Financial Services Future Regulatory Framework Review. HM Treasury has closed its consultation on the post-Brexit Future Regulatory Framework for the UK financial sector. The outcomes of the review will inform a Financial Services Bill expected later this year.

• #FinanceForOurFuture. Last week, 37 civil society organisations published a joint statement expressing their concerns about the Treasury’s proposals. They made six recommendations aimed at strengthening financial regulation in the fields of climate change, social inclusion, competitiveness, oversight and the registration of lobbyists. The Finance Innovation Lab’s Marloes Nicholls summarised their response to the government’s proposals in a video interview with Sky News.

The ‘competitiveness’ agenda. At the heart of the Government’s proposed new regulatory framework is a statutory objective for regulators to promote the ‘international competitiveness’ of the UK finance industry. Chaminda Jayanetti sets out the issue for OpenDemocracy. 

• Weakening standards. The civil society coalition statement argues that requiring regulators to promote the growth and international competitiveness of the UK financial sector would undermine their ability to act in the public interest, putting them in a dangerous competition with regulators in other countries to weaken standards. As FIL’s Marloes Nicholls explains, this requirement was explicitly removed from the regulatory framework in 2012 after it was recognised that it had contributed to the financial crisis of 2008. Helen Thomas in the FT concurs. 
• Regulators’ dissent. Both Andrew Bailey, Governor of the Bank of England, and Nikhil Rathi, head of the Financial Conduct Authority, have publicly opposed a competitiveness objective for regulators. As Bailey said, recalling the financial crisis: when this was last required “it didn’t end well, for anyone”.

A statutory net zero goal? The Government’s proposals seek to strengthen the regulatory oversight of the financial sector’s climate impacts. But environmental NGOs and others argue that this does not go far enough, urging new statutory objectives obliging regulators to steer the financial system towards the goals of the Paris Climate Agreement.

• City of London finances fossil fuels. Research by Greenpeace UK and WWF UK found that the emissions caused by the fossil fuel investments of UK banks, asset managers and other financial institutions are nearly double the annual carbon emissions of the UK. 
• Climate risks still not being reported. Auditors at major companies are supposed to integrate climate risks into their financial statements. But in a study of company reports and shareholder votes, Greenpeace finds that companies and their shareholders claiming to be committed to net zero are producing and waving through  reports which fail to disclose their climate risks. 
• Green central banking. The international Green Central Banking network provides a range of resources on efforts to align central banks with environmental principles. 

Financialisation and the ‘finance curse’. The wider background to the Government’s financial reform proposals is the increasing size and impact of the financial sector since its deregulation in the 1980s. The concept of ‘financialisation’ has been used to describe the increasing size of the financial sector relative to the rest of the economy and the increasing use of financial metrics in companies and in society The Transnational Institute explains the concept and history of financialisation and explores its impacts. 

• The ‘finance curse’. In a report for the IPPR Commission on Economic Justice, Grace Blakeley showed how financialisation has damaged UK manufacturing and exporting sectors by pushing up the value of sterling, fuelling inequality and contributing to a model of economic growth overly dependent on both capital inflows and house price inflation. In a report for SPERI, political economist Andrew Baker and colleagues sought to explain this ‘finance curse’ and to measure its extent. Arguing that the financial sector competes with the rest of the economy for resources and that credit booms damage research and development-intensive firms, a paper by the Bank of International Settlements shows how financial sector growth ‘crowds out’ growth in the rest of the economy. 

Innovative thinking about financial regulation. FIL’s ‘Transforming Finance’ project produces a range of resources on how to repurpose the financial system to meet social and environmental as well as economic goals.

12 missions by 2030. The government unveiled its Levelling Up White Paper last week, promising ‘to transform the UK by spreading opportunity and prosperity to all parts of it’.  The paper is centred around 12 quantified ‘missions': ‘cross-government, cross-society efforts’ to be achieved by 2030. Ambitions include raising pay and productivity in every region, narrowing the gap in Healthy Life Expectancy (HLE) between areas, and bringing the standard of local public transport connectivity across the country ‘significantly closer’ to that of London. (The full list of missions is here.) 

• On missions. The IPPR’s George Dibb wrote a useful thread on the value of missions in policy-making. Though some have criticised 2030 targets which the present government will not be around to see, he argues that it is ‘vital’ that targets outlive ministers. UCL’s Institute for Innovation and Public Purpose (IIPP) summarises the case in ‘Missions: A Beginner’s Guide’. It has been particularly influential, on this government and others, in developing the idea of mission-oriented approach to investment and innovation. 
• New Labour influence? The Resolution Foundation’s Torsten Bell notes that the White Paper’s quantified goals and metrics are similar to those adopted by the Blair Government to achieve greater accountability for spending and policy.
• Conservative criticism. Writing for Conservative Home, co-author of the 2019 Conservative manifesto Rachel Wolf argued that few governments departments have committed to new policies, and the overall strategy is ‘far from uniform’. 
• An alternative approach. In advance of the White Paper the New Economics Foundation called for five major shifts in economic policy to achieve the government’s stated levelling up goals: a shift from central direction to local control; a shift from growth to living standards; a shift in focus on the every day economy; a shift to backing SMEs and a ‘shift to green’. (Full report here.)
• The market-led model. Analysing the White Paper in the Guardian, Christine Berry noted its focus on attracting inward investment by private capital in a ‘virtuous circle of agglomeration’. Although the White Paper acknowledges the failures of the market-led growth model, it ‘fails to pursue this reasoning to its logical conclusion, and is thus left trying to solve these problems using the same thinking that created them in the first place.’

Funding. A principal criticism of the White Paper has been the inadequate level of funding attached to its ambitious goals, and in particular the relatively small amounts of new funding announced. The New Statesman’s Anoosh Chakelian breaks down the sources of funds that Secretary of State Michael Gove has ‘begged, borrowed and stolen’ from other schemes. 

• Austerity context. Drawing on Institute for Government and IPPR North analysis, the FT’s Jim Pickard pointed out that funding to towns has been cut by £15 billion in the last decade. While the “levelling-up fund” will provide £32/head for people in northern England. the fall in annual local council service spending since 2010 in northern England is £413/head. 
• Far from enough. Former Director of the Royal Society of Arts Matthew Taylor noted the similarity between the Levelling Up White Paper and last year’s report of the government’s Industrial Strategy Council (a body which it then abolished). He pointed out that the scale of funding announced falls far short of that which has been provided to disadvantaged areas in France and Germany.
• How much would be enough? A number of commentators have compared the scale of funding allocated with the investment in ’levelling up’ post-unification Germany (nearly £2 trillion). Even this has not been enough, however, as Katja Hoyer observed in the Spectator: ‘despite all the spending, East Germans still feel left behind’. 

Devolution. The White Paper promised ‘the largest devolution of power from Whitehall to local leaders across England in modern times’, including new powers for metropolitan mayors, and new county devolution deals across England. It sets out a ‘menu of options’ through which local authorities can effectively opt for one of three types of devolution. Jack Shaw of Cambridge University’s Bennett Institute explains.

• Not far enough. IPPR North’s Arianna Giovannini welcomed the White Paper’s commitment to further devolution to city mayors, but criticised the continuing use of competitive bidding to access funds, and argued the government must truly let go of power to reduce inequalities. NEF’s Miatta Fahnbulleh warns that levelling up ‘simply won’t happen’ if devolution is ad hoc. She argues that we need a radical transfer of power to all parts of the UK, not centrally-controlled schemes. 
• Government must work with local organisations. Power to Change welcomed the devolution plans but warned that the government needed to ‘work with organisations with experience of delivering at a local level’ to meet their targets. 
• Fiscal devolution. Level 3 of the White Paper’s devolution framework would enable local authorities (subject to a ballot) to ‘introduce a supplement on business rates’. The Data City’s Tom Forth notes that a similar supplement in London (introduced by former mayor Boris Johnson) raises around £300m per year. The Mayor of Tees Valley, Ben Houchen, called business rate devolution ‘low hanging fruit’ and said that, given the power, he would ‘slash business rates across the board’ in the hope of stimulating ‘massive private sector investment’. 

Community covenants. On the same day as publishing the white paper, the Government responded to Danny Kruger MP’s report on the role of civil society. It committed to the idea of ‘community covenants’: pilot schemes in which councils, local groups and public bodies will enter into agreements in order ‘to harness the energy, know-how and assets of local communities’. 

• ‘Community power’. The White Paper adopts the language of ‘community power’, a term growing in popularity in conservative circles. Writing for the ‘We’re Right Here’ community power campaign, Locality’s Ed Wallis calls for a Community Power Act with three central elements: decisions to be made at the ‘most local level possible’; a designated range of ‘power partners’ for organisations such as neighbourhood forums, and the creation of a Community Power Commissioner.
• Criticism. CLES have warned that the ‘community power’ approach risks becoming a route to cuts and says that the community should never be a replacement for the local or national state. Meanwhile the High Pay Centre’s Luke Hildyard noted that levelling up is ‘about not just productivity, but participation and power’. Writing in the Yorkshire Post, he argues that elected mayors must focus on delivering ​​’higher wages, trade union rights and recognition and worker representation on company boards’. 

People, not places? The Equality Trust argued that the Levelling Up White Paper fails ‘to put people at the centre’. By focusing so heavily on places, the paper does not address inequalities within regions, such as the high levels of child poverty and inequality in London. 

• Inequality within regions. NEF noted that levelling up should be as much about inequality within regions as between them: ‘the challenge of levelling up is as real in Barking & Dagenham or Hackney as it is in Barrow, Darlington, or Barnsley’. Likewise, Inside Housing’s Peter Apps wrote in the Spectator that ‘London suffers from some of the most pressing housing need in the country’ and argued for more ‘tangible reforms’, such as a target for reducing the number of children in temporary accommodation. 
• Good jobs. Janet Williamson of the TUC summarises the levelling up paper as a bid to expand the private sector in the hope of creating more jobs. However, she argues that the paper falls short of ensuring that those jobs are well paid and secure. The TUC’s recommendations include raising the minimum wage, tackling zero hour contracts and embedding ‘decent jobs’ with high employment standards within government procurement rules. 
• Social infrastructure. The Women’s Budget Group argued that the White Paper is too geared towards physical rather than social infrastructure. By failing to sufficiently acknowledge the role of adult and child care, it does not provide adequate explanation for how women in particular can access job opportunities. 

Housing. The Levelling Up White Paper included some new announcements on renters’ rights, such as bringing forward a ban on section 21 ‘no fault’ evictions and exploring the possibility of a National Landlord Register. Shelter called this a ‘crucial step forward’ but said that the Government needs to set out a plan for ‘significant investment in social housebuilding’. 

• Stability and affordability. The IPPR’s Luke Murphy highlights the need for further private rented sector (PRS) reform in order to provide tenants with more agency and control over their own home, such as limited rent increases and mandatory open-ended tenancies. 
• Brownfield development. The Campaign to Protect Rural England’s Paul Miner welcomed the commitment to brownfield development in the white paper, but warned that a lot of pressure will still be needed to make change happen, as ‘there are lots of people who are making quite a lot of money out of the current policies’. 

Net zero. The White Paper has been widely criticised for giving insufficient attention to the Government’s net zero ambitions. But the Conservative Environment Network’s Sam Hall argued that it demonstrates that levelling up and Net Zero are compatible, and that clean industries are critical for growth in industrial heartlands. 

New Government campaign to fill job vacancies. The Department for Work and Pensions’ ‘Way to Work’ campaign aims to get 500,000 more people to fill mounting job vacancies by the end of June by encouraging Universal Credit claimants to search for work in new ‘booming sectors’, such as social care and construction. DWP secretary Thérèse Coffey said: “As we emerge from Covid, we are going to tackle supply challenges and support the continued economic recovery by getting people into work. Our new approach will help claimants get back into the world of work quickly, while helping ensure that employers get the people they and the economy need.”

Sanctions-led approach. The mechanism by which unemployed people are encouraged to seek work is through the benefit sanctions system. Claimants will now only have 4 weeks (down from 3 months) to find a job within their preferred sector. If claimants fail to make “reasonable efforts” or turn down job offers from any sector, they risk reductions in their benefit payment. 

• Will this help recovery? A 2016 report from the National Audit Office found no evidence that benefit sanctions are an effective way of helping claimants find a job, while “the overall impact of sanctions on wider public spending is unknown.” A peer reviewed article from economist David Webster concludes that more attention needs to be paid to the flaws in the economic case for benefit conditionality in the UK welfare system. Associate Professor Jo Ingold examined employers’ perspectives on benefit conditionality in the UK and Denmark and concluded that businesses held negative views on conditionality as it led to them “receiving large numbers of unsuitable and unfiltered job applications, with associated negative resource impacts…which undermines their chances of securing employment”. 
• Threatening benefit cuts during a cost of living crisis. Critics have pointed to the punitive nature of the proposal to cut people’s benefits during a cost of living crisis. Food poverty campaigner Jack Monroe spoke to Times Radio to explain the new changes' impacts on benefit claimants during, pointing out that the 4 week limit is longer than it takes to receive the first benefit payment (5 weeks).
• Poverty in the UK. NEF’s Living Income campaign has shown that 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’ this year. Joseph Rowntree Foundation’s #UKPoverty2022 report outlines the latest data on the nature and scale of poverty in the UK. The report of the United Nations’ Special Rapporteur on extreme poverty and human rights (2019) examined the extent of poverty and destitution in the UK and condemned the “great misery… inflicted unnecessarily” on marginalised groups through Universal Credit and cuts to public services.

The UK labour market. Analysing the Government’s proposals, the FT’s Sarah O’Connor noted that “The reason the UK has a shortage of workers is not because jobseekers are too picky. It is because an army of people have left the labour market altogether.” The Way to Work programme targets those who are able to work but are either unemployed or on low wages. But the Institute for Employment Studies’ Tony Wilson points out that there are not large numbers of people who are short term unemployed: only about 130,000 jobseekers claim for less than three months. The much larger problem is a 600,000 increase in people who have dropped out of the labour market altogether, are no longer looking for work and therefore do not receive any support.

Low pay and in-work poverty. Critics of the Way to Work policy have pointed out that it does not address the numbers of those in low paid jobs who have to rely on the benefit system to top up their incomes. The IPPR’s No Longer Managing report on the rise of working poverty found the chance of two parents in work (one part time and one full time) being in poverty have doubled over the past two decades. The authors argue that social security reform must come alongside a wider plan to tackle the root causes of low pay, such as unaffordable rents, expensive childcare and insecure jobs (See ITV’s coverage). 

• Childcare. The Women’s Budget Group’s Hanna Abid explains why childcare investment should be a key element of social security reform (the ‘Social Guarantee’) as it enables caregivers to rejoin the workforce, amongst other benefits. (Peer reviewed evidence here.)
• Real wages. The wider context for low pay is that real earnings have been stagnant since 2008, are projected to remain so until 2026 and, with high inflation, are now falling. 
• Minimum wage. The TUC is calling for increases in the national minimum wage. An IFS report finds that raising the National Living Wage can have significant spillover impacts on workers earning above the minimum, raising their wages without significant reductions in employment. 
• Enforcement. Over 200 firms guilty of paying some workers below the minimum wage have recently been named and shamed, with the list including House of Fraser and Waterstones. 

Proposals for welfare reform. 

• Comprehensive income guarantees. NEF’s Social Security for All takes the best elements of a minimum income guarantee (targeted) and universal basic income (simplicity) and proposes a Weekly National Allowance to replace the personal allowance of income tax with a weekly payment of £47.30 to all but the highest earners: “This would effectively reinvest billions spent on a regressive system of personal tax allowances into a redistributive approach to ensuring that everyone has a basic level of income”. It also proposes an auto-enrollment system for everyone onto a reformed model of UC so people can receive top ups to their income whenever it drops below a minimum level, to avoid issues with eligibility, take-up and administration costs. See NEF’s Living Income Campaign for more proposals on social security reform. 
• User-led proposals for reform. The Commission on Social Security proposes replacing Universal Credit with a Guaranteed Decent Income paid to anyone whose earnings drop below £163.50 a week (half the minimum wage). The proposal was developed by people with lived experience of the current welfare system: carers, the unemployed and people living with disability. (Mirror coverage and video explainer)
• More resources. For more options for structural reform of social security see our previous digest on Welfare Innovation. Visit New Economy Brief’s Resource Bank section Improving Work and Welfare for more on What Covid-19 has revealed about our labour market and social security, The future of Universal Credit, and more.

Central bank digital currencies. The Bank of England and HM Treasury will launch a consultation this year into the possibility of introducing a central bank digital currency (CBDC) in the UK. A CBDC would allow households and firms to hold digital money directly with the Bank of England. The primary motivation behind the consultation is the risk that unregulated digital currencies pose to the financial system - particularly so-called “crypto-assets” such as Bitcoin, but also planned ‘stablecoins’ such as the Facebook-backed Diem (formerly called Libra). UCL’s Josh Ryan-Collins explains how a CBDC would work, and the benefits and risks. 

• Arguments for. Simon Youel of Positive Money has called for a UK CBDC, arguing that it would provide “universal access to a secure, digital form of public money”. Central bank reserves already exist digitally, but are only accessible to commercial banks, meaning that individuals are reliant on these banks to make digital payments. In a recent report on the issue Positive Money notes that a CBDC would address the decline of physical cash and increase financial inclusion. 
• Arguments against. The House of Lords Economic Affairs Committee has also examined the subject, concluding that there is “no convincing case for why the UK needs a central bank digital currency (CBDC)”. In a survey of the various types of digital currency, including CBDCs, US economist Barry Eichengreen argues that it is not clear what problems they would solve that “can’t also be solved by suitably regulated private sector entities.” 
• Digital payments and economic justice. Rachel Statham, Lesley Rankin and Douglas Sloan evaluated digital payment systems and their effect upon the balance of economic power in a report for IPPR. They argue that the introduction of a CBDC “may offer a solution that gives consumers greater choice and control”. 
• Crypto-UBI? A CBDC could be the key to unlocking Universal Basic Income, argues Frances Coppola, the author of ‘The Case for People’s Quantitative Easing’. As the CBDC would be a ‘stablecoin’ pegged to the country’s official currency, it could be used to pay a UBI paid directly into citizens’ ‘digital wallets’, she argues. It could then be transferred to a personal bank account or used to pay for goods and services directly. Coppola suggests that UBI payments from the central bank could be varied to manage inflation. 
• Across the world. China is ramping up efforts to roll out a ‘digital yuan’ nationwide following trials in several major cities. Meanwhile, the US Federal Reserve launched a consultation into a possible US CBDC last week. The Atlantic Council has produced a map tracking the development of CBDCs across the world. 

Cryptocurrencies’ carbon footprint. Private cryptocurrencies, such as Bitcoin, have been widely criticised for their climate impact. The creation or ‘mining’ of new Bitcoins requires complex computer calculations, making it a very energy-intensive process. Bitcoin’s energy consumption is tracked by both the Bitcoin Energy Consumption Index and the Cambridge Bitcoin Electricity Consumption Index; the former estimates that its carbon footprint is now as large as Norway’s. Visual Capitalist has created several infographics comparing the carbon footprint of Bitcoin compared to gold - Bitcoin is 15 times more carbon intensive. ForexSuggest.com calculates that offsetting the carbon emissions of the top ten cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash and Litecoin, would require the planting of around 385 million trees per year. 

