By Alan Lockey
Viewed from almost any angle, the UK government’s Coronavirus Job Retention Scheme — to give the furlough policy its official title — is a staggering departure in the state’s relationship with the economy. Not since the foundation of the welfare state in 1948 has a British government intervened so emphatically to ameliorate labour market outcomes. And even then not to subsidise employees’ wages directly, as now.
The policy’s vast scale is a story best told in numbers. According to HMRC data, at least 9.4 million workers have been furloughed; more than a quarter of the UK’s entire labour market. The cost to the exchequer stands at an estimated £14bn a month and, by the time the policy is wound down, this could even top £100bn. With the economy in freefall, there is only one way the government can fund this: borrowing. As such, the UK’s public deficit is expected to exceed 15 percent of GDP, a level not seen before in peacetime. Total public debt is bigger than the economy for the first time since 1963.
Whether such largesse will prove to be well spent depends on what comes next. There is no question the scheme has saved thousands, if not millions, of jobs. Were furloughed workers instead unemployed — as seems a reasonable counterfactual — we would be living through easily the highest levels of unemployment Britain has seen as an industrial economy. For some parts of the country — as RSA Future Work Centre analysis underlines — this scenario would see one in three people of working age without a job.
Still, the money may ultimately prove to be ill spent if the scheme does not finish its job of providing a bridge beyond the pandemic to more stable economic conditions. As an excellent essay by the labour market expert Paul Gregg puts it, the key variable for predicting unemployment is how threatened firms feel about potential bankruptcy— that is when mass redundancies really take hold. The million-jobs question is whether the government’s current timetable to end the scheme in October will be enough to aid the survival of businesses at the sharp end of the pandemic’s demand shock.
The headwinds are not encouraging. We know this is the biggest economic shock Britain has faced since the South Sea Bubble burst three centuries ago. We know too that the relaxation of lockdown rules and the mass restructuring of the economy into socially distant business models can only partially soften the hit to demand. Worst of all, we know that already disadvantaged groups — school leavers, gig workers, workers with disabilities — will likely be hit hardest if unemployment rises substantially. But, as Gregg implies, things could get worse if spending the vast amounts of money committed so far do not stop this impending labour market catastrophe. In other words, we could end up with the bill but not the benefits.
The three conditions for change
The government’s objective should be to nurse the economy fully through to a softer landing, ideally in a world where a vaccine or game-changing treatment pathway exists. But whichever way it goes, the gargantuan set of decisions it faces will shape the possibilities for progressive change in the labour market for a generation. The wider social lessons from the furlough scheme therefore have profound relevance for the RSA’s Bridges to the Future campaign, which seeks to understand the relationship between crisis and change in order to capitalise on any opportunities to ‘build back better’.
This is not an exercise in Pollyannaish wishful thinking either; a potted history of the UK’s contemporary political economy shows how radical change, certainly with regard to the labour market and its institutions, has an intimate relationship with crisis. True, the two ‘hinge moments’ of 1945 and 1979 are overly lionised to the point that it can mistakenly seem as if our political economy has remained largely static outside of them. But it is nevertheless impossible to understand the post-war construction of a welfarist mixed economy without the war, nor to imagine its overhaul by freer markets, monetarism and Mrs Thatcher without the preceding decade of industrial unrest and stagflation.
On the other hand, as the more recent experience of the 2008 financial crash shows, crisis is not enough on its own. It is not just that the forces unleashed can be harnessed most successfully by those who wish to maintain the status quo (as arguably happened after 2008); it is also that things can always get worse. This is worryingly easy to imagine with regard to the future beyond Covid-19. In our desperation for recovery growth, the climate emergency maybe deprioritised. The huge debt overhang could curtail much needed investment in the public realm. Rising unemployment could lead to a focus on the quantity of jobs rather than good work.
