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The decision by the UK government at the end of 2020 to go back on its commitment to spend 0.7% of GDP on overseas development assistance – reducing it to 0.5% – has been widely criticised. First achieved in 2013, the UN target was embodied in UK law in 2015.
Of the 43 richer nations counted by the OECD as providing overseas development assistance (ODA) – defined as aid specifically aimed at reducing poverty in low-income countries – only five now provide 0.7% of GDP or more. The World Bank estimates that the Covid-19 crisis pushed around 120 million people around the world into extreme poverty, with almost all governments pushed into higher debt and their development plans severely retarded.
While many are calling for aid to low-income countries to be increased, others argue that the concept of aid from rich to poor nations is outdated, not least because the majority of the world’s poor no longer live in the lowest-income countries. Proponents of the concept of ‘Global Public Investment’ are attempting to forge a new multilateral approach to investing in the Sustainable Development Goals (SDGs) and ending poverty, opening up decision making to include the poor. Calls for a Global Green New Deal also embody this idea.
The UN’s 2020 Financing for Sustainable Development Report warns that global investment is insufficient to meet the Sustainable Development Goals and calls for a globally coordinated response to the Covid-19 crisis, focused on the countries most in need.
The International Expert Working Group on Global Public Investment (GPI) proposes five ‘paradigm shifts’ away from traditional top-down aid, including more representative decision making and rethinking international public finance as ‘an empowering multilateralism of a common fiscal endeavour’.
Overseas Development Institute research fellow Nilima Gulrajani examines how the Covid-19 pandemic challenges traditional notions of ‘aid’ and argues that Global Public Investment could embed a more reciprocal approach to development cooperation.
The UN trade and development organisation UNCTAD has called for a Global Green New Deal to further economic recovery and development towards the Sustainable Development Goals, with a coordinated global investment programme including both public and private finance.
Through the C40 climate leadership group, mayors of nearly 100 of the world’s leading cities have called for the resources and powers they need to drive a ‘green and just recovery’ from Covid-19 which could deliver transformative economic, health and climate benefits for urban populations.
It is now widely expected that the International Monetary Fund (IMF) will create $650 billion in new international money to help low-income countries recover out of the pandemic. So-called ‘Special Drawing Rights’ or SDRs (which countries can draw on from the IMF) could help support both vaccination and health care programmes and infrastructure investment – particularly in green projects and ‘nature-based solutions’ – in the global South.
Under current IMF rules SDRs mainly go to richer countries (including China), so this programme will require them to ‘donate’ their allocations back to the IMF to reallocate to poorer ones, particularly in Africa. Many people are now arguing that this redistribution should be written into the IMF’s rules to ensure it is permanent. Others are calling for a larger SDR issuance as part of stronger support for a global green and resilient recovery.
Explaining how the current allocation rules for SDRs provide very little for Africa, Hannah Wanjie Ryder and Gyude Moore propose that at least 25% of the new SDRs should be put into a special fund controlled by low-income countries and allocated on the basis of need (paywalled).
Lara Merling of the International Trade Union Confederation called upon the IMF to issue special drawing rights to “stave off a debt crisis in developing countries as well as ensure countries are able to afford items of vital importance such as personal protective equipment, vaccines, medicine, and food”.
The Center for Global Development explains how SDR rules could be changed so that the funds can be more effectively targeted to where they are most needed for development.
Eurodad argues that the proposed $650 billion issuance of SDRs is too small to properly support low-income and indebted countries, and argues for a $3 trillion package.
For many low-income countries, the Covid-19 crisis has further damaged already struggling economies. 52 countries are currently experiencing a debt crisis, where the size of debt payments undermines the government’s ability to protect the basic economic and social rights of its citizens. A further 100 plus countries are considered at risk. 2020 saw a huge flight of overseas capital from developing economies.
Since May 2020 the Debt Service Suspension Initiative (DSSI), initiated by the rich G20 countries, with the World Bank and IMF, has postponed debt repayments for some of the poorest countries during the pandemic. Many indebted countries are however choosing not to take part, for fear of this impacting on their sovereign credit rating and therefore the costs of future debt.
There are now widespread calls for a more comprehensive package of debt relief for the poorest and most indebted countries. One possibility is that this could be funded by earmarking the rise in the value of gold reserves over recent years. Innovative proposals have also been put forward to combine debt relief with environmental action, where countries agree to ‘swap’ debt relief for quantifiable commitments to reduce deforestation or enhance conservation.
Eurodad (the European Network on Debt and Development) criticises the G20’s Covid debt relief package (the DSSI) for its limited impact and failure to get multilateral and private lenders to participate.
Looking back at previous debt relief programmes, the Overseas Development Institute argues that imposing strict spending conditions on debt postponement, is too complex to monitor and erodes trust between countries, and proposes a more flexible approach.
The Jubilee Debt Campaign (JDC) summarised the key problems with the current debt package: too many nations are excluded from the Common Framework for solving unsustainable debt burdens and the Framework fails to include private creditors. The JDC calculates that African countries spend three times more on debt repayments to banks and speculators than it would cost to vaccinate the entire continent against Covid-19, with private creditors alone receiving $23.4bn in debt repayments this year.
Carbon Brief explain how China and other countries with high levels of overseas investment could help low-income nations tackle environmental degradation and climate change through ‘debt-for-nature’ swaps.
The Heinrich Böll Foundation shows how debt-for-climate swaps could be a ‘triple-win’ instrument, tackling the climate crisis through the protection of precious terrestrial and marine ecosystems, while also contributing to debt relief and economic recovery.
One of the most insistent criticisms of trade agreements has been in relation to their impacts on the environment. International trade is of its nature carbon-generating, as goods are transported around the world. But trade agreements can also open up new markets for commodities produced in unsustainable ways, from fish to palm oil, tropical timber to cement.
Many people therefore argue that environmental protection should be a core principle of trade agreements. Indeed, trade deals could be a powerful mechanism to promote stronger commitments on climate change or biodiversity conservation, rather than weaker ones.
One proposal gaining increased attention is for ‘border carbon adjustment’. This would enable countries with strong climate policies to impose tariffs on imports of goods from countries with lower standards. This would ensure that trade did not become a ‘race to the bottom’ in which lower standards were effectively incentivised. But many developing countries are worried that any such border tax could simply turn into a form of trade protectionism which froze them out of developed country markets.
The UK Trade Policy Observatory has set out how UK trade and climate policy need to be brought together if trade agreements are to contribute to the UK’s climate objectives.
Common Wealth proposes a series of measures to put trade policy at the service of delivering climate justice, as part of a Green New Deal.
A report from the International Energy Agency found the mineral supplies for electric cars “must increase 30-fold” to meet global climate targets. Carbon Brief summarised the report to communicate the scale of the challenge ahead and what needs to be done to prevent a mineral ‘bottleneck’ stifling the clean energy transition.
The Centre for European Reform’s Sam Lowe explains how an EU border carbon adjustment policy might work, and its benefits and costs.
Emerging economies expressed a ‘grace concern’ over the EU’s plans for a carbon border tax, which supporters argue is necessary to avoid carbon leakage but critics argue amounts to “protectionism disguised as climate action which will damage the economies of countries poorer than the EU”.
As the UK embarks on agreeing new trade agreements, there are increasing calls for such deals to be designed around clear principles of public interest, not simply on increasing the volume of trade as an end in itself. Many for example argue that trade deals should be used to protect and enhance labour and environmental standards, rather than to reduce them.
With the final Brexit deal rushed through Parliament at the last minute, there have been calls for MPs to have a much stronger scrutiny role in future, and for trade unions to be involved in agreement design where labour standards are at stake. More widely there are calls for the World Trade Organisation to be reformed to focus on major global challenges and greater accountability.
The Trade Justice Movement has drawn up model UK-EU trade and regulation agreements. These prioritise social and environmental goals and protect public services, thus preserving jobs and trade flows while retaining national flexibility for the UK to make its own rules.
The European Trade Union Congress has set out the principles of a progressive trade and investment policy for the EU, which puts trade agreements at the service of decent employment, social cohesion, equality and sustainable development.
A University of Warwick study recommends that the UK’s post-Brexit deals should aim to ‘protect, promote and empower’ workers, given them a proper voice in shaping deals which will affect them.
Anna Sands and Emily Jones argue for greater parliamentary scrutiny of trade deals, suggesting that this would result in negotiators having a stronger mandate in talks.
Leaving the EU means the UK needs to negotiate many new trade agreements – indeed the freedom to do so was one of the main arguments used in favour of Brexit.
Trade deals are no longer only, or even mainly, about reducing tariffs. They primarily focus now on reducing other ‘barriers to trade’, for example by aligning national regulations in areas such as product standards, professional qualifications and environmental protections.
Trade deal proposals are therefore often highly controversial, with many fearing they will lead to a lowering of existing standards and protections. The UK’s early discussions with the US around a post-Brexit deal were a case in point, with warnings that it would lead to the arrival of chlorinated chicken on UK shelves or the risk of further privatisation in the NHS.
One of the elements of trade agreements which has led to particular opposition is the widespread use of ‘Investor-State Dispute Settlement’ (ISDS). This is a mechanism under which a company from one signatory state investing in another can argue that new laws or regulations could negatively affect its expected profits or investment potential, and seek compensation in a binding (and often secret) arbitration tribunal. This effectively elevates the rights of corporations above a country’s democratic right to decide its own laws.
Economist Dani Rodrick shows how recent developments in trade agreements have focused on national regulations, intellectual property and labour and environmental laws. He argues for a new global trade paradigm that prioritises national prosperity and ‘peaceful economic coexistence’ between nations.
The Trade Justice Network describes the principal issues involved in recent and proposed trade deals, including those between the UK and EU, and UK and US.
War on Want explores the UK’s trade policies with countries in the global South, calling for agreements that will allow low-income countries to support their own industries and economies.
The ISDS Platform sets out how Investor State Dispute Settlement mechanisms work.
The International Institute for Environment and Development produced a report explaining how ISDS could increase the public cost of climate action.
The Corporate Europe Observatory and Transnational Institute explain the little-known Energy Charter Treaty, which allows energy companies to sue governments for changes in energy policy which might lose them money, including policies supporting renewable energy.
Over recent years many countries have reduced their tax rates on businesses, hoping to attract inward investment from multinational corporations. But this can easily lead to a ‘race to the bottom’, in which tax competition leaves all countries with lower revenues. Low-income countries are hurt the most, and corporations are the beneficiaries.
Multinationals anyway find it easy to avoid high tax rates by ‘profit shifting’ and ‘transfer pricing’, the creative accounting methods by which profits are allocated to the countries and states where taxes are lowest. It is estimated that this costs governments globally up to 10% (approximately $240bn) of corporate tax revenues every year, money that could have been spent on public services, or that must instead be found from smaller businesses and citizens. Some large multinationals pay almost no corporate taxes in the UK (and other countries) at all.
At the same time both corporations and wealthy individuals have been able to make extensive of tax havens, usually small nations which seek to attract foreign capital by exempting it from tax altogether.
Proposals for international tax cooperation coordinated by the OECD have been given a boost by President Biden’s commitment to internationally agreed minimum corporation tax rates. At the G7 Summit in 2021, finance ministers agreed in principle to a global minimum corporate tax rate of 15%, marking major progress in the taxation of multinational companies.
A number of proposals have also been made for national taxes on multinationals, and for closing tax havens.
Economist Gabriel Zucman explains how multinationals engage in profit-shifting between different countries to lower their tax liabilities – and how governments can overcome this.
The Independent Commission for the Reform of International Corporate Taxation (ICRICT) argues for a globally agreed minimum corporation tax rate of 25%. Where countries levied lower rates, corporations’ home states (such as the US) would ‘top up’ the companies’ tax to the agreed rate. More detail here.
Public Services International explains the ‘unitary principle’ under which a multinational would be taxed as a single entity, not as separate companies in different countries. The Tax Justice Network proposes a ‘Minimum Effective Tax Rate’ to allocate the taxes due on a company’s global profits.
IPPR proposes an ‘Alternative Minimum Corporation Tax’ as a unilateral measure to tax multinationals consistently reporting low or zero profits. It would apportion a firm’s global profits according to its UK sales. Richard Murphy provides an illustrative example of how this would work.
TaxWatch proposes a digital services tax on the giant tech companies such as Google, which typically charge their subsidiaries royalties on their ‘intellectual property’, which they then claim is located in low-tax jurisdictions.
Author of Treasure Islands Nicholas Shaxson explains how tax havens work, and sets out a series of measures to tax offshore wealth used by both individuals and companies.
Covid-19 vaccination programmes in most low-income countries have been proceeding much more slowly than in richer countries. This is both because of lack of finance, and because most of the available supply has been bought by the global North. It is generally accepted that the pandemic will only end when almost everyone in the world is vaccinated, since without this there will be a high risk of new variants being transmitted across borders. Universal vaccination will also hasten global economic recovery. But in practice ‘vaccine nationalism’ has so far dominated.
A global scheme for vaccine distribution, Covax, has been established, and high income countries have pledged money and vaccines to it. But both finance and supply are running well behind demand.
Many proposals for reform focus on the dominant private sector-led model of vaccine development and supply, which it is argued puts profit and the retention of intellectual property rights ahead of meeting human need.
Before the G7 Summit in 2021, the US had signalled its support for patents on Covid vaccines to be temporarily waived in order to facilitate their production in the Global South. But Germany, the EU and the UK resisted this. Instead, vaccines will be bought from pharmaceutical firms using public money and then donated to lower income countries.
New international frameworks for financing and developing vaccines, medicines and health services in the global South have been proposed.
Olivier Wouter and colleagues in The Lancet review the challenges of producing affordable global vaccines at scale, warning that the lack of a global approach to vaccine allocation by national governments is both an economic and ethical failure.
Reviewing the UK’s overseas aid health programmes, Action for Global Health warns argues that a new strategy is needed. Save the Children warns that the UK seems to be reducing its emphasis on supporting global health.
A blog from the IMF head Kristalina Georgieva and others outlines A Proposal to End the COVID-19 Pandemic, setting out targets to vaccinate at least 40% of the global population by 2021 with estimates of financing requirements; through upfront grants to COVAX, investing in additional vaccine production capacity and test and tracing capabilities.
The People’s Vaccine Alliance is calling for public funding for research and development to be conditional on research institutions and pharmaceutical companies freely sharing all, data, biological material and intellectual property, and all vaccines priced at cost.
Analysing how the pharmaceutical industry currently develops new drugs and health treatments, the UCL Institute for Innovation and Public Purpose propose a new health innovation model which would reward public investment, keep prices low and therefore support more equal global access to healthcare.
The World Health Organisation describes the aspiration for universal health coverage (UHC), giving all individuals and communities the health services they need without suffering financial hardship. Writing in Nature Medicine, Stéphane Verguet and colleagues propose how this can be achieved in low and middle income countries.
The global spread of the Covid-19 pandemic has highlighted the interconnected nature of today’s world. But the international response has not been equal, with huge differences in the capacities of high income and low income countries to control the spread of the coronavirus and to pay for vaccination programmes. The disparities have highlighted the need for a stronger system of international cooperation and equity, not just in the health field but across a range of issues.
Many of the world’s most pressing problems cannot be solved by national action alone. They include global poverty and security; climate change; the protection of the oceans; and the regulation and taxation of transnational corporations operating across national boundaries. The 17 Sustainable Development Goals, adopted at the United Nations in 2015, embody the international community’s economic, social and environmental priorities.
Over recent years international cooperation has been in decline, particularly in multilateral fora such as the United Nations and the G20. The return of great power rivalries, particularly between the US and China, along with the impact of economic weakness and Brexit on the unity and reputation of the European Union, have led to a fracturing of international relations. The UK government, for its part, has declared a new post-Brexit vision of a ‘Global Britain’, but what this should mean is not always clear.
In this context a wide range of voices have been calling for a revival of international and multilateral cooperation and for a new, positive role for the UK.
Describing the crisis faced by low-income countries, former Prime Minister Gordon Brown has called a ‘$2tn 21st-century Marshall Plan for the developing world’, including a new issuance of ‘Special Drawing Rights’ at the IMF to fund debt relief in Africa (paywalled).
In an essay for the Observer Research Foundation in India, Amrita Narlikar argues that a renewal of multilateralism will require a new ‘bargain’ to distribute the benefits of globalisation more fairly and reform of existing rules and institutions to meet new challenges.
Calling for a revival of multilateralism, an international group of former UN Secretaries-General, Presidents and Prime Ministers (known as The Elders) have set out a new agenda for international cooperation, with a particular focus on strengthening global health systems, increasing ambition on climate change, and achieving the Sustainable Development Goals.
In their report Finding Britain’s Role in a Changing World, the Foreign Policy Centre and Oxfam argue that ‘Global Britain’ needs an underpinning statement of principles against which UK foreign policy can be assessed. The pledge to spend 0.7% of Gross National Income on aid must be restored.
Chatham House Director Robin Niblett argues for a new foreign policy for the UK. Rather than reincarnating itself as a miniature great power, the UK should serve as the broker of solutions to global challenges, such as promoting international peace and security, tackling climate change, and championing global tax transparency and equitable economic growth.
In the decade before the pandemic, public sector pay fell behind the rising cost of living, so that in real terms public sector workers earned £900 less per year in 2020 than they did in 2010. Some workers have seen particularly sharp falls in pay, including teachers (£1349), local government residential care workers (almost £1900), firefighters (£2508) and early career nurses (over £3000).
In this context, the Government’s recent restraint on public sector pay has attracted criticism. First, many claim it undervalues the work of millions of public sector key workers who have already seen a decade of pay cuts. Second, economists of all stripes have questioned the wisdom of cutting wages while simultaneously trying to stimulate economic recovery. Third, some fear public sector pay restraint will exacerbate inequalities, as women and those living in poorer regions of the UK are disproportionately likely to work in the public sector.
The longer-term issue is building public sector capacity. Before the pandemic, public sector wages had fallen to a 25 year low relative to the private sector. At the same time, funding cuts have led to increased pressures on workers, further exacerbating recruitment and retention difficulties. In the short-term, pain in the private sector labour market and heightened interest in public service are likely to ease recruitment problems. Without efforts to reverse longer-term trends, however, we risk further undermining public sector expertise - leading to increased reliance on outsourcing - and failing to rebuild resilient public services after Covid-19.
The House of Commons Library briefing on public sector pay outlines how pay is determined for different workers, and gives details of Government policy and trends relating to public sector pay.
The Trades Union Congress report on decent pay and secure work for key workers contains analysis and recommendations relating to the public sector workforce, which employs around half of all key workers.
Prior to the pandemic, recruitment and retention challenges in health and social care led to a combined shortage of over 222,000 full-time equivalent staff across NHS England and adult social care.
The IPPR's State of health and care: The NHS Long Term Plan after Covid-19 report recommended a package of six changes that together form a “£12 billion blueprint to ‘build back better’ health and care”, including an urgent 5% pay rise for NHS staff, social care free at the point of need for all and a living wage guarantee for care workers and changes to immigration rules
The IPPR’s Parth Patel and Chris Thomas outlined what ‘build back better’ should mean for an “exhausted and over-stretched” healthcare workforce, drawing from YouGov polling to inform its practical recommendations.
Clare Foges, Times columnist and David Cameron’s former speechwriter, has written on the need to restore public sector expertise to “stop the coronavirus gravy train” - the millions of pounds spent on outsourcing and consultants due to a lack of in house capability.
A string of high-profile failures and corruption allegations (e.g, Test-and-Trace, Ayanda Capital) during the Covid-19 has increased scepticism surrounding the value of and processes surrounding the government’s use of outsourcing and procurement.
