Early lessons

As I write this article, we are approaching the peak of the Covid-19 pandemic in our hospitals and care homes. All of our practical focus must be on reducing the number of people becoming ill and helping the most vulnerable. In these circumstances, as our NHS and social care workers are under incredible pressure, it feels a difficult moment to look to the political future. The next few weeks will be lifechanging for NHS and social care staff, especially for those who contract the virus at work. Of course, it will also leave lasting trauma for the families of those who succumb to this cruel disease.

Nonetheless, as so many have said, it is essential that we learn the lessons of the current crisis, and plan how we can act on them.

We can do this by looking at the potential economic consequences of this crisis and what a Labour response could look like. At the same time, nobody should pretend that the impacts can be fully understood at this stage. Any conjectures are weakened by uncertainty about how long the crisis will last and how it will impact on behaviour, including our patterns of consumption. It currently appears unlikely that ‘normality’ will resume soon, with a slow, stuttering reopening of some forms of community life, as we see currently in China, more likely than a cathartic and celebrative end to the crisis.

The impact of the crisis on public attitudes to politics is also impossible to predict. While some might anticipate that exceptionally poor planning around the production and delivery of mass testing, protective equipment and ventilators will lead (eventually) to a reduction in support for the Johnson government, these failures could instead just deepen the more generalised distrust in politicians of every stripe.

Obviously, the crisis has substantially increased the indebtedness of the UK, just as it has in many other countries. The majority of the UK’s response, in quantitative terms, has been focused on loan guarantees and the deferral of tax payments, rather than direct transfers. As and when the lockdown is lifted, it will surely be necessary to alter this balance.

It goes without saying that a very large number of people have lost their entire income as a result of the crisis. A million people were trying to access universal credit at the time of writing this article, many of them for the first time. The paucity of support in our country for the unemployed is extreme when compared with other countries: witness the debate around the need for support for the self-employed, and the often-repeated point that universal credit is simply insufficient. That is right; but it has never been sufficient for anyone, and failing to acknowledge this risks creating two categories, of deserving and undeserving unemployed people, with the latter supposedly able to feed their families on thin air. Switching the advance loan within universal credit to a grant is the very least that should be demanded, and additional measures beyond the existing limited increases to elements of universal credit must be carried out as a matter of urgency.

Moving forward, demand-boosting additional transfers to individuals will be essential, especially to bolster consumption in heavily-affected areas like leisure, the arts and hospitality; and to allow individuals on a low income to pay down some of the significant (additional) personal debt that will have been accrued. In the medium to long term, we must reform social security so that it can genuinely act as a much more comprehensive social safety net; and accelerate moves to reintroduce social assistance rather than relying on (expensive) commercial lending to support incomes. Labour should not back away from strongly advocating for change in this area. At the same time, those who say the current stage of the crisis requires identical cash grants to all ignore the additional costs faced by people in particularly difficult circumstances (for example, people without sufficient savings, or with caring responsibilities or incapacitating disabilities), and the need for support to be tailored to these circumstances. In addition, while such a measure could in theory aid with boosting aggregate demand as the economy recovers, its impact would be limited whilst social distancing remains in place.

More comprehensive social security, as well as the funding required to repair our public services will of course require a new approach towards taxation, where the left must be ready to work hard to create new, broad and powerful coalitions for change.

The US academics Kenneth Scheve and David Stasavage have shown how significant shifts in taxation tend to follow instances of mass ‘sacrifice’ for the good of the community. There are countless examples in this pandemic, with for example low-paid social care workers, health assistants and supermarket workers putting themselves at continued risk. The crisis has also laid bare the exploitative approach of some employers. Labour must be ready not only to remind consumers following the crisis of poor employers’ misdemeanours, but also to demand that those who have benefited from government support contribute to society in the future – including through fairer taxation.

Responding to the crisis will also require the rejection of previous shibboleths around short to medium-term debt. While the UK’s post-pandemic debt levels look likely to be comparable to those built up after the 2008 financial crisis, our country will not be alone. Virtually every nation will have found its public finances under pressure as a result of the pandemic. While this obviously raises the spectre of a prolonged and international recession, it also opens up the possibility of a more mature discussion about public finances, learning from the bad example of the UK’s response to the 2008 financial crisis, which led to unnecessarily slow growth and damaged public services.

The UK’s response to Covid-19 has been painfully unilateral – obviously both in terms of the overall public health response, but also the fiscal response. The relatively small size of the UK’s fiscal and monetary firepower compared to the EU’s arguably contributed to the precipitous falls we have seen in the value of the pound over recent weeks. As the EU looks likely to adopt some form of ‘corona bond’ to aid nations like Italy and Spain, Labour must push for far more engaged leadership from the UK to boost global demand.

Current unedifying scrambles over scarce life-saving equipment and essential testing materials have also indicated the need for greater rather than less international engagement. Labour will need to demonstrate close working with sister parties on all these issues, as well as highlighting government failures. More widely, there is a risk of nations responding to the crisis by erecting barriers to free and fair trade: the UK should argue against such a destructive approach. Unnecessary trade barriers with the EU will constitute a luxury the post-crisis UK will not be able to afford. Similarly, Labour should push firmly back against those who would use the economic implications of the pandemic to justify the weakening of measures to combat the climate emergency.

Finally, we must also be wary of jumping to quick conclusions concerning the crisis’ impact on support for public services. It has been incredibly moving to see communities turn out to ‘clap for our carers’; but dealing with the problems which reduced the resilience of our public services will be complicated and controversial. Local authorities in particular will not only need to be backfilled for the costs of dealing with the crisis, but also for the massive drop in revenue that many will be confronting. The pandemic has underscored the steady disempowerment of local authorities as bodies able to carry out the task of local coordination, whether it be of public services, volunteers or business support. As debate will inevitably turn to the funding of public services and particularly the NHS and social care following the crisis, Labour must ensure that local authorities’ critical role in ensuring resilience is at the forefront. More genuine and full-throated engagement and partnership with Labour in local government will be essential here.

Above all, we must avoid any lazy assumption that the response to the crisis will necessarily lead to a groundswell of solidarity and spending, putting the UK on the road to socialism. The chance to create a fairer country was squandered following the financial crisis. We cannot allow it to be so again following the current crisis.

Photo credit: Tim Dennell/Flickr