• Could cryptocurrencies be greened? Jeremy Hildreth in the Spectator argues that, by using renewable electricity sources, Bitcoin “could in fact prove to be an environmental solution.” A new Crypto Climate Accord aimed at improving their carbon footprint has been established by the World Economic Forum and others, but as Gillian Tett argues in the FT, greening the new currencies is not straightforward. 
• Up for debate. A New York Times podcast discusses whether ‘crypto can go green’ with datascientist and founder of the Bitcoin Energy Consumption Index Alex de Vries, co-founder of the Tezos blockchain network Kathleen Breitman, and Paul Prager, founder of the ‘green’ Bitcoin mining company Terawulf. ‍
• Kazakhstan. Kazakhstan is the second largest centre for cryptocurrency mining in the world; the recent unrest and internet blackout there led to the value of Bitcoin falling by 8%. Many ‘crypto miners’ have relocated to Kazakhstan en masse following the banning of cryptocurrency mining in China.

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Stablecoins. ‘Stablecoins’ are second generation cryptocurrencies, aimed at maintaining a stable value against official currencies; examples are Diem and Tether. Economist Barry Eichengreen explains how they work. 

• Geopolitics. Economists Luca Fantacci and Lucio Gobbi look at the potential geopolitical implications of stablecoins, arguing that such currencies could be used to circumvent economic sanctions and provide a challenge to the dominance of the US dollar in the international monetary system. For Coindesk, Tanvia Ratna argues that stablecoins could either ‘become a shadow of the existing system or a battleground of intense geopolitical currency wars’.‍

Inflation and house prices. In the quarter of a century since 1996, UK house prices have risen 161%: from around 4.5 times average household income then to around 8 times now. Despite being a major factor affecting real incomes and standards of living, house prices are not included in the Consumer Price Index, the standard indicator to measure inflation.

• House price inflation and inequality. Economist Gary Stevenson has produced an explainer video on house price inflation, its impact on the cost of living, and the wider economic implications if only certain sections of the population can afford to own their homes: “As ordinary families lose their properties and kids from richer families are able to buy them, inequality gets even worse, driving house prices up further still. This creates a worsening spiral which makes housing increasingly unaffordable to ordinary people”.
• Housing data. The Resolution Foundation publishes a dashboard of data about housing and living standards, updated quarterly alongside its Housing Outlook. 
  

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Home ownership and ‘generation rent’. House price inflation is linked to a sharp fall in home ownership, especially among young people and families with children. The Resolution Foundation’s report Hope to Buy analyses trends in home ownership among those aged under 35. Nationally, home ownership in this group fell from 51 per cent in 1989 to 28 per cent in 2019. In some regions the fall has been greater. 

• Locked out. The National Housing Federation’s assessment of housing in England finds that rising house prices and rents and an overall shortage of homes have left than 3.6m people living in overcrowded homes, 2.5m who can’t afford their rent or mortgage, and 2.5m adults living with parents, an ex-partner, or friends because they can’t afford a place of their own. 
• Intergenerational inequality. Nearly half of all housing wealth is now owned by those aged over 65, the FT reports. Political economist Keir Milburn explains in this short video the “political generation gap” between young and old, mediated by property ownership: “The material interests of older cohorts might be leading some of them to look away from the pressing crises of the present.” 
• Rent and class. Autonomy’s study on occupation, rent and class features interactive charts which unpack the relationship between occupation and housing status, particularly renting.
• Race inequality in housing. An article for Bloomberg illustrated the “ugly truth about the road to prosperity in the UK”, citing ONS data showing that the median black household has accumulated zero wealth through home ownership over the last decade, compared to £115,000 for the average white household. 

Stoking house price inflation? Over the last decade, and further since the onset of the pandemic, the Government has sought to incentivise home ownership by subsidising borrowing. At the same time, the Bank of England’s ‘quantitative easing’ programme (in which it buys government and corporate bonds to increase the flow of lending) has caused house prices, alongside other assets, to inflate. Positive Money’s Danisha Kazi explains why the “government-engineered housing boom will hold back the recovery” and increase inequality. The former Bank of England chief economist Andy Haldane described the UK housing market in 2021 as being “on fire”. 

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Meeting housing demand. To meet unmet housing demand an estimated 345,000 new homes are needed per year in England alone. The level of housebuilding has increased in recent years but is still far below this level. The UK Collaborative Centre for Housing Evidence has examined the relationship between housing supply and prices, and what the impact on prices would be if more homes were built.

• The developer-led model. It is widely argued that a core reason why more homes are not built is the UK's ‘developer-led’ model of housebuilding. Private developers purchase land and use it only when it is most profitable and for homes largely aimed at better-off buyers. Manchester Business School’s Karel Williams explains how this has worked in Manchester. (Longer paper here.) 
• Affordable homes. A report from NEF finds that social and affordable housing is at risk of being squeezed out of new developments by developers worried about profit margins. 
• Sustainable housing. The Women’s Budget Group has published Rethinking Housing Supply and Design, a policy paper calling for green housing plans that reverse gender inequalities and enshrine sustainable housing as a right rather than a financial asset. Recommendations include returning land to local councils and community land trusts, including women in planning decisions, and ensuring housing design is responsive to the needs of carers and diverse households. 
• Public buy-outs? Researcher Joe Bilsborough proposes a public sector ‘buy out’ of properties in the private rented sector to rent them out as council homes.
  

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Controlling house prices and rents. Many economists argue that building homes, though important, will not control house prices or rents. The primary problem is on the demand side, where policy support for home ownership, along with the increasing use of housing as an asset (including the now major rent-to-buy market), have forced prices upwards. In their book Rethinking the Economics of Land and Housing, Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane explore the relationship between the financial system, housing and land: their argument is summarised in this review for the LSE Review of Books.

• House price inflation targeting by central banks. One policy solution, proposed by IPPR, would be for the Bank of England to have a house price inflation target (p27 of the report) in the same way that it has a general inflation target. This would require it to dampen house price demand when prices were rising, and to give guidance to the Government on how they could avoid stoking higher house prices. IPPR has set out the argument in terms of a wider analysis of the UK’s “broken land market”. The European Central Bank (ECB) last year announced a change to its core mandate of price stability to include climate change and housing costs.
• ‍Rent controls. Rent controls are a form of price control which are used in many cities across the world to prevent housing becoming unaffordable. Economist J W Mason explains how and when they work (for a wider survey of the evidence see this by the Economics Observatory). The Guardian reports on the use of rent controls in Berlin, and their recent defeat in a constitutional court. 
  

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‘Rentier capitalism’? Consistent house price inflation is one of the phenomena which have led the western economic model (particularly in the UK and US) to be described as ‘rentier capitalism’. By this is meant, economies dominated by a concentrated distribution of property ownership, where individuals and businesses with market power are able to extract ‘rents’, or unearned income. Recent books by Brett Christophers and Guy Standing, reviewed here and here, have set out the evidence and arguments. (Here is a short video explainer of the concept.) For a more detailed analysis, read Christine Berry’s series for Autonomy on the ‘landlord economy’: “an economic system built on rising asset prices (especially in housing), and a political system structurally favouring their owners”.

• Housing and financialisation. The New Economics Foundation explores the role of banks and the financial system, supported by government policies, in fuelling house price growth – with housing wealth now making up almost half of total household assets.
• Government policy. Researcher Joe Bilsborough explains in Tribune how “For decades, Britain's governments have designed public policy to benefit property owners and landlords to the detriment of everyone else.” 
• Covid policy. IPPR analysed the government’s emergency policies during the early stages of the pandemic and explained how they aligned with rentier interests. 

More resources. For more resources on housing market reform and the wider economics of land and housing, visit our Resource Bank page.

Living standards squeezed. The Resolution Foundation has dubbed 2022 as the “year of the squeeze”. It calculates that persistent inflation, including the predicted increase in the household energy price cap by over 50% and alongside the rise in National Insurance Contributions (NICs) - both of which come into effect in April - will reduce annual disposable incomes this year by an average of £1,200 per household.

• Cost of living pressures. NEF calculates that in the two years since the last election, the poorest half of UK households have become £110 per year worse off on average, whilst the richest 5% have gained £3,300 per year. The number of people living in relative poverty has risen by 300,000. Economist Jonathan Portes points out that real wages are now falling as inflation exceeds earnings growth. The IFS forecasts that real wages are expected to remain stagnant until 2026, a near 20 year stagnation of incomes since 2008. 
• Political consequences. The Guardian’s Aditya Chakrabortty argues that “the cost of living crisis is going to upend British politics in 2022”, calling it a “recipe for widespread deprivation and massive political turbulence. It also blows apart the electoral coalition that handed Johnson his landslide”. Aware that the energy price cap and NICs rise will arrive just before the local elections on 5th May, Conservative MPs are reported to be increasingly anxious. Leader of the House Jacob Rees-Mogg has urged the Chancellor to scrap the planned increase in NICs, while the Net Zero Scrutiny Group (NZSG) of Tory MPs and peers has called for the green levies funding renewable energy and energy efficiency and the 5% VAT on energy bills to be scrapped. (For more information on the Net Zero Scrutiny Group, see this analysis by the Grantham Research Institute’s Bob Ward.)  

Inflation driven by rising cost of energy. Age UK estimates that 150,000 older households are likely to fall into fuel poverty this winter because of soaring energy prices. National Energy Action have warned that fuel poverty could rise by 1.5 million to 6 million households, which would be the highest level since records began in 1996. They are campaigning to expand the Warm Home Discount scheme and Winter Fuel payments (and other proposals) to address fuel poverty.

• Monopoly power and the ‘Big 6’. The FT’s Chris Giles called for “another shake up” of the energy industry and its regulator Ofgem, explaining that “the chronic problem in UK retail energy markets is that bills are likely to remain high for some time after a failure of regulation to foster competition in the public interest.” The government has recently opened a policy consultation on the future of the energy retail market (call for evidence deadline January 16th). 
• Protecting the most vulnerable. National Energy Action’s Peter Smith calls for an expanded role for Ofgem to better identify financial vulnerability and provide deeper price protection for the most vulnerable through a mandatory “social tariff”. 
• Energy efficiency. The Conservative Environment Network (CEN) is urging ministers to reduce bills and emissions in the long term by ensuring the UK's homes are better insulated. The call is endorsed by the Energy Efficiency Infrastructure Group, an alliance of businesses and charities, in a letter to the Prime Minister. NEF’s Great Homes Upgrade campaign brings together a range of resources on household energy efficiency. 

Labour’s proposals. The Labour Party has proposed a windfall tax on the profits of North Sea oil and gas producers to fund measures to reduce household energy bills. Its measures would include removing VAT on energy for a year and spending an extra £3.5bn on the Warm Homes Discount, increasing it from £140 to £400 a year, while doubling the number of vulnerable households eligible to 9.3 million. It would also remove from bills the cost of transferring consumers of failed companies. Labour calculates that its plan would save most households about £200, while targeted support to low earners, pensioners and the “squeezed middle” would save them £600. Ed Miliband's op-Ed for the Guardian outlined Labour's proposals and criticised the government for failing to regulate the energy market over the last decade.

Can price controls tackle inflation? Political economist Isabella Weber argues that strategic price controls are an option for tackling inflation when it is being driven by increase in the price of specific goods such as energy. Price controls would avoid the risk of causing a recession, unlike conventional inflation control policies such as raising interest rates and fiscal constraint. “Price controls would buy time to deal with bottlenecks that will continue as long as the pandemic prevails. Strategic price controls could also contribute to the monetary stability needed to mobilize public investments towards economic resilience, climate change mitigation and carbon-neutrality.” Weber’s article sparked a sharp response on Twitter (since deleted) from the Keynesian Nobel prize winner Paul Krugman, which in turn provoked a strong defence by fellow economists Stephanie Kelton and James Galbraith. Noah Smith outlined the argument against price controls to fight inflation on his blog.

• Price controls in US history. The Roosevelt Institute’s J.W. Mason and Lauren Melodia identify price controls as a useful tool for controlling inflation in periods of economic recovery. The Harvard Law Review has published a useful note on the legal history and economic theory of price controls, arguing that “price controls, whatever their merits as policy, represent an unusually direct challenge to neoliberalism’s central economic and political premises”.  
• UK price controls. Positive Money’s Simon Youel explored the value of price controls to ease the drivers of UK inflation in specific goods: “Dealing with inflation isn’t a costless exercise, but price controls put the burden on corporate profiteers rather than ordinary workers and households.” 
• The energy price cap. Ofgem’s energy price cap is a form of price control. It limits the unit rate which suppliers can charge consumers for their energy bills in their ‘default’ or basic tariffs. It is revised annually to take account of wholesale energy costs. Ofgem sets out how it works. 

Scottish budget. The Scottish government published its 2022-23 budget last week: the first SNP-Green budget since the coalition was formed in August. Deputy First Minister John Swinney MSP called the budget a ‘bold package to tackle child poverty, address climate change and support economic recovery’. However, despite having the biggest pot of money available for a Scottish budget in 20 years, Nicola Sturgeon admitted that some announcements were ‘tough choices’, given the likely pressures on Scottish finances over the next few years.

• Key announcements. Scottish Child Payment was doubled to £20 per week, an additional £18 billion was provided for health and social care (including £1.2 billion for mental health) and the council tax freeze was scrapped.
• Green influence? The top line on climate was that the budget contained £2 billion in low-carbon spending. Environmental measures included £53 million to ‘protect and restore’ nature, including the 1 in 9 species in Scotland that are threatened with extinction, and £150 million for ‘walking, wheeling and cycling infrastructure’. The New Statesman’s Chris Deerin argued that the influence of the Scottish Greens was ‘visible’, but not particularly radical.
• Social care minimum wage. The Scottish government raised the minimum wage for social care workers to £10.50, having implemented a £10.02 wage floor for workers in October (the national minimum wage in the UK will rise to £9.50 in April). Labour and the Liberal Democrats said the 48p rise in pay for social care workers was insufficient. 
• Tax rises? Scottish income tax remains unchanged, with starter and basic rates increasing in line with inflation and higher rates frozen at current levels meaning that more people will enter the higher tax band. Councils will also be given complete autonomy to set council tax rates from next year, drawing criticism from opposition parties who fear this will ‘hit people in the pocket’.
• Women. The Scottish Women's Budget Group have provided an in-depth analysis of the budget. They welcome measures such as the increase in Scottish Child Benefit but argue that investment in social care needs to go further.

Community wealth building. Scotland is the first national government to adopt an explicit community wealth building approach in the UK. Its states this  central to its plans for a ‘wellbeing economy’. CLES has more detail here. The ‘Higgins report’, which analysed Scotland’s economic prospects in the context of the Covid-19 pandemic, also highlighted the need for community wealth building. 

• Wales. The Welsh Government centres community wealth building in its procurement strategy. This involves ensuring that opportunities for local suppliers are embedded in tenders put out by public service boards and key local institutions. 
• North Ayrshire. In 2020, North Ayrshire became the first council in Scotland formally to adopt a strategy of community wealth building. Rethinking Poverty has explored the North Ayrshire model here.
• Community right to buy. CLES advocates a ‘community right to buy’ for local assets, not merely a ‘community right to bid’ for services model, citing Scotland as an example of good practice. As part of this, communities in Scotland can apply to register an interest in land and have an opportunity to buy it when it comes up for sale.
  
  

Just transition. The Scottish budget mentioned a ‘just transition’ 20 times, including a reminder of Scotland’s £500 million Just Transition Fund primarily aimed at supporting oil and gas workers in the north east and Moray region. In 2018, the Scottish Government set up a Just Transition Commission. However, environmentalists and trade unionists have said that the commission’s recommendations are too often ignored. 

• Renewables manufacturing. The New Economics Foundation have published a paper suggesting ways in which the Scottish Government can deliver its bold ambitions through investment in renewables manufacturing.
• Wales. The Welsh TUC have set out a five-point plan for a just transition to net zero. The Wales Centre for Public Policy also explores ways to achieve a just transition in Wales.

Universal Basic Income. A proposed trial for Universal Basic Income (UBI) in Wales has been described as ‘one of the most eye-catching Welsh government proposals of recent times’.  Welsh Future Generations Commissioner, Sophie Howe, said that UBI would cut poverty in half. Autonomy finds that UBI could cut child poverty by 64% and pensioner poverty by 61%.

• Care leavers. Welsh first Minister Mark Drakeford has suggested that a trial could focus on young people leaving care. However Stephen Crabb, Conservative MP for Preseli Prembrokeshire, said that proposals to trial UBI on care leavers miss the point of universality. Contributor of the IWA's publication, The Welsh Agenda, Dr John Ball also says that UBI trials will fail if they are not truly universal.
• Public backing. 69% of the public support trialing UBI in Wales and 67% support the Welsh Government increasing taxes on the very rich, according to a poll conducted by Autonomy.
• Northern Ireland. Belfast City Council have approved funding for a study looking into the practicalities of a local UBI trial. The DUP has voiced opposition to UBI and the study will not be funded by Stormont.

Deregulation after Brexit. The idea that the UK could flourish outside the EU as a low-tax, low-regulation, high-growth state is one which drove many Eurosceptics in the decades preceding the Brexit referendum, and has characterised the debates on the right that have taken place since about the extent of regulatory alignment the UK should have with the EU. Proponents of this view, including Lord Frost, Boris Johnson’s chief negotiator, were determined that the UK’s negotiations with the EU should avoid commitments that would limit the ability of the UK to compete on regulatory standards or on tax levels. They argued that the EU’s bargaining position was driven by fear of being out-competed by a newly unshackled UK. 

• New push. A new paper from the Adam Smith Institute attempts to give definition to this argument, calling for the UK to become a ‘Singapore-on-Thames’. It argues that the UK should adopt a range of free market policies, such as cutting taxes and regulations, to make the economy more efficient. But the bulk of the report proposes greater marketisation and competition in key public services such as healthcare and education, in order to reap the rewards of higher growth and better outcomes. The author Bryan Cheang does acknowledge that there are significant political and cultural differences between the two countries.
• Scunthorpe? Writing in the Telegraph, City economist Roger Bootle welcomes the new push from the ASI, heralding it as an antidote to the current trajectory of tax rises and state expenditure, which he says puts the UK more on a trajectory of Scunthorpe than Singapore.
• ‍Divergence tracker. UK in a Changing Europe publishes an updated ‘UK-EU regulatory divergence tracker’ to identify how Brexit is being implemented in this field. 

Impossible and undesirable? While the goal of transforming the UK into a deregulated haven off the coast of Europe has animated some, there are plenty who have argued that this is neither possible nor desirable. Writing at the height of the Brexit debates, former FT journalist Jeevan Vasagar argued that the vision of Singapore held up by UK free-marketeers did not represent the reality of the city state. 