In the decades prior to the pandemic, the government had come to increasingly rely on private providers to deliver public services, leading to a fall in the public sector’s capacity to deliver services ‘in house’. In 2018, following the Carillion scandal, the auditor general claimed that “there are lots of areas where the government does not have the capacity to do anything else but outsource”.
The result is a “gravy train”, whereby an over-reliance on the private sector and flawed contracting models mean that consultants and private companies like Carillion can make huge sums of money from government contracts, even if they deliver poor quality services. This is especially true during a shock of the magnitude of Covid-19, when services need to be rolled out quickly. Many have called for wholesale reassessment of the Government’s handling of private services providers following the pandemic.
See also the section below on public sector pay and recruitment for relevant resources on rebuilding public capacity.
The Institute for Government claims that insourcing of public services “can improve quality, increase reliability, and save money” and lays out guidelines for when and how public services should be brought back into government hands (see also their report on the government's failure to learn the lessons of the Carillion scandal).
UCL Professors Mariana Mazzucato and Rainer Kattel argue that, among other things, an over-reliance on outsourcing in recent decades has led to a collapse in UK public sector capacity and expertise, undermining our ability to respond to shocks on the scale of Covid-19.
The British Medical Association has published excellent overviews of the acceleration in outsourcing within the health service during Covid-19 and the windfall gains to private providers, despite a “litany of mistakes” (see also: Drs Rebecca E Glover and Nason Maani’s “Have we reached ‘peak neoliberalism’ in the UK’s Covid-19 response?” for BMJ Opinion).
The Centre for Local Economic Strategies’ (CLES) Neil McInroy and Tom Lloyd-Goodwin argued the present approach to outsourcing has failed, and that a combination of insourcing and a system of “social licensing” - criteria that non-government providers of public services must meet - would improve provision.
Corruption researcher Lucas Amin has written for openDemocracy on the need to change transparency law to allow for proper external scrutiny of public-private contracts.
The IPPR’s Grace Blakeley and Harry Quilter-Pinner examined financialisation and outsourcing within care, arguing that continued private provision could lead to lower quality of service and financial instability (see also Common Wealth’s report on an industrial strategy for the care sector).
The United Kingdom - especially England - has a highly centralised political system and economic geography. Decision-making power is far more concentrated in central government than in comparable Western countries, and regional inequalities in income, wealth and health are almost uniquely pronounced.
The centralised management of public services has been a contentious topic during the pandemic. Many have argued the Government’s “over-centralised” response impeded effective provision of services, particularly with respect to public health and test-and-trace.
Covid-19 has also drawn attention to the financial fragility of many local authorities, which impedes their ability to provide public services. In 2020/21, English local authorities’ spending power was 26% lower than a decade prior. This period also saw population growth of 7%, rising demand and cost pressures, and new statutory duties for councils relating to public health, social care and homelessness.
For more relevant resources, please see our sections on health and social care, stronger local economies and regional inequality.
The National Audit Office finds the financial position of local authorities “a cause for concern”. On top of pre-pandemic funding pressures, they find a £600m shortfall between Covid-related financial pressures and government support and that 94% of single tier and county councils surveyed expected to cut services next year.
The House of Lords Public Services Committee criticised the “over-centralised” delivery of public services and argued the pandemic has “demonstrated that certain [services] are best delivered locally”. The Committee also highlighted how underfunding has led to a lack of resilience in local authorities.
The Economist reviewed how centralisation, the 2013 restructuring of the health service, and lack of local power impeded the UK’s public health response.
Think tank Reform proposed radical devolution of public service commissioning in their 2017 report Vive la devolution, with recommendations including devolving 95% of NHS England’s budget.
The Centre for Local Economic Strategies (CLES) response to Labour’s 2019 Democratising Local Public Services report touches on a number of relevant themes, including insourcing and the role of cooperatives, community businesses and social enterprise in local public service provision.
In the decade before the pandemic, public services saw "the longest sustained squeeze in public spending on record”. Analysis from the Institute for Government found that underfunding left “public services entered the crisis with ailing performance levels, severe staffing pressures and having underinvested in buildings and equipment”, undermining resilience in these services by the time the pandemic hit.
Rebuilding resilience in public services will require increases in their funding. Our ageing population is also likely to require higher spend per capita on health, care and other services to maintain service quality. There is also popular demand for spending more on public services.
Supporting a higher level of spending on public services will require tax reform, both to raise sufficient revenue and to ensure it is raised fairly. Others, including the Financial Times editorial board, have argued policymakers “must see public services as investments, rather than liabilities”, with implications for how spending on public services is treated within fiscal frameworks.
Please see our section on taxation for more relevant resources.
The Institute for Fiscal Studies (IFS) found day-to-day spending on public services was cut by 13% per person over the decade to 2019/20.
Updated IFS analysis finds the Chancellor’s 2021 March Budget implies cuts to public spending of £14 to £17bn next financial year relative to pre-Covid plans - which themselves would not have reversed the cuts over the previous decade. For this reason, IFS Director Paul Johnson has called the Chancellor’s medium-term spending plans “implausibly low”.
Anita Charlesworth, Head of Research at the Health Foundation, brings together evidence on underinvestment in the NHS, social care and public health prior to the pandemic. She argues this, alongside overly centralised decision-making and a reliance on outsourcing within due diligence, lies behind the UK’s high Covid-19 death toll.
A July 2020 survey by the National Centre for Social Research (NatCen) found majority support for increasing tax and spend on health, education and social benefits, as there has been since 2017.
The Women’s Budget Group calls for spending on key public services (health, care, education) to be seen as investment in social infrastructure. They argue that restricting the definition of investment to spending on physical infrastructure reflects a gender bias in economic policymaking and leads to underspending on vital public goods. The Biden Administration has allocated $400bn to investment in health and care systems in the American Jobs Plan, as an indication of this shift.
Over the past year, there has been an outpouring of appreciation for NHS staff, carers and other workers delivering key public services under extraordinary strain. At the same time, the pandemic has exposed a certain lack of resilience within these services, compromising our ability to respond to Covid-19 in an effective and fair way, even despite the best efforts of public servants.
The task beyond Covid-19 is to rebuild public services so they are better equipped to handle future challenges - both acute shocks, such as another pandemic, and chronic pressures such as our ageing population. Public services will also play a crucial role in achieving long-term shared national goals, such as decarbonisation or tackling regional inequality, and should be managed with these in mind. Other insights from our experience of Covid-19, including the centrality of digital access and data governance, should shape future public service provision.
The resources in this section bring together evidence on pre-Covid trends in public service provision - spending cuts, outsourcing, centralisation - and suggestions for how to rebuild these services in the wake of crisis.
Many argue that public services and social security must complement each other and be seen as part of the same system - please see our “Improving work and welfare” pages for further relevant resources.
The Institute for Government’s report How fit were public services for coronavirus? found an acute lack of resilience across the NHS, local government, education and criminal justice systems, and blame underfunding over the previous decade.
The House of Lords Public Services Committee’s report A critical juncture for public services: Lessons from Covid-19 identified a number of weaknesses in public service provision during the pandemic - inequality of access, over-centralisation, lack of integration - and outlines recommendations for reform.
Innovator and social entrepreneur Hilary Cottam argues our present welfare systems are unfit for the fifth technological revolution, and offers a vision for a sibling social revolution - Welfare 5.0 - with profound implications for public service provision.
The Women’s Budget Group Commission on a Gender-Equal Economy has laid out the roadmap for a creation of a “Caring Economy", including recommendations both for particular public services (e.g. social care, health, housing) and for how public services are treated within the UK’s broader economic policy framework.
Extending the principles behind the NHS - universal, free at the point of need care - to other public services is the rationale behind the Universal Basic Services proposal. See our analysis here.
The SocialGuarantee.org sets out a policy framework in which every person’s access to life’s essentials is enshrined as a right and delivered through reimagined public services. The site curates a range of resources, including examples of best practice from around the world in provision of services such as adult social care, transport, housing, internet access, and childcare.
The UK has a flourishing economy of cooperatives (companies owned by their workers or consumers) and other forms of social enterprise (non-profit-distributing businesses with social goals). Such businesses have a long history in the UK and around the world, their origins often in mutual self-help initiatives among working class and other marginalised communities. They are characterised by democratic ownership and governance, and often a social mission.
Mutual building societies – which borrowed money from members of a local community to lend to others for housebuilding and purchase – were once a pillar of the UK financial system, but most became commercial banks in the privatisations of the 1980s and 90s. Both in the UK and around the world credit unions have performed a similar role of mutual borrowing and lending within a local or occupational community. Today a new wave of mutual banks is emerging to fill a gap in finance for social good.
Worker-owned cooperatives continue to be the mainstay of the cooperative movement, with the Mondragon network in the Basque country of Spain the single largest group. In the UK John Lewis remains the most famous employee-owned business, though its governance structure is not fully democratic. The Cooperative Group and regional cooperative societies are consumer-owned mutuals. In recent decades a vibrant movement of community enterprises has emerged: socially-owned businesses committed to advancing social and employment goals, often in low-income areas.
Cooperatives UK’s annual survey of the cooperative sector found that in 2020 the UK’s 7000 independent co-ops employed nearly 250,000 people with a combined annual turnover of £38 bn (and rising). 14 million people are members of consumer or worker coops.
Power to Change profiles the wide variety of community businesses in England. Over 11,000 businesses have a combined turnover of nearly £1bn a year, over 37,000 paid staff and nearly 150,000 volunteers.
Profiling a number of case studies, CLES argues that locally-owned and socially-minded enterprises are more likely to employ, buy and invest locally, so should form the foundation of ‘community wealth building’ strategies in local economies.
The Mondragon Corporation in the Basque region of Spain is the largest and most advanced cooperative economy in the world, employing over 81,000 worker-owners in 96 separate, self-governing cooperative businesses.
The New Economics Foundation’s Change the Rules platform showcases inspiring enterprises across the UK, from community businesses and employee-owned cooperatives to credit unions and regional co-operative banks.
The Democracy Collaborative in the US profiles ‘mission-led employee-owned firms’, whose ownership and purpose-driven goals embody a powerful model of enterprise for an economy of environmental sustainability and social equity.
The ownership of UK firms is highly concentrated. Over the last fifty years there has been a dramatic decline in the proportion of shares held by ordinary individuals. Share ownership is dominated by institutional investors such as pension funds, asset managers (many now operating passive investment funds), and the wealthy, many based overseas. Since the 1980s successive governments have privatised previously public-owned industries such as rail, water and energy. Few workers hold shares in the firms in which they work and the UK cooperative sector is smaller than in many other countries.
In recent years there has been increasing interest in how ownership can be widened. One way is through public ownership, in which the state takes equity stakes in companies in major sectors, such as energy or rail. Another is by giving ownership stakes in companies to their workers. This can be done either through individual employee share ownership schemes, or through collective worker ownership funds which would both widen the distribution of profits and give workers a say in how businesses are run.
Another route increasingly advocated would be through the creation of a national ‘citizen’s wealth fund’, which would build a portfolio of company shares and distribute a dividend to every citizen.
Common Wealth and the Democracy Collaborative argue that ‘democratic public ownership’ – assets, services, and enterprises held collectively by everyone in a specific geographic area, either directly or through representative structures – must play a crucial role in a more equitable and sustainable economic system.
The IPPR calls for the creation of a publicly-owned ‘Citizen’s Wealth Fund’, built up by the gradual acquisition of equity stocks, which would distribute a dividend either to all citizens or to all younger people. The Friends Provident Foundation makes a similar proposal.
Common Wealth calls for large companies to be required to distribute a small percentage of their shares over time to democratic ownership funds owned and managed by their workers. This would both democratise the governance of firms and give employees a share of company profits.
The ESOP Centre describes the benefits of employee share ownership schemes, under which employees can either own shares in their company directly, or through collectively managed trusts.
Economists Emmanuel Saez and Gabriel Zucman proposed a tax on corporations’ stock shares for all publicly listed companies with headquarters in G20 countries. The authors propose a 0.2% tax on the value of company stocks to raise approximately $180bn each year, levied through share issuance to directly redistribute ownership of companies so that the tax avoids liquidity issues and does not affect business operations.
One of the most persistent criticisms of corporate behaviour has been of the high levels of pay and share options by which company executives are often remunerated. Since 2000 the average earnings of workers in the UK have increased by about 3% a year, but the pay of FTSE 100 executives has grown by around 10% a year. The average FTSE 100 CEO is now paid 126 times as much as the average UK worker, compared to 58 times in 1999.
In principle executive pay should be based on company performance, but the evidence is that there is little or no relationship between them. Indeed, the widespread use of share option incentive schemes, in which executives are rewarded for increases in the value of company shares, has been criticised as an incentive for directors to focus on short term returns rather than long term investment. Various reforms to pay structures to incentivise long-term performance, and benefits to employees and other stakeholders, have been proposed.
Listed companies in the UK with over 250 employees are now required to report on the ‘pay ratios’ between their highest pay rates and their lowest and median pay. There are now calls for this to be extended to privately-owned companies, for more information to be disclosed about higher earners, and for the information to be better disseminated to company employees. Some have proposed a ‘maximum wage’, an upper limit on allowable executive pay, with the money saved redistributed to lower income workers in the company.
The High Pay Centre analysed the first disclosure of UK company pay ratios in 2019-20. Across FTSE 350 companies they found the average CEO was paid 71 times as much as the lower quartile (the pay rate a quarter of the way up the earnings distribution). For the FTSE 100 the ratio was 109:1.
Analysing CEO pay incentives, CIPD and the High Pay Centre find that incentives to deliver shareholder returns are, on average, worth 42 times the value of incentives linked to good employment practices.
CIPD and the High Pay Centre recommend the inclusion of worker representatives on remuneration committees to encourage reform of executive pay.
The Purposeful Company argues for ‘deferred shares’ to replace typical incentive schemes in executive remuneration packages, rewarding long-term company performance.
Autonomy has examined different options for a maximum wage, showing how much money could be redistributed to lower income earners if executive pay were capped and the potential public support for such a policy.
As multinational corporations throughout the world have grown over recent decades, they have developed complex supply chains. Globally traded commodities and goods may go through many stages of production in different countries before being made into the final products we buy. In this process it is easy for companies to profit from exploitative wages and conditions, forced labour and environmental harm, particularly in the global South where workers and local communities may have little bargaining power and enforcement is difficult.
Most of the initiatives designed to prevent abuses of this kind have been voluntary, where companies commit to codes of ‘corporate social responsibility’. But there is strong evidence to suggest that these are often ineffective. Companies are insufficiently motivated or incentivised to audit their supply chains properly.
One response has been the development of ‘worker driven social responsibility’, where trade unions and workers’ organisations agree higher standards with companies, and are able to enforce them. Another has been the development of ‘due diligence’ laws, by which multinationals are obliged under the law of their home states to audit their supply chains and ensure high standards, in areas such as labour conditions, human rights, environmental impacts and anti-corruption. The evidence suggests that a requirement to report on their supply chains is not enough; companies need to be criminally liable to ensure compliance.
The Worker-Driven Responsibility Network calls for agreements between multinationals and their local workforces to ensure decent labour standards, while the Corporate Accountability Lab proposes ‘worker-enforceable codes of conduct’ which would give workers the legal right to take violators to court.
Genevieve LeBaron and Andreas Ruehmkorf at the University of Sheffield analyse different methods by which the impacts of multinational corporations through their global supply chains can be regulated by their ‘home’ states. They conclude that criminal liability achieves more than voluntary reporting requirements.
Reviewing 16,000 corporate statements made over the first five years of the UK’s Modern Slavery Act, the Business and Human Rights Resource Centre concludes that the Act has not prevented human rights abuses in corporate supply chains. Legally binding and enforced obligations on companies are needed, not simply reporting requirements.
The French Government introduced a ‘duty of vigilance law’ in 2017, under which French multinationals are criminally liable for the activities of their subsidiaries and subcontractors in the event of human rights or environmental violations.
In the EU a proposed due diligence law is working its way through the Commission and Parliament, based on a report identifying the different mechanisms by which standards of behaviour in corporate supply chains can be defined and enforced.
The CORE coalition is calling for a UK ‘failure to prevent’ law, under which companies would be legally obliged to take action to prevent human rights abuses and environmental harm anywhere in their global value chain.
Over recent years there has been a huge increase in the number of companies and financial investors committing to ‘ESG’ principles, under which they aim to achieve not just profit and financial returns but better environmental and social impact and corporate governance. Globally, assets classed as ‘ESG’ were valued at over $30 trillion in 2018, an increase of a third on 2016. ESG investment funds have consistently outperformed the average, and there is strong evidence that an attention to ESG can improve shareholder returns.
ESG principles commit companies and investors to assessing their performance through the ‘triple bottom line’ of ‘people, planet and profit’ (sometimes known as TBL or 3Ps). But there is no universal agreement on the specific standards of behaviour which define ESG, or the metrics which should be used to measure performance. With so many different criteria used by ESG investment funds, critics argue that too many allow for ‘greenwashing’ of companies with unsustainable and socially damaging impacts.
When the US Business Roundtable released a statement in 2019 arguing that US businesses should be committed to a broad range of stakeholders – including customers, employees, suppliers and communities as well as shareholders – this was widely interpreted as a significant shift in business philosophy. But others argued that ‘stakeholder capitalism’ in practice looked insufficiently different from shareholder capitalism. Activist investors, both corporate and individual, are increasingly seeking to hold businesses to account in order to raise ESG standards.
Reviewing the evidence, consultants McKinsey find that business ESG strategies are positively correlated with financial performance and explain how they can contribute to growth, cost reduction and productivity improvement.
The Principles of Responsible Investment are a set of guidelines on how financial investors should incorporate ESG issues into their investment analysis and decision-making. With 3000 signatory companies, the PRI organisation promotes responsible ESG investing.
Seeking to provide standard measures of ESG performance, the World Economic Forum has published a set of ‘stakeholder capitalism metrics’ to enable companies to report consistently on their long-term ‘sustainable value creation’.
Author of the original concept John Elkington argues that 25 years on the ‘triple bottom line’ needs rethinking: environmental sustainability requires greater radical intent to stop the overshooting of planetary boundaries.
Analysing the rise of ESG investing, Common Wealth shows that ESG funds can include companies with both environmentally and socially damaging impacts, and argues for much stricter criteria and their incorporation into the fiduciary duties of shareholders.
Activist investor groups, such as Share Action, CDP and Ceres seek to use the power of individual shareholders and fund managers to influence the behaviour of companies and to improve their reporting of environment and social impacts.
Corporate governance in the UK and US is based on the principle of shareholder primacy. This means that the interests of shareholders take priority over those of other stakeholders in a firm, such as workers, suppliers or consumers. There is good evidence that this can encourage an excessive focus on short-term profitability, at the expense of long-term investment.
It is widely argued therefore that the Anglo- American model of corporate governance should better reflect the interests of a company’s stakeholders, not just its shareholders. Proposed reforms include giving firms an explicit duty to pursue long-term purpose or value creation, and to tie executive pay to a range of performance metrics rather than just a firm's profitability or share price.
A particular focus for reform is the make-up of company boards. Advocates of worker representation on company boards – which is commonplace in many European countries – argue that it would tend to strengthen investment, because workers have a longer-term interest in their companies than short-term shareholders. By fostering a culture of cooperation between managers and workers, it is said, it would also boost productivity. There are also widespread calls for mandatory improvement in the gender and ethnic diversity of company boards.
The Purposeful Company calls for firms to have an explicit duty to pursue long-term value creation. It argues for executive pay to be linked to long-term business performance, and for differential voting rights for short-term and long-term shareholders.
