The Current Economic Situation in Britain

The latest economic data for the UK clearly demonstrates the impact of the coronavirus pandemic on the economy, writes Susan PashkoffCollapse in GDP growth in the UK was at 20.4% in the 2nd quarter of 2020 due to the virus and the subsequent shutdown as compared to 9.5% in the US and 12.1% in the EU – but we need to note that the shutdown in the UK was all in the 2nd quarter as opposed to being spread between the 1st and 2nd quarters as in mainland Europe. The expected decrease in the size of the global economy is 6% on average according to the OECD. Needless to say, unemployment has risen and will continue to do so. While furloughs have kept unemployment down; their removal will lead to rising unemployment as business that kept workers on will continue to fold due to decreased expected profitability and expected demand. While the lifting of some of the lockdown measures has allowed some non-essential retail businesses to open; the reality is that UK manufacturing remains severely depressed – with new orders still remaining below normal levels although it is believed that there is a slight recovery underway. Moreover, there is the reality that the UK economy was already close to stagnation before the pandemic with annual GDP growth of 1.3% and 1.5% in 2018 and 2019 respectively. The economy grew in July and August (6% according to the latest data) but remember that GDP fell by 20%. Moreover, the furloughs are disguising unemployment as many workers will not have jobs to go back to as companies close.

Brexit will  further impact the economy – a no-deal Brexit would spell the end of some manufacturing which is done in conjunction with EU countries (like some car production). Service production will be affected: already some of the insurance industry has relocated to Ireland, some research and development has been relocated (e.g., we used to be the country where new drugs were tested, now the Netherlands is the preferred site). While major vaccine research is done in Britain, we do not have the facilities for production.

The vaunted trade deal with the US is not guaranteed. While Trump cares nothing about international law (and international law would be broken with a no-deal Brexit due to the Good Friday Agreement) this is not the case with the US Democrats (Nancy Pelosi has already threatened the trade deal – remember the Good Friday Agreement was done with US involvement). We are going to discover that being bullish on Britain is irrelevant as we are dependent on international trade for purchase and sale of primary, intermediate and final goods. The argument that we are a “sovereign nation and can do what we want” is delusional as we are not the global power we were in the days of the Empire. Add this to an economy already in crisis and we are looking at a significant problem which, as we know, will primarily impact the working class.

The primary targets of over a decade of austerity were the public sector, workers’ incomes (wages and benefits) and conditions of work; privatisation of parts of the public sector was an essential part of austerity enabling lower wages and the destruction of working conditions in a private sector with low levels of unionisation. The introduction of a restrictive system of benefits that was based on the principle of lesser eligibility (and a benefits freeze and overall cap) further impacted upon workers’ incomes primarily hitting women and the disabled the hardest.

Even with growth in employment, wage incomes remained stagnant. The social subsistence level of income was deliberately eroded in a move to try to increase profitability by lowering wages; that this situation continued over a decade has led to both rising absolute and relative poverty in the UK. In 2017-2018, an increase in poverty was beginning to be clearly seen and this was confirmed in 2019 with the Resolution Foundation Report examining living standards and the rates of child poverty. This arose due to lowered incomes (stagnant wages and the impact of Universal Credit which limited benefits to 2 children); for children living in single-parent homes, those with large number of family members and no members working. However, the child poverty rate for those in working households had already hit a record high in 2018-19.

“Although paid employment reduces the risk of poverty, in-work poverty has risen, from 9.9% of workers in 1997/98 to 12.7% now – an unacceptable situation. Around 56% of people in poverty are in a working family, compared with 39% 20 years ago. This change has been particularly dramatic for children: seven in ten children in poverty are now in a working family. Falling benefit incomes and rising housing costs have pulled working families into poverty despite a growth in earnings.

This growth has only just brought earnings back to their level pre-recession for low-income working families, who faced the biggest hit to their earnings during the recession. The risk of poverty is higher for workers with disabilities, Black and minority ethnic workers, part-time workers, those in families with children and those in single-adult families, especially lone parents. However, rising in-work poverty has not affected all types of worker equally over the last five years:

• The risk of poverty has risen for workers in families with children, but there has been little change for workers in families without children.

• Working single parents have seen the fastest rise; now three in ten are in poverty. It was two in ten in 2010/11.

• The risk of poverty has increased for both full-time and part-time workers, and for workers with and without disabilities. Differences in employment rates, how much work is full- or part-time and the prevalence of low pay all contribute to differences between regions. (Joseph Rowntree Foundation, full report).”