• Delusion. The Financial Times’ chief economic commentator Martin Wolf concluded that it is unrealistic to expect that the UK could ever approximate the Singapore economic model. Wolf highlights the extraordinary level of personal savings enabled by Singapore’s Central Provident Fund, which compels employers and workers to contribute 37% of their income for social insurance, health and pensions. This is the key to understanding the country’s apparently low level of public spending.
• Race to the bottom. Labour economist Charles Woolfson argues that Singapore-style regulation is often code for a ‘race to the bottom’, particularly in relation to labour standards and the welfare system.
• Business view. Businesses do not necessarily welcome an attempt to out-compete the EU on low taxes and deregulation. UK business leaders warned during the Brexit process that they opposed regulatory divergence, even if it also brought lower tax rates. They warned that regulatory divergence would adds to costs, introduce frictions in labour markets and supply chains and raises prices. The Tony Blair Institute has explored a middle ground.
• Singapore: an entrepreneurial state? The Institute of Government’s Jill Rutter argues that the wrong model is being learned from Singapore. It is the city-state’s belief in state-supported business innovation which marks it out: more Mariana Mazzucato than Adam Smith.‍

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The Government’s deregulatory agenda. It is not clear how far the Singapore-on-Thames model seriously informs government thinking about the UK’s economic future, particularly given the impact of the Covid pandemic, which has delayed and derailed many of its policy objectives. However there are some areas where a deregulatory agenda is being pursued. 

• Freeports. The government is committed to opening 8 new freeports across the UK, giving businesses locating in them gain tax and planning benefits. However the policy has been delayed amid rumours that the Treasury are sceptical about the economics. This is a point that has long been made by tax justice campaigners, who argue that these zones simply relocate economic activity and allow the wealthy to avoid taxes.
• Financial sector competitiveness. The Chancellor has announced his commitment to improve the ‘competitiveness’ of the financial sector through deregulation. But this agenda carries significant risks, including risky de-regulation and the possibility of regulatory capture, according to Marloes Nicholls from the Finance Innovation Lab. The Lab’s ‘Transforming Finance’ project produces a range of resources both on the Government’s proposals and the alternatives. 

New variant. The World Health Organisation (WHO) has classified the new Omicron Covid-19 variant as a ‘variant of concern’ due in part to its ‘unprecedented’ number of spike mutations, which gives it the potential to escape protection against immunity induced by vaccines and previous infections.  

• South Africa and travel bans. South Africa has invested heavily in genomic sequencing, which is why scientists in the country were able to spot the new Omicron variant so swiftly. This also means that it should be easier to create updated vaccines if needed. However, the reaction of many countries (including the UK) has been to introduce travel bans from South Africa and neighbouring countries. South African President Cyril Ramaphosa criticised this, saying it would impose heavy costs on the country and would discourage those who find such mutations from sharing their findings with the rest of the world. 

Global vaccination. Gordon Brown has renewed his criticism of rich countries for hoarding vaccine supplies when vaccination rates in the global South remain low. “The failure to put vaccines into the arms of people in the developing world is now coming back to haunt us.”  With enough vaccines (2 billion a month) now being manufactured to vaccinate the whole world, the problem is one of distribution. In June, the G7 countries promised to donate their surplus vaccines to the global South. Brown set out “the arithmetic of failure”: the US has so far delivered only 25% of the vaccines it promised, the European Union 19%, the UK just 11%. The UK threw away 600,000 vaccines in the summer which had passed their expiry date. 

• Vaccination rates. In the lowest income countries, double-vaccination rates are as low as 3%. The New York Times publishes an updated vaccination tracker. 
• Pandemic treaty. The WHO is meeting this week to discuss the proposals for a ‘pandemic treaty’ to ensure stronger coordination of national responses and greater and more urgent support to countries in need. Despite previously pushing back on calls for such a treaty to be legally binding, the US and several other countries seem to have entered the new discussions with a more open mind. ‍
• Intellectual property. The new variant has prompted renewed calls to waive intellectual property (IP) protections on Covid-19 vaccines, to enable them to be cheaply mass produced throughout the world. With the World Trade Organisation meeting next week, President Biden has renewed his call for vaccine IP protections to be waived. Global Justice Now has published a useful policy brief on the issue.  

Vaccine sell-off. The UK’s Advanced Vaccines Manufacturing and Innovation Centre has been instrumental in ramping up vaccine production. Last month science minister George Freeman MP boasted about the £215 million investment in it provided by the UK Government. This week - just as details of the new variant were emerging - the Financial Times revealed that the Government is now going to sell it to the private sector. The decision attracted much criticism on Twitter. 

The new normal? With vaccines not yet widely available globally and as new variants continue to develop, the Progressive Economy Forum’s James Meadway explored how the economy may adapt to a more permanent presence of Covid-19.  Capitalism’s command of labour is changing, as pandemic diseases and public health measures change the location and patterns of work. On the other side of the political spectrum, Kate Andrews in the Spectator agreed. 

• Short-time working. The TUC argues that the Government should introduce a permanent short-time work scheme for future periods of economic turbulence, drawing on the success of the Coronavirus Job Retention Scheme. 23 countries in the OECD had similar schemes in place before the pandemic. 

Sick pay and income support. With cases of the new variant set to grow in number over the coming weeks, questions have already been raised over whether those who cannot work due to self-isolation will be properly supported. 

• Living sick pay? Pandemic restrictions over the last two years have drawn attention to the issue of statutory sick pay (SSP) reform. The Fabian Society suggested several potential reforms earlier this year. The TUC, which commissioned the research, call for SSP to match the Real Living Wage.
• Equalities. Calls for sick pay to match the Real Living Wage were also backed by a report on the impacts of Covid-19 on paid and unpaid work, by the Women’s Budget Group, the University of Nottingham and the University of Warwick. The report found that the largest economic burden of the pandemic has been experienced by working class women. 
  

North of England rail investment plans. The Government released its Integrated Rail Plan for the North and Midlands last week, a proposal for £96bn in rail spending covering HS2, Northern Powerhouse Rail and Midlands Rail Hub. However previously announced plans for the first two were significantly cut (Guardian summary here), with the eastern leg of HS2, formerly due to go to Leeds and Sheffield, now to terminate in the East Midlands; and the Leeds-Manchester high speed line (via Bradford) abandoned altogether. The Government justified the cuts by saying that the new plans would enable more local services to be upgraded, with the benefits arriving sooner. 

• Criticism. The plan was criticised by Northern mayors in an open letter to the Prime Minister, describing it as “contrary to your ambition to ‘level-up’ the North” and running the risk of “holding back our regional economies and compromising our plans to cut carbon emissions.” Tony Danker, director of the CBI, said that Northern businesses were “upset” and “bruised” by the decision. 
• Political pressure. Jake Berry MP, chair of the Conservative Party’s Northern Research Group, reminded the Prime Minister of his 2019 Manifesto Commitment to deliver Northern Powerhouse Rail in last week’s PMQs. At the same time a campaign led by newspapers and media organisations based in the North of England called for greater investment in inter-city lines to and across the North, including a demand to deliver Northern Powerhouse Rail in full. 

The missing money. The Northern Powerhouse Partnership calculates that the overall saving from downgrading the pledges on HS2 and NPR is £14 billion. Watch ITV’s Anushka Asthana explain the Northern Powerhouse Partnership’s analysis of the cuts.

• The North-South investment gap. IPPR North’s Marcus Johns and Arianna Giovannini calculate that between 2009-10 and 2019-20 the North received £349 per person in transport spending, compared to £864 per person in London, the equivalent of £86bn of lost investment. This would be enough to fund Transport for the North’s 30-year £70bn transport investment plan, which it is estimated could create 850,000 jobs. Onward’s dataset showing how many jobs are reachable by car and public transport reveals “a shocking transport gap between North and South”. 
• The wider context. CLES’s Tom Lloyd Goodwin examines the problems of the rail franchise system and why alternative ownership models can strengthen local economies. Common Wealth explains in a briefing why reshaping the ownership and an operation of bus networks would help build more vibrant local economies and thriving high streets. For more on levelling up and regional inequality see our previous Digest. 

Sunak’s investment cap. The New Statesman’s Stephen Bush blamed “Rishi Sunak’s self-imposed straitjacket on infrastructure spending” for the cuts, with the Chancellor in his Budget capping investment spending at 3% of GDP. The Independent reported that the Integrated Rail Plan “became a battleground to control spending by Rishi Sunak’s Treasury”. But Tim Pitt, former advisor to two Conservative Chancellors, argued that “Treasury hawkishness” was not to blame. He emphasised other constraints on investment spending, such as supply constraints and value for money. 

• A bad fiscal rule? James Meadway argues that the 3% investment cap should be scrapped to prevent future economic damage to the North and to the government’s net zero strategy. Oxford economist Simon Wren-Lewis agreed that the rule unnecessarily constrains good public investment projects.
• Reforming fiscal rules. NEF argues that the government’s fiscal rules should be replaced by a new framework. They propose a Fiscal Policy Committee (FPC) housed at the Office for Budget Responsibility or other third-party institution, appointed by government and parliament and guided by a set of ‘fiscal principles’. The FPC’s mandate would be based on resource constraints, full capacity utilisation, the private sector balance sheet position, and public sector net worth. NEF’s Frank van Lerven summarised the report in a Twitter thread. For a broader look at how fiscal rules have developed over time and how they might be reformed, the National Institute of Economic and Social Research has published an e-book on Designing a New Fiscal Framework, written with former ministers, central bankers and civil servants.  

The Glasgow Climate Pact. COP26 closed late on Saturday with the adoption of the ‘Glasgow Climate Pact’ by the 197 parties (196 countries and the EU) to the UN Framework Convention on Climate Change (UNFCCC). The full text of the main Pact is here. 

• Main elements. Carbon Brief have written a comprehensive analysis of the Glasgow Pact and other COP26 decisions and announcements. New Economy Brief Managing Editor Michael Jacobs summarised the main elements of the Pact in a Twitter thread. 
• Reaction. UN Secretary-General Antonio Guterres issued a sober welcome for the agreement. “Our fragile planet is hanging by a thread. We are still knocking on the door of climate catastrophe. It is time to go into emergency mode — or our chance of reaching net zero will itself be zero.” Edie collated reactions from civil society organisations including Greenpeace, WWF, the Corporate Leaders Group and C40. ECIU’s Sepi Golzari-Munro tweeted a short evaluation of the deal and European Climate Foundation head Laurence Tubiana set out priorities for COP27, which will take place in Egypt in November 2022.

Mitigation and returning in 2022. On emissions reduction (‘mitigation’), the agreement acknowledges that current national commitments are insufficient to put the world on a pathway to limiting global heating to 1.5C above pre-industrial levels. It instructs countries to come back in 2022 with strengthened commitments for 2030, in line with the “well below 2C” and ideally 1.5C goals set out in the 2015 Paris Climate Agreement. The planet is already 1.2C warmer: NASA’s Earth Observatory explains what rising average global temperature means. 

• Commitments and projected temperature rises. Almost all major countries had already announced their commitments ('nationally determined contributions' or NDCs) before COP26, so they were not going to revise them at the conference. In that sense requiring countries to come back with stronger commitments next year is the most COP26 could realistically have done. Climate Action Tracker’s analysis shows that the 2030 commitments will lead to around 2.4C of warming. If longer-range ‘net zero’ targets were met, warming could be limited to 1.8C, but these pledges are not backed by credible policy. Climate Resource’s NDC factsheets tell you more than you need to know about all 192 NDCs so far submitted, and the temperature increases to which they might lead. (Twitter thread explainer here)
• What happens next? There is no guarantee that countries will come back in 2022 with sufficiently strong commitments to meet the 1.5C limit. In practice this will depend on domestic political pressures in every major emitting country - both for and against greater ambition. BusinessGreen’s James Murray argues that the agreement “creates a moment every year when governments will face intense public and geopolitical pressure to strengthen their decarbonisation plans”. In the UK, NEON’s recent polling shows that the UK public supports strong domestic climate action.  
• Do international agreements make any difference? Climate writer David Voltz explains what a global climate treaty can and can’t do: “COP agreements can't make anyone do anything or punish anyone for failure...The action is in domestic national politics.” In an analysis of the Glasgow outcome, Michael Jacobs explains how climate agreements since Copenhagen in 2009 have forced countries to act simultaneously, contributing to the creation of global markets in green technologies which have resulted in much lower costs, enabling stronger action.
• Sectoral agreements. COP26 saw a number of sectoral agreements signed between groups of countries and the private sector, notably on deforestation, methane, transport, coal, green technology and finance. Carbon Brief explains. If fully implemented, Climate Action Tracker estimates that they could close the emissions gap to a 1.5C path by 9%. (See last week’s digest for more analysis of these.)

Fossil fuels. The Glasgow Climate Pact calls for “accelerating efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies.” No dates for this are given, but Greenpeace and others hailed the first ever mention of reducing fossil fuels in a COP document as a signal that “the era of coal is ending.” International lawyer Harro van Asselt explains why the text is significant even if it is weaker than hoped. 

• Coal. Coal-fired power stations remain the bedrock of electricity production in many countries, particularly those with their own coal reserves. In many countries new power generation comes mostly or exclusively from renewables (wind and solar), and old coal-fired power is being phased out. But as the Centre for Research on Energy and Clean Air explains, the expansion of largely new (and more efficient) coal in China offsets declines elsewhere. The reference to “unabated” coal in the text means that coal plants fitted with carbon capture and storage (CCS) technology are exempt from the phase down. CCS can reduce emissions by around 80%, but is costly and still rarely used.  
• Fossil fuel subsidies. The reference to “inefficient” fossil fuel subsidies mirrors the language adopted in recent G20 communiques, which has provided a get-out clause for almost all countries. Some countries (such as India) defend consumer subsidies, since they make energy cheaper for the poor (though also for the rich). The IMF calculates that, globally, fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of global GDP. Around 8% of this reflects explicit subsidies (undercharging for supply costs); 92% reflects estimates for the undercharging of environmental costs, tax breaks and foregone consumption taxes like VAT (implicit subsidies). The Guardian explains. The Overseas Development Institute has a complete run-down of fossil fuel subsidies in G20 countries and progress towards phasing out. 
• Just transition. The Glasgow Pact recognises “the need for support towards a just transition”. The concept of a just transition - invented by the trade union movement - expresses the importance of supporting workers and communities adversely affected by green policies (such as those in fossil fuel and high carbon sectors). The International Trade Union Confederation’s Just Transition Centre provides a wealth of resources on the idea. Read IPPR’s plan for a managed transition for oil and gas in Scotland and the UK. 
• Oil and gas. The Glasgow Pact makes no mention of oil and gas, defended in the negotiations by the major producers including the US, Saudi Arabia and Russia. Nevertheless, taking the sectoral agreements into account as well, Oil Change International welcomed the historical significance of progress on phasing out fossil fuels. Global Justice Now’s response criticised the failure to look at how the global trade system reinforces the fossil fuel economy in arrangements such as the Energy Charter Treaty. The Treaty allows fossil fuel companies to be compensated for low-carbon policies introduced by governments: the IEA estimates it could cost the global economy as much as $100tn for lost revenue and stranded assets. (Watch Common Wealth’s explainer on how Investor-State Dispute Mechanisms enable fossil fuel companies to sue governments for climate action.)
• India and ‘watering down’. Much attention has focused on India’s role in watering down the final text from “phasing out” coal to “phasing down”. In fact it was India and China who both sought the change. ActionAid’s Brandon Wu argues that it is unfair to blame India: the problem is lack of global equity in phasing out fossil fuels in general. Wu references the Civil Society Review on a globally just fossil fuel phaseout which shows what fair shares of climate action would be, and how and why countries should phase out fossil fuels on different timelines. 
• Global fair shares. Global Justice Now’s Dorothy Guerrero explains why the choice to ‘phase down’ coal rather than oil and gas allows richer countries to escape their historical obligations. For Common Wealth, Harpreet Kaur Paul has analysed the responsibilities role of the global North due to its historic and present role in the climate crisis. Referencing Oxfam’s briefing note on per capita consumption emissions, economic anthropologist Jason Hickel explains that the emissions of the richest 10% of the global population will use up the remaining carbon budget for 1.5C, “totally irrespective of what the rest of the world does”.

Climate finance. ‘Climate finance’ refers to money provided in different forms from advanced economies to countries in the global South. (The FT explains here.) Developed countries pledged in Copenhagen in 2009 and again in the Paris Agreement that they would mobilise public and private funding of $100bn a year by 2020. They failed to hit this target (providing $80bn in 2019) but say they expect to hit it in 2023. As the Jubilee Debt Campaign noted, over 70% of this finance has been in the form of loans, not grants, which add to the debt burdens of lower income countries. 

• Total finance flows. In Glasgow developed countries resisted the demand that they make up the shortfall since 2020 by providing more in 2024 and 2025. The text sticks at $100bn a year, and sets up a new process to define how much they should pay after 2025. ‍
• Finance for adaptation. For many years poorer countries have expressed anger that around 75% of climate finance has gone to mitigation efforts, such as renewable energy, rather than on adaptation to help them cope with the climate change they are already experiencing. The recent UN Environment Programme report on financing for adaptation estimates that the costs for vulnerable countries to adapt to global warming are up to ten times higher than available funding. In the Glasgow Pact the vulnerable countries achieved their demand that developed countries should “at least double” funds for adaptation. ‍
• The overall finance package. The Glasgow Pact calls on the World Bank and other multilateral development banks to improve access to climate finance for climate-vulnerable countries, which can be penalised by their (in some cases) higher GDP per capita and perceived high-risk investment conditions. Senior COP26 adviser Amal-Lee Amin argues that COP26 has made progress. Citing the new financing and reform agreement between South Africa and several developed economies to help South Africa transition away from coal, COP26 “provides a solid foundation for a comprehensive new climate finance framework post-2025”.
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Loss and damage. In UN climate negotiations 'loss and damage' is the term used to describe the principle that rich countries should compensate poor ones for the climate costs their historical emissions have caused. For many countries in the global South this is central to climate justice. Developed countries have always resisted it; they fear it is the slippery slope to being held liable in international courts for trillions of dollars in damages. In Glasgow the vulnerable countries wanted a new financing facility to be set up for loss and damage. This was not agreed: there is to be merely a ‘dialogue' to discuss 'arrangements'. Power Shift Africa’s Mohamed Adow expressed the widespread anger at this: “The needs of the world's vulnerable people have been sacrificed on the altar of the rich world's selfishness.” Developing countries vowed to return to this at COP27 next year. 

Carbon markets. 'Carbon markets' in climate change agreements allow rich countries to buy 'offsets' (such as tree planting) to avoid the cost of reducing emissions themselves. Such markets have been controversial since first being allowed under the 1997 Kyoto Protocol. Article 6 of the Paris Climate Agreement defined them further and COP26 was meant to finalise the rules. The Glasgow Pact closes some loopholes over double-counting, and sets somewhat stronger standards for environmental integrity and protection for indigenous peoples. But there is only partial cancellation of credits left over from the old Kyoto Protocol (which many people think should simply be retired), and only a partial cap on new ones. A 5% levy to go to adaptation will cover only some trades. With two different trading systems created it is feared the weaker one will predominate. Clean Energy Wire explains what has been agreed. Carbon Markets Watch criticises it.  

And the rest. Beyond the issues mentioned above, COP26 completed the ‘Paris Rulebook’ of detailed rules to implement the Paris Agreement, such as on the transparency of national actions and measurement. This will allow for full implementation of the treaty. Some other notable developments were on:

• Special Drawing Rights. One of the most interesting developments at COP26 arose from the powerful speech (watch it here) made by the Barbados Prime Minister Mia Mottley in the Leaders’ Summit. She called for the IMF to issue annual tranches of SDRs, the global reserve currency, to finance climate-compatible development in the most vulnerable countries. Some of the SDRs issued this year in the light of the Covid pandemic are already meant to be reallocated for development (but have not yet been). Mottley’s adviser Avinash Persaud explains the new proposal.‍
• Countering greenwash. There was widespread concern in the run-up to COP26, and at it, that various companies are claiming to be committed to achieving net zero emissions but are in fact using dubious measurement and large-scale use of offsetting. (The Guardian’s Damian Carrington explains.) At COP26 the UN Secretary General announced that he was setting up an Expert Group “to propose clear standards to measure and analyse net zero commitments from non-state actors.” This was widely welcomed.