The IPPR calls for changes to company law to give directors an explicit responsibility to promote the long-term success of a company and for a new Companies Commission to regulate corporate governance.
The World Economic Forum sets out the theory and practice of ‘stakeholder capitalism’, in which firms are accountable to their wider stakeholders, not just shareholders.
The TUC proposes that one third of the boards of all large businesses should be made up of workers elected by the workforce, arguing that this would boost productivity and overall economic performance.
Surveying more than 1000 companies in 15 countries, McKinsey find that greater diversity in executive teams increases the likelihood that a firm will financially outperform its competitors. They argue that ‘diversity wins and inclusion matters’.
Businesses are fundamental to any economy. They come in all shapes and sizes, from sole traders to multinational giants. But in recent years there has been growing criticism, both of the way some businesses behave, and of how they are governed. Much of this has come from within the business community itself.
A key argument is that many large businesses have lost their sense of ‘purpose’. Increasingly focused on financial metrics of success, many are now seen as prioritising short-term returns above long-term investment, and the interests of their shareholders above those of their wider ‘stakeholders’, such as their workers and consumers.
Partly as a consequence, new models of business have become more prominent. These include companies committed to an explicit statement of purpose. New types of ‘stakeholder’ corporate governance and financial investing are on the agenda, along with new forms of ownership giving a greater stake to workers. In these and other ways, an increasing number of businesses are seeking to change their impact on society and the environment. But some critics have expressed doubt as to whether some of these initiatives are far-reaching enough.
The British Academy’s Principles for Purposeful Business offers eight principles for business leaders and policymakers to enable companies to solve the problems of people and planet profitably, while not profiting from causing harm.
Advocating a ‘responsible capitalism’, the Financial Times surveys the issues involved in making businesses purposeful, and the experience of companies declaring their commitment to it (paywalled).
‘B Corporations’ are businesses that meet certified standards of social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps seek to use profits and growth as a means to achieve positive impact for their employees, communities, and the environment.
Supported by the CBI and TUC, the Good Business Charter is an accreditation system which measures corporate behaviour in ten areas, including a real living wage, fairer hours and contracts, employee representation, diversity and inclusion, environmental responsibility, paying fair tax, and ethical sourcing.
Imperative 21 is a network of 70,000 companies promoting new principles for a ‘reset’ of the economic system. It aims to equip business leaders to accelerate their transition to stakeholder capitalism; to shift the cultural narrative about the role of business and finance in society; and to realign business incentives and public policy.
Anna Fielding of Cohere Partners argues that making ‘purpose’ explicit is not enough to make businesses sustainable; firms need to adopt an ‘impact strategy’ to define how they can contribute to positive change in the world.
The UK has one of the highest levels of income inequality in Europe. There was a sharp increase in all measures of economic inequality over the course of the 1980s. According to the Gini coefficient, income inequality has stayed relatively flat since 2000, but other measures tell a different story.
First, the income gap between richer and poorer households has been increasing in absolute terms, even if measures of relative inequality like the Gini coefficient have stayed stable. Second, you can measure relative inequality itself in different ways. If we focus on the poorest 20% of households, for example, we see that incomes for this group are now no higher than they were 15 years ago, while the average household has seen its income rise 9% over this period. Similarly, the Gini coefficient hides the accelerating rise of the richest 1%, who now take 8% of all national income (compared to 3% in 1970 and 6% in 1990). Third, changing the way we measure income - such as by factoring in housing costs, or income from capital gains or inheritance - can reveal a widening disparity even over the past decade.
Wealth is far more unevenly distributed than income. Between 2016 and 2018, the wealthiest 12% of households owned half of the UK�۪s wealth, while the least wealthy 30% of households held just 2%. In the past decade, the wealth gap has increased: the wealthiest 10% hold �2.5m more in wealth per household than the least wealthy, a significant increase from the �1.5m gap in 2006-08. For the most part, income and wealth are tightly linked, meaning that the households most exposed to income shocks often do not have savings to fall back on. This goes some way to explain the increase in low income households turning to debt to cover essential needs - rent, food, utility bills - over the past decade.
Covid-19 lockdowns have caused incomes to evaporate for many sectors and households, as businesses are closed and economic activity falls. Many people are reliant on government grants and loans to avoid insolvency and defaulting on debts. The challenge is to prevent these debt burdens from leading to a financial crisis.
There are also concerns about equity; one analysis toward the beginning of the pandemic estimated that nearly half of the government�۪s furlough scheme would be spent on rent and debt repayments, ���amounting to an implicit bail-out of landlords and banks".
Central banks can cut interest rates still further, and continue to use asset purchasing programmes to shore up the wider system - otherwise known as quantitative easing. Governments can guarantee or write off all or a portion of loans made to corporations and households, and can also help to increase the incomes of households or corporations to ensure they are able to service their debts in the short term.
In Project Syndicate, economist Mariana Mazzucato explains how Covid-19 is exacerbating the pre-existing issues of debt sustainability affecting many advanced economies, and Jayati Ghosh examines how the build up of debt since the financial crisis has left the global economy more vulnerable during the pandemic (paywalled).
For the Progressive Economy Forum, academics Jo Michell and Jan Toporowski argue that the role of the Bank of England�۪s monetary policy in regulating the economy in practice has been overstated.
The Grantham Institute at the London School of Economics found in 2017 that the Bank of England and European Central Bank�۪s QE programmes were skewed towards high-carbon sectors.
Taxes on finance, currencies and banking can serve a number of important purposes. They can reduce volatility in markets and reduce excessive speculative activity.
They guide towards or against particular types of financial activity ��� for example discouraging high risk parts of the industry that serve little direct social purpose, like high-frequency trading. They can also raise revenues that can be spent by the state on delivering wider economic objectives, such as a more inclusive finance system and funding the net-zero transition.
This is particularly relevant in the aftermath of an economic crisis such as that triggered by Covid-19, where the state has needed to act to prevent or minimise financial collapses.
The OECD states that Covid-19, coupled with the effects of the fall in the oil price, has led to major disruption in exchange rates and the flow of global capital.
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Professor Anat Admati argues in a paper for Economics for Inclusive Prosperity that the excessive use of debt financing in the financial system is a key cause of fragility that can be corrected through changes to the taxation of financial institutions.
Since the financial crash policymakers have adopted a macroprudential approach to financial regulation focused on combating systemic risk, rather than a microprudential approach focused on individual institutions.
These measures have helped to reduce the risk of failure in the banking system in wealthier nations but banks are increasingly struggling to meet their regulatory requirements during the pandemic. The economic shock triggered by Covid-19 has exposed some remaining problems across the system ��� for example, many large financial institutions outside the realm of traditional banking remain under-regulated, such as hedge funds.
Proposals for better regulation of the financial system can be crudely divided into two areas. First, those that might help the system keep working in the event of an economic crisis, including changing capital requirements and lowering dividend payouts in lean times. Second, longer-term reforms to build both resilience and ensure wider social and environmental purpose. Many of these are outlined below.
The global watchdog, the Financial Stability Board, warns that Covid-19 represents ���the biggest test of the post-crisis financial system to date�. While it believes banks are in a healthier place than in 2008, the unprecedented economic downturn means effective international action is needed to ensure the system is robust.
The New Economics Foundation�۪s Financial Resilience Index defines seven ways to measure how resilient financial systems are. It found in 2017 that the UK has the least resilient financial system in the G7.
Ten years on from the financial crash, Finance Watch concluded that none of the structural vulnerabilities that led to the crash have been properly addressed. Among their findings are that ���moral hazard�۪ (reckless risk taking) is as pervasive as it ever was, and that the pattern of regulation has shifted risk into a far bigger ���shadow banking�۪ sector.
The UK�۪s banking system is unusual in its dominance by commercial banks. Many other countries have a more diverse range of banks ��� more publicly-owned banks at the national and local levels, and a more thriving cooperative and mutual banking sector.
Such a network of ���stakeholder banks�۪ can help a country�۪s financial resilience, ensure that lending reaches the parts of the economy left behind by mainstream finance, and deliver targeted investment to meet national or local strategic economic goals such as the green economy.
In OpenDemocracy�۪s New Thinking for the British Economy, Christine Berry proposes a UK ecosystem of stakeholder banks.
The New Economics Foundation establishes the economic case for a more diverse banking sector, arguing that this ���ecosystem�۪ would be more resilient, socially focused and give better returns to customers than commercial banks.
Daniel Ticsher explores the benefits that regional banks bring to diversity and resilience, finding that Germany's more diverse banking sector weathered better than its private retail banks after the global financial crisis, and comparing this to the UK.
The UK is one of the most geographically unequal countries in the industrialised world. Large disparities in wealth, opportunities and health exist within and between regions. Longstanding areas of urban deprivation have the highest levels of unemployment.
Compared to many other countries, local areas lack wide-ranging powers and resources. National decisions from the recent past, most notably austerity, have further undermined the ability of people and places to shape their own resilient economic future. Between 2010 and 2018, local authorities have seen 24% cuts to their funding with cuts falling disproportionately on councils in more deprived areas. Many of the bodies that do exist, such as Local Enterprise Partnerships, are criticised as undemocratic, under resourced and lacking the appropriate powers to make effective change.
Giving greater power to local authorities and communities is not just about reversing past cuts. Two leading ideas are to reform and reinvigorate local and regional governance, including through greater devolution within England; and for local leaders to pioneer Community Wealth Building, economic strategies that seek to keep as much wealth as possible circulating around the local economy.
The Young Foundation suggests that previous economic strategies that attempted to use growth in London as a way to reap rewards for all other places has failed. They point to public, charitable and philanthropic funding being very low in areas that are more likely to have voted to leave the EU.
The Equality Trust explores the significant economic divides within as well as between regions. In particular they point out the inequality within London, where the capital has the largest gap of all regions between the richest and the poorest 1%.
The Women�۪s Budget Group reveals that while cuts to local government funding have had wide and deep implications for all, the impact of cuts is particularly felt by women and girls, particularly those who are disabled or from BME backgrounds.
The Centre for Local Economic Strategies and the Democracy Collaborative suggest that the economic shock of Covid should be an inflection point for a new approach to local economic development. They describe community wealth building as a new ���common sense�۪ after the pandemic has connected people with the importance of community.
There are major challenges for the development of new medicines in the coming years. Foremost among them is the need to ensure that treatments and vaccines are widely available and fairly priced.
The threat of antibiotic resistance is a major looming health crisis. It has been driven by the overuse of existing antibiotics and the lack of innovation in new ones. The drive for profits in the global pharmaceutical industry remains at the heart of the problem. The challenge is how to align this with the public interest.
The Covid-19 crisis has revealed the difficulties of global cooperation on pharmaceutical development. The UN�۪s attempt to set up an information pooling scheme to share intellectual property around vaccines has been strongly resisted by the industry. Rich countries are prioritising vaccine development for their own populations first.
Proposals for reform fall into three main categories. First, more publicly-directed pharmaceutical development models. Second, greater global cooperation on vaccines development and distribution. Third, limiting the risks of antibiotic resistance by reducing their overuse in human and animal medicine.
The Lancet�۪s Commission into Essential Medicines sets out its recommendations into how to make medicines affordable and globally available. It focuses on how to ensure the affordability and quality of existing medicines and how to speed up the development of new or missing ones.
The World Health Organisation�۪s Global Action Plan on Antimicrobial Resistance (AMR) calls for countries to unite in fighting the world�۪s ���most urgent drug resistance trend�. Its recommendations centre on the need for the sectors upon which human health depends, such as animal health, agriculture, food security and economic development, to be engaged in an urgent effort to improve antibiotic usage and public health.
The cost of bringing a new drug to market is an estimated $1 billion. Medicines usage is also expensive, with the NHS�۪s bill rising sharply in recent years and the costs of medicines in some countries accounting for up to 60% of health spending.
Far more money needs to be mobilised to avoid the worst impacts of the environmental emergency. Not only must investment in green activity increase, funding for environmentally destructive activity must decrease.
Governments are committing to a green recovery from the pandemic and interest rates are at a record low - so a range of voices argue that there is a case for greater public and private spending on sustainable investments.
Evidence shows that sustainable investments deliver high financial returns and can create lots of quality jobs, offering an opportunity to improve social and economic outcomes as well as restoring the environment.
UCL's Institute for Innovation and Public Purpose suggests that green investment must increase threefold over the next 15-25 years to finance the transition to an economy run on low-carbon energy.
Another independent panel of economists chaired by the former head of the UK Civil Service, Sir Bob Kerslake, presented a green financial strategy to the previous Shadow Chancellor. Some areas explored include central banking, public investment banks, and the regulation of private banks.
UCL�۪s Institute for Innovation and Public Purpose and the EIC-Climate KIC sets out a comprehensive framework for green financial reform. They focus on the three tiers of central banks and regulators; state investment banks; and how to match firms with green finance.
The UK has committed to reducing emissions to net zero by 2050. This means having a balance between the emissions produced and those taken from the atmosphere. Many consider 2050 too late given the urgency of climate emergency.
Economic decisions taken in response to the pandemic may help accelerate, or further slow, the transition to an environmentally sustainable economy. Demands for a green recovery are adding new urgency to existing calls for industrial strategy and economic policy to prioritise sustainability.
Before the pandemic environmental groups said 2% of GDP needed to be spent in the UK to adequately tackle the climate and environmental emergency. Without similar action around the world there will be little hope of avoiding the most destructive consequences of the emergency.
The global Energy Transitions Commission (ETC) has concluded that it is "technically and economically possible" to have a carbon free economy in the developed world by 2050 and the developing world just 10 years later, at the cost of 1% of GDP a year to accomplish this. The ETC concludes that most areas of the economy can be decarbonised at "very low, nil or even negative cost"
The Oxford University Institute for New Economic Thinking sets out five lessons from the pandemic for climate action. These include that delay is costly, inequality can be exacerbated without timely action and that global problems require multiple forms of international cooperation.
Former Director of E3G and GreenAlliance Tom Burke has written on the need for stronger enforcement and institutional frameworks surrounding legal environmental targets.
The world faces many serious, interconnected environmental crises, such as the degradation of soil health, pollution and the mass extinction of species. These combine with climate breakdown to present an unprecedented set of economic and social risks to all countries. This is a profound challenge for governance and business and has been described as the ���defining challenge of our time�.
Taking this risk seriously will require far more than just treating these crises as isolated policy issues. Historically, responsibility for the environment has tended to be the focus of specific government departments. Business-friendly approaches, such as voluntary agreements and promoting deregulation, have often been prioritised over deeper change.
Many organisations have proposed economy-wide measures or approaches that would seek to hardwire environmental limits into the daily activity of governments and business. These include the UN�۪s 17 Sustainable Development Goals (SDGs), which are a potentially transformative global agenda for 2030 on poverty, development and the environment, but have not yet been adequately implemented by countries including the UK.
Other policy approaches include the concept of a circular economy, under which linear, throwaway business models are replaced with ones that regenerate nature and re-circulate materials. Other ideas include the better economic valuation of nature, incorporating this value into economic decision making, although this is practically and ethically complex.
IPPR warns that we are already living in the age of environmental breakdown which may cause the collapse of society and the economy, but also warns that decision-makers and key institutions are not taking this critical threat seriously.
The UKSSD network, which brought together organisations working on the SDGs, assesses the UK�۪s progress, finding that it is only performing well on less than a quarter of the targets. Bond find a similar story for the UK�۪s global contribution.
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�ۍIPPR proposes a Sustainable Economy Act for the UK, which would set a range of environmental limits on economic activity. Separately it proposes a number of new institutions to manage the risk of environmental breakdown and increase resilience, including a nationwide Future Generations Act modelled on the Welsh Act.
The UK has one of the highest levels of income inequality in Europe, with a sharp and sustained increase in all measures of economic inequality over the course of the 1980s. According to the Gini Coefficient, income inequality has stayed relatively flat since 2000, but other measures tell a different story.
The income gaps between richer and poorer households have been increasing in absolute terms, even if measures of relative inequality have remained stable. You can measure relative inequality itself in different ways. If we focus on the poorest 20% of households, for example, we see that incomes for this group are now no higher than they were 15 years ago, while the average household has seen its income rise 9% over this period.
The Gini coefficient hides the "runaway rise" of the richest 1%, who now take 8% of all national income (compared to 3% in 1970 and 6% in 1990). Changing the way we measure income, by factoring in housing costs or income from capital gains or inheritance, can reveal a widening disparity even over the past decade.
Wealth is far more unevenly distributed than income. From 2016 to 2018, the wealthiest 12% of households owned half of the UK�۪s wealth, while the least wealthy 30% of households held 2%. In the past decade, the wealth gap has increased. The wealthiest 10% hold �2.5m more in wealth per household than the least wealthy, a significant increase from the �1.5m gap in 2006 to 2008.
For the most part, income and wealth are tightly linked, meaning that the households most exposed to income shocks often do not have savings to fall back on. This goes some way to explain the increase in low income households turning to debt to cover essential needs - rent, food, utility bills - over the past decade.
A review by the British Academy, bringing together 200 academics and headed by the Government's chief scientific adviser Sir Patrick Vallance, argued ���failure to understand the scale of the challenge ahead and deliver changes would result in a rapid slide towards poorer societal health, more extreme patterns of inequality and fragmenting national unity.�
The IFS Deaton Review's New Year Message summarises how inequalities widened in 2020 and outlined the action needed in 2021 to address this.
Analysis published by the LSE of 18 OECD countries over the last 50 years suggests that tax cuts on the rich have not had a significant impact on unemployment or growth, while they have increased income inequality.
The Resolution Foundation has found that the first wave of furlough pushed 2 million employees below minimum wage, while 1 in 8 furloughed workers have defaulted on a payment, heralding a private debt crisis for lower-income households.
The pandemic has sharpened the pre-existing economic disparity between men and women. Women are more likely to have lost work and income. They are more likely to work in low-paid, insecure frontline roles; out of over 1 million “high risk, poverty pay” workers, 98% are women. In many of the sectors that face longer-term instability due to Covid-19 - retail, hospitality, tourism - women are overrepresented.
Meanwhile, as our public services are placed under unprecedented strain, women are picking up the slack with even more unpaid domestic and care work. During school closures, for instance, 70% of mothers reported being completely or mostly responsible for homeschooling, and mothers were 50% more likely to be interrupted during paid work hours. This has exacerbated the uneven burden of care, which exerts a toll on women’s mental health and threatens to undermine their economic prospects over the long-term, compounding the lack of recent progress in closing the gender pay gap before the pandemic.
At the most extreme, more women are now suffering from domestic violence - visits to Refuge’s National Domestic Abuse Helpline website have increased by 950% since the onset of the pandemic. Low income and migrant status both significantly increase women’s vulnerability to domestic abuse, underlining the need for policymakers to understand how gender intersects with other axes of inequality.
The Fawcett Society has collected evidence on the social and economic impacts of coronavirus on women and how these intersect with other axes of inequality.
A July survey of 19,950 mothers from campaign group Pregnant Then Screwed found significant employer discrimination against mothers, e.g. 15% of mothers had been or were expecting to be made redundant during the pandemic, 46% of which said that lack of childcare provision played a role in their redundancy.
In the quarter of a century since 1996, UK house prices have risen 161%: from around 4.5 times average household income then to around 8 times now. In 2018 renters spent 33% of their household income on rent, rising to 40% in London.
Affordability is a nationwide problem, with rural areas having a higher ‘affordability gap’ than urban areas. It is particularly acute in England, where in 2017 new build homes were unaffordable to 84% of renting families.
Unaffordable housing is linked to a sharp fall in home ownership, especially among young people and families with children, and to an increase in homelessness. Prior to the pandemic, the number of rough sleepers had more than doubled since 2010.