To guard against this backsliding and focus progressive efforts, the RSA has developed a robust analysis of where long-term intentional change is most likely to emerge from the crisis. Three conditions are crucial:
· Where significant demand and capacity for change existed before the crisis;
· Where the demand for change increases during the crisis and where the crisis response sees a different future being prefigured; and
· Where, as societies and institutions emerge from crisis, there are political coalitions, practical policies and innovations ready to take advantage of a greater openness to change and adjustment.
In terms of the first condition, there can be little doubt there is a dire need to reimagine the UK’s ‘social contract’ for work. For the past two years the RSA Future Work Centre has been exploring how technology and public policy could be harnessed in pursuit of a future where good work is enjoyed by all. Our enquiries have found, without question, that such a world remains a distant dream for many workers in the UK. There are a whole host of issues, including low levels of training, poor management, insufficient control and autonomy, and a declining labour share of wealth relative to returns on capital.
But the most fundamental problem of all is that our labour market is blighted by rising levels of economic insecurity.
Ending the age of insecurity
Over the last two decades, in-work poverty has risen steadily. According to the Joseph Rowntree Foundation, 56 percent of people living in poverty in the UK live in a household where at least one person has a job; up from 39 percent two decades ago. Wages have flatlined for roughly the same period: between 2011 and 2019 average weekly earnings grew by just 0.1 percent. This glut of low pay can also be very difficult to escape; in 2014 the Resolution Foundation found that three quarters of employees who were low paid in 2001 were still stuck in low pay a decade later.
This material insecurity can leave deep psychosocial scars: people feel hemmed in on all sides. According to an RSA Future Work Centre report published last year, 30 percent of all workers do not feel they earn enough to maintain a decent standard of living. A staggering 36 percent would struggle to pay an unexpected bill of just £100. Add this to the rise in contract types — such as zero-hour contracts — where income patterns are more volatile and the pernicious effect of aggressive welfare conditionality, such as sanctioning regimes, and the overall effect is that work no longer works for millions of people.
Indeed, perhaps most worryingly of all, this ‘age of insecurity’ has coincided with a labour market that has excelled at job creation. That, to put it mildly, will not be the experience of the next few years, nor is it likely to be sustained into an era where the threat of labour-displacing technologies, such as artificial intelligence, becomes more acute.
The question this begs strikes to the heart of an economic model that is fraying at the seams. For if we cannot deliver broad-based prosperity when jobs are plentiful, what chance do we have in the much more challenging environments we face now and in the future? The answer, without serious reform, is little to none. Therefore, it seems important to explore whether a policy of the furlough scheme’s magnitude can provide a bridge to a world where good and economically secure work is enjoyed by all. Does the policy set any helpful precedents that can be built upon? And, if so, what sort of better future might it prefigure?
There are perhaps two ‘prefigured precedents’ that emerge from furlough as possible progressive bridgeheads: a universal one and a corporatist one.
The first and more obvious reading is the universal one; the furlough policy reawakens the founding animus of the welfare state that government should guarantee a minimum and generous level of security for all. This could speak to a future, long advocated for by the RSA, where the state provides every citizen with a universal basic income.
The second corporatist precedent is subtler but can be found in the words Chancellor Rishi Sunak used when announcing the scheme on 20 March: “And can I put on record my thanks to the Trades Union Congress, the CBI and other business groups, for our constructive conversations. We said we would stand together with the British people — and we meant it”.
In many European countries such thanks might be viewed as innocuous, if not expected. However, the image Sunak portrayed, of the leaders of British capital and labour emerging from the Treasury having effectively negotiated a de facto collective agreement for the entire nation, seemed a genuine break with our more antagonistic political culture. This ‘social partnership’ approach is something to build upon too; from a systems thinking perspective, trade unions can be viewed as the critical negative feedback loop that counterbalances capitalism’s tendency towards inequality. The diminishment, over the past few decades, of workers’ collective power over the economy should be seen as a systemic brake upon securing good work for all.