Side agreements. The first week at COP26 was dominated by a series of ‘side agreements’ choreographed by the UK Presidency. These are not formally part of the talks, but attempts to drive forward ambition in the real economy. Some observers have been pleasantly surprised by the number of countries involved in some of these and the funding committed to them. Others have warned however that many are weaker than the government has claimed. There has been a lot of criticism in particular of some of the business and financial ‘net zero’ announcements.

The ‘end of coal in sight’? Last Wednesday the UK’s Department for Business, Energy and Industrial Strategy issued a press release stating that “190 countries and organisations” had pledged to phase out coal. With countries pledging to end the use of coal-fired power stations, and both countries and banks promising to end their financing of new coal projects, the release said that “the end of coal is in sight.” 

• Missing signatories. But the statement was not all it seemed. The AFP’s Patrick Galey dug into the story to investigate who had signed up and to what (Twitter thread here.) It turned out that the new pledge had only 77 (not 190) signatories; of the 46 countries, most had already committed to phasing out coal. Of the 23 countries that made new commitments, only 13 actually use coal.  The 13 do account for 13% of coal output globally, with major users such as South Korea and Vietnam now signed up; this is definitely progress. But most of the world’s largest coal users (including China) did not. Fiona Harvey of the Guardian unpacks the Government’s spin. 

Ending deforestation by 2030? Presented as COP26’s first major deal on Monday, the UK announced an “unprecedented” plan to end (and then reverse) deforestation and land degradation by 2030. Signed by 110 countries (covering around 85% of global forests, and including Brazil, Indonesia, China, Russia and the Democratic Republic of Congo), the agreement included almost £14bn of public and private funds to restore damaged land, tackle wildfires and support indigenous communities.

• You didn’t hear it here first. Observers pointed to a remarkably similar pledge, the New York Declaration on Forests, made in 2014, which had 187 signatories and also committed to end deforestation by 2030. There has been little news of or accountability for what has happened since. To ensure the new pledge is more successful, the World Resources Institute's Rod Taylor said that “governments must implement a step-change in transparency to include full disclosure of forest and land permits and the origins of commodities”. There needs to be more support for smaller farmers to adopt more sustainable practices, and deforestation-free agriculture needs to be embedded in trade agreements.
• Decarbonising food supply chains. 28 countries and a number of companies also committed to remove deforestation from agricultural supply chains of palm oil, cocoa and soya. Consumer demand in the UK for these high-carbon commodities has been estimated to require an area 88% of the size of the UK to produce. IPPR’s previous report on building a sustainable food system proposed policies to eliminate imported deforestation from UK food supply chains.

Methane methods. US President Joe Biden and EU President Ursua von der Leyen announced that 90 countries had agreed to cut methane emissions by 30% by 2030. Methane, produced especially from agriculture, landfill and oil and gas, is a more potent greenhouse gas than CO2, so if implemented this would be significant. Climate physicist Piers Forster analysed the likely impact. 

Fixing farming? 45 countries (or possibly 28) have committed to changing their agricultural policies to become more sustainable and less polluting, and to invest in the science needed for sustainable agriculture and the protection of food supplies against climate change. 95 major companies from a range of sectors committed at the same time to being ‘Nature Positive’, working towards halting and reversing the decline of nature by 2030. In their analysis of farming and climate change, Republic of Buzz argued that agriculture represented the “cow in the room” at COP26.   

Green technology ‘breakthrough’? 40 countries, accounting for more than 70% of the global economy, have signed up to coordinate the global introduction of clean technologies, starting with zero-carbon electricity, electric vehicles, green steel, hydrogen and sustainable farming. Governments agreed to align their standards and coordinate investments to scale and speed up production. The aim of the ‘Glasgow Breakthroughs’ is to accelerate the ‘tipping point’ when greener technologies become more affordable and accessible than fossil-fueled alternatives. 

Glasgow Financial Alliance for Net Zero. Former Governor of the Bank of England Mark Carney announced that financial institutions with $130tn of assets would align their portfolios with the Paris Agreement’s goal to limit global warming to 1.5°C. The Glasgow Financial Alliance for Net Zero (GFANZ) includes more than 450 banks, pension funds, insurers and asset managers across 45 countries and covers 40% of global financial assets.

• Inflated figures. Carney’s announcement came under rapid criticism. The FT explained the many ways in which the $130tn figure is inflated. Only a small proportion of the $130 trillion is actually being directed towards green investment. Many of the company signatories will continue to invest in fossil fuels. 
• Fossil fuel investments will continue. Analysts at Reclaim Finance said that by failing to mandate a halt to investments in fossil fuel expansion, GFANZ could not say it was contributing to the 1.5C goal. The International Energy Agency (IEA) has shown that new fossil fuel investment must halt now if global heating is to be kept under 1.5°C. (Read Reclaim Finance’s full report on net zero and the finance sector.) 
• Greenwashing. For the finance sector to say it is committed to net zero depends on the credibility of the net zero claims made by the companies whose shares it owns. Greenpeace protested at the GFANZ launch on the ‘greenwashing’ involved in using carbon ‘offsets’ to ‘achieve’ net zero. Earth.org presents a handy guide to greenwashing.
• Oily. Global Witness noted that the fossil fuel industry has more lobbyists at COP26 than any country has delegates.  

Is 1.5°C still within reach? Prior to COP26, the UN warned that the ‘nationally determined contributions’ (NDCs) which countries had made for 2030 added up to a global emissions total which would likely put global temperatures on a trajectory to a 2.7°C rise. Much attention was taken in the first week when Fatih Birol, Director of the IEA, tweeted that the side agreements announced could limit heating to 1.8°C. But this was quickly criticised. 

• Don’t confuse pledges with policies. Breaking down the “temperature estimates bonanza”, UNclimatesummit.org found that the 1.8°C figure came with a huge caveat: it would only be true if all pledges were implemented in full and on time. This was largely missing from celebratory media commentary in the UK. ECIU’s Richard Black argues that “pledges don’t cut emissions - policies do. And on the basis of announced policies, we’re still heading for something like the 2.7°C”. 
• Serious analysis. The first serious analysis of the COP26 pledges has come with the release of a new report by the respected scientific NGO Climate Action Tracker. It notes that the absence of policy detail in the COP26 side agreements and in many countries’ NDCs make the 1.8C claim implausible. COP26 has a “massive credibility, action and commitment gap,” the report says. With all target pledges, including those made in Glasgow, global greenhouse gas emissions in 2030 will still be around twice as high as necessary for the 1.5°C limit, with 2.4C the most likely temperature rise by 2100. Climate Action Tracker's Bill Hare and Niklas Höhne explain their findings.
• Closing the emissions gap. With current pledges inadequate to closing the emissions gap to a 1.5°C pathway, two proposals have been put forward. The group of 55 of the most climate-affected countries, the Climate Vulnerable Forum (CVF), has suggested a voluntary annual platform at COPs at which countries - and potentially the side agreements - could add to the ambition of their NDCs. Former UN chief Christiana Figueres has proposed that, rather than countries presenting new NDCs in 2025, as required by the Paris Agreement, COP26 should bring this forward to 2023. The two proposals are not mutually exclusive. Michael Jacobs, New Economy Brief Managing Editor, explains the two proposals to 'keep 1.5°C alive' in the final days of the summit.

Closing the finance gap. On climate finance, the CVF are also demanding that (a) the rich countries provide $500bn over the five years 2020-2024; (b) 50% of this is for adaptation; (c) there is an annual accountability mechanism to see exactly where the money has gone. The $100bn financing goal for 2020 agreed in Paris is not expected to be met till 2023, so the $500bn would entail more than this in 2024 and 2025.

• Importance. A new report from Christian Aid outlines why the most vulnerable countries need more money, particularly for adaptation. UNCTAD’s Trade and Development Report 2021 found that adaptation costs have doubled in the last decade and the costs may reach $300bn a year by 2030. ‍
• Financial realities. Power Shift Africa’s Mohamed Adow explains what the climate finance debate is really about, which isn’t the PR-focused, private-sector-led announcements being made at COP26.

A tax and spend budget? Last week Chancellor Rishi Sunak announced £70bn of additional spending over the next three years, taking real term spending per head back up to 2009/10 levels by 2024. Full Budget and SR documents here.

• Austerity repudiated. In its analysis, the IFS suggested that “fiscally speaking this year will go down as a once in a decade event...when public spending was increased across the board” - by 2024-25, an 8.3% real terms increase on 2009-10. A Keynesian-style spending budget when debt is still high and the recovery not yet consolidated could be seen as a tacit acknowledgement that austerity in 2010-13 was a mistake: the opposite choice was made by George Osborne then.
• The tax share. Sunak’s Budget speech did not mention what was in fact its most significant measure, the rise in National Insurance contributions (subsequently to be turned into a new ‘Health and Social Care Levy’) he had already announced. As the Resolution Foundation noted in its analysis, along with the rise in corporation tax and freeze in income tax thresholds announced in the spring, this will take the share of tax in GDP (sometimes called the ‘tax burden’) from 34% to 36.2% in 2026-27. The tax share will then be at its highest level since 1950.
• Post-neoliberalism and the free-market right. The Adam Smith Institute’s response criticised “this high-tax, big-spending budget...largely bankrupt of inspired policy”. Similarly, the TaxPayers’ Alliance took aim at the “highest tax burden in 53 years”, while the Institute for Economic Affairs was disappointed that “there is no plan to run a budget surplus in the coming years”. Political economists Will Davies and Nicholas Gane explain how the political right’s reactions to the covid-19 pandemic could signal a break with neoliberal orthodoxy ”and, in particular, from their overriding concern for the market”.

“Austerity is over, but not undone”. The IFS’s Ben Zaranko suggested that spending increases mean “austerity is over, but not undone”. Though departmental spending is set to rise across the board until 2024-25, only the Department of Health and Social Care (42.4%) and Education (2.4%) will see their Budgets higher than 2009-10 levels. In its response to the Budget, the Women’s Budget Group argues that “the increase in spending will not take most departments back to pre-2010 funding levels… nor will it repair the damage done to the public sector after a decade of successive cuts.”

Universal Credit. Another Budget measure which the Chancellor did not mention in his speech was the removal of the £20 a week Universal Credit (UC) uplift. Instead, Sunak announced that he was changing the Universal Credit ‘taper rate’, under which UC is reduced as claimants work more hours. The taper rate (which effectively operates like a marginal tax rate on income from work) would fall from from 63% to 55%. Analysts noted that this would compensate for the uplift cut for only about 25% of UC claimants. NEF pointed out that the poorest 20% of people will be receiving £380 per year less from Universal Credit than if the £20 uplift had stayed in place, pushing 300,000 more people into poverty this winter. JRF’s Katie Schmuecker said “Lowering the taper is a good thing to do, but it’s no substitute for the basic level of protection we all need social security to provide”. In his speech Sunak described the UC taper rate change as a “tax cut”. Several observers noted that, if the Chancellor concedes that the taper rate is a tax on work, it was hard to justify it being even 55%, well above the top rate of income tax. 

Distributional impacts. Economist Jonathan Portes argued that the overall impact of the Budget’s welfare, tax and spending decisions on different income deciles was “broadly progressive”, as ‘benefits in-kind’ from public services largely accrue to those on lower incomes. However, NEF’s Alfie Stirling points out that once you take into account the cutting of the £20 uplift to Universal Credit, all of the net gains in the bottom end of the income distribution are reversed. 

Rise in minimum wage. The Chancellor announced a 6.6% rise in the National Living Wage, from £8.91 per hour to £9.50 per hour, following recommendations made by the Low Pay Commission.

• Responses. In its response statement, Graham Griffiths, director of the Living Wage Foundation, drew attention to the “substantial gap” between the real Living Wage and the government-mandated minimum wage, which employers can still give. Autonomy argued that a national minimum wage of £10.50 per hour is “eminently achievable” by “shaving the incomes off the top 1.23% of the workforce” and could give a pay rise to 4 million people. 
• A ‘high-wage economy’? The TUC’s chief economist Geoff Tily pointed out argued showed that a rise in the minimum wage isn’t enough to secure decent pay across the economy. The IFS calculated that, given higher inflation, the average household is set to be £13,000 worse off by the middle of the decade, an “unprecedented two-decade hit to earnings [that] would leave average household disposable income 42% lower than it would have been had wages grown at pre-2008 financial crisis rates”. The IFS’s forecast for stagnant real wage growth put into question Sunak’s optimism about a transition to a new, high-wage economy. Commenting on the forecasts, James Meadway argued that tight labour markets and growing union membership offer a route to “inflation-beating pay rises across the economy”.

Local government will continue to struggle. Local governments received an additional £4.8bn of new core funding until 2025, but the IFS warned that councils are likely to struggle without additional funding from central government, since additional revenue will be wiped out by rising inflation and higher wage costs from lifting the public sector pay freeze. 

• Levelling up funds. Sunak also announced an extra £2.6 billion for the UK Shared Prosperity Fund over the Spending Review, and allocated the first £1.25bn of the Levelling Up Fund. The Byline Times’s Sam Bright explains that the English local authorities given money have lost vastly more, £25.5bn, in spending power between 2010 and 2018. To compete for the new funds, councils must pitch economic development plans aligned with the government’s preferred economics of inward investment and agglomeration. Former CLES Director Neil McInroy explained why addressing regional inequality requires real devolution of power over economic strategy and spending decisions from Whitehall.
• Tests for the levelling up agenda. Centre-right think tank Onward’s response called on the Treasury to “publish a regional distributional analysis” to understand how tax changes affect different regions and “ensure that the levelling up agenda is not held back by the tax system.” A group of progressive economists and think tanks recently called for Equality Impact Assessments that cover all of the Treasury’s tax and spending decisions and evaluate their impact upon different regions, races, genders, and other protected groups.

Social infrastructure. The government announced that it would fund 75 ‘family hubs’ in a £500m package to provide essential services to young families. Observers noted the resemblance to the Sure Start centres set up by the Labour Government from 1997 to 2010. Government spending cuts had forced 1,300 Sure Start centres to close over the last decade. The Women’s Budget Group argued that the Government should recognise childcare as vital infrastructure, where costs can be recouped by job creation and savings on social security; an estimated 1.7 million people were prevented from taking on more paid work because of difficulty accessing childcare.

A ‘climate-void’ budget. The Chancellor announced £30bn in green investment over four years (breakdown here.). This figure is far below than the £30bn of investment every year called for by progressive think tanks and economists in their Open Letter to the Chancellor published before the Budget. NEF’s Miatta Fahnbulleh and IPPR’s Carys Roberts both referred to this in the Guardian’s panel response. With the Chancellor cutting air passenger duty on domestic flights and freezing fuel duty again (and not mentioning the word ‘climate’ at all), IPPR referred to the event as a ‘climate-void’ budget. 

Delivering the net zero transition? Last week the government published its long-awaited Net Zero Strategy, along with a variety of other plans detailing how the UK government proposes to deliver the transition to a net zero emission economy. The three main documents are the overall Net Zero Strategy: Build Back Greener, the Heat and Buildings Strategy and the Treasury’s Net Zero Review Final Report. For a short summary of policies outlined in these three documents, read this overview by the Financial Times.  

• Other net zero documents. Bringing together 19 climate-related reports published by the UK government last week, Carbon Brief’s Simon Evans collated a database of documents with links to each publication.

The Net Zero Strategy. The Net Zero Strategy outlines how the UK government plans to deliver its emissions targets of Net Zero by 2050 and a 78% reduction from 1990 to 2035. It estimates that additional capital investment must grow to “an average of £50-60bn per year through the late 2020s and 2030s”, with the private sector filling the majority of this. The Climate Change Committee’s (CCC) independent assessment concludes that it “sets an ambitious, credible path for UK decarbonisation, consistent with tough territorial emissions targets in the near and long-term that we (and others) assess to be in line with the demands of the Paris Agreement Implementation and delivery is what matters now”.

• “A very market-led strategy.” Chris Stark, the CCC’s chief executive, summarised the document as a “very market-led strategy” with “a striking use of mandates - obligations on business to deliver the change”. These include, for example, requiring car manufacturers to produce electric vehicles with a “zero-emission vehicle mandate” and mandates for boiler manufacturers to produce heat pumps. (See this box for a useful summary of the market-led policies for decarbonising each sector.) He continues: “it’s noticeable how frequently government puts the onus on business to invest and bring down the cost to the consumer. Many have criticised low public spending in some areas, but the government seem to be taking a different route. We shall see how that market-led approach fares.” 
• Public spending and delivery. ECF’s UK Director, Joss Garman, noted the continued shortfall in the overall envelope for public spending for carbon-cutting delivery, relative to what the OBR and CCC have said is needed. “The sum announced for home insulation today is billions short of Boris Johnson's promise in his own manifesto. Overall, the figures don't come close to the scale of funding Labour say they would put forward, which tees up a familiar debate on the size of the state relative to the role of the private sector, particularly in relation to insulating buildings and skilling-up the workforce.” James Meadway makes a similar argument for Novara Media. "Unless the Treasury’s attitude towards borrowing changes, the rest of the government’s decarbonisation strategy is futile. If it doesn’t have money to carry out its plans, no plans will be carried out.” 
• Briefing webinar. Join NEF’s special New Economics Briefing (Thursday 28th October 19:00-20:15) to hear what a public-sector-led decarbonisation strategy would look like and how it can be paid for. Speakers include NEF’s Frank van Lerven, UCL IIPP’s Katie Kedward, and economists Grace Blakeley and Laurie Macfarlane.

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Gaps: food, agriculture and behaviour change. Many have criticised the lack of delivery mechanisms in the Net Zero Strategy for decarbonising agriculture and land use, and the lack of emphasis on the issue of behaviour change (such as changing diets and demand for flights). 

• Decarbonising food. The Soil Association’s Rob Percival argued that the Net Zero strategy “falls short” in delivering the ambition for “an urgent transition to a nature-friendly, agro-ecological farming and sustainable diets”, as outlined in the National Food Strategy published in the Summer, which argued the UK should reduce meat consumption by a third. The UK’s demand for high-carbon commodities such as soy, palm oil, timber and beef, has been estimated to require an area of 88% of the size of the UK to produce. IPPR’s previous report on building a sustainable food system proposed policies to eliminate imported products which contribute to deforestation from UK food supply chains‍
• Behaviour change. NEF’s Alex Chapman noted how the government document Net Zero: principles for successful behaviour change initiatives has since been taken offline (but you can find it here) and previously included acknowledgement for the need for “behavioural interventions” to reduce demand for aviation. The waste advisory body WRAP has explored the possibility of consumer behaviour change and the Local Government Association and Global Good Awards have highlighted various practical projects to encourage it.

BEIS’s Heat and Buildings Strategy. The Heat and Buildings Strategy includes a target (not legally mandated) to end the sale of fossil fueled heating systems by 2035, and a £450m three year grant programme giving £5,000 to households to shift to low carbon heating systems (mainly air and ground source heat pumps). Read this commentary from Business Green.