It is now estimated that more than 8m people in England – around 1 in 7 – are living in an unaffordable, insecure or unsuitable home. A range of different types and tenure of housing are needed – not just homes to buy, but better and more affordable social and privately-rented accommodation.
The National Housing Federation has conducted a ‘state of the nation’ assessment of the housing crisis, finding high house prices and rents, unsuitable or poor quality homes, and the overall shortage of new homes. It reveals that more than 3.6m people are living in overcrowded homes, 2.5m people can’t afford their rent or mortgage and another 2.5m adults are stuck living with parents, an ex-partner, or friends because they can’t afford to move out.
The housing charity Shelter analyses the particularly acute housing crisis in London, where rising private rents and a fall in the number of social homes has left tens of thousands of families struggling with unaffordable and insecure housing, and nearly 1 in 50 adults now homeless.
The Commission on Housing and Wellbeing analysed the need for a new approach to housing in Scotland, showing how better homes could contribute to improving neighbourhood and community, economic wellbeing, health and education and environmental sustainability.
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Automation and artificial intelligence both promise to raise living standards, both through improved goods and services (e.g. more accurate medical diagnoses, for a non-consumerist example) and through improving the productivity and reducing the toil of workers.
Some fear, however, that technological advancement in these areas will have negative ramifications for the labour market. At the extreme end of these concerns is that much of human labour will be rendered obsolete, leading to technological “mass” unemployment. Sceptics highlight that similar arguments have been made in the past and that new technologies could create as many jobs as they destroy, but that nonetheless these developments threaten to exacerbate inequality and alienation in the labour market.
Proposals for how we should respond to these threats vary according to the analysis. Most speak to the need to manage automation to mitigate its impact on inequality, both between workers and between workers and capital owners. Those who believe that the majority of labour could be fully automated further propose the development of institutions that either better share available work (through shorter working time, for instance) or support humans in its absence (e.g. UBI).
Recent research published by the IMF (Jan 2021) examines how the Covid-19 pandemic could interact with longer-term trends of automation, concluding that “concerns about the rise of the robots amid the COVID-19 pandemic seem justified”.
The IPPR Commission on Economic Justice outlined proposals for “managing automation” to ensure that automation does not exacerbate existing inequalities and concentrate wealth in the hands of capital owners.
Dr Carl Benedikt Frey, a leading scholar of automation director of the Oxford Martin School’s Future of Work research programme, examines in his book The Technology Trap how the history of technological revolutions can shed light on the political and economic challenges of automation, and warns against increasing inequality. (Lecture here.)
MIT economist Professor Daron Acemoglu argues that the American tax code’s privileged treatment of capital is encouraging firms to embrace inefficient levels of automation at workers’ expense, demonstrating the importance of correct policy for managing the challenge of automation.
The Institute for the Future of Work launched a project to develop best practice guidance for businesses as they introduce technology to balance employee concerns about work intensity, surveillance and work-life balance.
There is nothing inherently fixed about working Mondays to Fridays – indeed ‘normal’ work hours have changed considerably over time, with the ‘weekend’ as we know it one of many successful union- and worker-led demands for less time at work. The shorter working week has been a longstanding proposal for helping reduce work-associated pollution, increase the wellbeing of workers and reclaiming time for leisure and important unpaid activity such as care.
It is increasingly central to proposals for economic rebuilding after Covid, with its advocates – including a growing number of governments and companies – seeing it as a way to ‘build back better’ after the virus by better sharing available work and improving work-life balance. Its supporters also claim it would address the UK’s poor labour productivity relative to international peers.
Advocates of the shorter working week emphasise that a reduction in working time is not a silver bullet, and that supporting reforms are needed to ensure it doesn’t exacerbate wider injustices. For instance, a key feature of most proposals is that a reduction in working time should not be accompanied by a reduction in pay, especially for low earners.
A widely cited template for a shorter working week is the German Kurzarbeit (short-work) scheme (summarised here by the New Economics Foundation), which has been resurrected in the light of Covid to help support workers through its employment impacts; the German industrial union, IG Metall, secured an agreement to move its members to a 28-hour working week. In New Zealand, Jacinda Arden has proposed a 4-day week as a way to rebuild New Zealand's economy after Covid, and there are many other examples.
The shorter working week is part of the International Labor Organisation’s concept of ‘time sovereignty’ for workers, which aims to reframe the concept of workers’ time to give them greater autonomy.
A survey by productivity charity Be the Business found one in five small British firms are at least actively considering a four day week. Nearly 300,000 small and medium-sized UK businesses and over 840,000 employees are already working a four-day week and over 1 million UK firms and 3 million employees could move to a four-day week in the near future.
A comprehensive report from Autonomy and the 4 Day Week campaign situates the shorter working week as a response to some of the fundamental factors changing the nature of work in the UK, such as precarious work, the threat of automation, and inequalities. More recently, in response to the pandemic, Autonomy has proposed a reduction in working time to tackle rising unemployment.
Responding to claims that moving to a four-day week would cost the public sector £17 billion annually, Autonomy calculates that that the net cost would be £3.55 billion or less – noting that this doesn’t take into account the wider benefits of the associated creation of 500,000 new jobs across the public sector.
Since the 1970s, in common with many other countries, the UK has seen a declining share of national income go into wages and salaries and a rising proportion returned to the owners of capital and assets. This period has coincided with a dramatic fall in trade union membership.
Many economists argue that the two are closely connected. Through collective bargaining, trade unions are able to raise workers’ wages and to improve their working conditions. Where unions are absent, employers have greater relative power.
This recognition has led to calls for a revival of trade unionism and of collective bargaining. In a more fragmented workforce where many workers are now self-employed or on precarious contracts this is difficult, but many trade unions have been finding ways to organise insecure workers.
The New Economics Foundation and the University of Greenwich have set out the economic case for trade unions, demonstrating the relationship between wage levels and union membership.
The TUC has called for a series of reforms to make it easier for workers to negotiate collectively with their employer, and to broaden the scope of collective bargaining rights to include all pay and conditions, including working time and holidays and equality issues.
Arguing that stronger trade unions can boost productivity, particularly when the fruits of automation need to be more fairly shared, IPPR argues for easier statutory recognition to enable firm-level collective bargaining, accompanied by sectoral collective bargaining in low-paid sectors.
The Centre for Labour and Social Studies’ (CLASS) Work in 2021: A Tale of Two Economies brings together analysis of ONS data, interviews with trade union reps and a survey to paint a picture of workers’ differentiated experiences of the pandemic and how they are organising in response.
Proposals for Universal Basic Services take the principles underlying the NHS - the universal provision of healthcare, free at the point of need - and argue these should be applied to a wider range of public services, such as transport, shelter, food and information (e.g. Internet access).
UBS is often contrasted to UBI (above). While the two proposals are not diametrically opposed, the difference in focus leaves room for disagreement. Some UBS supporters argue, for instance, that the best way to spend our resources and political capital in ensuring people’s core needs are met is in the radical expansion of public services, and that unconditional cash transfers would not achieve the same uplift in living standards.
Conversely, while many progressive proponents of UBI support wider and improved provision of public services - e.g. health, social care, education, information - they take issue with some proposed universal basic services (e.g. food provision) and argue that cash transfers are a more efficient, less paternalistic route to ensuring some basic needs are met.
The most comprehensive case for Universal Basic Services can be found in the UCL Institute for Global Prosperity’s (IGP) literature review on the theory and practice of UBS (2019). The review builds on the Institute’s original 2017 proposal, the first articulation of UBS.
Professor Dame Henrietta Moore, founder and director of the Institute for Global Prosperity, writes on how UBS could invigorate local economies in the context of Covid-19 and the work IGP has been doing with local authorities in this area.
UBS supporter Anna Coote and UBI supporter Barb Jacobson debate the merits of their proposals with Ayeisha Thomas-Smith for the NEF podcast.
Professor Guy Standing argues against the idea that Universal Basic Services are an alternative to UBI, engaging with a number of arguments that UBS supporters make against Basic Income.
Universal Basic Income (UBI) is a regular cash payment made to all (universal) without means-testing or work-requirements (unconditional). UBI has received increased attention during the pandemic as a means of supporting incomes through the economic crisis - avoiding the problems of gaps in coverage highlighted by ExcludedUK and others - but some propose that UBI could form a central part of our social security system in the long-run.
Supporters of UBI argue it would make our social security system easier to understand and reduce the bureaucracy, intrusiveness and stigma associated with claiming conditional benefits. They also claim the security it offers would support workers in making better long-term choices, recognise valuable unpaid work (e.g. care work) and be robust to the threat of ‘technological unemployment’. Critics of UBI question its cost and benefits relative to more targeted social security. Progressive criticism points to potential negative implications for the wider social security system and provision of public services, while conservative criticism tends to emphasise the danger of reducing incentives to work.
There are significant differences between various UBI proposals, concerning e.g. the size of the payment (would it be below or above subsistence level?) and to what extent it would either replace existing social security. There are no examples of UBI being implemented at a state-level, though there have been a number of trials and experiments, especially in recent years.
The House of Commons Library’s research briefing on “The introduction of a basic income” (Oct 2020) offers a great overview of the debate around introducing basic income in the UK, highlighting research from the University of Bath as the most detailed work on what a UBI scheme in a British context would look like.
Professor Guy Standing outlined the moral and practical case for “Basic Income as Common Dividends” (2019) in his independent report to the Shadow Chancellor on piloting a basic income scheme in the UK.
A policy paper for the Women’s Budget Group Commission for a Gender-Equal Economy examines the pros and cons of basic income from a feminist perspective, and reviews recent proposals in this area.
The Basic Income Earth Network (BIEN) website features the latest news and research from supporters of UBI around the world.
The Liberal Democrats and the Green Party are both committed to campaigning for UBI, and in October 2020 a cross-party group of over 500 parliamentarians and councillors wrote to the Government calling for UBI trials.
The New Economics Foundation’s Anna Coote offers a critique of UBI from a progressive perspective, and argues that Universal Basic Services (below) would be a better route to radical social security reform, while Harvard political theorist Alyssa Battastoni wrote for Dissent on the “false promise” of UBI for radicals.
The two main provisions for children in the social security system are Child Benefit and the child element of Universal Credit (or child tax credits in the legacy benefits system). Child Benefit is issued for all children, although there is a reduced effective rate for all children after the eldest and families with one or more higher income earners (over £50,000 p.a.).
Means-tested support for families through Universal Credit or child tax credits is largely limited to two children. As of July, this “two child limit” affected 911,000 children. This aspect of government child support has faced particular scrutiny for increasing financial pressures on larger families, in which the rise in child poverty over the last decade has been concentrated. It has also been criticised for the pressure it places on survivors of abuse under the “non-consensual sex exemption”.
The backdrop to this is a sharp uptick in the cost of childcare and the financial fragility of the childcare sector. Before the pandemic, childcare costs had increased 3x as quickly as wages since 2008 and a number of providers faced closure. This has been exacerbated by Covid-19; now 25% of providers fear closure in the next year.
The Child Poverty Action Group’s (CPAG) work “2020 Vision: Ending child poverty for good” brings together contributions from a wide range of experts and policymakers and outlines a “child poverty strategy” (in chapter 19 of the report). Their recommendations are wide-ranging - with respect to social security, they advocate removing the two-child limit and benefits cap and a universal programme of pre-school childcare.
IPPR and the Trades Union Congress make the case for a “family stimulus” (Oct 2020), modelling the benefits of either doubling child benefit or scrapping the two-child limit and benefits cap for means-tested child support. They also outline proposals for targeted investment in childcare infrastructure.
The New Economics Foundation has made the case for a Childcare Infrastructure Fund to sustain the childcare sector in the face of both Covid-related and longer-term pressures. (See also Sophie McBain’s reporting for the New Statesman and Women’s Budget Group analysis on the state of the childcare sector).
The Women’s Budget Group have outlined how certain aspects of social security - including the two child limit (and linked ‘rape clause’) and the distribution of UC at a household level - fail survivors of domestic violence and abuse across the four nations of the UK.
There was originally a degree of cross-party support around the introduction of Universal Credit in 2013 because it replaced a number of separate working-age benefit schemes. The stated aim was to simplify the system and to avoid a “cliff edge” whereby recipients would lose money if they found work - “making work pay” and smoothing moves in and out of the labour market.
Since then, Universal Credit has come under fire, both before and during the pandemic. Targets of criticism include its lack of generosity, the delay in receiving the first payment, its bureaucracy (including sanctions), and the distribution of benefits at a household, not individual, level - which increases the risk of financial abuse, especially for women.
While some argue for reforms to Universal Credit that address these issues within the present system, others call for Universal Credit to be scrapped altogether - either because of the system’s chequered history, or because of objection to its core principles (e.g. conditionality and means-testing). One far reaching reform within would be the establishment of a Minimum Income Guarantee - which would set a ‘living income’ floor below which no household would fall and could be implemented within the Universal Credit system.
NB Some households are still on the ‘legacy’ system of benefits. The Government expects all households to have ‘migrated’ to Universal Credit by September 2024.
The cross-party House of Lords Economic Affairs Committee’s report “Universal Credit isn’t working: proposals for reform” is the most comprehensive overview of the problems with UC. They argue it has “undermined the security and wellbeing of the poorest in our society” and outline a suite of recommendations to improve the system.
The report of the United Nations’ Special Rapporteur on extreme poverty and human rights (2019) examines the extent of poverty and destitution in the UK and condemns the “great misery… inflicted unnecessarily” on marginalised groups through Universal Credit and cuts to public services.
“The cumulative impact of tax and welfare reforms”, published by the Equality and Human Rights Commission, finds that changes to policy between 2010 and 2017 disproportionately affected women, ethnic minorities, low-income households and disabled people.
The New Economics Foundation outlines how Universal Credit can be reformed to address the immediate crisis and improve the system over the longer-term in their “Universal Credit in the Time of Coronavirus” briefing, which proposes a Minimum Income Guarantee, amongst other measures.
The Covid Realities Project (a joint initiative from the Universities of York and Birmingham and the Child Poverty Action Group) found in Jan 2021 that over 1 million households are receiving less money than their government-assessed need because of “debt deductions” - reductions in Universal Credit payments to pay “benefit debt” owed to the DWP. The authors call for this debt to be scrapped or restructured, echoing calls by the Institute for Government in March 2020.
The disruption caused by the pandemic has both shone a light on undesirable aspects of our labour market and welfare arrangements and opened up space for thinking about how we might change these in future.
First, as more people have had to rely on the social safety net, Covid-19 has brought more attention to its shortfalls - particularly with relation to Universal Credit and sick pay. Second, the unequal impact of the pandemic has alerted us to sharp inequalities within the labour market, not just in terms of income, but in terms of precarity, flexibility, and exposure to risk too. Third, the necessarily radical nature of the pandemic response - unprecedented income support measures, large-scale restriction of economic activity for public health, a sea change in ways of working - has made other ‘radical’ economic policy measures seem more feasible,
The content below focusses on how the quality of work and social security can be improved as we recover from Covid-19. For information on job/income protection and job creation during and after the pandemic, see our “Stimulating economic recovery” page. For more on inequality, see our “Reducing inequalities'' page.
The House of Commons Library’s research briefing on “Coronavirus: Universal Credit during the crisis” (Jan 2021) offers an excellent overview of how UC has performed and changed during the pandemic, outstanding criticisms of the system and future challenges facing social security.
The House of Commons Library also has a regularly-updated briefing on “Coronavirus: Impact on the labour market”.
Research from the TUC found that workers in insecure jobs are twice as likely to have died of Covid-19 as those in other professions. Polling by Britain Thinks on behalf of the union group found that 67% of insecure workers said they had received no pay when off sick, compared with 7% of those in secure employment.
The Health Foundation estimated that an increase of 900,000 people in unemployment expected by 2022 will lead to an increase of 200,000 people with poor mental health. Their analysis argued the benefits system and employment support programmes currently fail to properly account for the needs of those who are unemployed.
Research from the Institute of Employment Rights (IER) found the risk of COVID-19 transmission in the workplace remains significant and is being “dangerously downplayed” by the Government’s “light-touch approach”. The report called for an “urgent launch of a major independent public inquiry into the future of the regulation of safety and health at work in the UK” amongst other recommendations.
One of the reasons that gig workers have few rights is that it is very difficult to organise and bargain collectively when workers are dispersed and have a fragile relationship with their contracting company. However a number of trade unions have been organising gig economy workers and in some cases winning significant improvements in working conditions and workers’ rights.
The fundamental imbalance between the power of digital work platforms and the workers who use them has led some to call for ‘platform cooperatives’ , in which the platforms would be owned by ther workers themselves.
The TUC and Cooperatives UK have explored the challenges of trade union organising among precarious workers and how precarious workers’ bargaining power can be strengthened.
Wired magazine surveys the growing global movement of gig economy workers organising to improve their working conditions.
In a pathbreaking deal, the GMB union has come to a collective bargaining agreement with the courier firm Hermes to give its contract workers enhanced rights.
IPPR has proposed that gig workers should be auto-enrolled into trade unions (with an ‘opt-out’ provision mirroring auto-enrolment into pensions).
A judicial review brought by the Independent Workers Union of Great Britain seeks to extend health and safety rights to gig economy workers.
The New Economics Foundation argues for the formation of platform cooperatives, owned by the workers using them, which would fundamentally change the current power imbalance between platform operators and workers.
A key route to improving the conditions of gig economy and other insecure workers is to extend to them some or all of the labour rights and protections covering employees and other workers. This was the broad approach taken by the Taylor Review of Modern Working Practices, which has been partially acted upon by the government. But it was widely criticised for not going far enough.
One idea gaining traction is that of ‘portable benefits’. Attached to the employee and not the employer, a portable benefits account would allow workers and employers – and potentially the government – to pay into services such as sick leave, pension contributions, maternity leave and health insurance.
The Taylor Review of Modern Working Practices commissioned by the government in 2017 recommended reform of labour law to give self-employed workers dependent on labour platforms access to legal protections such as the minimum wage. The House of Commons Library has published a review of the report and responses to it.
The TUC has called for a much wider set of reforms, including the effective abolition of zero hours contracts by giving workers the right to a contract that reflects their regular hours, along with a statutory presumption of employment rights unless an employer can demonstrate that an individual is genuinely self-employed.
The RSA has set out a comprehensive set of proposals to promote ‘good work’ in the gig economy.
Labour lawyer Valerio di Stefano and colleagues have proposed a ten-point ‘manifesto to reform the gig economy’.
The RSA has proposed a portable benefits scheme to provide rights and protections for gig economy workers.
The Covid-19 pandemic has exposed the large number of jobs in the UK economy which are highly insecure. 5 million people are self-employed, a status which includes many who work almost exclusively for one company. Over a million people now work on ‘zero hours contracts’ under which they have no fixed working hours.
Altogether it is estimated that 3.6 million people are in various forms of insecure work, including including agency, casual and seasonal workers and the self-employed earning less than the minimum wage. Research suggests that nearly 1 in 10 workers in the UK do ‘platform work’ via an app at least once a week, with nearly two-thirds of those under the age of 35. Many such ‘gig workers’ were among the first to lose their jobs as the economy closed down. Yet it is estimated that over 1.5 million self-employed people have been unable to get government support.
‘Gig economy’ jobs can provide welcome flexibility. But many come with very low pay, and by definition a high degree of insecurity which makes normal household budget planning very difficult. They tend to have few employment rights, such as paid holidays, sickness pay, and protection against unfair dismissal. And it is difficult for them to organise collectively, for example through trade unions.
The UK government has commissioned independent research on the size of the gig economy, the characteristics of those participating in it and their experiences.