What needs to be done

The concurrence of several different crises at the same time means that if we had a government committed to addressing the environmental crisis, the underfunding of the NHS, the destruction of social care due to privatisation and rising poverty brought about by undermining the social subsistence wage and the insufficient level of the social welfare net there would be a chance of dealing with this.

But given the economic crisis and the expected failures of many businesses, we can expect rising unemployment once the furlough system ends. The private sector will be reluctant to make large scale investment due to uncertainty of consumer demand (for goods consumed here and those sold overseas). New industrial goods can’t be produced straight away (unless intermediate goods and raw materials are being held in storage) and how much is brought on line is dependent both on expected profitability and expected demand.

While the furloughs maintained some levels of incomes (along with a temporary rise in some benefits) and has protected some jobs; the reality is that there will be rising unemployment and working class consumption will be constrained due to decreased incomes. At best the furloughs only covered 80% of wages for some workers. If those that are unemployed are only able to obtain the insufficient level of Universal Credit, this will, of necessity, further constrain consumer spending and private sector investment. This will of course create feedback on production here and internationally for goods and services produced abroad and consumed here.

The government cannot continue cutting wage incomes in the hope of increasing private sector investment and output of goods; poverty was already rising and if that continues it would block an economic recovery. Privatisation of the public sector is destructive not only for the production of goods and services people need, but also the quality and quantity of that provision.

A national living wage for all workers is essential to fight against rising poverty. The universal welfare state needs to be rebuilt to ensure that a proper social safety net exists; in its absence all we will see is increasing poverty at a far greater level due to unemployment. Both the amount of benefit available under Universal Credit and the punitive nature of the benefit system are absurd at any time but even more so if an economic recovery is actually the aim. The idea that people will not work if the benefit system is too high is just right-wing ideology and it needs to be thrown in the garbage with the Poor Laws as there is no factual evidence to justify this position.

During the coronavirus pandemic, a decrease in air pollution was noticeable in economies under lockdown demonstrating that climate change and pollution can be tackled at least in part even in the current system and that is something that we can advocate for. A just transition to a green and more sustainable economy can be begun through state investment in sustainable energy development, public transport and green and sustainable public housing for life (addressing the housing crisis). These are necessary if we are going to transition our economies in line with the Paris COP agreement to cap rising temperatures to 1.5 degree increase to preserve the planet for future generations.

We need government created jobs (like in the Great Depression) and sustainable energy production either by direct investment under government control and/or guaranteed government purchase for that produced by the private sector to ensure future investment. Social care needs to be brought back into the public sector to ensure that the needs of the society are met – which clearly has not occurred under the private sector. Job creation not only covers income for the working class, but provides goods and services that are needed in the economy and jobs to create revenue for the state.

The pandemic has also underlined the importance of women’s traditional labour in keeping the economy functioning. The undervaluation of women’s traditional labour, its “unskilled” status and therefore low wages and the assumption that anyone can do this work has been demonstrated to be nothing but ideology. Women overwhelming work in key industries like care work (child, support and assistance for the disabled and the elderly), and health care and in hospitality. The impact of austerity on women has been significant due both to the type of work that women do, their being stuck in part-time work due to social reproduction responsibilities and the attacks on the welfare state. Privatisation of much of this work has accelerated this hardship. Trade union organising in this sector is harder because workers are often isolated from each other and because employers are much less likely to recognise the union.  And both the workers and those getting support and assistance are alienated due to the reduced quantity and quality of services available because of the profit maximisation criteria of the private sector.

The Women’s Budget Group argues for a Care-Led Recovery from the pandemic.  Investment in the care sector would mean money invested in child-care, in support and assistance for the disabled and elderly, in increasing education for people at all stages of their lives. Investment in social provision would not only provide what people desperately need through the creation of employment and training for those interested in working in these sectors but if done through the public sector with a national living wage (and therefore not subject to profitability considerations) the number of jobs created will be higher than that for other sites of investment like construction. While currently these jobs are predominately done by women, they can be done by men as well – which would impact gender differentials in pay. And these jobs themselves don’t produce carbon and hence support the just transition and green recovery for the economy. Moreover, they prioritise the needs of human beings rather than the needs of the capitalist system.

This is an edited version of Part 2 of an introduction given to the ACR school on September 12. Part 1 is here.

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