 3. 2016 https://www.treasury.gov/connect/blog/Pages/3-Conclusions-on-TARP-8-Years-Later.aspx

[5] Helen Miller and Barra Roantree , Tax revenues: where does the money come from and what are the next government’s challenges? Briefing note, 01 May 2017 Institute of Fiscal Studies

[6] CIPD and High Pay Centre, Executive pay in the FTSE 100: is everyone getting a fair slice of the cake? Research Report August 2019

[7] Based on converting average CEO annual remuneration to an hourly rate on the basis of a 35 hour week, 52 weeks per year.

[8] See, for example, Clergy attack tax-haven firms seeking coronavirus bailouts, The Times 27.4.2020 https://www.thetimes.co.uk/edition/news/clergy-attack-tax-haven-firms-seeking-coronavirus-bailouts-9x826tp72 ; Conditions are critical: publicly-funded bail-outs for private companies, High Pay Centre, 18.3.2020 http://highpaycentre.org/files/conditions_are_critical_web_version.pdf

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