Research conducted for the TUC has shown how work organised through digital apps has been spreading throughout the economy, with 15% of the workforce having undertaken platform work at some point.
The TUC has surveyed the rise of insecure work across the economy.
The Fairwork Foundation examines the impact of the Covid crisis on the 50 million gig economy workers throughout the world.
The Institute for the Future of Work's 2021 Global Labour Market Resilience Index listed the UK as the 12th most resilient labour market in the world, and recommends greater devolution to enable more dynamic responses to inequality, insecure work and devolving vocational training at a local level to fill national policy gaps.
One of the most common arguments in the growth debate is about the value of Gross Domestic Product (GDP) as a measure of economic progress. This was not what GDP, which measures national income and output, was originally designed for. But economic policy and analysis has generally used it as such: GDP growth is the primary (though not only) economic goal of most governments.
The argument against GDP is that it does not measure environmental degradation or the depletion of ‘natural capital’; it ignores productive activity (such as childcare and housework) that occurs outside market transactions; it cannot take into account intangible but important public goods such as social cohesion and trust; it does not reflect subjective happiness or life satisfaction; and does not measure the distribution of income or wealth.
Many attempts have therefore been made to construct alternative metrics of economic and social progress, with the aim of ‘dethroning’ GDP from its paramount position. Some seek to adjust GDP in various ways. Others have compiled an index of various measures.
The most common approach is to use a ‘dashboard’ of multiple economic, environmental and social indicators. These more complex datasets have the ability to track a breadth of concerns, but make it harder to track overall progress and tell a clear narrative story.
The Centre for the Understanding of Sustainable Prosperity explores the four main approaches to measuring economic and social progress, finding a clear distinction between indicators of use to policy makers, and those designed to tell a public story.
The OECD has taken a lead in devising and publishing alternative indicators. Updating a landmark 2009 report on the limitations of GDP by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, its ‘Beyond GDP’ report argues that good policy needs better measures. The OECD’s Better Life Index published dashboards of economic, environmental and social indicators for 36 high income countries.
National-level examples of alternative indicator sets include the UK Office for National Statistics’ Measurement of National Wellbeing dashboard, and New Zealand’s Living Standards Framework.
In a paper for the ILO surveying a range of approaches to devising alternative indicators, Günseli Berik argues that the Genuine Progress Indicator, a composite indicator which makes roughly 25 adjustments to GDP, is the most useful in comparing countries and conveying a simple narrative of progress.
The New Economics Foundation has proposed 5 new headline indicators of national success for the UK, identified from public surveys: good jobs, life satisfaction, lower carbon emissions, reduced inequality, good quality healthcare and public health.
The UN’s Sustainable Development Goals, are an internationally accepted measure of national progress. They divide 17 domains of human life into 169 targets for 2030. While broadly welcomed at the level of ambition, their value in driving policy in practice remains a subject of some debate.
The idea of ‘wellbeing’ is now widely used to characterise the goal of a flourishing economy.
Wellbeing includes income but is not limited to it: it also includes other factors, including the quality of work, physical and mental health and public goods (such as the natural environment and social cohesion) that make up people’s overall quality of life. The general concept of wellbeing includes both individual life satisfaction and the flourishing of society as a whole.
A common focus of those arguing for a ‘wellbeing economy’ is that we need new indicators to measure economic and social progress, in place of growth of GDP (see below). Economic and social policy needs to be designed to achieve wellbeing directly, rather than relying on economic growth.
A number of countries, including Iceland and New Zealand, are using ‘wellbeing budgets’ and new indicators to try and ensure that this is achieved.
The Wellbeing Economy Alliance (WEAll) defines what is meant by wellbeing, and explains the policy pillars which can help achieve a wellbeing economy.
In 2019 the All Party Parliamentary Group on Wellbeing set out a £9.5 billion policy agenda to improve wellbeing. It proposes targeted action in key areas including mental health provision, childcare, job creation and wellbeing at work.
The World Happiness Report finds that most of the policies needed to deliver the UN’s 17 Sustainable Development Goals would improve subjective well-being. Another section of the report ranks major cities around the world on their subjectively-reported happiness.
The What Works for Wellbeing Centre has gathered together an evidence base for policies which can increase wellbeing, and a range of policy case studies.
Duncan Fisher explains how New Zealand, Iceland and Scotland are using wellbeing budgets and alternative indicators to change the way they make policy.
Rather than either ‘green growth’ or ‘degrowth’, some economists have begun to use the term ‘post-growth’ to characterise an economic policy stance focused directly on achieving environmental sustainability and individual and social wellbeing.
A ‘post-growth’ society and economy would be one where economic growth – and its attendant consumption patterns – is not regarded as a good in itself. While some of those using the term believe degrowth is necessary, others are (in Kate Raworth’s phrase) ‘growth agnostic’.
Some analysts have pointed out that western economies have for some time been experiencing much lower growth rates than in the past, with the idea of ‘secular stagnation’ suggesting that this may be a long-term condition. So adjusting to a post-growth economy may be necessary, whether designed or not.
The dependence of current economies on growth to sustain employment and raise tax revenues has led some researchers to model a ‘post-growth’ economy which lives within planetary boundaries and focuses on redistributing wealth and improving wellbeing rather than growing output.
In 2018, 238 academics across Europe called on the EU and its member states to plan for a post-growth future in which human and ecological wellbeing is prioritised over GDP.
In a report for the OECD, leading economists argue that high income countries should adopt ‘beyond growth’ strategies focused on four paramount goals: environmental sustainability, reducing inequalities, improving wellbeing and system resilience.
In a Centre for the Understanding of Sustainable Prosperity (CUSP) paper on the ‘post-growth challenge’, Tim Jackson the warns how ‘secular stagnation’ (economic slowdown) may be the new economic normal.
The Institute for Ecological Economy Research in Germany critiques both degrowth and green growth approaches. It recommends instead a ‘precautionary, post-growth’ approach to delivering social well-being within planetary boundaries.
Tim Jackson and Peter Victor have developed macroeconomic models capable of describing a sustainable national economy operating within ecological limits.
The Zoe Institute has initiated a ‘policymaking beyond growth’ project seeking to show how economic and political stability can be ‘unbound’ from economic growth in order to pave the way for a sustainable prosperity.
For some environmentalists and economists ‘green growth’ and ‘inclusive growth’ are mirages. The root problem in our economy and society, they argue, is the obsession with economic growth. Exponential growth cannot be achieved within the earth’s planetary boundaries, and cannot satisfy human needs.
‘Degrowth’ is the term increasingly used for strategies which seek a deliberate and planned contraction in the economies of high-income countries. Proponents argue that reducing the throughput of materials and energy can be achieved at the same time as maintaining and even improving people’s standards of living. As unplanned recessions exacerbate inequality, a central tenet of degrowth proposals is to ensure social justice by equitably sharing out resources, and reducing consumption and income by reducing working time.
Proponents of the idea of a ‘steady-state economy’ or ‘prosperity without growth’ argue for an economy in which environmental resources and absorptive capacities are sustained at an ecologically healthy level. This will require a contraction in the current size of high-income economies.
Economist Tim Jackson, author of Prosperity Without Growth, explains the economic and scientific ideas underpinning ‘growth scepticism’, based on the pioneering work of economists Nicholas Georgescu-Roegen and Herman Daly.
Economist and author of Degrowth Giorgos Kallis argues that degrowth is not about implementing a better or greener form of development but ‘an alternative vision of a prosperous and equitable world without growth’.
Anthropologist Jason Hickel explains the economic logic of the degrowth idea, arguing that it could lead to ‘radical abundance’. He defines degrowth as being at core about equality, with a focus on the progressive redistribution of existing income.
Friends of the Earth Europe collects a series of essays on the idea of ‘sufficiency’, where a cap on material resource consumption would be achieved through equitable distribution and sustainable lifestyles.
The Centre for the Advancement of the Steady State Economy explains the concept of the steady-state economy and how it can be achieved.
Leigh Phillips argues against what he calls ‘the degrowth delusion’. He identifies environmental degradation as arising from market capitalist economies and describes degrowth as ‘an end to progress’.
With the focus of green growth on environmental sustainability, the concept of ‘inclusive growth’ has been developed to emphasise how growth strategies can be redesigned to achieve reductions in poverty and inequality. The OECD defines inclusive growth as ‘economic growth that is distributed fairly across society and creates opportunities for all’.
Advocates of inclusive growth argue that redistribution through the tax and welfare systems is not sufficient to achieve genuine inclusion. They typically emphasise instead the importance of education and skills, labour market reform, asset ownership, the empowerment of local places and democratic participation.
The OECD’s Inclusive Growth programme generates research and policy on how to achieve a more fairly distributed form of growth.
The Royal Society of Arts’ Inclusive Growth Commission published its recommendations in 2017. It advocates for abandoning the ‘grow now, redistribute later’ model of economic growth, advocating instead an ‘inclusive growth’ approach that puts more power in the hands of local places to create good quality jobs and prosperity.
CLES criticises the concept of ‘inclusive growth’ as a smokescreen for a ‘business as usual, growth-first’ mindset. Instead it proposes an ‘inclusive economy’ which addresses the fundamental causes of inequality. (Shorter version here.)
One response to concerns about environmental degradation has been to argue, not that economic growth per se is impossible, but only its current patterns and forms. If the world switches to renewable energy, becomes much more resource-efficient and institutes a ‘circular economy’ in which resources are reused and recycled, GDP growth can continue at the same time as environmental damage is reduced. Growth in global income remains morally necessary, it is argued, to end poverty and give everyone on the planet a decent living standard.
Advocates of ‘green growth’ include major economic institutions such as the World Bank, and many governments and companies. They acknowledge that the world is very far from achieving green growth now. But they maintain both that it is possible to ‘decouple’ GDP growth from environmental damage, and that it is politically and socially infeasible to call for growth to cease.
The OECD adopted a ‘green growth strategy’ in 2011 and has a programme of work focused on how to implement it.
The Global Green Growth Institute supports governments to define and implement green growth strategies, while the Green Growth Knowledge Platform hosts a range of analytical and policy studies.
Political economist Michael Jacobs explores the origins of the concept of green growth, why it took hold and its relationship to the concept of sustainable development.
Tim Jackson and Peter Victor explain the difference between relative and absolute decoupling of environmental impact from GDP, finding ‘no evidence at all’ for global absolute decoupling.
Reviewing the evidence for decoupling of GDP growth and environmental impact, Jason Hickel and Giorgos Kallis ask ‘Is green growth possible?’ With ‘net zero’ by mid-century requiring global carbon emissions to fall by 7-10% per year – far beyond anything achieved so far – they conclude that it isn’t.
Green growth
The modern debate about economic growth first kicked off in 1972, with the publication of the influential Limits to Growth report by the Club of Rome.
The argument of the report was that exponential growth of production and consumption could not be sustained over the long term due to the finite resources and absorptive capacities of the Earth’s environment.
In the half century since then global environmental degradation has greatly worsened, with climate change, soil depletion, deforestation, ocean pollution and the loss of biodiversity all at critical levels. This has led environmentalists and environmental economists to revisit the question of whether economic growth can be environmentally sustainable.
Asking ‘can we have prosperity without growth?’, John Cassidy surveys the various players and arguments in the growth debate.
In a report for the All Party Parliamentary Group on Limits to Growth, Tim Jackson and Robin Webster revisited the 1972 Limits to Growth report. They found that its predictions appear to be essentially still correct and that new understandings of planetary boundaries have added new dimensions to the challenge.
The Stockholm Resilience Centre argues that the ‘grand ambition’ of achieving the UN’s Sustainable Development Goals within the earth’s planetary boundaries is feasible through a global ‘transformation’ in the character of economic growth and the consumption lifestyles of rich countries.
A 2012 report by the Institute of Actuaries and Anglia Ruskin University found strong evidence of resource constraints to economic growth, with serious economic and political implications.
Writing on Columbia University’s Earth Institute blog, Steve Cohen argues that economic growth and environmental sustainability can be made compatible through the use of human ingenuity, enlightened design and cutting-edge technology.
At the same time as neoclassically-based economics has been criticised for its influence over orthodox economic policy, its central role in the teaching of economics has also come under scrutiny.
Complaining that traditional economics courses did not reflect the post-financial crash world they were experiencing, economics students have campaigned for reform of the curriculum. They and others have argued for economic ‘pluralism’, an acknowledgement that there are a variety of economic perspectives, not a single correct one.
New ways of teaching the subject have been developed which start with real world problems and data about them, not stylised theory.
The student movement Rethinking Economics campaigns for a pluralist economics curriculum.
The CORE project has developed a new open-source curriculum for teaching undergraduate and postgraduate economics based on studying real world problems.
Many of the organisations whose work features on Beyond Covid would argue for a new economic paradigm. A number of academic institutes, think tanks, practitioners and media outlets exist specifically to generate and promote new economic thinking in the round. Each has its own perspective and focus, but they share a general aim of changing the way economics is thought about and economic policy is designed.
Centre for the Study of Sustainable Prosperity (CUSP) is an international network, drawing together expert partners from academic and non-academic institutions to address the question: 'What can prosperity possibly mean in a world of environmental, social and economic limits?'
Democracy Collaborative is a US-based research and development lab for the democratic economy.
Doughnut Economics Action Lab aims to create 21st century economies that are regenerative and distributive by design, so that they can meet the needs of all people within the means of the living planet.
Economists for Inclusive Prosperity is a network of academic economists committed to an inclusive economy and society.
Evonomics is a powerful voice for the sea change that is sweeping through economics.
Forum for a New Economy is a community of economists and leaders in Europe engaging with the world’s most significant changes and challenges.
IPPR Centre for Economic Justice aims to provide the progressive and practical ideas for fundamental reform of the economy, to one which achieves both prosperity and justice.
Institute for New Economic Thinking (INET) is a group of economists who challenge conventional wisdom and advance ideas to better serve society.
Institute for New Economic Thinking Oxford is a multidisciplinary research centre dedicated to applying leading-edge thinking from the social and physical sciences to global economic challenges.
New Economics Foundation aims to create a new economy that works for people and within environmental limits, guided by 3 missions: a new social settlement, a Green New Deal and the democratic economy.
The OECD New Approaches to Economic Challenges initiative develops a systemic perspective on interconnected challenges with strategic partners, identifies the analytical and policy tools needed to understand them, and crafts the narratives best able to convey them to policymakers.
The OECD Centre on Well-being, Inclusion, Sustainability and Equal Opportunity (WISE) generates new data and solutions to improve people’s well-being and reduce inequalities.
OpenDemocracy: Our Economy is a section of the independent global media organisation openDemocracy that puts people, planet and power at the centre of the debate about our economic future.
Rebuilding Macroeconomics aims to transform macroeconomics back into a policy relevant social science. They support interdisciplinary research and new methods of analysis in macroeconomics.
Rethinking Economics is an international network of students, academics and professionals building a better economics in society and the classroom.
Roosevelt Institute is a US think tank, campus network, and nonprofit partner to the FDR Library, working together to move the US toward a new economy and democracy by the people, for the people.
UCL Institute for Innovation and Public Policy is changing how public value is imagined, practised and evaluated to tackle societal challenges.
Wellbeing Economy Alliance is a collaboration of organisations, alliances, movements and individuals working towards a wellbeing economy, delivering human and ecological wellbeing.
Zoe Institute for Future-Fit Economies is a non-profit and independent think and do tank dedicated to research for a future-fit economy.
The economic crises of the last decade have generated significant reassessment in the discipline of economics. The failure of mainstream analysis to anticipate the financial crash of 2008, the growth of inequality, the unexpected stalling of productivity and wage growth, and the increasing evidence of environmental breakdown, have led to a questioning of the theoretical foundations upon which much economic policy has been based. Mainstream economics has increasingly taken new perspectives on board, while alternative or ‘heterodox’ schools have become increasingly prominent.
In macroeconomics, ‘post-Keynesian’ analysis has emphasised the critical role of the financial sector and of uncertainty. Institutional and political economists have focused on the role of institutions and power relationships. Evolutionary and complexity economists have sought to understand the economy as a complex, adaptive system with a path-dependent history of technological and institutional development. Ecological economics has pointed out the environmental basis of all economic activity. Feminist economists have forced attention on its gendered nature. Behavioural economists have shown how people actually behave, contradicting the neoclassical model of ‘rational economic man’.
These developments have not yet led to any grand synthesis, but economics is in greater flux, and generating more interesting ideas, than it has for a generation.
In a report for the OECD, a group of leading economists describes how a convergence of mainstream and ‘heterodox’ economic thought is enabling a much richer understanding of how modern economies work and appropriate policy solutions.
In an interview with Evonomics, Eric Beinhocker, Director of the Institute for New Economic Thinking at Oxford, discusses how the integration of evolutionary and complexity economics can provide a new foundation for economic theory.
Launching their network of ‘Economists for Inclusive Prosperity’, US-based economists Suresh Naidu, Dani Rodrik and Gabriel Zucman argue that economics needs to escape its fetish of markets, and in doing so can provide important tools to improve society.
The Bruegel think tank describes recent developments in macro and microeconomics which challenge formerly dominant orthodoxies.
Mariana Mazzucato, Director of the UCL Institute for Innovation and Public Purpose, summarises her influential thinking on financialisation, innovation and ‘mission-oriented’ industrial policy.
A key component of new economic thinking has been around the issue of economic growth. Critics of orthodox economic theory and policy have argued that the overwhelming focus on achieving growth of GDP is at the root of our environmental and social crises. Current patterns of economic growth are environmentally unsustainable and do not generate individual or social wellbeing.
These critics seek to replace GDP as the principal measure of an economy’s success. Most seek to define a broader goal of ‘wellbeing’, and alternative indicators to measure it. A number of international institutions have adopted the goal of ‘green growth’ or ‘inclusive growth’, often within the overall framework of ‘sustainable development’.
A more radical critique argues for ‘degrowth’: that environmental sustainability demands an overall contraction of production and consumption in western economies. Others propose the ideas of ‘post-growth’ or ‘beyond growth’, arguing for a direct focus of policy on the achievement of environmental and social objectives.
There is as yet no widely agreed name for a new, post-neoliberal economic paradigm. But those seeking to build one largely agree on its core goals. They seek an economic system which is
In such an economy democratically elected governments would play a significant role, seeking to shape and regulate markets to serve the public interest, and limiting the power of major corporations and financial markets.
These goals cannot be achieved, it is argued, by minor reforms to present economic systems. Fundamental reform is required, a structural transformation which hard-wires these goals into the way the economy works.
The IPPR Commission on Economic Justice, whose members included the Archbishop of Canterbury and prominent business and trade union leaders, provides a comprehensive analysis of the failings of the UK economy and over 70 policy recommendations in a ten-point plan for fundamental reform.
The New Economics Foundation, the Zoe Institute and the Wellbeing Economy Alliance set out a joint plan for systemic economic change in the UK, seeking a fundamental transformation towards a resilient economy promoting equality, environment and wellbeing.
Describing the principles set out in her book Doughnut Economics, Kate Raworth argues that economic activity needs to fall within the two boundaries, social and ecological, that together encompass human wellbeing. Such an economy would be ‘regenerative and distributive’ by design.
The scale and radicalism of US President Joe Biden’s proposals since entering office have strengthened the argument that a paradigm shift is underway in American, and global, economic policy making. Economist Noah Smith (Noahpinion) argues Biden’s policy reforms are comparable to the New Deal or Reaganomics in scale, and offers an analysis of the “unifying philosophy” of Bidenomics.
In its ‘Reset’ report for a post-Covid society, the All-Party Parliamentary Group on a Green New Deal has set out a vision of a new economy, and the principles and policy ideas which could inform it.