A social contract for good work
Last month, the RSA Future Work Centre published a report, which argued that these two principles are central to reimagining the social contract for work. Reflecting on two years’ worth of enquiries, we concluded that the responsibility for securing good work should, over time, shift towards worker voice organisations, principally trade unions. Time and again, we found the best global practice on good work involved innovative trade unions guaranteeing workers’ security and flexibility; ‘flexicurity’, to use the inelegant public policy portmanteau.
Here in the UK, the flexibility side of that equation is rarely the problem. In fact, our hyper-flexible labour market — what the Taylor review of modern working practices called the ‘British way’ — should be viewed as one of our distinctive economic strengths, almost certainly linked to the high levels of job creation the country enjoyed before the pandemic. The problem, as that review pointed out, is the flexibility it provides is often ‘one-sided’; workers in the gig economy, for example, must trade radical flexibility for diminished economic security.
The public debate about how to correct this, however, typically focuses on new regulation: strengthening right to request entitlements, clarifying what legally constitutes self-employment, or even banning certain contract types, such as zero-hour contracts. Agile regulation will always have a place in delivering good work and the government’s streamlining of labour market enforcement into a single enforcement body (SEB) is a positive move in this respect. But if trade unions were institutionally embedded between market and state, collective agreements might be able to provide an alternative path for resolving such issues, thus allowing a more sector-specific and worker-led approach.
This highlights how our labour market weaknesses carry an institutional element. Currently, we outsource the mitigation of any vulnerabilities almost entirely to one body: the state (and a highly-centralised one at that). To put it mildly, this is sub-optimal. We should not always have to rely on the blunt, sector-blind instrument of state legislation. Trade unions and other worker voice organisations should be strong enough to ensure workers enjoy the freedom they want alongside the security they need.
This reimagined social contract would require a change of culture in parts of the British labour movement towards genuine social partnership and away from the ‘creative tension’ of labour-versus-capital antagonism. Certainly, it will require a paradigm shift in how our political culture views unions’ societal role. Most of all, however, it will take time.
This means that, in the interim, the state will still have to take on a nuanced and redesigned role. In fact, even in the long run a ‘stakeholder capitalism’ model of the labour market would not mean the state simply withdraws from delivering good work. In this context, the campaign for a universal basic income should not be seen as the enemy of a union-centred model; the universalist and corporatist principles of the furlough scheme need not be juxtaposed against one another. On the contrary, one argument for a universal basic income, as the economist Martin Sandbu has pointed out, is its ability to empower workers to say no to intolerable terms and conditions. This might force firms to compete for labour by delivering good work, whilst also allowing unions a stronger base from which to level up.
Pragmatically, this makes sense: those countries with co-determinist institutions, or the corporatist delivery of welfare benefits, are often the same countries where universal entitlements are strongest. However, we are getting somewhat ahead of ourselves. The furlough scheme may have been heavily influenced by Norway and Denmark, but we remain some way away from realising a path towards a Nordic welfare state, let alone one built around a universal basic income. As the pandemic’s economic crisis develops, progressives must steel themselves for their ambitions to be assailed by countervailing political forces.
The coming battle for change
For universal basic income, the key will be capitalising on any embers of solidaristic sentiment before cold fiscal realities extinguish them. There are some cautious grounds for optimism. The government is unlikely to reprise the Cameron administration’s austerity economics; the current Prime Minister’s political instincts, not to mention his new voter base, do not strain in that direction. What is more, the experience of furlough and, if we cannot avoid it, high levels of unemployment might reshape societal attitudes on welfare. Sadly, the government has reactivated much of the aggressive conditionality associated with universal credit. However, if exposure to sanctioning regimes is politically mainstreamed by the imminent recession, one admittedly depressing silver lining might be a broader movement against such punitive injustice.
