EIC0944

Written evidence submitted by the Trades Union Congress

The Trades Union Congress (TUC) exists to make the working world a better place for everyone. We bring together more than 5.6 million working people who make up our 50 member unions. We support unions to grow and thrive, and we stand up for everyone who works for a living. Trade Unions have been at the forefront of the response to the crisis, arguing for action to support jobs and the self-employed, better sick pay and social security, and measures to protect safety at work.

We welcome the extension of job protection, but are greatly concerned that the government is not doing enough on the creation of work. Official figures show jobs being lost at an unprecedented pace, and action is needed now. It is widely agreed that not spending to support the economy will be a false economy, and will lead to worse not better public finances. A national recovery council of trade unions, employers and government should steer the recovery. In the longer term the need is to build back better. The pandemic has exposed serious flaws in how the UK economy works, not least the poor pay and the scale and depth of existing inequality of those who keep the country going. The commitment and urgency of policy through the pandemic must next address the threat of climate change. Our public services need to be rebuilt with adequate funding from government. The UK’s broken safety net must be repaired so it can offer security and safety to all who need it. And the ability for trade unions to be able to organise and bargain for workers must be renewed.

 

To what extent do Government measures protect viable jobs in the future and reduce the risk of long-term unemployment?

The coronavirus job retention scheme, campaigned for by unions, has played an important role in protecting jobs. The extension of the scheme until April is welcome and shows the role that short-time working schemes can play in protecting jobs and livelihoods during economic downturns. 

However, wider support packages, including for the hardest hit sectors like retail, aviation and the arts, have been missing. The TUC has urged the government to take up our suggestion, repeated in November by the CBI, of a national recovery council, made up of businesses and unions alongside the government, to steer the recovery effort. These arrangements should include both regional and sectoral dimensions.

To address the risk of long-term unemployment, the government will need a shift in mindset and will need to aim expenditure at creating jobs. Already the risk of a jobs crisis is coming into sharp relief, with jobs lost at an unprecedented rate.  The latest ONS figures show unemployment rising by almost a quarter of a million people between May-Jul 2020 and Aug-Oct 2020: the quarterly increase of 17% is the sharpest on records that extend back to 1970. Redundancies of 370,000 over Aug-Oct 2020 were the highest quarterly figure on record.

Most forecasts show this very sharp rise in unemployment continuing, with the OBR central scenario peaking at 2.6 million (7.5%) in 2021Q2.  But equally most forecasts show a gradual recovery, with the OBR reckoning on a fall in unemployment of on average one percentage point a year after the peak. The post-pandemic rate eventually settles at 4.4% compared to the pre-crisis best of 3.8%.  We are concerned that this scenario will be too optimistic if the government does not create jobs to counter the unemployment crisis. The TUC have set out proposals in a number of documents, summarized ahead of the spending review.[1] The key initiatives on the job creation front are 1¼ million jobs on green infrastructure and 600,000 jobs in public services.  These initiatives should work as part of an industrial strategy to prepare the country for net zero, adapt to technological change, and to our changed trading environment after Brexit, which will cause particular damage to manufacturing.

Measures that increase demand in the economy through greater protection for workers are also important in preventing long-term unemployment. These should include an increase in social security – not least through sick pay and a significant and permanent boost to universal credit, pay rises via the minimum wage, public services pay and stronger collective bargaining, pension protections and skills provision (see below for further detail).

The priority should be to agree a comprehensive trade agreement with the EU, our biggest market. This would be critical to secure jobs and the economy in the very short term. But a clear definition of our new terms of trade would also contribute to sustaining the recovery in the medium and longer term.  Failing to secure such agreement would have serious consequences as outlined in OECD, OBR and Treasury own forecasts.

To what extent are Government measures value for money for the taxpayer?

As well as existing measures, spending to create work is essential to protect the economy, workers and families.  Just as there is a false trade-off between the pandemic and the economy, there is a false trade-off between the measures to support the economy and the public finances.

