Saturday 26 September 2020

Another Curate's Egg from Sunak


The Chancellor of the Exchequer's  announcement of further government support for  the economy is to be welcomed, but is somewhat on the stingy side and one part of it is seriously  flawed.

 First the good bits.

 1.  Firms which  have received state-backed business loans in order to survive while the state imposed lockdowns have greatly reduced or even eliminated their incomes but not their outgoings (rent etc.) are to be given a ten year period to pay back on a " pay as you grow" basis.  In other words they are exempt from payments unless and until their  income stream is sufficiently restored.  

This is very similar to the student loan scheme, in which students do not pay back unless and until they reach a decent salary so they are NOT BURDENED WITH DEBT.   (That's in capital letters becasue the media and students themselves still use the phrase in spite of the facts and the repeated explanations from Martin Lewis and this modest blog.) 

However, unlike the students, firms will not have their debt written off at the end of the period of grace, but that's sensible.  If they haven't recovered in ten years than they are unlikely to be viable and it is reasonable to allow them to file for insolvency.

2.  The cut in VAT from the basic rate of 20% to 5% for the hospitality and leisure industries is to continue until 13th January next year.  Not very long but better than nothing.  There is a good case for extending   a tapered furlough scheme for these industries.

The serious flaw is that the wages subsidy scheme, which ought to encourage part-time working so that the economy sustains the maximum number of people in some sort of employment, does nothing of the sort.  

 In the scheme, which is to operate for only six months in the first instance, if a worker's hours are reduced to, say,  a third, (1/3 - I don't know how else to write fractions)  the employer pays for those hours, then both the employer and the state each add  payments for 1/3 of the unworked hours. 

So the worker receives 7/9ths  of her/his normal pay, which is a cut but again better than nothing, and pretty good for working only one third of normal hours.

The flaw is that 5/9ths of this payment  comes from the employer. so an employer seeing to maximise employment who employs 3 people to do the work of one actually pays 15/9ths (or 166%) of what it would cost to retain just one worker in the job.

(I hope you're following at the back).

It is possible that some benevolent small firm, anxious to keep a team together, might do this.  But most employers, and particularly large and impersonal firms, are likely to give the "bottom line" priority and employ just the one person.

Surely the priority, in this pandemic, is for us to share the difficulties, from the imaginary  shortage of lavatory paper to the very real shortage of jobs, equitably.

 The German scheme, Kurtzarbeit,  (short working) on which it was trailed Sunak's scheme is based, is much more generous to both the worker and the employer. There the state pays for  60 % of salary lost through working part-time, rising to 80% if the employee has children, and their scheme lasts to the end of 2021.

Mr Sunak is anxious not to spend state money on jobs which are not in the long-run viable. That makes sense for a proportion those working  in city-centre retail and food outlets, which are unlikely to be restored to their pre-pandemic capacity once normal conditions are restored.

But here are plenty of people with no work at all at the moment (actors, musicians, night -club operators) whose jobs will be viable once the lockdowns end.  For these, for the self-employed  and the precariat on zero-hours contract Sunak has done little. 

 A really imaginative chancellor would take this opportunity to sow the seeds of a Universal Basic Income (UBI).

Dealing sufficiently for all those adversely affected will be expensive, but, just as the pain of coping with the virus should be shared, so should the paying for it in the future - when the time is ripe.

It has been pointed out in an earlier post that a 10% one-off tax on wealth  would pay for everything we need and more.  If that included 10% of my wealth, so be it.

There are plenty of other taxes  - land taxes, capital gains taxes, a robot tax,tax on the incremental value of houses, financial transaction taxes, an effective inheritance tax, a raid on tax havens - all of which would raise the government's income with minimum effect on the vital current demand.

There is no case for current stringency:  for once let's "all be in it together."


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