• Not enough money. Business Green’s James Murray pointed to “serious concerns amongst policy wonks that the whole thing is badly underfunded”, particularly in support for reducing demand through higher energy efficiency. Friends of the Earth’s Mike Child’s noted that the money allocated would only pay for 90,000 heat pump installations over three years, which falls way short of the Prime Minister’s target of 600,000 a year by 2028. 
• Warmer homes for a cooler planet. IPPR’s Luke Murphy argued that a successful plan would include grants of £7,500 as well as covering the full costs for those suffering from fuel poverty, a legal commitment to phase out new boilers, a nationwide information campaign and a focus on local delivery and skills for a “retrofit army”. IPPR has provided a comprehensive plan to decarbonise the UK’s homes, setting out a blueprint for delivering a successful and fair national housing retrofit drive. Follow NEF’s campaign for a Great Homes Upgrade for more resources on decarbonising homes. ‍NEF has explained how a ‘Future Skills Scheme’ could help address the skills shortage, which it describes as a “binding constraint on decarbonisation initiatives, such as building retrofit”.

HMT’s Net Zero Review. It was widely predicted that the final report of the Treasury’s review of the costs and benefits of meeting the net zero target would focus mainly on the costs, as part of an apparent desire by Rishi Sunak to slow down the net zero momentum. But most commentators acknowledged that in the end it was a mostly reasonable assessment, suggesting that in the run up to COP26 Boris Johnson had won an internal fight with the Chancellor. 

• Public borrowing for the green transition. One interesting argument made in the review is that borrowing to finance public investment for decarbonisation would not be appropriate: “Seeking to pass the costs on to future taxpayers through borrowing would not be consistent with intergenerational fairness nor fiscal sustainability. This could also push up the economic cost of the transition.” Positive Money criticised this approach and drew attention to the need to see public spending as a “prudent investment that will pay for itself and deliver huge dividends for the whole of society”. E3G’s Heather McKay called the Review “half-baked”, overly focused on the costs over the benefits of the transition to net zero: “A Net Zero Review which considers only the upfront capital investment costs and doesn’t look at significant value that the investment will return, risks derailing the growing support for net zero investment by business and the public”. 
• Discounting the future. More generally, economist Nick Stern argues in a forthcoming academic article that conventional economic analysis, of the kind exhibited in the Treasury review, systematically undervalues the lives of young people and future generations who will experience severe climate change. 
• Loss of tax revenue. The Treasury report expresses concern that the shift away from fossil fuels will lead to a reduction in tax revenue from taxes such as fuel duty. In a response, NEF’s Lukasz Krebel argues that reduced tax revenue can be “balanced by increasing the progressivity of the tax system, such as taxing wealth, especially excessive/unearned wealth, at fairer rates”, pointing to principles for green tax reform developed by Tax Justice UK and others. The Institute for Government’s Net zero and the tax system called for a “net zero tax audit” to ensure all taxes support the green transition, rather than just the few which the Treasury define as “environmental taxes”.
• Johnson v Sunak? Commenting on recent rows between the Treasury and No.10 over increasing public investment in decarbonisation, James Meadway argued that “the left should celebrate Boris Johnson’s clash with the Treasury… Johnson will be performing a great service to any future progressive administration” if his government can reduce the institutional power of the Treasury over other departments.  IPPR’s George Dibb gave evidence to the House of Commons Treasury Committee, arguing that the “Treasury’s pound-pinching and short-termism holds back industrial policy in this country” and highlights the need for an empowered counterweight to set long-term strategic economic direction.
  

BoE signals tightening of monetary policy to combat inflation. Andrew Bailey, the governor of the Bank of England, has said that the Bank “will have to act” to curb inflationary pressure in the medium term. Financial markets have already ‘priced in’ an interest rate rise before the end of the year. 

• Inflation caused by rising energy prices and supply/labour shortages. Bailey said he continued to believe that the recent increase in inflation was temporary, but the major increase in energy prices, along with supply chain and labour shortages, would continue for some time, and there was a danger of inflationary expectations beginning to take hold. Such expectations could fuel wage demands and thereby an inflationary spiral. 

Who loses out from inflation? The Economic Policy Institute’s Josh Bivens explains why the debate about inflation and the appropriate policy response must take into account the sources of inflationary pressure. Inflation driven by commodity price rises or other transitory causes should not be met with contractionary macroeconomic policy responses. Bivens explains that the distributional impacts of inflation are not always bad, as “unexpected inflation tends to transfer wealth from lenders to debtors”.

• Effect on owners of wealth. Economist Mark Blyth explained why inflation “worries the right so much”, because it “threatens to either reduce their expected investment returns, or impact their leveraged financial strategies, as interest rates rise”. The Resolution Foundation explains that, when inflation reduces the value of loans and assets held in nominal amounts, this “effectively redistributes net wealth from savers towards borrowers”.  
• Consumption of specific baskets of goods. Economist J.W. Mason explains that rising inflation may not necessarily lead to general reduced purchasing power (or falling real wages) because people from different income groups consume different things. He notes that “the stuff that has increased in price most over the past year is disproportionately consumed by higher-income families”. 
• Alternative measures of inflation. NEF’s Real Britain Index was an attempt to provide an alternative measure to the CPI to calculate inflation for those specifically on lower incomes. The ONS has since taken up this idea to provide different measures of inflation for different income deciles. 
• Wage-price spirals. As this executive summary of a book on wage-led growth from the ILO explains, inflation driven by wage increases may lead to improvements in productivity and thereby improve GDP growth, reducing inflationary pressure as the productive capacity of the economy is increased (full book here). This has led some economists, such as James Meadway, to argue that “wage rises and mild inflation, after decades of stagnant real pay and deflationary pressure, would be no bad thing.” 

Cost of living crisis. In a Twitter thread, the New Statesman’s George Eaton notes that, even if wages are rising in some specific sectors, millions of people are facing cuts to Universal Credit, all workers will have to pay more in National Insurance contributions and 2.6 million public sector workers have had their pay frozen, meaning a cut in real terms.

• Energy prices. J W Mason (above) notes that energy price rises hurt poorer households the most, since energy makes up a larger share of consumption for lower-income families. The Resolution Foundation’s new briefing explains “how rising energy costs will impact more than others and what the Government can do about it” reinstating the £20 per week Universal Credit Uplift, increasing energy related benefits (like the Warm Homes Discount, Cold Weather Payments and Winter Fuel Payment schemes) and reducing demand by improving the energy efficiency of homes.
• Food prices. Bloomberg notes that global food prices are at their highest level in 60 years and explores possible policy responses.
• Inflation policy alternatives. For more on balanced policy responses to rising inflation, see our previous Digest.

Facebook under scrutiny. The practices of the world’s sixth largest company, Facebook,  dominated the US media last week following the revelations of a whistleblower, Frances Haugen, a former Facebook employee. Giving evidence to Congress, Haugen accused Facebook (which owns both Instagram and WhatsApp) of knowingly harming children’s mental health and fomenting violence and extremism around the world. The company puts its “astronomical profits before people”, she said. Haugen posted the video and text of her opening statement. 

• Facebook’s business model. Over the last month Haugen has leaked hundreds of internal documents to the Wall Street Journal detailing Facebook’s awareness of the damage it causes. Haugen said Facebook could act on these but does not, because “the business model of Facebook is designed to maximise attention at any cost”. She compared Facebook to the big tobacco companies who for decades concealed the evidence they had on the link between smoking and cancer. She called for Facebook’s “unaccountable” algorithms and safety practices to be regulated. 
• Reaction. Both Democrat and Republican Senators condemned Facebook’s behaviour but even relatively weak privacy legislation is currently stalled in Congress and observers do not expect serious regulation to be agreed. Facebook CEO (and 55% shareholder) Mark Zuckerberg reacted to the accusations - and to the six-hour outage which the company also experienced last week - in a blogpost. 
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Further evidence. Haugen’s evidence is the latest in a series of revelations about Facebook’s behaviour and business model, as the Washington Post and Carole Cadwalldr (the Observer journalist who broke the Cambridge Analytica story in 2018) explained.

• Quarterly harms report. A US-based NGO, the Real Facebook Oversight Board, publishes quarterly reports on Facebook’s “impact on democracy, privacy, and human life“. 
• The January 6th Capitol riots. Vice reported that Facebook had “contributed to the January 6 insurrection” by shutting down an internal team monitoring groups spreading disinformation and manipulating elections a few weeks before. The team was disbanded on the grounds that it would diminish the amount of time spent on the platform, and thereby hurt Facebook’s advertising revenue.

Big tech and monopoly power.  In October 2020, a House of Representatives antitrust subcommittee published a landmark report investigating Amazon, Apple, Google and Facebook. It argued that all four platforms abuse their monopoly or near-monopoly power to enhance their profits at the expense of competitor companies. 

• Platform capitalism. Nick Srnicek’s book Platform Capitalism offers an analysis of how the ‘platform’ business model enables digital companies to accumulate monopoly power through the ownership and sale of users’ data. He summarised his argument for IPPR. 
• Surveillance capitalism. Harvard academic Shoshana Zuboff’s book The Age of Surveillance Capitalism (summary here) details how digital platforms have created a “fundamentally anti-democratic new economic logic”. (Read this interview with the author and watch this video documentary for more.)
• Advertising models. The Open Markets Institute, the leading US campaign organisation against monopolies, summarised in a Twitter thread the way in which Facebook’s and Google’s “surveillance advertising” model invades privacy, promotes discrimination and supercharges incendiary content. 

Alternatives. Mariana Mazzucato, Rainer Kattel and colleagues at UCL explain how the state can redress the problems of the major tech companies’ monopoly power. Maximising the public and social gains of technological innovation whilst minimising their harms requires a combination of legal changes, stronger antitrust/competition regulation and changes to the ownership of data and companies. Yale University organised a timely event last week on possible legal and regulatory reforms with Facebook whistleblower Frances Hagan, Tristan Harris, subject of the Netflix documentary The Social Dilemma, Shoshana Zuboff, author of Surveillance Capitalism and other experts; you can watch it here. 

• European regulation. The European Commission has set out its plans for two Digital Services and Markets Acts to protect the rights of users and improve competition. (BBC summary here.) It has been criticised for being too weak. Signed by 69 civil society organisations representing around 29m citizens across the EU, The People’s Declaration is a letter to the EU parliament calling for “an end to Big Tech’s destructive business model which has turned our own data into weapons against us.” Reporters without Borders calls for strengthened protections for democracy and journalism. ‍
• Digital platforms as utilities. In a report written for the IPPR Commission on Economic Justice, Mat Lawrence and Laurie Laybourn-Langton argue that the major digital platforms should be regulated as utilities, with licenses to operate mandating key behaviours and an independent regulator (‘Ofdig’).  ‍
• Ownership. IPPR argues that much of the data collected by digital companies should be publicly owned, so that it can be used for general benefit. James Meadway expands on the idea of a digital commons and offers recommendations for policymakers to use industrial policy to support sustainable and commonly-owned data infrastructures. Common Wealth proposes the creation of a “democratic digital infrastructure”, while Autonomy_Digital argue that platform cooperatives offer a fairer alternative to current private business models. The City of Barcelona has been developing the idea of a digital commons in practice.
• Competition policy. The Counterbalance newsletter brings together analysis and proposals on corporate power and monopoly, and how it can be regulated through stronger competition and other policy. For more on this, see our previous Digest on competition policy.

Four principles structuring the Chancellor’s speech. Chancellor Rishi Sunak gave his first speech to the Conservative Party Conference this week (video here), structured around four overarching principles: a “pragmatic” approach to economic policy, a commitment to fiscal responsibility, a focus on jobs as a poverty alleviation strategy, and an “unshakable optimism” about the economic opportunities provided by technological progress. 

Fiscal responsibility. Sunak argued that “there can be no prosperous future unless it is built on the foundation of strong public finances”, counterposing Labour’s proposals as fiscally irresponsible.

• Debt as % of GDP. The Chancellor warned that public debt was approaching 100% of GDP. A decade ago many macroeconomists believed such a level to be damaging to economic growth. But at today’s ultra-low interest rates the cost of servicing that debt is at historic lows (Twitter thread explainer by UWE economist Jo Michell here.) So the idea that a debt level of 100% of GDP is unsustainable is now widely regarded as arbitrary and outdated. The IMF argues that fiscal rules limiting debt to GDP ratios are inappropriate in today’s conditions and should be abandoned. 
• Public investment is fiscally responsible. Cambridge economist Dimitri Zenghelis and the LSE’s Nicholas Stern explain why public investment in economic growth is key to debt sustainability: “G7 countries should increase post-pandemic public investment...recognise the potential economic and social returns to increasing public debt for the purpose of investment…[and wait] to pay off the public debt until the economy is undergoing robust growth.”
• International comparisons. Sunak boasted that the UK has “one of the fastest recoveries of any major economy in the world”. But as noted by BBC Newsnight’s economics editor Ben Chu, this is largely because UK GDP fell much more than other G7 countries during the pandemic. In terms of GDP levels, the UK has reached a level relative to its pre-crisis peak roughly equal with Italy, France and Germany. Responding to the Biden administration’s larger stimulus package, the US has now surpassed that level. (For an analysis of the US economy’s recovery, see this article from the Brookings Institution.)

Plan for Jobs. With the furlough scheme having ended on 30 September, the Chancellor said the Government would be judged on how many good jobs it creates. He pledged more than £500 million in new funding to extend the Kickstart Scheme for young people until March 2022, as well as to support workers leaving the furlough scheme and unemployed over-50s back into work. A £3,000 incentive to businesses to take on apprentices has also been extended until February 2022. Sunak promised to create 2,000 “elite ArtificiaI Intelligence scholarships” for disadvantaged young people and to double the number of  Turing AI World-Leading Research Fellows “to ensure that the most exciting industries and opportunities are open to all parts of our society’.

• Alternative support schemes. NEF estimates that the end of the furlough scheme puts over 700,000 jobs at risk of redundancy, loss of hours or loss of pay. In her response to the speech, NEF’s CEO Miatta Fahnbulleh called for a “part-work, part-train scheme” to help people in declining sectors acquire new skills for sectors that are creating jobs. The TUC has proposed a permanent short-time work scheme to limit job losses in future periods of economic turbulence, such as climate change or global financial instabilities.

Job creation and UC. Sunak defended his much-criticised refusal to keep the £20 per week uplift to Universal Credit (UC), arguing that dependency on benefits was the wrong approach to reducing poverty. He emphasised instead the government’s commitment to providing jobs. 

• In-work poverty. The Resolution Foundation’s Torsten Bell explained why cutting Universal Credit will not boost job creation or incentivise those 2.3 million claimants already looking for work. NEF’s Living Income campaign found that 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’ by 2022 if the government doesn’t change its policy. (See their recent blog on options for reforming UC). The IPPR documented the “continued rise in working poverty since the beginning of this century”, and argued that “the promise of social mobility through ‘hard work’ as a route out of poverty alone is failing to deliver”.
• Industrial strategy to boost wages. IPPR’s George Dibb explains why addressing stagnant pay and insecurity will require public investment in green job creation to increase demand in the economy and “a return to sectoral bargaining delivered through Plan for Growth sector deals and unions”, referencing their recent report Prosperity and justice after the pandemic.

The “transition to a new economy”. The Chancellor argued that beyond the measures it has taken (such as issuing temporary visas for HGV drivers) it is not the government’s responsibility to sort out labour shortages; this should be left to the market. Boris Johnson and other ministers have been arguing that today’s labour shortages are the growing pains of an economy which is transitioning, after Brexit, to a high-wage, high-productivity state no longer reliant on immigrant labour. 

• Supply chain issues. Sunak claimed the problems in UK supply chains are being experienced “right around the world”. A global survey by the Guardian confirmed that supply chain problems are occurring in most major economies as economies expand rapidly after the pandemic. But the specific impact of Brexit in the UK is widely noted in the European and US media. Larry Elliott puts much of the blame on the UK’s “just-in-time” economic model. The Institute of Government has offered an analysis of the multiple causes of the UK’s current shortages. ‍
• Labour shortages. Oxford economist Simon-Wren Lewis explains why creating “labour shortages among workers deemed to be unskilled by this government are damaging to the majority of workers in the UK”, as well as damaging to those overseas who are prevented from filling the shortages by immigration rules. Economist and former adviser to Theresa May Giles Wilkes suggests that “running the economy hot by raising demand” is a better way to raise wages than cutting labour supply.

A new approach. Rachel Reeves outlined Labour’s new approach to economic policy in her speech to the Labour Party Conference this week. (Video here.) The Shadow Chancellor focused on rebuilding the ‘everyday economy’ as a solution to the deep pre-pandemic problems of the UK economy, which she identified as falling growth rates, flatlining productivity, a plummeting trade balance, widening regional and other inequalities, and stalling pay growth. 

• Diagnosis of the problem. Analysis of these five economic problems lay at the heart of the report of the IPPR Commission on Economic Justice, Prosperity and Justice. IPPR last week published its follow-up report analysing the UK economy after the pandemic, calling for a radical shift in four fields of economic power. (Twitter thread summary here)
• The everyday economy. First used by IPPR in arguing for a new approach to industrial strategy in 2017, the concept of the everyday economy was elaborated by Reeves in a pamphlet in 2018. It focuses on those core but often overlooked sectors which provide the foundation for all other economic activity and which employ large numbers of people in every part of the country - sectors such as retail, transport, energy, water, health, education and care. Noting that these sectors “employ a lot of people but too often pay low wages, employ workers in precarious situations, and suffer from low levels of productivity,” Reeves argued that these should be a primary focus of industrial strategy. 
• Origins and critique. The ‘everyday economy’ idea draws heavily on the concept of the ‘foundational economy’ originally developed by Karel Williams and colleagues at the University of Manchester’s Centre for Research on Socio-Cultural Change (CRESC), who have published many reports and articles on the topic. Former head of CLES Neil McInroy analysed the political economy of the everyday economy approach in an article in The Political Quarterly. Reeves replied to McInroy’s critique here.
• Industrial strategy. The everyday / foundational economy idea is also linked to the concept of ‘social infrastructure’ developed by Jérôme De Henau, Sue Himmelweit and the Women’s Budget Group. Himmelweit explained this in a chapter in Craig Berry’s e-book What We Really Mean When We Talk About Industrial Strategy and discussed it on Ed Miliband’s ‘Reasons to be Cheerful’ podcast earlier this year. Isaac Stanley has outlined “an industrial strategy for the foundational economy” in a report for Nesta, focused on government investment in undervalued sectors to increase pay and reduce gender, racial and regional inequalities, while Common Wealth have set out an industrial strategy for adult social care to restructure the sector from one “dominated by for-profit provision to one that puts the needs of people first”.

“The first green chancellor”. Reeves announced a decade-long investment programme of £28bn per year in the “green transition”. This would “invest in good jobs in the green industries of the future: giga-factories to build batteries for electric vehicles; a thriving hydrogen industry; offshore wind with turbines made in Britain; planting trees and building flood defences; keeping homes warm and getting energy bills down; good new jobs in communities throughout Britain.“ She didn’t, however, refer to this as a “Green New Deal”, despite the resolution in favour of a Green New Deal passed by the conference and Ed Miliband’s committed support in his conference speech (“this is the cause I came back to fight for.”) 

• Analysis. IPPR’s Carsten Jung argues that the additional annual green investment over the next decade is “close to what we think is needed to deliver the climate transition”. NEF’s Frank van Lerven pointed to previous NEF analysis that ~£28bn climate investment would create 400,000 full time jobs.
• More. For more analysis and resources on decarbonisation and industrial strategy, see our recent Digest. 