The question illustrates well misunderstandings/misrepresentations around the interplay between the taxpayer and the economy. The public sector is not simply financed by the private sector, because public sector workers spend their incomes in the private sector.  When the private economy is in recession, the immediate effect of government spending on public sector jobs is to support private sector activity. The spending therefore keeps taxpayers in work and with incomes from which to pay taxes, so must be value for money – not for taxpayers alone, but for society.

The OECD have warned of the dangers of reducing support, ”as was done too early in the aftermath of the Global Financial Crisis”.[2]  Ahead of the spending review, in parallel to our own calls, the Resolution Foundation called for spending of up to £220bn,[3] and the IPPR estimated a total stimulus of £164 billion would be needed to fully stabilise and restore the economy.[4]  

To date, the Chancellor has announced very little additional spending to create new work beyond confirming already announced protections. Damaging future cuts in departmental budgets are projected. If implemented, these cuts will demonstrate the false trade off, meaning a weaker economy and weaker public finances. The OECD back this up, warning that cutting spending “could undermine growth excessively”, and may be a false economy by reducing tax revenues and increasing social security spending.[5]  

How effective is the Government support to businesses and individuals across different regions and sectors? Does the effectiveness of the Government support vary across different regions?

It is clear the pandemic has impacted most sectors and all regions. Despite measures taken so far, workers are facing hardship and uncertainty, with the prospect of further job losses in many key employment sectors.

Following the initial rebound, output across all sectors has slowed.  Except for finance, real estate and ICT, most service industries have suffered significant declines and remain well below pre-pandemic levels. Any gains made in accommodation and food through the ‘eat out to help out scheme have gone into reverse – falling 14.4 per cent in October.

Headline numbers for retail mask the role of online sales. Moreover, after the initial rebound, retail sales growth slowed significantly over the summer and declined into November.

As the OECD note, many of the industries most affected by the pandemic are employment intensive industries.[6] PAYE payroll figures show a fall in employees of 819,000 since February with the largest falls in accommodation and food, wholesale and retail, and manufacturing. Workforce jobs data (which includes self-employed) to September this year shows a decline in the number of jobs by 935,000 since March 2020.

Unemployment is rising across all regions and nations, with data suggesting London has seen a larger upfront labour market hit. In the long-term, London may be more insulated from the effects of the crisis than other parts of the country due to a far higher proportion of workers in banking and finance (24 per cent) versus the UK average of 16 per cent.[7] But it is too early to draw clear conclusions regarding regional impact.

The furlough rate is 15 per cent as of the end of November, increasing from 9 per cent at the end of October, with arts and entertainment and accommodation and food with particularly high rates at 48 and 44 per cent respectively.[8]

The number of people on universal credit has more than doubled from 2.7 million in January to over 5.7 million in October with increases of over 100 per cent in London (119%), the South East (109%) and the East of England (102%).[9] We would like to see an increase in universal credit to at least £260 a week - around 80 per cent of the real living wage) and an end to the 5 weeks wait[10] - the £20 temporary uplift should be made permanent as a vital first step towards this.

What lessons can be learnt from the different approaches undertaken by the nations in the UK to combatting the coronavirus?

The Welsh Government have taken several approaches to help support those who have fallen through some of the gaps in support measures.

The Economic Resilience Fund Restrictions Grant (formally ERF Lockdown grant) aimed at those who do not pay Non-Domestic Rates: allocated on a first come first served basis, the fund offers grants of up to £2000 in recognition of eligible costs.[11] It has been a very important intervention for taxi and professional drivers for example, as their other source of support was the UK Government’s SEISS, but this was based on usual profits and therefore fails to capture their fixed costs.

The Cultural Recovery Fund Grant for Freelancers offers grants of up to £2,500[12] and was launched after unions highlighted how many workers in the creative industries were ineligible for other forms of support. Much of it was designed with social partner input along the way, so it is very accessible and relevant to the workers it is intending to help.

