Coronavirus Economics: Was Government Action on Living Standards Fit for Purpose?

Continuing the Young Fabians Economy and Finance Network’s blog series on Coronavirus Economics, James Bartholomeusz assesses the impact on the Government’s interventions on living standards, and what a future Labour Government could learn from this.

The start of the Covid-19 pandemic did something remarkable to British politics: it transformed state intervention in the economy into cross-partisan common sense. Virtually no one, even in the ranks of the Conservative Party, seriously believed that society could be left to deal with the crisis alone. Subverting his reputation as a Thatcherite Brexiteer, Rishi Sunak swiftly brought forward a programme of measures to shield both workers and employers from the economic impacts of lockdown. Taken together with public health restrictions, these measures increased the role of the state in British life to its greatest extent since the Second World War.

There can be no doubt that these radical measures were vastly preferable to the main alternative: the laissez-faire attitude hinted at by Boris Johnson in the early weeks of the pandemic, before the severity of the situation imposed itself on minds in government. Other than the fringe of libertarians and conspiracy theorists, that consensus has remained intact over the last two years. Two real questions remain. Could measures to support living standards have been designed and implemented better? And what does the precedent set during the pandemic mean for social policy in a post-pandemic world?

The answer to the first question is almost certainly yes, if only because any policy developed in such a hurry will be necessarily flawed to some extent. However, beyond purely technical issues, the visible omissions point to some important political truths.

The furlough scheme (officially, the Coronavirus Job Retention Scheme) was the flagship reform of the early pandemic. Introduced alongside a package of grants and loans for other purposes, the scheme allowed businesses to keep employees on the payroll and claim 80% of their pay back from the government, up to a maximum of £2,500 per month per person. Employees were barred from working for the employer who had furloughed them (although there were no restrictions on alternative employment), the idea being that they could be easily un-furloughed once health and economic conditions returned to something like normality. The scheme ran from March 2020 to September 2021, with several revisions along the way to reflect the changing circumstances of the pandemic.

For many white-collar workers on middle and high incomes, the scheme seems to have achieved wonders. It allowed them to comply with lockdown restrictions in full while working from home, and also helped prop up aggregate consumer demand in very challenging business conditions. (All those brown packages on the doorstep came from somewhere.) However, this experience was far from universal. As the phrase went among trade unions and campaign groups at the time, ‘80% of a poverty wage is still a poverty wage’. Those behind the furlough scheme apparently missed that real incomes among the poorest had been stagnating for over a decade, and ‘winning’ a 20% pay cut would only make matters worse. (Those employers who voluntarily topped up furlough pay to 100% have not received enough praise.)

Of course, the furlough scheme only applied to those lucky enough to count as employees. One of the major labour market trends since the 2008 financial crash has been the growth in precarious work, including both employees in substandard arrangements like zero-hours contracts and those classified (often dubiously) as self-employed. While the government also introduced a support scheme for self-employed people, this was primarily targeted at small-business owners - not the sort of highly exploited labour that platform companies like to describe as ‘micro-entrepreneurial’. People in this latter group were not even eligible for statutory sick pay if they contracted the virus and were obliged to quarantine. Again, the government seemed to be making decisions for the economy that it wished existed, rather than the one actually experienced by millions of people on low incomes.

One concession to people at the very bottom of the income scale was a small increase in universal credit payments, by £20 per week, which also expired last autumn. Hardly a generous offer to begin with, the withdrawal of additional support was heavily criticised by campaign groups for yanking out one of the few remaining planks on which the most exposed households depend. It is, of course, this very same stratum of the population which is now underwater as energy bills and the price of other staples bubble up.

Sunak economics may have averted national catastrophe, but it contained too many traditional Tory assumptions to really protect British society. As the long-predicted aftershocks of the pandemic now take effect - compounded by further supply shocks from the Russo-Ukrainian War - we require a genuine break with old thinking to deliver the future that Britain needs. That break will certainly not result from the present Conservative leadership contest, whichever candidate wins.

What, then, can Labour learn from the pandemic experience as it prepares for government? One key lesson is surely that state intervention in the economy is nothing to be feared. Gone are the days when diverging from free-market orthodoxy was the preserve of crazy Lefties; the Tories have cleared the territory. Indeed, after a period of entropy in which Keir Starmer said nothing much beyond condemning strike action and reversing his pledges on public ownership, Labour’s new policy for a universal cap on energy bills demonstrates the right level of ambition for a progressive government. The party should pursue similar measures in relation to housing costs, and repair the benefits system so that it genuinely acts as a safety net rather than an additional punishment for poverty.

No country can choose when it is hit with a systemic crisis; the real test is how it decides to respond. After 2008, the combined impact of austerity and Brexit left the UK much less prepared than it might have been for the next major downturn. With the right set of policy interventions, we can still take action now to ensure that British living standards are resilient to future shocks. 

James Bartholomeusz is a Young Fabian and works in campaigns and policy at a global union federation. He writes here in a personal capacity.

Do you like this post?