In a Guardian long read, Andy Beckett describes the range of thinkers, activists and practitioners developing and promoting new economic ideas in the UK.
The free market economic ideas and policies which were first introduced in the 1980s under Margaret Thatcher in the UK and Ronald Reagan in the US came to be known as ‘neoliberalism’. Neoliberalism is the doctrine that economic growth and human freedom are best served by the expansion of deregulated markets and private enterprise, and a reduction in the activities and size of the state. It is often described as the dominant paradigm of the last four decades, effectively espoused not just by right-wing governments but by avowedly centre-left ones which (it is often claimed) failed to reverse or challenge its principal policies.
Neoliberalism has been widely criticised. Its economic policies have led to a significant growth in income and wealth inequality and pervasive environmental degradation. The globalisation of commerce and free trade promoted by neoliberalism has in many countries led to the destruction of traditional industries and the communities which have relied on them. Deregulation has led to a huge expansion of the financial sector, and of the influence of financial objectives in companies and society, a process often described as ‘financialisation’.
Though neoliberalism claims to promote market competition, in key sectors (such as digital platforms and public services outsourcing) it has enabled the development of extremely powerful companies operating as near-monopolies. The process by which wealth is extracted from the economy by a relatively small group of financial and monopoly asset owners has led some to describe the neoliberal economy as ‘rentier capitalism’.
The Adam Smith Institute defends the neoliberal ideal and sets out a neoliberal manifesto for the UK in the 2020s.
US writer Robert Kuttner analyses the ‘political success and economic failure’ of the neoliberal project.
Describing the way in which its ideas took hold, the writer George Monbiot attacks the impact of neoliberalism over the past forty years.
The Harvard economist Dani Rodrik argues that the economic assumptions and policies associated with neoliberalism do not represent the thinking of mainstream economics.
Political economist Brett Christophers explains the concept of rentier capitalism and how the UK economy has become ‘rentierised’. (Long version here.)
Even before Covid-19, the multiple crises experienced by western economies over the last decade and more – the financial crash, the climate emergency and rising inequality – have led some commentators to ask whether a new ‘economic paradigm’ may be in the making.
An economic paradigm is the framework of economic theories, policies and narratives which come to define a particular era. In the 20th century two major periods of economic crisis led to changes in the dominant paradigm. Old economic orthodoxies proved unable to provide solutions, and new economic theories and policies took their place.
In the 1940s, following the Wall Street crash of 1929 and the Great Depression of the 1930s, Keynesian economics replaced the previous orthodoxy of ‘laissez faire’, leading to the ‘post-war consensus’ of full employment and the welfare state. In the 1980s, following the economic crises of the 1970s, free market economics became the new orthodoxy. But free market economics seems to have caused the crises we have recently experienced, and to offer little by way of solutions. Is another ‘paradigm shift’ due?
Explaining the origins of the idea of economic paradigms, Laurie Laybourn-Langton and Michael Jacobs describe the paradigm changes of the 20th century. Analysing how the free market revolution was organised, they suggest that comparable conditions exist today.
Martin Jacques traces the political impact of the financial crash of 2008 and argues that it will lead to the end of the free market or ‘neoliberal’ era.
Economist Laurie Macfarlane and colleagues set out how economic theory and policy can be categorised in terms of ‘orthodox’, ‘modified’ and ‘alternative’ paradigms, and survey how economic thinking has been changing in major economic institutions such as the OECD and World Bank.
US economist Heather Boushey, now an economic adviser to President Biden, shows how new economic theory and analysis is transforming the discipline of economics, paving the way for the development of a new economic paradigm.
Economist J. W. Mason outlined 10 reasons why Biden’s American Rescue Plan bill represents a decisive break with neoliberal views on macroeconomics.
Black and minority ethnic (BME) residents of the UK have been disproportionately affected by the pandemic in two distinct ways. First, they have suffered worse health outcomes. On the whole, people of colour have been more likely to contract the virus - and less likely to survive it - than white people. Public Health England has highlighted how a range of factors relating to racism can contribute to these unequal health outcomes. BME people are also more likely to work in frontline, “key worker” roles where they are more exposed to the virus. There could be evidence of discrimination here too. The British Medical Association, for instance, reports that ethnic minority doctors have been disproportionately affected by PPE shortages, speaking to the higher death rate of ethnic minority health and social care workers.
Second, long-standing economic inequalities between white and BME Britons - themselves a consequence of historical and present-day racism - have been exacerbated by the downturn. Αnalysis from IPPR has found that ethnic minority people were more likely to face problem debt and unemployment as a result of Covid-19. Worse still, ethnic minority households have far less wealth, on average, to weather economic hardship - Black and Bangladeshi households, for instance, have 10p for every £1 of White British wealth.
Research from IPPR and Runnymede Trust suggests that the ‘second wave’ of the virus is disproportionately affecting people of colour in a way that cannot be explained by genetics or comorbidities, suggesting that this inequality results from “structural and institutional racism”.
Runnymede Trust’s “The Colour of Money” report provides an overview of racial inequalities within the economy - e.g. in wealth, vulnerability to poverty, and employment - and the structural economic change needed to counter this.
After criticism of their initial report into disparities in Covid-19 risk, Public Health England (PHE) released a report in June 2020 on the impact of Covid-19 on BME communities.
The Marmot Review (2020) provides a longer-term analysis of health inequalities, including their link to racial inequalities.
Many cities around the world have used the Covid crisis to prioritise walking and cycling and the provision of green space.
There is a growing global movement of cities committed to improving the quality of urban life through environmental improvement and decarbonisation, particularly of buildings and transport.
Many local authorities in the UK are looking to pursue a more sustainable form of economic development.
Led by the mayors of Los Angeles and Milan, major cities across the world have set out principles for a ‘green and just recovery’ and showcased what they are doing to deliver it.
CLES has set out how local authorities can secure green recoveries at local level.
Green recovery at city and local level
Both the Scottish and Welsh governments have committed to green recoveries. In Northern Ireland a plan has been proposed by a group of environmental NGOs.
The Scottish Government has published a draft five-year infrastructure investment plan to stimulate job creation and enable ‘inclusive, net zero and sustainable growth’.
Proposals presented to the Welsh Government by its green recovery task force include natural climate solutions, circular economy policies and measures to ‘transform socio-economic systems’ such as food and transport.
A group of environmental NGOs has published a 5-point plan for green recovery in Northern Ireland.
Common Wealth published its proposals for how Scotland could chart a ‘just and sustainable recovery’ from Covid-19.
Green recovery in Scotland and Wales
Although the focus of most governments in the crisis so far has been keeping businesses and jobs alive, many have included environmental components in their stimulus and recovery plans.
This includes the EU, which has made its ‘Green Deal’ investment programme a centrepiece of its economic ambition and climate goals.
However analysis of plans published so far shows that the overall environmental impact of government plans in most countries is likely to be negative.
Carbon Brief has produced an interactive tracker of different countries ‘green recovery’ plans, detailing policies planned and implemented.
Vivid Economics have analysed 25 countries’ Covid-19 stimulus packages for their ‘greenness’. They find that, despite governments’ rhetoric, most will have a net negative environmental impact.
Responding to the European Commission’s ‘Green Deal’ proposals, the Institute for European Environmental Policy sets out the conditions for a green and sustainable recovery in the EU.
More than 1200 global companies have called on governments to invest in climate action and green recovery plans, detailed by the business coalition We Mean Business.
The American Rescue Plan has inspired calls for the Government to “Boost it like Biden”. IPPR has highlighted that the UK faces a deeper recession than the US, but is planning to spend far less as a proportion of GDP on stimulus - and has called for planned spending to be increased 4x to match American ambition. For more on the Biden Administration's economic proposals see our analysis of the American Rescue Plan and Bidenomics more generally.
Clean energy writer David Roberts examines the climate-related elements of Biden's proposal for a $2.3tn infrastructure plan in detail.
Green recovery plans across the world
The call for a green recovery has been widely supported in the UK, by businesses, environmental organisations, and think tanks on both left and right.
For some green recovery is a way of rebooting the existing economy. For others it offers a chance for more radical change in the objectives and outcomes of economic policy.
The CBI has published a ‘Green recovery roadmap’, outlining six priorities to ‘reignite business investment’ and create jobs. These include government investment in a battery manufacturing ‘gigafactory’, carbon capture, utilisation and storage (CCUS) and sustainable aviation fuels.
The UK Climate Coalition, an alliance of over 75 organisations, has produced a ten-point plan for a ‘green, healthy and fair recovery’, including policies for homes, transport, renewable energy, nature and global cooperation.
Conservative think tank Bright Blue has published a collection of essays by business people, academics and politicians on how the UK can get to net zero emissions.
Calling for an investment-led economic strategy, IPPR proposes a ‘clean and fair recovery’ plan to create up to 1.6 million jobs, decarbonise the economy, restore nature, and tackle inequality.
The All-Party Parliamentary Group on a Green New Deal published its plan for a comprehensive economic ‘reset’, drawing on a consultation process involving over 57,000 people. It includes proposals for a universal basic income and new measures of human and ecological health and wellbeing to replace GDP.
Green recovery proposals in the UK
Looking towards the critical UN climate conference COP26 in Glasgow in November, the UK government published its ‘10-point plan for a green industrial revolution’ at the end of 2020.
It pledges to mobilise £12 billion of government investment, and potentially three times as much from the private sector, to create and support up to 250,000 green jobs.
The ten areas of focus are offshore wind, low carbon hydrogen, nuclear power, zero emission vehicles, green public transport, ‘jet zero’ and green ships, greener buildings, carbon capture, usage and storage, protection of the natural environment and green finance and innovation.
While some aspects of the plan were welcomed by environmental groups, others criticised it for vagueness and for failing to clarify how the UK would achieve its statutory emissions reduction targets, including its commitment to ‘net zero’ emissions by 2050.
The Government’s green industrial revolution document set out its plan to reduce greenhouse gas emissions while creating jobs and supporting UK exports of green technologies and services.
Carbon Brief compiled responses to the plan from a variety of organisations and media outlets.
The government’s statutory advisory body the Climate Change Committee has published its recommendations for the UK’s ‘6th carbon budget’, showing how emissions could be reduced by 79% over 1990 levels by 2035.
The TUC ranked the green recovery plans of all G7 countries, finding that the UK came in 6th with the Treasury investing 6% of that pledged by the US and 13% of that promised by Italy on green jobs and recovery (£180 invested per person compared to £2,960 in the US and £1,390 in Italy). The TUC’s analysis estimates current UK green infrastructure investment potentially creating 44,000 green jobs over the next ten years. This could increase to 721,000 green jobs over the next ten years if the UK matched the ambition set by the US.
Ben Houchen (Conservative Metro Mayor of Tees Valley) has written for ConservativeHome calling for the PM to “double down on levelling up” and invest in a Green Industrial Revolution to drive job creation in the North.
The UK government's 'green industrial revolution' plan
As governments around the world are urged to ‘build back better’, a major focus has been to ensure that their economic recovery packages support environmental objectives. The language varies slightly – green, sustainable, resilient, ‘green and fair’, ‘green and just’, decarbonisation – but the core idea is consistent.
Governments should invest and create jobs in sectors and activities which align with long-term greenhouse gas emission goals (notably ‘net zero’ by 2050 or before), improve resilience to climate impacts, slow biodiversity loss, reduce pollution and increase the circularity of supply chains.
Analysis of spending programmes of this sort – including those implemented after the financial crash in 2008 – show that green spending tends to have high job creation potential, which can often be geared towards economically disadvantaged people and areas. Many green projects can be delivered relatively quickly.
Calling for a ‘sustainable, resilient recovery’, the OECD urges governments to adopt economic policies which will reduce the likelihood of future shocks and increase society’s resilience to them.
In collaboration with the IMF, the International Energy Agency has set out a global ‘Sustainable Recovery Plan’ designed to boost economic growth, create millions of new jobs and put global greenhouse gas emissions into structural decline.
Leading economists including Nick Stern and Joseph Stiglitz have examined the potential economic benefits of a green recovery. Cataloguing more than 700 stimulus policies and surveying 231 experts from 53 countries, they found that green projects create more jobs, deliver higher short-term returns and long-term cost savings than traditional fiscal stimulus measures.
The New Economics Foundation’s green stimulus plan analyses 27 types of infrastructure spending and their potential to create large numbers of jobs rapidly across the country, their environmental impact and their compatibility with social distancing.
The World Resources Institute has drawn lessons from the green stimulus packages enacted in 2008-10 for the current Covid response.
The case for a green stimulus
The Covid pandemic has forced governments across the world to spend huge amounts of money supporting their health systems and emergency public services, and sustaining business and household incomes. In the UK, the government will have spent over £280bn in 2020-21 tackling the crisis.
This money has come from increased government borrowing. By the end of the fiscal year 2020-21, the budget deficit (the gap between revenue and expenditure) is projected to rise to £394 billion (19% of GDP), its highest level since 1944-45, and total public debt to 105% of GDP, the highest since 1959-60.
Unsurprisingly, this has led to questions about how and when this money should be repaid. Some people have argued (or assumed) that there will need to be a return to austerity – public spending cuts and tax rises – to reduce the deficit and the debt.
But most macroeconomists, including international economic institutions such as the OECD and IMF, argue that at current very low interest rates, high levels of debt can be supported for a long period. This is what happened after the second world war, when UK debt reached nearly 250% of GDP.
The Bank of England can help absorb debt by effectively ‘printing money’, as it is already doing. Some argue for this to become permanent, a mechanism known as ‘monetary financing’.
The chief economist of the OECD has urged governments not to return to austerity to reduce deficits and debt levels. Laurence Boone said that the austerity policies brought in after the financial crash were wrong and that fiscal policy should play the primary role for recovery.
The IMF says that fiscal rules limiting debt to GDP ratios are inappropriate in today’s conditions and should be abandoned. Ultra-low interest rates mean that servicing debt (paying the interest) is cheaper now than it was when debt levels were much lower.
In an editorial the Financial Times has admitted it was wrong to advocate austerity after the financial crash, and that balancing the budget should be no longer be a fiscal goal.
The Nobel prize-winner Joseph Stiglitz and other leading US economists propose a new fiscal framework. They reject ‘fiscal anchors’ – simple limits on deficits or debt as a share of GDP – calling instead for budgets to respond more automatically to economic distress and long-term fiscal pressures, with governments given discretion to respond to changed circumstances.
Former chair of the Financial Services Authority Adair Turner argues that monetary financing of public debt by central banks is both necessary and inevitable, and in today’s conditions economically appropriate. (A shorter version here.)
NIESR released a substantial report on how to design a new fiscal framework, produced with the help of a variety of experts such as former central bankers, civil servants and Chief Secretaries to the Treasury.
Governments have provided various forms of support to businesses, and in some cases whole sectors, to enable them to survive the pandemic. Many people have argued that, particularly for larger businesses, such ‘bailouts’ should not be unconditional.
In return for financial help, companies should be required to meet a set of minimum standards of good corporate behaviour, such as environmental commitments and payment of tax.
A range of commentators have further called for the government to take equity stakes in the businesses it bails out, as it did for example with the Royal Bank of Scotland after the 2008 financial crash.
This would give the government a long-term stake in the future direction of such companies, helping to focus them on long-term investment and environmental sustainability. Revenues returning to the government from equity stakes could support long-term economic recovery, or form the basis of a social wealth fund.
Writing for the Institute for Government, former economic adviser to Theresa May, Giles Wilkes, analyses how bailout measures can be designed to support long-term business development, arguing for the use of equity stakes and direct grants as well as loans.
A coalition of NGOs and think tanks have called for the Government to apply six conditions to corporate rescue plans, including a priority on job retention, a moratorium on dividend payouts, and the adoption of climate targets.
The Tax Justice Network outlines a set of ‘tax-responsible’ rules for company bailouts across the world, including a ban on support for companies that invest in tax havens.
The High Pay Centre argues that bailout conditions should include fair pay ratios, including no more than 10:1 between the highest paid and median employees, and worker representation on boards.
IPPR and Common Wealth argue that public equity stakes should play a key role in supporting businesses through the pandemic. Such stakes could form the bedrock of a National Wealth Fund providing long-term returns to the government.
The UK government’s commitment to what it calls ‘levelling up’, improving living standards and economic prospects in England’s disadvantaged regions, has led to widespread calls for the government to prioritise stimulus spending in those areas where unemployment is highest and incomes lowest. In England city region mayors and others have called for greater resources to be given to local authorities to boost local employment. There is increasing interest in the idea of ‘community wealth building’, generating local economic development by focusing public procurement and business support on local firms, including social enterprises
For more on local economic development, see our page Stronger local economies.
CLES sets out a practical framework for local authorities to respond to the economic crisis and rebuild fair, inclusive and secure local economies.
Cataloguing current inequities, IPPR North’s annual State of the North report identifies key tests for the government's levelling-up agenda, and sets out a programme for economic investment and democratic empowerment.
A group of metro mayors and others, including former Prime Minister Gordon Brown, have created an Alliance for Full Employment to press for greater investment in job creation across the nations and regions of the UK.
The Local Government Association shows how investment in the creative industries can play a major role in local economy recovery.
A key dimension of ‘building back better’, it is widely argued, is greater investment in the ‘caring economy’. A ‘care-led recovery’ would see priority given to increasing employment and wages in the health service, social care and childcare.
The Covid crisis has exposed serious under-funding in these sectors, and the need to pay many of those working in them more. Investment in care creates more jobs, especially jobs for women, than comparable spending in sectors such as construction.
The Women’s Budget Group calculates that investment of around 2.5% of GDP in child care and social care would create over 2 million jobs as well as helping reduce the gender employment gap.
The Commission on a Gender-Equal Economy sets out a detailed blueprint for how investment in adult social care, healthcare and childcare can be combined with improving the pay and conditions of workers, action to end discrimination, deprivation and poverty and environmental protection to create an economy that improves wellbeing rather than maximises economic growth.
Writing for the Bright Blue blog, Fawcett Society CEO Sam Smethers points to deepening gender inequalities around childcare during the pandemic and argues for strategic investment in childcare infrastructure.
IPPR and the TUC call for a ‘family stimulus’, increasing social security payments for children and investment in childcare.
As the scale of the economic downturn has become clear, and unemployment has continued to rise, many organisations have urged the government to introduce a fiscal stimulus package to revive the economy and create jobs.
There have been widespread calls to increase government spending on infrastructure, particularly on ‘green’ and low-carbon projects. Noting that physical infrastructure spending tends to focus on male employment, others have argued for an equal emphasis on ‘social infrastructure’: sectors such as health, education, social care and childcare which are also necessary for the economy to function and have high levels of female and black and minority ethnic employment.
Increasing the minimum wage, giving public sector workers (especially key workers) a pay rise, and raising benefit levels, would all mitigate the unequal impacts of the pandemic and give a boost to consumer demand.
The government’s youth employment scheme, Kickstart, supports 6-month job placements for those aged 16-24. With youth unemployment known to have a long-term scarring effect on life chances, some have argued that this should be much more ambitious, with a stronger emphasis on skills training.
IPPR argues for a £164bn fiscal stimulus package in 2021-22 to put the economy back on its pre-pandemic track. This should focus on green investment, increased welfare spending, a reversal of post-2010 public spending cuts, and support for training and worksharing.
The New Economics Foundation’s Winter Plan for Jobs, Incomes and Communities proposes a ‘living income’ that guarantees at least £227 a week to those that need it, greater protection for furloughed workers and investment to create over a million new low-carbon jobs.