The Welsh Government have also introduced the Social Care Workforce Special Payment Scheme – a one-off £500 payment in recognition of their dedication[13] and was developed through social partnership. Scotland are also looking to introduce a similar scheme. However, the Treasury had decided to tax this payment, meaning some workers were left with less than half of the payment after tax and taken into consideration for Universal Credit payments. The Scottish Government have asked that it not be taxed.

What impact will a second lockdown have on the economy? How should the Government best support the economy if intermittent lockdowns become a feature over the next year?

The government must continue to ensure that the job retention scheme (JRS) and the self-employment income support scheme (SEISS) are in place as parts of the economy are prevented from operating by coronavirus related restrictions. We note that businesses are adapting their use of the scheme according to their ability to open, and are making greater use of the ability to use furlough flexibly. To take just one example, just three per cent of workers in the construction sector were using the scheme in the latest figures (for the first two weeks of November), compared to 46 per cent in the first two weeks of April. And over half of employees in manufacturing are now on partial rather than full furlough. Maintaining the full scheme in place but continuing to allow this flexibility is the best way to support the recovery.[14] 

The government must also use this opportunity to improve both the JRS and the SEISS.  There should be a floor in payments so that no-one can fall below the minimum wage. Figures from the annual survey of hours and earnings show that during April two million people fell below the national minimum wage rate.  

We also believe that government should go further to ensure that people who are furloughed are encouraged to take part in funded training schemes. We previously recommended that employers should be required to put any worker working less than 50 per cent of their normal hours in touch with the National Retraining Partnership who should broker an offer of funded training.  

 Many people who recently became self-employed will be submitting a self-assessment return early in 2021. This group should be eligible for the fourth SEISS grant from February to April, alongside broader improvements to improve access to support. 

We would also encourage an impact assessment on equalities and geographical communities. 

Government must also move swiftly to address the huge issues with sick pay which have held back our ability both to tackle the virus and to support livelihoods throughout the pandemic. Those self-isolating suffer a huge pay penalty if they have to claim statutory sick pay.  At £95.85 a week this is worth less than a fifth of weekly earnings, and around two million people are not entitled even to this, because their earnings are too low to qualify.

Statutory sick pay must be sufficient to cover basic living costs and must rise to the equivalent of a week’s pay at the Real Living Wage – around £320 a week – with the lower earnings limit removed. 

As the unemployment crisis intensifies, the basic rate of universal credit will be further exposed as massively inadequate.  In 1984 unemployment benefits were worth a quarter of average earnings, in 1993 one fifth and today one sixth, just £95 a week. The support compares poorly with other European countries, where benefits are paid as a proportion of previous earnings, ranging from 60% in Germany to 90% in Denmark[15].

The TUC believes that in the long term the government should move towards an earnings-related system. Immediately, the basic level of Universal Credit should be raised for the duration of the outbreak to 80% of the real living wage – or £260 a week – with the confirmation that the additional £20 increase will be made permanent the first step towards this.  

What changes to the economy are now permanent?

       • What difference will the discovery of a vaccine and/or treatment make?

       • Will behavioural changes such as working from home necessitate structural changes, whether or not a vaccine is discovered?

The pandemic revealed the great potential for genuine two-sided flexibility in the labour market. It also highlighted how many workers central to the functioning of society face low-pay, one-sided flexibility and insecurity.

Flexible working finally became widespread during the pandemic after those who could work from home were told to do so.

At the end of April, around 45 per cent of the UK workforce was estimated to be working from home.

Our feedback from members is that significant numbers of people would like to remain working from home for at least part of their time or adopt forms of flexible working.

Hitherto, flexibility for workers in the UK has often meant one-sided flexibility where employers can allocate or cancel shifts at very short notice.

Many workers in full-time employment have little opportunity to align work with family life or caring commitments.

Disabled workers face additional barriers to accessing or remaining in work when flexible working options such as working from home or staggered hours are not available.

Employees currently have an extremely weak right to request flexible working after 26 weeks of service.