Taxation and fiscal policy. Reeves made a series of announcements on taxation. She pledged to end the tax benefits of charitable status enjoyed by private schools, with the £1.7bn a year saved going to state schools. She promised to abolish business rates, replacing them with a new - but as yet unspecified - system putting online businesses on the same tax footing as high street retailers. (She singled out Amazon as a key target: “If you can afford to fly to the moon you can pay your taxes here on earth.”) She said Labour would review all tax reliefs and abolish those that do not “deliver for the economy or the taxpayer.” And she almost-but-not-quite committed to equalising the tax rates on income from wealth - particularly dividends and capital gains - and income from work, a longstanding reform proposal. (Might this be filled out in Keir Starmer’s speech on Wednesday?) 

• Analysis. Tax Justice UK’s Robert Palmer analyses Reeves’s proposals in this twitter thread. TJUK’s recent report, Pandemic Profits: who’s cashing in during Covid”, identifies six companies making £16bn in excess profits over the pandemic. Tax Watch’s George Turner pointed to previous research pointing to companies not paying any corporation tax. 
• Alternatives to business rates. Both IPPR (also here, and, to be fair, here) and NEF have called for business rates to be replaced by a land value tax, levied on the value of land in its undeveloped state. This would be fairer, and it would enable the community to capture the increase in land values which occurs when planning permission is given, a longstanding reform proposal. 
• Taxing wealth. For more analysis and resources on this, see our recent Digest. 
• Tax reliefs. The tax system includes a very large number of tax reliefs, particularly for businesses. Reformers have long wanted to reduce the number but Chancellors have always found it difficult, since almost all have some kind of purpose and a constituency which will complain loudly. The Office for Tax Simplification conducted a review in 2011 which explained the issues. IPPR has argued that tax reliefs for research and development are particularly inefficient (largely subsidising R&D which would have occurred anyway) and should be phased out. 
• New fiscal rules. Reeves also said that Labour would adopt new fiscal rules “that will bind the next Labour government to ensure we always spend wisely and keep debt under control”. Though she did not spell out the details in the speech, she elaborated in her pre-conference interview with the Financial Times, setting out a series of rules including, in the “medium term”, balancing the current budget and putting debt “on a downward trajectory”. Labour’s rules, Reeves said, would sanction borrowing to invest in infrastructure, introduce a permanent mechanism for suspending the rules if the economy was hit by an “exceptional shock”, and would look at public sector assets as well as liabilities. 

Insourcing. In her speech Reeves targeted the Government’s over-reliance on outsourcing (citing companies like Serco) in its response to the pandemic. She promised that a Labour Government would institute “the biggest wave of insourcing in a generation” to reduce wasteful public spending and bring public contracts and services back into the public sector. The Institute for Government shows how insourcing of public services “can improve quality, increase reliability, and save money” and lays out guidelines for when and how public services should be brought back into government hands. 

• Social licensing. Arguing that the present approach to outsourcing has failed, CLES (the Centre for Local Economic Strategies) calls for a combination of insourcing and a system of “social licensing”- criteria that non-government providers of public services must meet - to improve provision. 
• More. For more resources on how to improve public service provision, see our previous Digest on Outsourcing, procurement and transparency.

Progressive procurement. Reeves emphasised Labour’s previously announced plan to “make, buy and sell more in Britain”, through which it aims to award more public contracts to British businesses and support the ‘onshoring’ of manufacturing capacity.

• Community wealth building. This approach to public spending has been championed by local and regional authorities across the country with the help of CLES, originating with Manchester City Council and then being developed by Preston Council and others. See CLES’s Community Wealth Building Centre for Excellence for examples and principles of best practice in progressive procurement.  
• Office for Value for Money. Reeves also announced that Labour would create a new Office of Value for Money to keep a “watchful eye on how public money is spent”. This proposal came from a recent Fabian Society report. Interpreted too narrowly, the concept of ‘value for money’ may be in tension with the commitment of progressive procurement to maximising social value rather than focusing on a narrower definition of public service costs.   

Employment rights and collective bargaining. Earlier in the Conference, Deputy Leader Angela Rayner and then shadow minister Andy McDonald published a Green Paper on Employment Rights, setting out more detail on their ‘New Deal for Working People’. The centrepiece is a commitment to ‘fair pay agreements’ in key sectors. These would set out national pay rates and working conditions and would be achieved through sectoral collective bargaining. Among the other key elements of the Green Paper are: 

• an immediate increase to the minimum wage to at least £10 per hour for all workers
• the creation of a single status of ‘worker’ for all but the genuinely self-employed giving all workers the same rights and protections, including rights to sick pay, holiday pay, parental leave and protection against unfair dismissal from day one 
• the right to flexible working for all workers as a default from day one, alongside the ‘right to switch off’ outside of working hours
• a ban on zero-hours contracts and an end to ‘one-sided flexibility’, with all workers having the right to a regular contract and predictable hours
• an increase in Statutory Sick Pay (SSP) and making it available to all workers, including the self-employed and those on low wages currently excluded by the lower earnings limit for eligibility 
• ending fire and rehire 
• extending statutory parental leave, introducing the right to bereavement leave and strengthening protections for pregnant women 
• updating trade union legislation to strengthen employment rights and power to organise collectively
• overhauling the enforcement of rights and protections by establishing a single enforcement body to enforce workers’ rights, inspect workplaces and bring prosecutions and civil proceedings against bad employers 
• introducing mandatory ethnicity pay gap reporting to mirror gender pay gap reporting, and a new requirement on employers to report and eliminate pay gaps

Department for Levelling Up. Following the Cabinet reshuffle last week, Michael Gove’s new ministry has been rebranded as the Department for Levelling Up, Housing and Communities (it used to be the Ministry of Housing, Communities and Local Government). The Government claimed the move reflected its “ambitious plans” to reduce regional inequality. The Government’s ‘levelling up’ agenda has been widely accused of lacking in substance, with the Prime Minister’s speech on the subject in July particularly criticised. 

• Regional inequality. The UK is more geographically unequal than any other comparable advanced economy. Regional inequality is manifested across multiple indicators, including output, income, productivity, employment and political power. The Institute for Fiscal Studies Deaton Review on Inequality analyses the extent and character of geographic inequalities in the UK and how they have changed in recent years.
• After austerity. IPPR North has examined the regional impact of the decade of austerity after 2010. Its annual State of the North report identifies key tests for the government's 'levelling up' agenda. 
• What happened to local government? The loss of ‘local government’ from the new department’s name has predictably gone down less than well in local government circles. 
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Andy Haldane to head the Levelling Up Taskforce. Andy Haldane, former chief economist at the Bank of England, has been seconded to the Cabinet Office as head of a new ‘Levelling Up Taskforce’, despite being critical of the agenda in his previous role as chair of the Industrial Strategy Council (ISC) before it was axed by the Government in March.

• Hints at approach. The ISC’s final paper warned that the Levelling Up agenda “appears over-reliant on infrastructure spending and the continued use of centrally controlled funding pots thinly spread across a range of initiatives”. The research looked at four best practice cases from abroad and argued that “sustained local growth needs to be rooted in local strategies, covering not only infrastructure but skills, sectors, education and culture”, where “sustained and large-scale public investment” can spread economic growth to all regions of the UK. See Haldane’s speech to Policy Exchange in June, “Making a Success of Levelling up”, for potential indications of his approach. 
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Decentralisation of power. A common thread among those who work on geographic inequality is that the highly centralised structure of government in England plays a big role in perpetuating inequality, and localities and regions need more power if ‘levelling up’ is to be more than a slogan. 

• Constitutional change. The Centre for Local Economic Strategies (CLES) proposes three principles to reshape local economic development: ”devolve, redirect, democratise”. Outlining a history of regional inequality and English devolution, the authors argue that 'levelling up' will require constitutional change, not "top-down tinkering". The innovation agency Nesta argues for a much greater role for Metro Mayors in leading local strategies. The Centre for Cities calls for more mayoral combined authorities at city-region level. 
• Tory decentralisation. Ben Houchen, Conservative Mayor of Tees Valley, is attempting an interventionist approach to regional economic development. The New Statesman explains the “Houchenist Manifesto”. 
• Decentralising regeneration. Centre-right think tank Onward argues that “the Government’s efforts to level up deprived communities are unlikely to be successful without devolution of power to local neighbourhoods.” It calls for the establishment of ‘Community Deals’ to help communities take ownership of assets to regenerate local areas. Director Will Tanner discussed the research on Newsnight here. 
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Levelling up requires government spending. Many commentators are pointing out that the true test of the government’s commitment to levelling up will come in October’s Spending Review. With the Centre for Cities estimating the cost of closing the North-South divide at €2 trillion, comparable to the reunification of Germany), there are questions as to whether Chancellor Rishi Sunak will provide sufficient funding. 

• Revising the fiscal rules? The Financial Times has reported that Sunak is planning to revise the Treasury’s fiscal rules, with a new target of ceasing to borrow for current spending within three years and a falling level of debt to national income by the end of the parliament. The FT’s Editorial Board has explained why this would be unnecessary and damaging. The Government’s current rules, which place a 3% of GDP limit on public investment, allow for very little additional investment over and above current commitments. 
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Preventing a living standards crisis. Pressure to limit public spending is driving the cut to the £20 per week uplift to Universal Credit, a move that will exacerbate regional inequality, as poorer areas include larger numbers of poorer people. NEF’s Sarah Arnold explained why living standards are facing a “perfect storm” of the UC cut, national insurance increases and rising energy bills and food prices. See NEF’s Campaign for a Living Income for more.

Jobs at risk from inaction. As it meets for its annual conference, the TUC has published analysis that up to 667,000 manufacturing and supply chain jobs in the UK could be at risk if the government does not strengthen its industrial strategy policies. While ‘carbon leakage’ is generally used to mean the loss of jobs abroad because of tougher climate policies, the reverse can also occur: jobs can be offshored when industrial support policies are weaker than in other countries. Sectors particularly at risk include steel, cement, chemicals, rubber and plastic and glass manufacture. (Twitter thread.) 

• Green recovery spending. In a separate report, the TUC has compared the UK’s climate spending with other leading countries. It finds that while the UK government is investing about £180 per person on green jobs and recovery, the USA is planning to allocate over £2,960 per person, Italy £1,389 and Germany £595. 
• The Government’s Ten Point Plan. The UK government published its strategy for a ‘green industrial revolution’ in November 2020, aiming to mobilise £12 billion of government investment, and up to 3 times as much from the private sector, to create and support up to 250,000 green jobs.
• Recommendations. The TUC is calling for an £85bn green recovery package to create 1.24 million green jobs. Its report also recommends the use of ‘local content’ requirements for energy projects and procurement; the establishment of a ‘Just Transition Commission’; and the introduction of a permanent short-term working scheme to protect workers facing industrial change.
• Green skills. The Government’s Green Jobs Taskforce published its report on the skills needed for green jobs in July, setting out a range of measures needed to be taken by government, industry and the education sector to maximise the potential for high quality green jobs. 
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Support for renewables. The Dept for Business, Energy and Industrial Strategy has announced its latest renewable electricity support scheme, the so-called ‘Contracts for Difference’ auction. With no cap on offshore wind, generous allowances for onshore wind and solar, and a £55m pot for innovative technologies including tidal and floating wind, it has been generally welcomed. Twitter explainer here. 

• Wind turbine factory. The BEIS announcement came as planning approval was granted for a new wind turbine blade manufacturing plant in Teesside. The GE Renewables ‘mega-factory’ will open in 2023 and is expected to create over 2000 jobs in its construction and then to support over 2000 in direct employment and the associated supply chain. 
• Renewable heat and home energy efficiency. Elsewhere progress is slower. IPPR has examined the gap between the number of home energy efficiency and heat pump upgrades currently being installed, and the number that will be needed annually by 2028 for a net zero strategy, as set out by the Climate Change Committee. The UK is installing fewer than 6% of the heat pumps needed, and less than 10% of the cavity wall, loft and solid wall insulation. (Greenpeace revealed that the UK comes joint last among European countries for heat pump sales.) IPPR advocates a new ‘GreenGo’ scheme to accelerate uptake. The National Audit Office recently criticised the Government’s Green Homes voucher scheme. 
• Electric vehicles. The Government has announced that in England from next year all new homes will have to be built with electric car charging points. But the automotive industry has warned that this will do little to accelerate the uptake of electric vehicles (EVs) now. It has called on the government to provide incentives for new electric battery factories in the UK, with at least 2.3m charging points nationwide before the end of the decade. Full industry report here. 
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High-carbon industry. Much of the discussion of green industrial strategy has been on supporting ‘green jobs’ in low-carbon sectors. An even bigger challenge is to decarbonise heavy industries which have high emissions and use fossil fuels in the production process - and also support large numbers of well-paid and often unionised jobs. In its report Mission Possible: Reaching net-zero carbon emissions from harder-to-abate sectors by mid-century the business-led Energy Transitions Commission outlines possible routes to decarbonise the cement, steel, plastics, trucking, shipping and aviation sectors, which together represent 30% of current energy emissions. Ana Musat of the Aldersgate Group outlines the opportunities that decarbonisation presents for heavy industry in a piece for BusinessGreen.

• Chemicals. The investor pressure group Share Action released a report last week on the chemicals sector, arguing that it is both technically and economically feasible to fully decarbonise the production of chemicals by 2050. Drawing attention to the paucity of credible transition plans in the sector, it calls on financial institutions to push chemical companies towards net zero. 
• Industrial clusters. The business-led Aldersgate Group has set out policy recommendations for accelerating industrial decarbonisation and supporting the competitiveness of manufacturers in industrial clusters and dispersed sites in the UK.
• Green steel. The Swedish company Hybrit last month shipped its first batch of ‘green steel’ produced with hydrogen. Truck-maker Volvo AB has said it will start production of prototype vehicles and components from the green steel this year. Common Wealth has looked at the potential for producing low carbon ‘green steel’ in the UK and proposed a five-point plan for the steel industry. 
• Oil and gas. In a significant policy shift, Keir Starmer has said that UK oil and gas exploration needs a “hard-edged” end date and that Labour opposes the opening of the new Cambo oilfield in the North Sea, the object of fierce criticism by environmental campaigners. As part of its Environmental Justice Commission IPPR last year published a strategy for a ‘managed transition’ to net zero for the North Sea oil and gas sector. Carbon Tracker has outlined the risks of further investment in exploration. 
• Just transition. The ideal of a process of decarbonisation which supports workers and communities adversely affected to find new livelihoods in other sectors is known as a ‘just transition’. The International Trade Union Confederation’s Just Transition Centre gathers together policy recommendations and experience from around the world. 
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Green finance. The New Economics Foundation has looked at the role that the UK’s public finance institutions should play in the net zero transition. These include the UK Infrastructure Bank (UKIB) and the British Business Bank (BBB), which operate domestically, and UK Export Finance (UKEF) and CDC Group, which operate internationally. It recommends that the mission and supporting objectives of each is updated to align with a just transition to net zero and sets out specific reforms for reforming each institution’s mandate.

• Financing the just transition. About 40 financial and academic institutions have set up ‘Financing a Just Transition Alliance’ to push for stronger government and private sector mechanisms to incentivise green investment. The Alliance is supported by the Grantham Research Institute at the LSE, which runs a Financing the Just Transition programme.

Paying for social care. The Government’s plan to raise National Insurance contributions (NICs) to finance social care reform in England has been widely criticised because it would place most of the burden on younger workers, with asset owners and workers over the pension age exempt (unless this is changed). We explained the debate in the Digest in July. 

• Raising capital gains tax? The TUC has proposed an alternative funding mechanism: equalising the rates of capital gains tax (CGT) with those of income tax. It estimates that this could raise £17bn a year. General Secretary Frances O’Grady set out the case in the Guardian. 
• Reforming CGT. Whereas income tax is charged at rates of 20%, 40% and 45% (with NICs on top), CGT is charged at between 10% and 28%, and a range of reliefs can reduce liability. Individuals have a £12,300 annual exemption, and couples £24,600. In its comprehensive review of capital gains tax for the Treasury, the Government’s Office for Tax Simplification recommends (like the TUC) that CGT rates be aligned with those of income tax, the annual exemption be reduced, and Investors’ Relief from CGT abolished. 
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‍Taxing income from wealth. CGT is an example of the way income derived from wealth is taxed at a lower rate than income from work. The same is true of share dividends. Lower rates of tax on income from wealth benefit people who own assets over the majority who only earn income from work. It also gives the wealthy an incentive to convert their income into capital (such as share options), effectively a form of tax avoidance. IPPR has proposed a simple but comprehensive reform, in which all income would be gathered together and taxed under the same progressive tax schedule. They estimate this could raise over £20bn annually. The Institute of Fiscal Studies (IFS) makes a similar proposal. 

• A fairer tax system. Tax Justice UK has published a Manifesto for Tax Equality setting out a range of reforms to make the tax system fairer, including the greater taxation of wealth. 
• Some of the wealthy want to pay more tax. In the US, Patriotic Millionaires is an advocacy group made up of wealthy individuals who want to pay more tax in a fairer tax system. 
• Some history. A Conservative Chancellor, Nigel Lawson, equalised tax rates on income from work and wealth in the 1980s before they were later separated again. Former Treasury mandarin Nick Macpherson relates a history of tax reform. 
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Taxing land and property. One of the major forms of wealth is land and property. This is generally under-taxed relative to income. In the UK, council tax is still based on 1991 property values, making homes in London and the South East (where property values have risen the fastest since then) more lightly taxed than those in the rest of the country. The highest band is for homes worth more than £320,000, which means that a £320,000 home is taxed the same as one worth £1 million or more (of which there are many, especially in London). The IFS explains the problems of the system, while IPPR highlights the particular inequities of council tax in London. 

• A proportional property tax. The leading cross-party proposal for council tax reform is to replace it with a proportional tax on property values. The campaign group Fairer Share proposes a tax rate of 0.48% levied annually on current property values. Combined with the abolition of stamp duty this would yield the same amount of revenue as the current council tax, but with the wealthy paying much more than now. It calculates that 19 million households would pay less than today. 
• Land value tax. For nearly 150 years the ideal of taxing land rather than work has animated tax reformers. Land is fixed, so tax evasion is almost impossible, and unlike work or capital, taxing land does not change its behaviour. Taxing the value of land would enable the public to gain a share of the uplift in value when planning permission is given, which today goes, unearned, to property owners. Land reformer Andy Wightman has explained the principle of land value taxation and its potential application in Scotland, England and Northern Ireland. The New Economics Foundation has made a specific proposal to replace business rates with a land value tax. 
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Taxing inheritance. One of the principal ways in which wealth is accumulated is inheritance. In the UK inheritances above £320,000 are taxed at 40%. But as Tax Justice UK explains, a series of rules and exemptions allow many of the wealthiest estates to escape tax. The Financial Times has surveyed the range of inheritance tax systems across the world. It notes that only three countries, including the UK, levy taxes on donors; the rest tax recipients (donees). 