More difficult to predict is the political reaction to the pandemic as a force majeure — where no one is to blame — rather than a ‘man-made’ recession like 2008. The politics are brutal, but traditionally recessions push voters into a more zero-sum view of the economy, with interest groups vigorously competing for scarce resources. That may not happen this time, but if not, then that is still a double-edged sword. For whilst it should contain any attempt at deep spending cuts, the same political dynamic probably also counts against progressive tax rises. The key for universal basic income — and indeed any other vitally needed expansions of the welfare state, such as in social care — will be to juggle a solidarity impulse that tends towards universalism, with the need for a progressive financing mechanism that contains a very different idea of fairness.
For the corporatist principle, the headwinds are completely different: a messy interaction between perceptions of the UK’s political culture and the practicalities that flow from trade unions’ relative decline over the past four decades. In short, the view is that we do not have strong enough unions to build upon and that they were way too antagonistic to employers even when we did.
This latter point bleeds into a broader diagnosis of the UK's political culture, which sees oppositional antagonism between two tribes — be they worker and manager, or Labour and Conservative — as immutably built into our systems. This is undeniably a fair observation but responding to it takes us close to an inevitably circular argument. If, at a first principles level, you view such antagonism as a problem — which we do — then you are always likely to seek opportunities to change that. The pandemic appears to present one such opportunity, not just in terms of the furlough scheme, but also the heightened need for real collaboration to ensure the process of reorganising our workplaces into socially distant business models takes account of both worker safety and economic need. Whether that need is acted upon, however, is a matter for government, employers and unions.
There is also an intellectual battle within the union movement itself. As Rebecca Zahn of Strathclyde University details in depth, the British labour movement has often viewed moves towards a more European model of co-determination with suspicion (despite British unions being instrumental in the post-war establishment of the model in Germany). I would argue the German example of works councils entrenches unions at the heart of workplaces in a way that accentuates their social status and stakeholder power.
It would appear too that the current TUC General Secretary, Frances O’Grady, would agree; her 2013 Attlee lecture was a powerful call for unions to explore the ‘industrial democracy’ of the German model. On this there are helpful moves from within government to build upon, such as the recent reduction of the thresholds in the ICE (Information and Consultation of Employees) regulations, that make it easier for employees to request many of the consultation rights enshrined in German-style works councils. Nevertheless, it is a battle that is far from won.
Then there is the government. As it stands, it looks (to put it mildly) like the government is uninterested in universal basic income. Meanwhile, whilst tripartite discussions around the furlough scheme have been constructive, it would be a sharp break from the post-1979 history of the Conservative Party if they were to become a model for long-term economic management. Again, we would argue that collaboration with other sources of political authority — not least the public — could lead to a much more unified and effective approach to handling the pandemic.
As the RSA’s Chief Executive, Matthew Taylor, has suggested, a new model of leadership could become “the most profound shift” of all and the furlough scheme, as arguably the most effective policy in the government’s response so far, is testament to taking a more cooperative approach. And yet in recent weeks the government appears to have gone more and more into its centralised shell, with a far less open stance to basic democratic accountability, let alone new models of decentralised decision-making.
But let us not overdo the pessimism. The government will soon introduce an Employment Bill that presents an opportunity to place good work at the heart of the crisis response. It has also so far resisted various industry calls to reduce the minimum wage, perhaps demonstrating a determination to ensure the good work agenda is not lost as unemployment rises. Then there is the Prime Minister’s promise to meet the moment with a Franklin D Roosevelt-style “new deal”.
That is certainly the level of response we will need. And, historically speaking, the UK’s social contract is capable of such extraordinary and unexpected lurches. In the 1930s nobody would have bet upon the home of laissez-faire capitalism becoming the world’s leading experiment in democratic socialism in 1945. Likewise, in the 1970s, few would have predicted that the country that led the charge for a welfarist mixed economy would be front and centre for its dismantlement. The Covid-19 pandemic is a crisis of historic magnitude and the furlough policy is arguably the single biggest state intervention by a British government — including the 1945 Labour government — in our labour market. Change is inevitable and the RSA will be at the vanguard of pushing it in a positive direction.
Alan Lockey is Head of the RSA Future Work Centre and an Associate Director.
