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The headline measure in the ‘Plan for People’s Jobs and Incomes’, announced by the chancellor on 20 March, was the Job Retention Scheme (JRS), under which the government would pay 80 per cent of the salaries of furloughed employees, up to £2500 per month.
Universal Credit was also boosted by around £20 per week for the coming year, but its income and assets tests were not eased. Thus a furloughed worker can receive £2500 per month from the state, while a single person on Universal Credit receives around £400 (plus a contribution to rent, if renting), and a third, with too much saved to qualify for Universal Credit, gets nothing.
Challenging the logic of the coronavirus response
Some of these inequities may be inevitable given the conditions of emergency, but this should not stop us from challenging them. The response to the 2008 financial crisis was marked by vast differences in the protection against loss provided by the state to different classes of firms and people.
Some of these inequities may be inevitable given the conditions of emergency, but this should not stop us from challenging them.
Notoriously, the banks received substantial public support, but nonetheless paid out inflated salaries and bonuses, while holders of financial assets benefitted from central banks’ support for markets. Monetary profligacy was matched by fiscal austerity, which brought steady erosion in welfare benefits in real terms and a devastating reduction in central government funding for local authorities.
It has proved difficult to nail the nature and scale of social injustice in the response to the financial crisis. As the Bank of England has loftily explained, it would have been worse for everyone if emergency policies had not been adopted. Financial companies with the good fortune to be located in the monetary world of risk are thus located in a different value system to everyone else, where bailouts can be justified by their wider economic benefits despite endemic moral hazard. We see some of the same logic – that wider economic benefits justify badly distributed government beneficence – in this crisis.
Is the scale of the Job Retention Scheme justifiable?
The central economic claim made for the Job Retention Scheme is that it will prevent valuable ‘matches’ of employee skills with employer requirements being destroyed, ensuring that, when demand returns, companies can quickly restore their operations. But there are reasons to doubt whether the scheme is really about matches and, even if it was, whether the scale of government support, without any employer co-payment, is justifiable.
The narrative about the scheme dresses up a social policy measure to support incomes in the language of economic efficiency. And of course such a measure is needed: it seems churlish to object that the economic rationale is largely spurious, when the scheme will do a lot to alleviate the distress of the lockdown.
But there is a wider issue at stake. The coronavirus poses risks to life and income that are much more widely distributed than the standard social risks of unemployment and disability. While people are affected in different ways, we are all in it together. As we keep being told, social solidarity has been rediscovered, but whether it endures or not depends a lot on the institutions that are built or strengthened during the crisis response.
A new social division of welfare
Decades ago, Richard Titmuss drew attention to the ‘social division of welfare’ whereby government activities designated as ‘social services’ were governed by a meagre value system of needs and means-testing, while the tax system generously recognised family obligations and rewarded pension savings.
In effect, the government has just invented a new social division of welfare, with generous provision via PAYE-registered employers presenting a sharp contrast with the benefits administered by the Department of Work and Pensions (DWP).
It seems likely that the government’s hasty creation of the JRS was partly due to the knowledge that having millions more on Universal Credit could have enduring consequences for political attitudes to benefits
The £20 per week increase in basic rates of Universal Credit is welcome, but the benefit remains grossly inadequate, designed for a stigmatised minority and not for a mass of ordinary people affected by common adversity. It seems likely that the government’s hasty creation of the JRS was due, at least in part, to the knowledge that having millions more people on Universal Credit could have enduring consequences for political attitudes to the benefit system.
A crisis response is needed, but it should serve the economic goal of stabilisation while also being supported by a social policy rationale that justifies the distributive impact of the payments. Not only is this necessary to avoid a repeat of the perverse and divisive distributional outcomes generated by the financial crisis, but also it should be the basis for building sustainable institutions rather than forever resorting to emergency measures.
An enduring reform means establishing principles for payments which are socially supportable, usable in addressing smaller and more localised disruptions to livelihoods as well as being capable of gearing up when the next crisis comes, whatever its cause.
The social policy rationale for income support does not have to be the narrow one of judging needs against means. This has become the dominant rationale for redistribution in the UK, but the ethical basis of redistribution need not be so tightly bound.
The importance of compensation during coronavirus
The principle of compensation seems relevant: those who have borne the financial brunt of the coronavirus lockdown have experienced harm from measures imposed collectively in pursuit of the greater good. They are owed compensation by those of us who have not experienced so much economic harm, but are reaping the public health benefits of the lockdown.
The compensation principle does not have to be virus-specific. It can easily be enlarged to other collective actions which impose costs on some to the benefit of others: environmental harms spring to mind.
The principle of compensation highlights how topsy-turvy the allocation of protection against risks has become: we devote ample monetary and fiscal resources to covering the downside risks of those who derive a profit from economic activity, in the name of growth, while allowing those harmed in the process to fall by the wayside.
If the current coronavirus crisis is to bring an enduring advance in social solidarity, we should be willing to challenge unfair social divisions of welfare which rely on the excuse of the emergency, and seek broader and more robust principles for both contributing to and drawing from the common pool of fiscal resources.