The TUC’s Better Recovery plan proposes a raft of measures to create a fairer and more sustainable economy, including a government ‘job guarantee’ to prevent long-term unemployment, a greater role for unions in the economy, and an economic stimulus for a ‘just transition’ to a net zero carbon economy.
The Biden Administration has allocated $400bn to investment in health and care systems, marking a shift towards treating spending on social infrastructure as investment, as has been called for by the Women’s Budget Group.
Robert Skidelsky and Will Hutton for the Progressive Economy Forum propose a guarantee of work or training for all young people as part of a plan for economic recovery and reform.
IPPR urges investment in further education to help those made redundant by the pandemic to find new jobs. Their proposals have been backed by the CBI, TUC and Association of Colleges.
So far most governments have focused their economic policies during the pandemic on keeping businesses alive and workers in jobs, and supporting household incomes.
As social restrictions have been eased and economies open up again, there has been a sharp recovery in GDP. Consumer spending has risen, particularly in areas where there is pent-up demand such as hospitality and leisure activities. But the loss of many businesses during the crisis, and much higher levels of unemployment, mean that a full-scale recovery will not occur quickly.
There is therefore a strong case for further fiscal stimulus measures to boost economic output and bring unemployment down. Both the OECD and the IMF have urged governments to sustain their spending, and not to return to austerity. They note that with interest rates already near zero, there is little more that monetary policy can do.
An expansionary fiscal policy is needed to create demand and boost investment, and thereby to create new jobs. Where interest rates are very low, economists note that the ‘multipliers’ from government spending (the mechanism by which spending expands throughout the economy) are particularly strong.
Summarising the OECD’s latest Economic Outlook, the OECD’s chief economist has urged countries to maintain their fiscal spending, prioritising essential goods and services such as education, health, physical and digital infrastructure; action to reverse the rise in poverty and income inequality; and international cooperation.
The head of the IMF has urged governments to ‘spend as much as you can and then spend a little bit more’ to sustain and revive economic activity, arguing for global coordination of fiscal policy.
The IMF’s chief economist calls for expansionary fiscal policy to create jobs and stimulate private investment, focusing on cash transfers to support consumption, along with large-scale investment. The IMF highlights the critical role of public investment.
Nobel prize-winning economist Paul Krugman explains why a sustained stimulus programme is the economically rational response to the economic downturn.
Oxford economist Simon Wren-Lewis argues that, while the UK government has adopted broadly the right macroeconomic policy since the pandemic struck, it is still pursuing the austerity public spending programme introduced in 2010.
A report from UNCTAD forecasts a faster global economic recovery than expected (4.7% this year compared to 4.3%) which it attributes to the Biden administration’s $1.9tn fiscal stimulus and its effect on consumer spending.
To keep businesses running and people in jobs during the Covid-19 crisis, the UK government has established a number of emergency measures. These include the Job Retention Scheme, which supports companies to put workers on furlough rather than lose their jobs; a support scheme for the self-employed; and loan schemes for various sizes of business.
Specific measures and funding have been provided for badly affected sectors, such as hospitality and the performing arts. At the same time the government has temporarily increased the rate of Universal Credit and Working Tax Credits paid to those on low incomes.
These measures have supported many businesses and households. But there have been a number of criticisms. In January 2021 over 1.5 million self-employed people were estimated not to qualify for support because less than half their incomes came from self-employment or they had not been self-employed long enough.
The government’s business loan schemes have been criticised for favouring landlords, who in many cases continue to be paid rent in full while their tenants have had to take out emergency loans. Meanwhile the significant increase in poverty caused by the pandemic has led many to call for permanent increases in Universal Credit and child support levels.
The Institute for Fiscal Studies has highlighted how many self-employed people are excluded from the Government’s support schemes and the impact of delays in payments and the reintroduction of the ‘Minimum Income Floor’.
The IPPR has shown that up to 45% of emergency payments made during the crisis, including the Job Retention Scheme, effectively go to landlords, banks, and other lenders, with ‘bounce back loans’ one of the government support measures criticised for channelling money primarily to those with assets.
Examining the impact of the pandemic on the finances of low-income households, the TUC has called for an increase in statutory sick pay, an increase in Universal Credit and other benefits to at least 80 per cent of the national living wage, among other measures. A coalition of health organisations including the British Medical Association have called for similar reforms.
A Women’s Budget Group briefing summarises a set of social security reforms which would help prevent the unequal gendered impacts experienced in the first lockdown.
The New Economics Foundation has proposed a ‘Minimum Income Guarantee’ that would prevent people falling through the gaps in current social security provision by setting an unconditional, non-means-tested income floor of £225 a week.
The Covid-19 pandemic has caused the deepest recession in modern economic history. As lockdowns and other measures to protect public health were introduced, consumption and production slumped and unemployment rose. In the UK the fall in economic output was among the largest in the world, with GDP (Gross Domestic Product) declining by 9.8% in 2020, estimated to be the steepest fall in three hundred years.
Government support measures have kept many businesses going and the job furlough scheme at its height was keeping nearly 9 million workers in employment. But many firms have already gone out business, and when the furlough scheme comes to an end unemployment is projected to rise to 2.25 million people, or 6.5% of the labour force.
The economic crisis has not affected everyone equally. Workers on insecure employment contracts have seen their jobs go first, while many others on low incomes who cannot work from home have been required to continue working in often risky workplaces. For those on decent incomes the pandemic has increased their savings, allowing debt to be repaid. But many of the least well off have seen their debts increase. Many people have been pushed into poverty. Women, young people and those from black and ethnic minority groups are disproportionately represented as those whose living standards have been hit.
Analysis by the Resolution Foundation showed that in the first wave of the crisis 2 million employees fell below the minimum wage, leading to a gathering private debt crisis for lower-income households.
The Women’s Budget Group has analysed the impact of the pandemic on women in terms of health, employment and unpaid work, noting increased levels of poverty, debt and mental health deterioration.
The Resolution Foundation’s analysis of the economic impact of the Covid crisis on different age groups finds the young and old most badly affected.
The Runnymede Trust has looked at the impact of the crisis on black and ethnic minority communities, finding that long-standing inequalities have led to disproportionately severe health and economic effects.
In its Living Standards Outlook the Resolution Foundation forecasts household incomes to continue falling in 2021-22, and without a policy change the largest increase in poverty since the 1980s.
The environmental emergency is already causing a range of major problems around the world. Even if rapid action is taken, environmental destabilisation will increase, and societies must be ready for the resultant impacts. The Covid-19 pandemic has given an insight into events that can happen quickly, impacting all areas of society and overwhelming the ability to respond.
Adapting to the growing impacts of climate breakdown has been recognised as a priority by people across society in the UK for years. The government’s official advisors, the Committee on Climate Change, have previously concluded that the UK is not prepared for even a 2 degrees Celsius, let alone the higher global temperature rises that are likely to happen. Preparation is also needed to ensure the UK is resilient to the social, political and economic impacts of an environmentally destabilising world. There are potentially huge benefits of doing so; more resilient societies can be healthier and happier.
The Committee on Climate Change assesses the UK’s yearly progress on becoming resilient to the growing impacts of climate breakdown. It also publishes a climate change risk assessment every five years, setting out of risks and opportunities from climate breakdown.
The OECD argues that the impacts of Covid-19 show that economies have developed to prioritise efficiency over resilience, and that societies should be replanned to prioritise adaptability.
Bright Blue's collection of essays, authored by leading chief executives, politicians and academics, explores how delivering on the net zero decarbonisation target can ensure a resilient recovery for the UK.
The US Center for Climate and Security has drawn on the expertise of retired military leaders around the world to explore the profound destabilisation resulting from climate change. A report commissioned by the Ministry of Defence explores the implications for UK defence and security policy.
A key step towards a more equal economy would be to make the tax system fairer. There is an emerging consensus that we need to improve the way we tax wealth. Wealth has soared relative to incomes over the past four decades, with these gains concentrated very narrowly at the top, and yet the tax take from wealth has remained flat.
Property wealth provides an instructive example. House prices have tripled relative to incomes since the 1970s, a key driver of economic inequality. A number of homeowners have seen their accumulated wealth soar as house prices have shot up in certain areas, but have been taxed very little on these gains despite them being uncorrelated with any work, effort or skill on the homeowners’ part.
Income from wealth is currently taxed far more weakly than income from work, which is one of the reasons that the very wealthy pay a much lower effective average rate of tax on their remuneration. Wealthier households are also more likely to benefit from a complicated system of reliefs and exemptions, meaning that the effective rate of inheritance tax paid on estates valued at over £10 million is half that paid on those with a value of £2 to £3 million. Tax avoidance schemes allow the very wealthiest to circumvent tax. Taking the wealthiest 0.01% of households as an example, who control a not insignificant 5% of national wealth, approximately 30-40% of this is held offshore.
The IPPR report Just tax - Reforming the taxation of income from wealth and work finds that the UK is one of "the most unequal countries in the developed world" and warns that income inequality could be set to worsen.
Lord O'Donnell and tax experts from a range of disciplines launched the UK Wealth Tax Commission to explore the viability and desirability of a wealth tax in the UK. The final report concludes that a one-off wealth tax could raise one-quarter of a trillion pounds over five years.
The Resolution Foundation outlines how wealth taxes "can raise billions more without scaring any horses".
Emmanuel Saez and Gabriel Zucman outline how progressive tax could work using evidence from economics literature.
This data visualisation tool demonstrates the scale of wealth inequality and imperative to tackle such extreme disparities.
The pandemic has put poorer households under great financial strain. On average, low and high income households have seen similar proportionate falls in income - but this does not mean that the pain has been equally shared. While richer households can cut back on non-essential spending and fall back on their savings, poorer households are unable to do so. Over half of adults in the poorest 20% of families have had to borrow to fund basic costs such as food or housing.
Unless action is taken, the unequal economic impact of Covid-19 will be felt well into the future. Job losses have been concentrated in the poorest households, threatening a longer-term divergence in employment chances. Many of the richest households have been able to build up their savings over the course of the crisis, further widening the gap between them and the increasingly economically insecure poor. They will use these increased savings to buy assets. Even as the economy has tanked, asset markets have remained reasonably buoyant. This divergence can in part be explained by the wealth gap because the asset-owning class has been least affected by the crisis and in part because of policy decisions that protect financial markets, even at the expense of the real economy.
Poorer households have also seen far worse health outcomes than the well-off. In part, this is because they are less likely to be able to work from home and are therefore more exposed to the virus. It is no small irony that the UK’s “key workers” earn, on average, 8% less than the median wage, reflecting in part the freeze on public sector pay under austerity and persistently low pay in sectors such as social care. At the same time, the UK’s high levels of economic inequality have given rise to wide health inequalities, which the Marmot Review found to have widened since 2010. One consequence of this is that the Covid-19 death rate in the most deprived parts of the country is double that of the most well-off.
Standard Life Foundation have launched a Coronavirus Financial Impact Tracker to monitor the economic effects of the pandemic on people’s finances.
Research by Citizens Advice has found that 6 million UK adults have fallen behind on at least one household bill during the pandemic, with those at the sharpest end of the labour market hit hardest.
The Health Foundation has warned of "rising health inequalities due to pandemic" - their research shows that poorer areas are more likely to have higher Covid-19 death rates.
The Health Foundation’s COVID-19 impact inquiry suggests that that the combined effect of Covid-19 and the restrictions imposed to combat then pandemic have had a serious effect on existing health inequalities.
Economist and former city trader Gary Stevenson appeared on LBC to explain why asset ownership helped the wealthiest 250 people in the country make an extra £600billion last year, and why targeted wealth taxation on the super rich could reduce inequality without ordinary people having to pay more in taxes.
Analysis from IPPR North has highlighted how the UK is "more regionally divided than any comparable advanced economy". This regional inequality exists across disposable income, productivity, employment, and political power.
The UK has long suffered from regional health inequalities. Even before Covid-19 people in the most deprived areas could expect to live nineteen fewer years in good health than those in the most well-off. The death rate from Covid-19 in the UK’s poorest regions was over double the rate in the wealthiest.
The economic fallout of Covid-19 threatens to increase regional inequalities. The fall in hours worked in London in the early months of the pandemic was significantly less pronounced than in other regions of the UK. The Government’s regionally tiered lockdown approach drew widespread criticism - ranging from progressive civil society leaders to Conservative MPs - for their impact on regional divisions.
Besides exploring the extent of regional inequalities, IPPR North’s research examines its causes. These include the large amount of decision-making power held in Westminster - the UK is the most politically centralised country of its size among industrialised nations - and the decade of regionally-imbalanced austerity since 2010. IPPR North's 'State of the North: Power up, level up, rise up' identifies key tests for the government's levelling up agenda.
The New Economics Foundation has analysed the dangers resulting from the economic fallout of Covid-19 and laid out the contours of an economic plan that aims to narrow regional inequality while promoting the transition to a low-carbon economy.
The Centre for Local Economic Strategies (CLES) publishes a range of resources on local economic development and community wealth building, devolution, and other economic policies relevant to the task of narrowing regional inequalities.
Regional Inequality, Reducing Inequalities
Covid-19 is not a "great leveller" - the impacts of the pandemic and economic shutdown have not been evenly shared. Early evidence showed that the effects have largely played out along existing lines of inequality. This means that people living in the most deprived areas of the UK are more likely to face extreme financial pressure as a result of Covid-19, they are also twice as likely to die from the disease.
Without an active plan to mitigate unequal health and economic impacts future waves of the virus could further deepen the “old and deep inequalities" at the heart of the UK economy, with potentially lasting effects. Lower earners, women and black and minority ethnic (BME) are more likely to have lost their jobs as a result of the pandemic, adding to existing economic disadvantage.
High levels of inequality exacerbate the spread and fatality of the virus, exemplifying how inequality can leave our society more vulnerable to crises. A more equal recovery would not only make our economy fairer, but more resilient too.
A recent report by leading policymakers for the OECD provides a survey of the broader economic and social harms of inequality and argues that tackling inequality should constitute one of the primary goals of economic policy.
The Institute for Fiscal Studies Deaton Review’s report on Covid-19 and Inequalities provides an overview of how the coronavirus outbreak has interacted with various aspects of inequality.
Writing for the International Monetary Fund, Professor Joseph Stiglitz reviews the international evidence on inequality and Covid-19, and what systemic measures are needed to change course.
The Institute for Health Equity's 'Build Back Fairer: The COVID-19 Marmot Review' examines the health inequalities and the socioeconomic determinants of health exacerbated by the pandemic.
According to ONS statistics women in full-time employment are paid 8.9% less on average per hour than their male counterparts. Looking at employees as a whole, women earned on average 17.3% less than men per hour. This is partly because women are over-represented in part-time employment - which is less well paid.
One factor behind the gender pay gap is illegal pay discrimination - unequal pay for equal work. Another key cause is the uneven burden of unpaid care work. This can limit women’s career opportunities in a variety of ways. The "maternity penalty" is a key example. This is the economic cost to mothers of taking on more unpaid child-rearing work, which inhibits their career progression and pressures them to take on more flexible, less senior, and less well-paid roles.
A variety of solutions could redress the gender pay gap. Increased transparency of pay and paths to promotion are intended to reduce the potential for pay discrimination.
IPPR’s The State of Pay report provides an overview of the drivers of the gender pay gap in the UK, and how these might be redressed.
The University of Oxford’s Professor Linda Scott has written on how Covid-19 threatens to widen the gender pay gap. Meanwhile, the Government has suspensed the requirement for larger companies to report gender pay data.
The Women’s Budget Group Commission on a Gender-Equal Economy’s final report further explores the drivers of the gender pay gap, particularly with respect to unpaid and undervalued care work.
Closing gender inequality requires investment in systems of social infrastructure. These include healthcare and social care services. Raising carers’ pay would both increase the resilience of the care system and benefit its predominantly female employees. Increased provision of care would relieve the burden of unpaid care that currently falls on women.
It is also important to invest in these systems when tackling other crises, such as the climate and environment emergency. Often, calls for investment to build back better focus on physical infrastructure - transport and energy systems, housing and so on. Spending on social systems is rarely classed as ‘investment’, despite the investment-like returns to spending in these areas - reflecting a possible gender-bias in economic policy making. Health and social care can provide low carbon jobs and are essential to providing high standards of living and undoing inequalities.
Analysis from the Women’s Budget Group estimates that investing in care as part of an economic stimulus package would provide almost three times as many jobs than the equivalent investment in construction. It would also narrow gender inequality and that it would be good for the environment.
The Greater Manchester Independent Prosperity Review argues that investment in physical infrastructure alone will not narrow the UK’s unusually pronounced regional inequalities, emphasising the need for social infrastructure spending.
The Biden Administration has allocated $400bn to investment in health and care systems as a major part of the infrastructure bill (The American Jobs Plan), marking a shift towards treating spending on social infrastructure as investment, as has been called for by the Women’s Budget Group.
The Progressive Economic Forum wrote to the Chancellor at the end of 2020 to prioritise investment in social infrastructure in the recovery phase of the pandemic.
Research from the Health Foundation finds that social care services in the UK have suffered from “decades of political neglect” and entered the Covid-19 pandemic in a fragmented, underfunded, and understaffed state. There is consensus on the need for “fundamental reform" to make the care system more resilient, expanding access to and increasing the quality of services.
Investing in public care services is also crucial for tackling gender inequality. Greater public care provision could relieve the burden on unpaid carers, the majority of whom are women - they make up 80% of the adult social care workforce. The action needed to tackle “stark recruitment and retention” challenges in care would improve pay and conditions for millions of women.
There is majority public support for extending the principles underlying the NHS to social care, making it free at the point of need and taxpayer-funded. Additionally, there is evidence that financialisation and marketisation have undermined care provision.
Modelling from the New Economics Foundation for the NHS analyses the economic and health cost to society of unpaid care work in England. They estimate these costs to be £37bn per year including lost tax revenue and mental health treatment. This underlines the economic case for investment in care and shows that "unpaid care isn't care".
The final report of the Women's Budget Group's Commission for a Gender-Equal Economy outlines the eight steps to create a caring economy. These include the creation of a Universal Care Service. It also argues that a care-led approach to economic policy could form the basis of economic renewal, akin to the creation of the welfare state in 1945.
IPPR have laid out proposals for a social care system “free at the point of need”, supported by research on public opinion and on the effects of financialisation in social care.
Badly designed policies worsen gender inequality. For example, pregnant women can be exposed to more risk or even excluded when their requirements are not considered.
Under the Public Sector Equality Duty, the Government is required to have due regard to equality. Some organisations have argued that the Government has fallen short of this obligation. The Women’s Budget Group, for instance, has argued that public bodies need to undertake meaningful Equality Impact Assessments (EIAs) to ensure that policy does not discriminate against women, ethnic minorities and other groups protected under the 2010 Equality Act.
Many economists have argued that assessments of policy from government, as well as the media, should be based on a broader account of economic and social progress. This means targeting the reduction of inequalities as well as focussing on GDP growth.
The Intersecting Inequalities project and the Equality and Human Rights Commission’s report both looked into tax and welfare reforms. They found that post-2010 economic policy has disproportionately impacted women, ethnic minorities, disabled people and other discriminated-against groups, exacerbating existing inequalities.
The Women's Budget Group set out the lessons of 2020 and the recommendations that policymakers must consider if they are committed to improving their response to the pandemic and tackling the gender inequalities it has exacerbated.
The Women’s Budget Group has curated a set of resources on gender budgeting - the analysis of tax and spending decisions from a gender perspective - whose approach can be applied to analyse other aspects of inequality.
Tackling racial inequality is inextricably linked to advancing the welfare of migrants to the UK. Just over half of BME residents of the UK were born overseas. Public attitudes to race and immigration are intimately connected.