One in three requests for flexible working are turned down. And flexi-time is unavailable to more than half of the UK workforce including nearly two-thirds of people in working-class occupations.

There is now an opportunity to make flexible working the norm, especially as the government has an existing commitment to bring forward an Employment Bill to encourage flexible working.

But at the same time those people dubbed “key workers” during the pandemic should not be forgotten. Lots of shopworkers, delivery drivers and care workers face insecurity and low pay.

Those on short hours or zero hours contracts face uncertain incomes and struggle to balance work and private life when they are offered shifts, or have shifts cancelled, at very short notice.

Giving workers the right to a contract reflecting their normal hours or work and introducing robust rules regarding notice of shifts and compensation for cancelled shifts would go some way to rebalancing this one-sided flexibility, alongside a ban on zero hours contracts.

How large a problem is corporate indebtedness? How effectively did the financial sector give assistance to businesses?

Corporate indebtedness has been a recurrent problem under financial globalization, with the most obvious recent episode the global dot.com collapse at the turn of the century.

Five years ago the Bank of England and ONS published long-run measures of private debt. These showed debt rising rapidly to peak around the time of dot.com, but not starting to shrink.  Over the decade (from 2003-2014) corporate debts averaged 132% of GDP, nearly 2¼ times as much as the average debt to income ratio of around 60% over 1957-1980.[16]

In their July 2019 Financial Stability Review, the Bank reiterated how UK non-financial corporate debt was still elevated relative to historical standards, noting material risks from global debt vulnerabilities, not least US corporate debt now above pre-global financial crisis levels (in part reflecting the growth of leveraged lending), falling commercial real estate prices, and vulnerabilities in open ended investment funds. As the pandemic struck, the Systemic Risk Council (comprised of ex-central bankers and academics) warned: “Covid-19 strikes the world at a time when too many corporations around the world are overindebted, and after a period during which persistently favorable market conditions caused traders to take aggressive positions, exposing them and the system to spikes in volatility, let alone a collapse in asset values”.[17]

In a 2019 report (‘Lessons from a decade of failed austerity’),[18] we argued that corporate debt was symptom of over-production relative to purchasing power. Rather than the conventional interpretation of excessive demand relative to supply ahead of the financial crisis, overproduction suggests that supply was excessive relative to deficient demand. The analysis leads to the vital conclusion that the consensus on the output gap may be misjudged, and therefore the ‘potential of the economy badly underestimated.

       • Is there a need for a new state sponsored investment bank? If so, what should it do?

We welcome proposals for a new state investment bank. To add value, this must be resourced by government (as opposed to just recycling private funding). Its objectives must include promoting a just transition to net zero emissions and achieving better working conditions across the country. A link to decent jobs should be a key criterion when assessing investment outcomes.  

What improvements can be made to institutions to ensure that responses to crises like these are more robust in the future and policy makers have the data they need? What further analysis should the Government do and make transparent?

The crisis has exposed the extent to which working people lack a voice in the workplace, with many workers facing unsafe working conditions, catastrophic loss of incomes, and stress. As is now increasingly recognized, trade unions and collective bargaining are a key labour market institution to promote decent work, tackle inequality, and help countries adapt to economic change. As the OECD set out in a 2019 report,

despite undeniable difficulties, collective bargaining and workers’ voice remain important and flexible instruments that should be mobilised to help workers and companies face the transition and ensure an inclusive and prosperous future of work. The need for co-ordination and negotiation mechanisms between employers and workers is heightened in the changing world of work. Whether considering key issues such as wage inequality, job quality, workplace adaptation to the use of new technologies, or support for workers displaced by shifts in industries, collective bargaining and workers’ voice can complement public policies to produce tailored and balanced solutions.”[19]

The UK urgently needs to renew the ability for trade unions to be able to organise and bargain for workers, starting with the right for trade unions to access workplaces to tell workers about the benefits of joining a trade union.