• Inheritance tax reform. The major proposal for reform in the UK is to abolish the various exemptions to inheritance tax, and levy tax not on those bequeathing wealth but on those receiving it, for whom it is unearned income. IPPR proposes a lifetime donee-based gifts tax, in which both inheritances and other gifts would be included. 
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A wealth tax. Another way of taxing wealth is to levy a unified tax on the value of all the forms of wealth owned by an individual whose wealth exceeds a certain high threshold. Such a wealth tax could be levied annually, as is done in Switzerland. Or it could be levied as a one-off exceptional measure, for example as a way of paying for some of the costs of the Covid pandemic, as recently proposed by the Wealth Tax Commission. The OECD has surveyed the different forms of wealth tax levied in different countries. Stuart Adam and Helen Miller of the IFS review the economics of a wealth tax.

• A UK wealth tax. The Wealth Tax Commission, a project of the LSE and the University of Warwick, has examined both a one-off and an annual wealth tax, discussing their rationales, principles and design in a comprehensive report. (See also these FAQs.) They favour a one-off tax, which levied at 1% a year for five years could raise £260 billion. 
• A wealth tax in the US. Economists Emmanuel Saez and Gabriel Zucman have analysed the potential for a wealth tax in the US. Their proposals provided the basis for Senator Elizabeth Warren’s proposals for an ‘Ultra-Millionaires Tax’ during the Democratic presidential candidate race. 
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Public opinion. In collaboration with the Sheffield Political Economy Research Institute, Tax Justice UK has conducted extensive research on public attitudes towards the taxation of wealth, using both opinion polling and focus groups. It finds that the way in which the issues of wealth and taxation are talked about makes a big difference to the level of public support (or otherwise) for higher taxation. They have published two reports detailing their findings. 

The wealth of thinking. Economist (and NewEconomyBrief.net editor) Michael Jacobs explains in the Guardian the wealth of new economic thinking which can help tackle the challenges of the post-Covid era. The multiple crises we currently face “are not bugs in the economic system but inevitable outcomes of the way it is now organised,” meaning that deep economic reform is needed. The new economics, he notes, challenges much of the orthodoxy of the last 40 years.

• Economics at a turning point? The discipline of economics has seen major challenges to the neoclassical assumptions that have long dominated policymaking. Berlin-based economist Dennis Snower explains these assumptions and why economics is close to its “Copernican moment” when the old orthodoxy is overturned. In a more academic vein J K Galbraith Economics Prize winner Mario Seccareccia called for “a paradigm shift in establishment macroeconomics” in his acceptance lecture.
• Economics after neoliberalism. How far economics needs to, and can, overturn neoclassical assumptions has been debated between a group of economists led by Harvard’s Dani Rodrik, and critics including Alice Evans, Deborah Satz and others.
• Unexpected voices. The President of Ireland, Michel Higgins, gave a powerful critique of economic orthodoxy in a recent speech, citing Mariana Mazzucato and Kate Raworth among others and arguing that “a paradigm shift, not reform, is urgently required”. Mark Carney, former Governor of the Bank of England, recently gave a webcast lecture at the OECD on new economic thinking, entitled Value(s): Building a Better World for All.

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New economic thinking in the US? The Biden Administration has surprised many with the radicalism of its economic plans, with huge stimulus spending focused on climate change and social infrastructure, higher taxes on the rich, a “high pressure” labour market to raise wages and improve working conditions, and measures to curb the monopoly power of big corporations. In her speech “A Better Deal for Americans” US Treasury Secretary Janet Yellen has set out the Administration’s new economic approach.

• Commentary. Analysing the Biden programme, Time Magazine concluded that a paradigm shift is underway in US economic policymaking: “We are witnessing the most profound realignment in American political economy in nearly forty years.“ Economist Noah Smith (Noahpinion) argues that Biden’s policy reforms are comparable to the New Deal or Reaganomics in scale, and offers an analysis of their “unifying philosophy”.

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New economic theory and policy. For the last decade the Institute for New Economic Thinking (INET) has been developing and publicising non-neoclassical academic and policy research. The independent website Evonomics publishes accessible summaries of and commentaries on new economic thinking.

• … in the OECD. The OECD’s New Approaches to Economic Challenges initiative has brought some of the new economics into one of the world’s most influential economic institutions. Its report Beyond Growth provides a short summary of heterodox economics, including post-Keynesian, ecological, feminist, evolutionary and complexity economics.
• … not just in the English-speaking world. The Berlin-based Forum for a New Economy is also exploring the idea of an economic “paradigm shift” (with papers published in English).
• Pluralist economics. Rethinking Economics is the global student movement (plus academics and others) seeking to get more plural economics curricula into universities. Its book Rethinking Economics is an excellent introduction to the different schools of non-neoclassical economic thought.

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NewEconomyBrief.net. Visit our new website Resource Bank page, Changing the Paradigm, for more resources on new economic thought, and the institutions pioneering new economic policy ideas.

Reforming Universal Credit. Following last month's pledge to strengthen employment rights for self-employed workers, the Labour Party has proposed reform of the marginal withdrawal rate of Universal Credit in order to alleviate in-work poverty. Shadow Secretary of State for Work and Pensions Jonathan Reynolds argued that increasing the level of earnings Universal Credit claimants can retain when they increase their working hours would give people a financial incentive to work more and make that work pay. Reynolds explained the rationale behind the policy change in a BBC interview.

• Explainer. NEF have helpfully explained how the withdrawal rate works. See also this video by their CEO, Miatta Fahnbulleh.
• Background: a living standards crisis. Research by NEF’s Living Income Campaign found that without a change in government policy, by 2022 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’. This figure includes 45% (7 million) of children, 70% of single parents, 50% of all renters and more than one third of all families in the North East, West Midlands and London.
  

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Deep rooted issues with Universal Credit. The cross-party House of Lords Economic Affairs Committee’s report Universal Credit isn’t working: proposals for reform is a comprehensive overview of the problems with UC. They argue it has “undermined the security and wellbeing of the poorest in our society” and outline a suite of recommendations to improve the system.

• Widening inequalities. The Cumulative Impact of Tax and Welfare Reforms, published by the Equality and Human Rights Commission, finds that changes to policy between 2010 and 2017 disproportionately affected women, ethnic minorities, low-income households and disabled people.
• The effect of Covid. Research from the Fawcett Society and other equality organisations such as the Women’s Budget Group has found that young women on low incomes were amongst the groups worst affected by the pandemic.
  

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£20 per week cut. Jonathan Reynolds vowed that Labour would use “every tool” to prevent the imminent £20 per week cut to Universal Credit. The Government’s move adds up to a cut of £1,050 a year to the incomes of many of the least well off people in the country. Described by the Joseph Rowntree Foundation as “the biggest cut to social security payments since the second world war”, it is the focus of a major campaign by a wide coalition of civil society organisations.

• Cross-party defence. Last month, six former Conservative Work and Pension secretaries wrote to the Chancellor calling for the £20 uplift in Universal Credit to be made permanent. The group includes Ian Duncan Smith, Stephen Crabb, Damian Green, David Gauke, Esther McVey and Amber Rudd.
• Public support. The Fabian Society’s year-long study of public attitudes to welfare used surveys and a citizen’s jury to identify “consensus support for £10bn of extra payments on top of the £7bn cost of retaining the £20-a-week universal credit boost”.
• Bad economics. The Resolution Foundation highlights that ending the uplift as planned would see the basic level of benefits cut to levels last seen in the 1990s, right as unemployment is set to peak, which they argue would be both "disastrous for family incomes" and "bad macroeconomics” (pp. 23-24).
  

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Options for structural reform? Reynolds also signalled an intention to “replace Universal Credit” so that “low-paid people can work the hours they need and keep more of the money they earn”. We’ve collated various options available to the government for strengthening the social safety net in ways that will create a fair, sustainable and resilient economy in a previous Digest.

• Momentum for change. Conservative-aligned think tank Bright Blue’s cross-party commission has brought together Conservative and Labour MPs and peers, food campaigner Jack Monroe and other academic and civil society figures to advise on reforms to the social security system. The TUC (represented on Bright Blue's commission) has called for a suite of reforms, including raising the basic level of UC and legacy benefits to 80% of the national living wage; removing the five-week wait for first payment, conditionality requirements, and 'No Recourse to Public Funds' restrictions on migrants' access to support; and reform of Statutory Sick Pay so that it is paid at the real living wage rate and is accessible to low-income workers.
• Tackling the root causes. The IPPR’s No Longer Managing report on the rise of working poverty argued that social security reform must come alongside a wider plan to tackle the root causes of low pay, such as unaffordable rents, expensive childcare and insecure jobs (See ITV’s coverage).
• The gender impact. The Women’s Budget Group’s briefing of the Spring Budget 2021 covers the gendered issues within the social security system that require reform to create a more gender-equal economy.
• More resources. Visit our Resource Bank page Improving work and welfare for more on What Covid-19 has revealed about our labour market and social security, The future of Universal Credit, Social security for children, and more.
  

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Innovations in the devolved nations. Russell Gunson, Chair of IPPR Scotland, is chairing a steering group for the Scottish Government to develop a Minimum Income Guarantee; an income floor beyond which no one in Scotland can fall below. NEF’s Sarah Arnold explained why “England, Wales and Northern Ireland needs one too” in a short Twitter thread.

• A basic income? Basic Income Network Scotland’s review of the Scottish Government’s two-year Basic Income Feasibility Study explains the economic implications of introducing a Citizens Basic Income across Scotland, comparing it with means-tested welfare alternatives. Mark Drakeford, First Minister of Wales, has also confirmed a pilot of Basic Income in Wales for up to 5,000 people based on the Scottish experiments.

• Biden’s new approach. The Biden Administration has signalled a new approach to competition policy in the US, potentially ending 40 years of neoliberal orthodoxy. Biden’s recent executive order taking 72 separate measures against anti-competitive practices by big businesses is being seen as the opening salvo in a larger plan to curb the power of monopolies in the US economy.
• ~~The appointment of Lina Kahn to head the FTC. The first sign of this new approach was the appointment of anti-trust lawyer Lina Khan to head the Federal Trade Commission (FTC), the US’s competition regulator. Khan became famous for writing (while still a student) an influential article on Amazon’s anti-competitive business practices and why the neoliberal approach to competition law (in the US called “anti-trust”) made the government powerless to curb them. The article called for a new approach, and since her appointment Khan has set about reforming the FTC accordingly.
• ~~The decline of neoliberalism? Since 1979 competition policy in the US - and the UK - has been based on the theory espoused by the free market Chicago School. This argued that the only test for competition should be consumer welfare, which in turn should be judged solely by the impact on consumer prices. Under this philosophy, significant anti-competitive practices have been ruled legal, and monopolies allowed to flourish. Khan and other scholars argue that market structure is critical, and the law should test its impact not just on consumers but on workers, producers, entrepreneurs and citizens. Economics blogger Noahpinion has summarised the new approach and explained recent academic scholarship analysing the various economic harms arising from corporate concentration.
  

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• Stronger competition policy in the UK? Former Conservative MP Andrew Tyrie, who resigned last year as chair of the Competition and Markets Authority (CMA), has criticised the UK’s light touch approach to regulation in a report published by the centre-right Centre for Policy Studies. He called for new regulatory powers to enable the CMA to tackle the growing monopoly power of the tech giants. Conservative MP John Penrose authored an independent report for the government arguing similarly for stronger competition policy earlier this year.
• ~~The CMA and Big Tech. In February the CMA announced that it was setting up a specialised Digital Markets Unit to investigate the anti-competitive practices of big tech companies. It is currently looking at Amazon and Google over fake reviews on their websites, and it was reported last week that it may force Facebook to sell the gif creator Giphy which it acquired to consolidate the monopoly power of Instagram.
• ~~Tech firms and the high street. Competition lawyer Michelle Meagher, author of the influential book Competition is Killing Us, documents the growing power of tech platforms in grocery and food delivery sectors and explains how a CMA focused on market structure could benefit UK high streets.  
• ~~Not just tech firms. Darren Jones MP, chair of the Business, Energy and Industrial Strategy Committee, wrote to the CMA last month asking whether it requires new powers to intervene in corporate acquisitions after the recent debt-based purchase of Asda.
  

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• Regulating Big Tech. IPPR has been leading work on how the monopoly power of the giant digital companies could be reined in. In a report written for the IPPR Commission on Economic Justice, Mat Lawrence and Laurie Laybourn-Langton explain the aggressive expansionary business model of digital platforms and argue that the largest ones should be regulated as utilities, with an independent regulator (‘Ofdig’) and a ‘licence to operate’ controlling their activities.
• ~~Digital commonwealth. IPPR argues that much of the data collected by digital companies should be publicly owned, so that it can be used for general benefit. James Meadway expands on the idea of a digital commons. The city of Barcelona has been developing the idea of a digital commons in practice.
  

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• Tackling corporate power. Michelle Meagher, John Christensen and Nicholas Shaxson have launched the Balanced Economy Project to tackle monopolies and excessive concentrations of market power around the world. Recent issues of their Counterbalance newsletter have explained how the anti-competitive practices of digital platforms impact on small businesses, and where monopoly power intersects with tax havens.
• ~~Options for reform. Michelle Meagher explains her analysis of competition policy and how it should be reformed in an interview with the Washington-based Center for Equitable Growth. In the US the Open Markets Institute has led the analysis of the growth of monopoly power and how competition policy should be reformed.

• The latest climate science. The Intergovernmental Panel on Climate Change (IPCC) has released the first part of its 6th comprehensive assessment of climate science, collating and summarising evidence from more than 14,000 scientific papers. In the IPCC’s unique process, its Summary for Policymakers is approved by governments, giving it a rare global political authority.
• ~~Scope. This report covers the “physical science basis” of climate understanding - how the climate has changed and may change in the future. The following two parts will be released in 2022, covering impacts and adaptation and mitigation policy. Carbon Brief has published a comprehensive explanation of this report.
• ~~Regional impacts. For the first time the IPCC has detailed possible and likely climate impacts by geographic region through an interactive map. In the worst scenarios some low-lying islands could disappear completely under sea level rise by the end of the century.
• ~~Reaction. Antonio Guterres, UN Secretary-General, described the report as “code red for humanity”. Carbon Brief gathered together the media response.
  

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• 1.5C likely to be reached by 2040... At the heart of the report are five indicative scenarios for global greenhouse gas emissions up to 2100, reflecting five possible “Shared Socio-economic Pathways” (SSPs). With the world having already warmed by 1.2C since pre-industrial times, the report says that in all scenarios, from very low emissions to very high, the average global temperature is “more likely than not” to reach 1.5C, the limit aimed for by the Paris Climate Agreement, by 2040.
• ~~...but could be limited to that if drastic action is taken now.However, the report notes that if “immediate, rapid and large-scale reductions” in emissions occur this decade, the temperature rise could yet be held to around 1.5C for the rest of the century. This will not prevent continued extreme weather events, which are now inevitable with rising frequency, but the worst projected impacts could be avoided. Climate scientists have been at pains to point out that 1.5C is not a threshold: every 0.1 degree of heating increases the risks of catastrophic impacts.
  

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• The economic implications. The FT’s Henry Mance compared the radical and unprecedented action governments across the world took to mitigate the impact of Covid-19 to the foot dragging and delays adopted by governments on climate change. George Monbiot argued that the crisis “means a complete retooling and redirection of economic life, away from growth, consumerism and accumulation, towards restraint and restoration.”
• ~~Economic transformation is required. A synthesis report on the simultaneous crises of climate change, pollution and biodiversity by the UN Environment Programme earlier this year argued that “only a fundamental, system-wide transformation across technological, economic and social factors, including paradigms, goals and values can reverse the current trends that threaten the well-being of present and future generations and the survival of other species.”
• ~~Policymakers are not ready. Analysing how current political and economic systems are not built to handle the speed of decarbonisation required by the climate crisis, the IPPR’s final report on the politics of environmental breakdown proposed a set of alternative policies and institutional arrangements.
• ~~Are there any grounds for optimism? Surveying the debate on the possibility of rapid change, environmental journalist David Roberts argues that “conditional optimism” is still possible.

• Acute labour shortages prompt government response. This month has seen the emergence of acute labour shortages across the UK economy, with transport, hospitality and construction sectors amongst the worst affected. An estimated 100,000 shortage of drivers of Heavy Goods Vehicles (HGVs) has prompted the government to announce a package of measures to increase the supply of labour in the industry and prevent food shortages in supermarkets.
• ~~Harming economic recovery. A report from the Recruitment and Employment Confederation (REC) and accountancy firm KPMG earlier this month found the number of available workers reduced at the fastest rate since 1997, and warned this could harm economic recovery.
  

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• What’s causing the shortages? Commentators point to a variety of issues causing the ‘perfect storm’ of shortages: the rise in self-isolation due to the more infectious delta Covid variant, hiring difficulties from the post-Brexit immigration regime, and long-term deficiencies in the skills of the UK workforce.
• ~~Covid and immigration. The increased prevalence of the Delta variant has led to more staff self-isolating, but also many foreign workers have returned to their home countries since the onset of the pandemic. The end of free movement when the UK left the EU’s single market has also meant that staff such as care workers and HGV drivers are no longer eligible for ‘skilled work visas’, exacerbating the shortages. Professor Jonathan Portes explored whether loss of EU migrants and the introduction of the post-Brexit migration system might have long term supply shocks in the labour market in an article for UK in a Changing Europe.
• ~~Skills gap. In an open letter to the road haulage sector, the government explains its belief that “market mechanisms will be the predominant way in which this shortage is resolved”. It has committed to “focus on investing in our domestic workforce, rather than relying on labour from abroad”, through a package of measures to support recruitment and retention within the industry. These include reducing the requirements for HGV driving licences, encouraging job seekers to train to become HGV drivers, relaxing maximum limits on driving hours and increasing funding for apprenticeships within the logistics sector.
  

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• Using the furlough scheme to reskill workers. Claire Warnes, head of education, skills and productivity at KPMG, has called on the government to reskill furloughed workers to fill the skills gap and accelerate economic recovery. NEF warned that continuing to phase out the furlough scheme in September could push hundreds of thousands of workers still relying on the support into unemployment, and instead, recommends retooling the Job Retention Scheme to “allow furloughed workers to use their subsidised non-working hours on training, with a priority for industries that may never recovery to pre-pandemic levels of output”. The TUC has also called for similar tweaks to the Job Retention Scheme to facilitate training and mobility.
  

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• The effect on pay. Surveys have found that labour shortages have led to improved recruitment benefits for new employees in sectors traditionally associated with low pay and working conditions, such as “welcome bonuses” of up to £10,000 for care workers and pay rises for HGV drivers. The Chairman of one of the UK's biggest recruitment sites noted that pay rates for jobs in hospitality and catering had gone up “18% on the jobs advertised on their sites, and 14% for all jobs paying £25,000 or less.”
• ~~Towards a high pressure economy? These impacts could signal the emergence of a high pressure economy, where an increased demand for labour will force employers to increase pay and working conditions to fill shortages in supply. In a blog post for the OECD, Minouche Shafik, Director of the LSE, notes that, in the past, labour supply shocks have led to permanent structural shifts in political economy.
• ~~But “a tightening labour market is not the same thing as a tight one.” The Resolution Foundation sounds a note of caution, reminding readers to “avoid drawing general conclusions about the labour market from specific sectors”. Though that average weekly earnings in the past 3 months to April have been the “fastest increase this millenium”, total hours worked in the UK remains 5% lower than pre-crisis levels.