Covid-19 has highlighted both the positive contribution migrants make to society and the challenges that they face. Migrants are disproportionately likely to work in key worker roles. Around 20% of care workers are foreign nationals, the majority from outside the EU. Many of these roles are less well paid.
Often migrants have restricted access to public services and financial support. They pay twice for the NHS through their taxes and the NHS surcharge. They face significant barriers to care despite their outsized contribution to the UK's health and care systems.
In their report Access Denied: The Human Impact of the Hostile Environment IPPR provides a survey of the impact of the UK’s approach to migration on wider racial discrimination, housing, health, and vulnerability to violence.
The Women’s Budget Group analyses the effects of the pandemic on migrants and call for the end of the “no recourse to public funds” policy, which prevents many migrants from accessing social security.
The Joint Council for the Welfare of Immigrants (JCWI) published a report looking at “the lives of undocumented people in the UK and a new campaign for simple, workable reforms that could break the cycle of insecure immigration status”.
In its submission to Parliament’s Human Rights Joint Committee Black People, Racism and Human Rights inquiry the Runnymede Trust criticised the lack of equality impact assessment in the response to Covid-19. They point out the failure to publish plans to protect BME lives given their disproportionate vulnerability.
Overlooking the distinct experiences of different minority groups can undermine the effective communication of policy. There is evidence, for instance, that minority communities are less aware of the Government’s Covid-19 public health messaging. The task of communicating this to minority communities has been left to voluntary organisations, undermining the overall pandemic response.
The Intersecting Inequalities project and the Equality and Human Rights Commission’s report on tax and welfare reforms both found post-2010 economic policy to have disproportionately impacted ethnic minorities, women, disabled people and other discriminated-against groups, exacerbating existing inequalities.
The Women’s Budget Group argues that the Government has fallen short of its Public Sector Equality Duty and outlined how meaningful Equality Impact Assessments can redress.
Good data, broken down by ethnicity and other protected characteristics, is a prerequisite for tackling inequalities. The Runnymede Trust has highlighted the need to disaggregate furlough and redundancy data by ethnicity to monitor the impact of the Government’s Covid-19 response.
Even before Covid-19 there were calls for governments to write off some or all of mounting personal debt, on grounds of social justice and the impacts of debt on the poorest in society.
Some governments have now taken measures to guarantee existing or new corporate and/or personal borrowing to prevent defaults. There are two main drawbacks: firstly, the guaranteeing of loans transfers risk from private banks to the state without imposing costs on the former. Secondly, it can create moral hazard by failing to differentiate between more and less creditworthy borrowers. Guaranteeing borrowing may be a less effective measure than other approaches, such as converting corporate loans to equity.
The flip side of reducing debt is to increase incomes. Many governments have already introduced such measures temporarily – for example, the UK’s coronavirus furlough scheme. More broadly, campaigns and proposals for a universal basic income or similar argue for a permanent floor on incomes. One key issue with income support is that unless high outgoings are reduced, much of it will accrue in practice to banks, landlords and other rentiers.
Economist Johnna Montgomerie proposes a cancellation of a significant portion of the UK’s household debt in a blog for Sheffield Political Economy Research Institute, starting with those most harmful to poorer people.
The End the Debt Trap coalition - which includes the New Economics Foundation, Toynbee Hall, Jubilee Debt Campaign and others - call for the cost of credit, including on credit cards or overdrafts, to be capped. The government has already done something similar by capping payday loan rates.
At the start of the coronavirus outbreak Emmanuel Saez and Gabriel Zucman, writing for Economics for Inclusive Prosperity, set out the rationale for government becoming a payer-of-last-resort by guaranteeing incomes.
Analysis from the IPPR suggests that the government's emergency responses to the Covid-19 pandemic will exacerbate inequalities by insulating creditors and asset-owners from the worst effects of the pandemic while driving many of the most financially vulnerable deeper into debt.
Central banks around the world have already reduced interest rates to zero or below to reduce borrowing costs and discourage saving. Some central banks have moved towards negative interest rates – charging certain depositors for keeping their cash in the bank. While some argue for going further, others worry that negative interest rates could reduce the stability of the system.
Central banks have also restarted and expanded post-crash programmes of quantitative easing (QE) – colloquially known as printing money, but in practice taking the form of asset purchasing programmes.
These programmes attempt to place a floor beneath falling asset prices to prevent insolvencies and a destabilising cycle of debt deflation. One criticism of QE programmes has been that they exacerbate social inequality and disproportionately benefit high-carbon firms. Alternative green QE versions have been proposed but not adopted.
Gabriel Chodorow-Reich, in a paper for the Brookings Institute, weighs up the long-term costs and benefits associated with lower interest rates and quantitative easing. He finds that in the US, wider system stability has not been affected, even though low interest rates since the crash encouraged banks to take riskier bets.
The Institute for New Economic Thinking concludes that QE programmes in the USA after the financial crash increased inequality. They suggest this is largely because it exacerbated deep-seated structural problems in the economy, such as decreasing job prospects and wage stagnation.
The New Economics Foundation and academics from UWE, SOAS and the University of Greenwich find that post-pandemic QE disproportionately benefits high-carbon companies. In response they propose new low carbon versions of QE to correct this.
Policymakers can also introduce less targeted financial taxes such as bank levies, which can help to curb systemic risk and ensure that the taxpayer benefits from the rewards of financial risk-taking rather than simply bearing the costs.
The UK introduced both a corporation tax surcharge for banks and a bank levy in the wake of the financial crisis of 2008. This was levied on the global balance sheets of large banks operating in the UK, but the revenue generated by the tax has fallen since the financial crisis in part due to changes to its structure introduced in 2016.
Sheffield Political Economy Research Institute assesses the effectiveness of the bank levy and the corporation tax surcharge, and the impact of subsequent changes to these taxes. They warn that the tax now appears to hit smaller and challenger banks more than global banks, and that those that contributed the most to the 2008 crash are not bearing the highest cost.
Michael Devereux, Niels Johannesen and John Vella of the Saïd Business School assess the effectiveness of bank levies across Europe, arguing that while they did reduce risk, they had less of an impact on systemically important financial institutions.
The principle of financial transactions taxes can also be applied to currency trading. Currency transactions taxes (CTTs) act to slow down currency transactions by raising their cost, thus reducing volatility. This makes them effectively a form of capital control – tools that can be used to help regulate the flow of money into and out of economies.
As Covid-19 unfolded many countries faced significant capital outflows, strengthening arguments for using CTTs as a partial response, particularly for emerging markets.
The International Monetary Fund’s series of recent papers marks a softening in its position on capital controls, advocating their use in certain circumstances. One of the tools they cautiously recommend using is currency taxes.
IPPR calls for the introduction of a currency transaction tax. They suggest that the tax starts low and rises over time, with an additional rate levied for "speculative" large capital outflows. They note that such a tax could be introduced unilaterally but would be more effective if internationally coordinated.
Financial transactions taxes (FTT) can be used to shift the incentives investors face when deciding on their trading strategies. In particular, such taxes can disincentive high-frequency trading, which is associated with rising volatility in financial markets and has created opportunities for rent-seeking at the expense of longer-term institutional and/or productive investors.
They can also generate significant revenue. At least forty countries already have taxes on financial transactions of one kind or another, including the UK where stamp duty acts as a form of FTT on trading in equities. It was estimated in 2017 that a modest extension of a FTT in the UK could raise an estimated £23.5 billion over the course of a Parliament.
The Brookings Institute assesses proposals for the introduction of a FTT tax in the US, noting that it would be overwhelmingly paid by the most well off in society. The Institute on Taxation and Economic Policy argues that FTTs can curb inequality, improve markets, and raise “hundreds of billions of dollars” over a decade.
Copenhagen Economics models the GDP implications of such a tax for Germany, suggesting it could raise between €17.6 billion and €28.2 billion per year.
The kinds of FTT used in different jurisdictions are explored in this report by BNY Mellon.
Over the long term, there are proposals for the better use of macroprudential tools, financial policies that aim to ensure the stability of the system as a whole, to strengthen the resilience of the finance sector and equip it to better deliver on wider social objectives, such as building a net zero economy.
This includes rehabilitating credit guidance – rules on how credit should flow to particular parts of the economy, such as green investments.
The UCL Institute for Innovation and Public Purpose argues for the reintroduction of credit guidance. It suggests this could deliver productive investment in a low-carbon economy, steering away from less productive and risky finance.
IPPR’s Commission on Economic Justice recommends using three major macroprudential tools to limit credit to the financial sector and contain rising asset prices. One of its proposals is for the Bank of England to adopt a target to limit house price inflation.
While the 2008 financial crisis centred on the banking sector, the Covid-19 crisis has shown that there are huge vulnerabilities in other parts of the financial system – often referred to as the shadow banking system. Shadow banking entities offer services that are similar to those provided by commercial banks but are not regulated in the same way. They include some investment banks, mortgage companies and firms that deal with securities.
This lack of regulation means that shadow banking contains the most immediate risks to financial stability as a result of the economic downturn, as a result of poor regulation for the last decade. Some argue that particularly systemically important non-bank financial institutions – such as insurance companies or other institutions that might be seen as too big to fail – must also be protected and regulated to protect the integrity of the financial system as a whole.
Professor Enrico Perotti argues in a column for Vox EU that the coronavirus shock poses a serious liquidity risk for the shadow banking sector and that support to this part of the financial system is critical.
The Financial Times editorial board has argued that policymakers were right to introduce regulation that began to shift risk from banks to non-bank financial institutions, and that investors should be prepared to lose their capital during this crisis.
Mark Sobel, chairman of the US Official Monetary and Financial Institutions Forum, recommends that policymakers undertake a review into the shadow banking sector when this crisis is over to determine what went wrong and what fixes are needed. He identifies several failures in regulating this sector and that financial stability is under threat.
Excessive risk-taking in the financial industry could be disincentivised and how much people are paid and the way profits are distributed can play an important role.
Goldman Sachs made headlines by taking the decision to retain its dividends payout despite the Federal Reserve’s guidance against doing so. The UK’s Prudential Regulatory Authority has already requested that banks scrap dividends distributions throughout the Covid-19 pandemic, as have many other national regulators.
Some proposals go further, arguing that after anti-banker sentiment following the financial crash, the current crisis is the time for regulators to require that ethical banking become the norm.
The Bank for International Settlements argues that policymakers should impose blanket constraints on profit distribution and that authorities should attempt to harmonise these measures across jurisdictions.
The Centre for American Progress argues for a suspension of all distributions, including discretionary bonus payments, instead focusing on rebuilding capital.
Professor Nizan Geslevich Packin argues in Forbes that policymakers should introduce new measures to promote ethical banking during Covid-19. Her recommendations include a new fiduciary duty for banks, and for them to be required to be flexible with customers facing difficulties.
Ensuring that banks hold enough capital to withstand a moderate crisis is a critical part of macroprudential policy and was a key response to the 2008 crash.
In 2010 the Basel III regulatory reforms allowed regulators to require banks to increase capital held during financial upswings and reduce it during downturns.
Some argue that the time is right for loosening capital requirements to encourage financial institutions to keep lending, although there are warnings that this will increase the risk of a future crisis.
Finance Watch warns that easing bank regulation and supervision could further increase the risk of a financial crisis and cautions against abandoning requirements for banks to hold more capital in times of crisis.
Researchers at the Bank for International Settlements outline a quantitative assessment of the impact of releasing bank capital buffers in response to the crisis. In the event of a financial crisis similar to 2008 it warns that without loosening regulatory requirements lending would severely contract.
Breugel suggests that existing bank capital requirements are not enough to avoid major crises. It proposes a tighter set of capital requirements for those parts of the system that are the most leveraged.
Creating a net zero economy by 2050 will cost between £39bn and £78bn (1-2% of GDP) a year. There is a crucial role for the government in establishing a credible commitment to decarbonisation, including ending carbon subsidies and increasing public investment, but the target will only be met if private financial institutions direct funds in ways that can reduce emissions.
Central banks have so far focused on the risks to financial stability from climate change instead of steering capital into green investment. They could take into account the carbon intensity of assets when conducting monetary policy by reducing the cost of capital for low-carbon sectors.
There are also calls to stress-test financial institutions for their resilience to climate risks and to impose higher leverage requirements on banks with exposure to assets – for example, fossil fuels investments – that could become worthless as a result of climate change.
Columbia University Professor Adam Tooze argues that central banks need to move from managing the financial risk posed by climate change to altering the course of economic growth so as to minimise those risks arising in the first place.
The Institute of Innovation and Public Purpose (IIPP) have produced a working paper on managing nature-related financial risks for central banks and financial supervisors.
UCL’s Institute for Innovation and Public Purpose and the EIC-Climate KIC set out a comprehensive framework for green financial reform, including the stress-testing of UK financial institutions for how resilient they are to climate change.
Finance Watch demands that regulators break the "vicious circle" – whereby finance supports fossil fuels, and those same fossil fuels threaten financial stability – by imposing higher capital requirements on banks exposed to stranded assets.
Green finance
The high level of financialisation and financial sector profitability in the UK is partly enabled by the state. This includes the implicit government guarantee it will not allow banks to go bust, as seen during the 2008 financial crisis.
There are growing concerns over the financial sector’s ability to supply the funding needed to meet the economic challenges we face. This has focused attention on the ownership and accountability of the UK’s unusually concentrated financial sector.
According to the Bank of England, the proportion of UK bank credit flowing to non-financial firms has fallen to just 15%, with just a third going to SMEs. There are calls for credit guidance policies to steer this lending towards productive sectors and away from less desirable options, such as mortgage credit. This could be done, for example, by the Bank of England capping the amount banks can offer to various parts of the economy. Other proposals include changing ownership within the finance sector.
In a report for the Institute for Government, Giles Wilkes, a former Downing Street adviser, argues that the scale of economic turmoil unleashed by Covid-19 means new institutions will be needed to support financing, including a publicly-owned State Reconstruction Bank.
Onward published a report calling on the Treasury to establish a national investment bank to unlock £16 billion in capital for investment in small and medium sized businesses, municipal infrastructure and project finance to level up lagging regions.
UCL’s Institute for Innovation and Public Purpose argues that governments should experiment with credit guidance policies to support sustainable and inclusive growth.
The IMF has argued that public banks can assist with the government responses to the pandemic by “temporarily [boosting] their support to households and firms, mainly through (subsidised) loans and loan guarantees."
The growth of the financial sector and its profitability has far outpaced wider economic growth. This is partly because governments have deregulated financial systems and removed obstacles to cross-border movements of capital. In the UK this process has developed to such an extent that some argue finance is outsized and divorced from the needs of the non-financial, or real, economy.
The pandemic has tested the weaknesses of the financial system. In the short term governments and central banks will attempt to prevent a wave of crippling defaults. This must be done without creating undue moral hazard, encouraging reckless or otherwise unwise lending or borrowing. The need remains to ensure the financial system is made more resilient to crises in the long term, and that it is a core part of a sustainable and more equal economy.
Some proposed reforms focus on reducing financial activity that has little social or economic value. This could be through the imposition of transaction taxes on high frequency trading or foreign exchange dealing. There are calls for credit guidance policies to steer bank lending towards productive sectors of the economy.
Other proposals concentrate on challenging the dominance of the country’s big four clearing banks – Barclays, HSBC, Lloyds and NatWest – on lending to SMEs. There have been calls for a radical decentralisation of the banking sector through the establishment of regional stakeholder banks or for the creation of state investment banks and publicly banked venture capital funds to provide patient capital to firms.
The Sheffield Political Economy Research Institute argues that the UK is suffering from a "finance curse" and that improving the country’s economic performance requires the government to take steps to shrink financial sector activity.
Finance Watch proposes twelve reforms of the financial sector including: simpler and tougher financial regulation; measures to force creditors to shoulder a bigger share of losses; and public ownership.
The Bank of International Settlements shows that financial sector growth is a drag on productivity growth. This is because the financial sector competes with the rest of the economy for resources and that credit booms damage R&D-intensive firms.
Professor Colin Mayer explains why the UK’s big four clearing banks are ill-suited to funding the long-term growth of SMEs and calls for a new state-backed venture capital fund.
Geographically-focused banks can play a major role in boosting investment, particularly in disadvantaged areas. They can help to retain wealth within local areas and support greater economic resilience. Distinct from merely the local branch of a high street bank, there are two types of such bank.
The first are localised branches of publicly-owned national investment banks, with a specific remit to support the investment needs of local areas. In the UK it has been proposed that this could be done by creating publicly-owned Post Banks through the Post Office network, or by the government retaining its stake in the Royal Bank of Scotland (RBS) and repurposing it as a series of local banks.
An alternative model would see the expansion of locally-focused cooperative, credit union and community finance organisations. Such institutions have a greater emphasis on high-street and branch banking and excel at lending to smaller businesses.
There is a growing movement to create a network of regionally owned and controlled mutual banks, where customers automatically become co-owners.
All In, the Royal Society of Arts and others make the case for a community savings bank for the North East, in response to the abandonment of many communities due to the closure of retail bank branches. South West Mutual is aiming to be a regional high street bank exclusively focused on the south west of England.
The New Economics Foundation proposes that the UK government retains its majority stake in the Royal Bank of Scotland and transforms it into a public banking network.
The Communication Workers Union and the Democracy Collaborative propose the creation of a publicly owned Post Bank network supported by regional development banks.
Common Weal presents the case for a local, mutually-owned 'public-good banking network' in Scotland to restore bank branches to communities which have lost them.
The New Economics Foundation explores the benefits of cooperative banking. It cites international evidence showing that mutually-owned banks are more focused on supporting high streets, are better at lending to SMEs, and are likely to be better managed and more stable in a crisis. It has published a guide for those who might wish to establish a new regional community bank.
There has been a Development Bank of Wales since 2017, and a Scottish National Investment Bank was launched in late 2020, supported by £2 billion of public funding over its first ten years.
The bank's mandate is to finance investment to realise Scottish economic priorities, including a greener economy. Some claim its mandate is not tight enough and it should be more deliberately focused on helping Scotland respond to environmental breakdown and supporting ethical investment.
UCL Institute for Innovation and Public Purpose sets out a framework for a mission-focused Scottish National Investment Bank. This maps different potential national missions such as decarbonisation to the sectors and solutions that are most in need. It also recommends meaningful public participation in deciding these missions, and for specific, measurable targets to judge whether they are being delivered.
Friends of the Earth Scotland and others have campaigned to secure a more specific set of ethical investment criteria and low-carbon purpose to the Scottish National Investment Bank.
State-backed investment banks exist to provide finance where private banks may be reluctant to do so – in disadvantaged regions, new technologies or in sectors where returns are not considered high enough or too risky.
They are particularly valuable for providing 'patient' capital. This is long-term finance that is beyond the time horizon of most commercial banking but which is essential for innovation and strategic economic development. In very different circumstances, China and Germany both provide evidence.
The UK is unique among major advanced economies in not having a national investment bank. Its advocates argue that such a bank would increase investment in innovation and meeting major mission-focused industrial transformations, such as building a green economy. The depth of the economic crisis caused by Covid-19, and its potential impacts on private finance, has added new urgency to these proposals.
Giles Wilkes argues for the Institute of Government that the scale of economic turmoil unleashed by Covid-19 means new institutions will be needed to support investment financing, including a publicly-owned State Reconstruction Bank.
For the Progressive Economy Forum, Professor Stephany Griffiths-Jones and Peter Rice explore key questions for the design of a UK National Investment Bank, including getting its mandate right, and funding and oversight models.
The UCL Institute for Innovation and Public Purpose examines the design and record of national investment banks in eight countries across the world, and draws lessons on how such banks can best provide patient, strategic and 'mission-oriented' finance.