The lack of organised forums for dialogue between workers, business and government has also hindered the response to the pandemic. The TUC has called for a national recovery council, replicated at regional and sectoral level, to help design and co-ordinate responses to the pandemic and the recovery. It is still not too late for government to act.

Looking more widely, there is a danger of groupthink on critical judgements against which policy is set.  The government should ask for an independent review of how the Office for Budget Responsibility and Bank of England judge the impact of government expenditure on the economy, assessing the critical assumptions on multipliers, the output gap and the ‘NAIRU’ given the international experience of the austerity decade.[20]

What are the consequences of high national debt? What should the new fiscal rules be?

The pandemic exposed serious flaws in how the UK economy works. The poor pay and the scale and depth of existing inequality of those who keep the country going has been exposed.19 Women, disabled people and BME workers are more likely to be affected because they are disproportionately stuck in insecure jobs on low pay. Addressing these problems rather than preoccupation with fiscal rules will be key to rebuilding a stronger and fairer post-virus economy with greater resilience for the future. The most material improvement in the public debt of the past century came under the Attlee government: the wider interest of society proved also to be in the interests of the economy and the public finances.

The TUC explored these challenges in our ‘A Better Recovery’ report published in the middle of 2020.[21] The commitment and urgency of policy through the pandemic must next address the threat of climate change. Our public services need to be rebuilt with adequate funding from government and a public service ethos at their heart. The threat of an unemployment crisis can and must be met through large-scale creation of decent work. The UK’s broken safety net must be repaired so it can offer security and safety to all who need it, with the basic Universal Credit payment raised to £260 a week, and scrapping the five-week wait for first UC payment.21  This time we need to build back better. As above, these policies are not only desirable, they are necessary. The present course offers only stagnation and further deteriorated public finances.

Kristalina Georgieva, Managing Director of the IMF, recently spoke of “[taking] inspiration from a previous generation”, and the reforms after the Second World War. “[A] better world [was forged] in the worst possible moment, in the midst of war. We need the same spirit now for the post-pandemic world—build one that is more inclusive and more resilient”.[22]

The Spending Review was originally due in the Autumn 2019 but has now been postponed for more than a year. How robust is it in times of crisis?

The biggest funding challenge facing departments and public services is the lack of adequate funding rather than delays to planned spending reviews. Nonetheless, the fact that there has not been a Comprehensive Spending Review since 2015 has had a negative impact in at least two ways. First, it has significantly impeded departments’ ability to plan and deliver public services in a resilient and sustainable way. Second, it has also encouraged differential treatment of public services. Whereas a four-year funding settlement for the NHS was announced in 2018 and a three-year funding plan for schools announced in 2019, areas such as social care and local government have had to make do with a series of short-term, ad hoc additional funding announcements, and other areas still with nothing at all.

How effectively did the Government work with the Bank of England? Was fiscal and monetary policy well-co-ordinated? Do there need to be changes to the monetary and fiscal framework?

£450bn of additional QE (over two stages) supported the £350bn additional public sector net borrowing in the current year.  However the link between fiscal policy and the central bank balance sheet is not well explained: for example, why is the Bank of England taking up such a large share (albeit indirectly) of the increased borrowing?  There may be advantages in a wider public understanding of how these processes are operating. 

On the fiscal policy side it is necessary to come back to multipliers. While the immediate danger is inadequate stimulus, more realistic multipliers will be necessary to assess the stimulus necessary to prevent mass unemployment. As above, this should be part of a wider review of how policymakers have judged the impact of government expenditure on the economy.

What are the productivity challenges in the wake of the coronavirus crisis?

How has the crisis impacted on innovation and technological development? What problems could technology solve and what problems will it cause?

One aspect of the increase in the use of technology at work that requires more attention is the impact on workers’ experience. The TUC’s recent report on the use of Artificial Intelligence at work found people reporting a significant use of technology to make or inform decisions about them at work. 22 per cent of those who responded to a survey said they had experience of use of technologies of this type for absence management, 15 per cent for ratings, 14 per cent for work allocation, 14 per cent for timetabling shifts, and 14 per cent in the assessment of training needs and allocation.

