Personal Finance

The Guardian view on government bailouts: steadying unsteady jobs

We may be fighting the deadly spread of a tiny foe, but this is not a wartime economy. In war, governments try to increase economic activity to produce weapons and are forced to tamp down inflation. Today governments deliberately want to lower economic activity to cut the risk of a virus transmission. Many Conservatives’ key belief in free-market societies is that they reward the industrious and punish the idle. Yet the mass joblessness, income shortfalls and business failures we hear about are not because of any human flaw, but because of a government-led shutdown and the fear coursing through the economy. The upshot is that GDP will fall. However, we must not let this situation spiral out of control. Letting a shutdown that lowers aggregate demand lead to unemployment that further cuts demand could put the economy into a tailspin. What is needed is for people and firms to maintain cashflow and help with bills, until some semblance of normality returns.

While businesses have been bailed out, there has been a slower move to put money in the pockets of people. Last week the chancellor, Rishi Sunak, said the government would pay 80% of the wages of the UK’s 28 million private sector employees. It was not until on Thursday that he did the same for the nation’s 5 million self-employed. This is in part because to help these workers meant dealing with the “fissuring” of the workplace, where people doing the same job in many sectors have increasingly different pay, benefits and privileges. While the complexity and precarious nature of the labour market has helped companies, especially those who can skilfully navigate lightly regulated employment rules, these fissures undermine the safety net which depends crucially on employment status.

The support scheme for self-employed workers announced by the chancellor, at a cost of around £10bn, is welcome. But he has not gone far enough for the lowest-paid. The self-employed earn about half the amount of those in employment. Covering 80% of poverty wages is just another form of financial destitution. And the money doesn’t come until June. The chancellor did not address the gig economy’s precarious nature – or offer to help those whose hours have been cut during this crisis. If he wants them to pay national insurance at the same rate as employees then he must also make their work secure enough so that they cannot be pressured into working when sick during a pandemic. Workers can have flexible work without denying them basic rights.

The coronavirus crisis has exposed the holes in the UK’s social security net. These were well known to the growing ranks of poor, but unfamiliar territory to many people who will encounter the hostile environment of the benefits system in the coming months. In the last nine days more than 500,000 people, mainly employees who lost their jobs, have applied for universal credit. A system designed for welfare recipients politically denigrated as shifty is now being swamped by “upstanding citizens”. It will have to be reshaped and resized. The five-week wait for universal credit will have to disappear. The rate of sick pay – £94.25 a week – is not enough to live on.

John Hills at the LSE suggests using child benefit to get money straight to struggling households. The Institute for Fiscal Studies calculates that the total bill will run to £120bn. Conservatives appear to accept the need for generous benefits reluctantly and without much conviction, aware that perhaps they will be hard to reverse. But to defeat coronavirus there will probably have to be many more converts to the gospel of big government.


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