The use of AI in this way has significant implications for workers in terms of their employment rights, such as their rights to equality, privacy, and data protection, their physical and mental wellbeing, and wider issues such as the balance of power between employers and the workforce, and democracy at work. These findings represent the first stage of a major project looking at the use of artificial intelligence in the workplace – and we will be making further proposals next year.[23]

 

December 2020

 

 

11

 


[1] ‘Ten steps for a Spending Review to create decent jobs’, Geoff Tily, 23 Nov: https://www.tuc.org.uk/blogs/ten-steps-spending-review-create-decent-jobs

[2] Economic Outlook, OECD, Dec. 2020.

[3] ‘Easing does it’, Jul, 2020: https://www.resolutionfoundation.org/app/uploads/2019/10/Easing-does-it.pdf

[4] ‘The Chancellor’s Challenge’, Nov. 2020: https://www.ippr.org/files/2020-11/the-chancellor-s-challenge-1-.pdf

[5] The Institute for Public Policy Research also observe “ironically, [the Chancellor] will find it harder to achieve fiscal sustainability as a result, because tax receipts reflect the state of the economy” : https://www.ippr.org/news-and-media/press-releases/spending-review-2020-ippr-response

[6] Economic Outlook, OECD, Dec. 2020

[7] Taken from Labour Force Survey, Q1 2020 (Jan – Mar).

[8] Business insights and impacts on UK economy, ONS

[9] Universal Credit Statistics latest release to 8th October, DWP, 1 Dec. 2020: https://www.gov.uk/government/publications/universal-credit-statistics-29-april-2013-to-8-october-2020/universal-credit-statistics-29-april-2013-to-8-october-2020

[10] Universal Credit and the Impact of the five week wait for payment’, TUC, 10 Nov. 2020: https://www.tuc.org.uk/research-analysis/reports/universal-credit-and-impact-five-week-wait-payment

[11] Welsh Government: the ERF Restrictions Discretionary Grant

[12] Welsh Government: Cultural Recovery Fund Grant for freelancers

[13] Welsh Government: Social care workforce special payment scheme:

[14] Business insights and impact on the UK economy’, ONS, 17 Dec. 2020: https://www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/businessinsightsandimpactontheukeconomy

 

[15]Fixing the safety net: Next steps in the economic response to coronavirus, TUC, 6 Apr. 2020:

https://www.tuc.org.uk/research-analysis/reports/fixing-safety-net-next-steps-economic-response-coronavirus

 

[16]‘Economic Statistics Transformation Programme: Historical estimates of financial accounts and balance sheets’, ONS, Jan. 2016: https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/nationalaccountsarticles/historicalestimatesoffinancialaccountsandbalancesheets

[17]‘Statement by the systemic risk council addressed to G20 finance ministers and governors on measures to contain economic and financial crisis’, 9 Mar. 2020: https://www.systemicriskcouncil.org/2020/03/src-statement-on-financial-system-actions-for-covid-19/

[18] ‘Lessons from a decade of failed austerity’, TUC, Oct. 2019: https://www.tuc.org.uk/research-analysis/reports/lessons-decade-failed-austerity

[19] Negotiating Our Way Up : Collective Bargaining in a Changing World of Work, OECD, 2019.

[20] ‘lessons from a decade of failed austerity’, TUC, Oct. 2019

[21] ‘A Better Recovery: Learning the lessons of the corona crisis to create a stronger, fairer economy, TUC, Jun. 2020: https://www.tuc.org.uk/ABetterRecovery

[22] ‘The Long Ascent: confronting the crisis and building a more resilient economy’, LSE, 6 Oct. 2020: https://www.lse.ac.uk/Events/Events-Assets/PDF/2020/03-MT/20201006-The-Long-Ascent.pdf

[23] Technology managing people - The worker experience’, TUC, Nov. 2020: https://www.tuc.org.uk/research-analysis/reports/technology-managing-people-worker-experience