• Raising National Insurance to fund social care? Reports last week suggested that the Government plans to raise the rate of National Insurance contributions (NICs) by 1% to fund a $10bn a year increase in social care spending. However publication of the full social care plan has been delayed again till the autumn.
• ~~The funding problem(s). Adult social care is both under-funded relative to the growing needs of an ageing population, and paid for through a complex and hard-to-understand system of private user payments and means-tested support, with services varying widely between different local authorities. The Kings Fund provides a clear analysis.
• ~~The deeper crisis. The funding problem is part of a wider set of problems in the English social care system, including the marketisation and private sector ownership of care homes and poor pay and working conditions for care workers. The recent National Audit Office (NAO) report on social care in England was damning, concluding that “short-term funding and the lack of a long-term vision has hampered planning, innovation and investment.”
  

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• Raising NICs would be a regressive way of funding social care. Explaining the structure of employees’ National Insurance contributions, which are levied at 12% on earnings between £9,568 and £50,270 but at just 2% on earnings above that, with those over 66 not paying at all however much they earn, the Resolution Foundation showed how a NICs rise would hit young low earners harder than the elderly wealthy. This would be “100% wrong”, they argued.
• ~~Intergenerational inequality. In the New Statesman Rachel Cunliffe unpicked the intergenerational impact of the Government’s proposal and suggested more progressive funding methods.
  

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• Progressive alternatives. Various alternatives have been proposed to fill the funding gap for social care more equitably.  
• ~~Reforming NICs. Responding to the Government’s plan, the Women’s Budget Group argued that reforms to the structure of NICs would make an increase in its level more acceptable. NEF have proposed abolishing the Upper Earnings Limit on NICs, thereby making the top 15% of earners pay a larger share. This could raise £11bn a year by 2023/24.
• ~~A health and social care levy. The Resolution Foundation has proposed the introduction of a Health and Social Care Levy of 4% on all incomes above £12,500 (essentially an increase in income tax), coupled with an equalising of NICs on employees and the self-employed.
• ~~Charging social care costs after death. On the Guardian’s podcast, centre-right think tank Bright Blue’s Chief Executive, Ryan Shorthouse, called for the estates of social care users to be charged, up to a maximum amount, after their death. Labour’s Andy Burnham has called for the same reform. (This proposal has a long history.)
• ~~Taxing wealth. A growing number of voices, led by Tax Justice UK, IPPR, the Resolution Foundation and others, have called for wealth to be taxed more highly to pay for public services. This would include equalising tax rates on income from wealth and labour, reform of inheritance tax and reform of property taxes. The LSE Wealth Tax Commission proposed a 1% wealth tax on millionaires, which it estimated could raise £260bn over 5 years.
• ~~Public opinion supports progressive taxation. IPPR has presented its survey findings.  

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• Re-owning social care. Looking beyond the funding issue, CLES’s Tom Lloyd Goodwin argues for the de-marketisation of social care provision, explaining the various options for ownership reform to “re-animate the demand of decency for service users over dividends for shareholders and to return to a system where the default position is state delivery of services in conjunction with alternative models of ownership, such as community businesses, social enterprises, co-operatives and the like.”

• Net zero transition must be fair if it is to gain public support. IPPR’s cross-party Environmental Justice Commission published its final report after a 2 year enquiry on how to bring about a just green transition. Based on the recommendations of a series of citizens’ juries organised in different parts of the UK, the report emphasises the positive effects of ambitious action through job creation, lower energy bills and improved public health.
• ~~Public involvement is critical. IPPR’s Luke Murphy argued that local communities must be able to decide how the net zero transition is designed in their areas in an interview with Sky News. This is the only way to ensure that the transition has public support, the Commission concludes.  
• ~~Fairness is multi-faceted. Similar to the findings of the UK Climate Assembly, the Commission highlighted the importance of getting the balance right between the distribution of costs for individuals, businesses and the public purse, fairness between different regions of the UK, between different genders, races, abilities and generations and between different countries.
• ~~A just transition for high carbon sectors. One of the citizens’ juries was in Aberdeenshire, the centre of the UK’s oil and gas sector, which will be hard hit by net zero. Following extensive local consultation with businesses, unions and the community, an IPPR report for the Commission showed how a ‘managed transition’ for the oil and gas sector could be designed.
  

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• A new social contract. Laura Sandys, former Tory MP and one of the co-chairs of the commission, outlined its six principles to embed fairness in the net zero transition in a piece for Conservative Home: a ‘people’s dividend’, a ‘fairness lock’, a ‘people-first approach’, national leadership with local delivery, a ‘whole-economy, all-society’ approach, and ‘valuing what matters’.
• ~~Policy recommendations. These principles inform a varied policy agenda, including free public transport, a universal dividend payment paid for through carbon pricing, giving people a stake in decarbonisation through community owned energy and natural assets, ‘a right to retrain’ for workers from high-carbon industries, local participatory budgeting and the devolution of powers and resources to local and regional government, reworking tax incentives and small business loans to harness the power of small and medium-sized businesses, and a Wellbeing of Future Generations Act.
  

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• The National Food Strategy. Also published last week was the government-commissioned but independent National Food Strategy, authored by Leon restaurant chain founder Henry Dimbleby. The Strategy is a comprehensive plan to tackle the adverse effects that current consumption and production patterns of food have on the environment and public health. The report argues that the UK should replace 30% of all meat consumption.
• ~~Context. WWF estimated that food production is responsible for almost 60% of global diversity loss. Last week, the Amazon rainforest passed a key threshold in which it is now emitting more emissions than it absorbs. Deforestation is driven by demand for land to produce agriculture products such as soy, palm oil, timber and beef.
• ~~UK contribution. Our demand for these high-carbon commodities has been estimated to require an area of 88% of the size of the UK to produce. IPPR’s previous report on building a sustainable food system proposed policies to eliminate imported deforestation from UK food supply chains. Surveys commissioned by WWF have shown that decarbonising food imports is politically popular in the UK.
  

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• Supporting lower income families transition. The National Food Strategy proposes a tax on salt and sugar in processed foods, with a proportion of the revenue gained being used to help lower income families afford fruit and vegetables. The report points to evidence that increasing the income of the lowest paid is correlated with consumption of healthier foods.
• ~~Low income and food poverty. The food bank charity the Trussell Trust outlines the scale, profile, drivers and experience of hunger in the UK, where 95% of people referred to food banks within their network were unable to afford to eat or stay warm and dry.
• ~~Reception. Ian Byrne, Labour MP and co-founder of the Right to Food campaign, welcomed some of the National Food Strategy’ proposals - including the plan to increase the number of children eligible for free school meals - but argued that it lacked the ambition of ending widespread hunger in the UK.
  

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• Global Alliance for a Green New Deal. A global network of politicians was launched last week to share learning on how to deliver just transitions. The Alliance includes Green MP Caroline Lucas, Labour MP Clive Lewis and US Democrat Congresswoman Ilhan Omar. They are encouraging lawmakers and citizens to sign an international declaration which defines a Green New Deal in terms of reform of the financial and taxation systems as well as environmental investment and a reduction in inequality within and between nations.

• Overview. The Office for Budget Responsibility published its Fiscal Risks Report 2021 last week. It's a landmark report that focuses on “three large, and potentially catastrophic, sources of fiscal risks'' to the UK’s public finances: the Covid-19 pandemic, unmitigated climate change and public sector debt. (Watch the OBR’s short video summary here)
• ~~Findings. The OBR notes that the costs of achieving net zero emissions are “significant”, but would be greater without “decisive action” and “early steps” to mitigate climate change. It envisages a 1.4% hit to GDP to achieve net zero, adding 21% of GDP to UK public debt by 2050. Unchecked climate change could take public debt to 289% of GDP by the end of the century.
• ~~Total costs of net zero. Carbon Brief’s Simon Evans explains that the Climate Change Committee’s estimations of the costs of reaching net zero are £1.4tn, offset by savings of £1.1tn, with an overall net cost of £321bn over 30 years (“Anyone pointing to the costs, but not the savings, is being disingenuous”).  
• ~~Reception. Carbon Brief’s round-up of the UK media response gives a good overview of the report’s reception.
  

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• Fiscal multipliers and co-benefits. The OBR report identifies that the permanent fiscal costs of the pandemic depend on the degree of economic scarring (long-term damage). One solution is to ensure that public spending on net zero has high co-benefits and fiscal multipliers, for instance through investment in retrofitting homes which creates jobs in the poorest areas.  
• ~~Investment with co-benefits to reduce scarring. The Conservative Environment Network’s Sam Hall explained how to target net zero investments to ease post-Covid unemployment and realise the co-benefits of public investment.
• ~~A green recovery is politically popular. New analysis from the ECIU finds majority public support for a green recovery, particularly on issues like installing low carbon technology in housing.  
  

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• Green taxes. The OBR notes that the main hit to public revenues from decarbonisation will come from the loss of fuel duty. But this could be offset by higher carbon taxes, which could cover public spending of around 0.4% of GDP per year on net zero investments.
• ~~Funding the transition to net zero. A coalition of progressive organisations published a letter outlining a set of principles to ensure the tax system supports a green and fair transition to net zero, as well as the different financing mechanisms the government has available, such as borrowing. The Grantham Institute at Imperial College London has designed a framework for fiscal reform for climate action, including tax reform. It argues that the public may be more prepared to pay higher taxes if it is earmarked for specific green investment.

• Plans to reform state-aid rules. This week the government will set out its plans for a post-Brexit system of state subsidies to support selected industries, the FT reports. These will mark a significant shift away from the EU’s state-aid rules that previously limited government intervention.  
• ~~What did EU rules allow? Under the terms of the single market, EU governments require state-aid approval for measures designed to support or privilege domestic businesses. The Institute for Government explains the EU system.
• ~~What does Brexit allow? The Democracy Collaborative’s Joe Guinan and Thomas Hanna have argued that EU state-aid rules limited the UK’s recovery after the financial crisis by preventing the government from supporting UK businesses. Examining the different elements of this argument, the LSE’s Kitty Stewart notes that a future UK-EU trade deal would almost certainly require the UK to adopt EU-like rules to ensure a level playing field for EU companies.
• ~~A free rein for subsidies? In the Brexit negotiations, the EU demanded that the UK create a statutory regulator with powers to prevent government support causing distortions to competition. Instead, the BBC reports, the UK will create a “subsidy advice unit” within the Competition and Markets Authority with “no powers to prohibit the granting of support.”
  

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• An emerging global consensus. The government has said it will use industrial subsidies to help achieve goals such as “levelling up” and decarbonisation. Business secretary Kwasi Kwarteng insisted that this would not be a “return to the failed 1970s approach” of attempting to “pick winners” or bail out unsustainable companies. But there is in fact an emerging global consensus about industrial strategy.
• ~~US moving towards more intervention. Brian Deese, Director of the White House’s National Economic Council, has set out the Biden administration’s plan to provide more aggressive incentives to key manufacturing industries. Deese warned that the pandemic had exposed “unique economic vulnerabilities” in domestic production and an over-reliance on imported goods.
• ~~EU loosening its free-market approach. The EU is also planning a further relaxation of its rules on state aid, though these are the subject of political debate about solidarity between the Northern and Southern member states.
• ~~Global consensus. A 2018 report from UNCTAD found that 84 countries (accounting for 90% of global GDP) had adopted formal industrial policies in the previous five years. UNCTAD is running a series of webinars on “the new consensus among economists and policy makers on the relevance, desirability, and practicability of industrial policy”.  
  

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• Devolution and industrial strategy. The Westminster government’s new approach will be seen by devolved administrations as a “post-Brexit Westminster power grab over subsidies”, warns the FT. The Business, Energy and Industrial Strategy Select Committee argues that “the government should make a commitment to co-producing industrial policy with devolved administrations in Edinburgh, Cardiff and Belfast as well as regional and local leaders”.
  

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• Labour’s proposals. In her first major policy announcement last week, Shadow Chancellor Rachel Reeves also focused on industrial strategy, declaring that a Labour Government would ask all public bodies to give more contracts to British firms, using procurement contracts to raise social, environmental and labour standards.
• ~~Progressive procurement. Labour’s proposals echo those of a 2017 CLES paper which outlined the opportunities for public procurement post-Brexit and called for locally-defined social outcomes frameworks to enable public spending to address local economic issues.
  

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• Industrial strategy and the green transition. The leading modern proponent of industrial strategy is Professor Mariana Mazzucato, whose UCL Institute for Innovation and Public Purpose has been advising the UK, Scottish and other governments on a “mission-oriented” approach aimed at meeting society’s key challenges, such as decarbonisation and healthcare.  
• ~~Competitive advantage. Commenting on the US government’s new approach, economics blogger Noahpinion highlighted the “first mover advantage” of green industrial strategy, enabling the US not just to reduce its emissions but to gain competitive advantage in new technologies, particularly with respect to China.
• ~~Demand and supply. The IPPR Commission on Economic Justice’s paper on industrial strategy explained how strong environmental policy created demand for environmental technologies and services, which a green, mission-focused industrial strategy could then help ensure were produced at home. For more on this, watch the IPPR’s recent webinar on Kickstarting the Plan for Growth with Lord Jim O’Neill, Prof Diane Coyle and former Siemens boss Juergen Maier.

• Pope Francis says “organising in unions is a right.” In a speech to the International Labour Organization this month, Pope Francis called for “deep reform” of the economic system in response to the pandemic. Drawing attention to increasing levels of inequality in society, and poor working conditions for migrants, women and gig workers, the Pope declared that “the protection of workers and the most vulnerable must be ensured through the respect of their fundamental rights”. This must include the right to organise in trade unions.
  

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• Social partnership. Recognition of the role trade unions have played during the pandemic (e.g. in negotiating the furlough scheme) has led many to call for a revival of more collaborative relationships between unions, business and government.
• ~~A national plan. New CBI Chief Tony Danker has called for a “1945-style reboot” of the economy in response to Covid-19, with the “government, businesses and trade unions working together on a fightback plan”. Similarly, the TUC’s Plan for Jobs called for the establishment of a “National Recovery Council” with unions, government and employers drawing up recovery plans together to address the challenges of inequality and net zero.
• ~~Collaboration at the local level. The RSA has argued the Government should replace Job Centres with Job Security Centres, bringing together unions, employers and others as part of a new “Blueprint for Good Work”.

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• Trade unions and inequality. Since the 1970s, the UK has seen a declining share of national income go into wages and salaries and a rising proportion returned to the owners of capital and assets. A 2018 report for the IPPR’s Commission on Economic Justice found that rising inequality was correlated with the fall in trade union membership. Arguing that stronger trade unions can boost productivity, and for the fruits of automation to be more fairly shared, IPPR argued for easier statutory recognition to enable firm-level collective bargaining, accompanied by sectoral collective bargaining in low-paid sectors.
• ~~The role of collective bargaining. The TUC has called for a series of reforms to make it easier for workers to negotiate collectively with their employer, and to broaden the scope of collective bargaining rights to include all pay and conditions, including working time and holidays and equality issues.
• ~~The economic case. The New Economics Foundation and the University of Greenwich have set out the economic case for trade unions, demonstrating the relationship between wage levels and union membership.  

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• Two economies? In its landmark report Work in 2021: A Tale of Two Economies the Centre for Labour and Social Studies (CLASS) argues that the pandemic has reminded workers “of the purpose and power of trade unions”. It brings together analysis of ONS data, interviews with trade union representatives and a survey to paint a picture of workers’ differentiated experiences of the pandemic and how they are organising in response.

• Warnings about the “beast of inflation”. Earlier this month, the Bank of England’s Chief Economist Andy Haldane (widely seen as a progressive figure) called for pre-emptive measures to prevent overheating of the UK economy leading to a resurgence of inflation. Referencing rising commodity prices - such as oil, lumber, silicone chips, iron, corn and soybeans - labour shortages and forecasts of a rapid rise in consumption, Haldane warned of the “most dangerous moment for monetary policy since inflation-targeting was first introduced into the UK in 1992”.
• ~~And elsewhere… Former German finance minister Wolfgang Schauble (a conservative) and former US Treasury Secretary Larry Summers (a Democrat) have also warned of inflationary pressures, in the EU and US respectively.  

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• The case for pre-emptive action. Haldane emphasised the adverse effects of inflation on businesses, consumers, financial markets and indebted governments, recommending preemptive action to stave off inflationary pressures: “Waiting too long risks interest rate rises that are larger and faster than anyone would expect or want. It runs the risk of the brakes needing to be slammed on to an overheating economic engine...acting early as inflation risks grow is the best way of heading off future threat”.

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• The case for caution. NEF’s Dominic Caddick explains the case against premature monetary tightening. He argues that the threat of rising prices is real, but it does not warrant a pre-emptive response now. This is because the inflation we are currently experiencing is:
• ~~Temporary...  Oxford economist Simon Wren-Lewis argued that “the end of the pandemic will see an increase in pent-up consumption, but that is a very temporary affair.” Similarly ECB’s Chief Economist Philip Lane explained why the current inflation should be regarded as temporary, driven by supply side issues not from any overheating of demand.
• ~~...still on target... The UK inflation rate jumped to 2.1% in May, just 0.1% above the 2% target which has been consistently missed for years. Further, without any tightening of monetary policy, the Bank of England’s own projections do not forecast spiralling inflation, with the average rate of inflation (the Federal Reserve’s new target) since 2020 remaining below the 2% target until 2024.
• ~~...and desirable. In these circumstances, mild inflation above target can be a healthy sign of growing demand and economic recovery, particularly if wage rises outstrip inflation. Economist Claudia Sahm explains this point in a video interview with Yahoo Finance to defuse fears about rising inflation in the US.
  

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• Contractionary policy could harm recovery. Overblown fears of inflation could provoke an attempt to reduce public spending and, consequently, harm economic recovery. 142 leading economists signed a letter to debunk the similar argument for contractionary measures in the Eurozone by Wolfgang Schauble.
• ~~Self-defeating effects on public debt. Developing these ideas in a Twitter thread, NEF’s Frank van Lerven emphasised the self-defeating effect of fiscal consolidation on debt-to-GDP ratios, citing evidence from Europe in the 2010s.
  

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• Policy tools for a balanced approach. When the inflationary pressures are driven by supply-side constraints (eg labour shortages and construction under-capacity), price stability can be achieved through non-contractionary policies that don’t harm recovery.
• ~~Active industrial policy. Governments can spend on active industrial strategies to invest in long-run output and reduce bottlenecks in supply. Industrial strategies of this kind are being introduced by governments across the world to increase the resilience of supply chains for products essential to the low carbon transition.
• ~~Rising productivity. Wage rises for those on lower incomes can increase productivity and thereby improve GDP growth, reducing inflationary pressure as the productive capacity of the economy is increased. This has led some economists, such as James Meadway, to argue that “wage rises and mild inflation, after decades of stagnant real pay and deflationary pressure, would be no bad thing.”

• Nice pictures, not enough action. Despite a 25-page communique, the G7 Summit in Cornwall at the weekend came up with only small commitments on the most urgent issues facing the world. Gordon Brown’s damning judgement (“an unforgivable moral failure”) echoed the verdict of almost all development and environment NGOs.
  

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• Global Covid vaccinations. G7 leaders agreed to donate 1bn vaccine doses as a contribution towards the goal of “vaccinating the world” by the end of 2021. The UK committed to donate 100 million doses, the US 500 million.
• ~~11bn doses needed. But campaigners called the commitments a “drop in the ocean” when compared to the WHO estimate that 11bn doses are necessary to vaccinate 70% of the global population. Critics pointed out that in fact just 613 million doses were new commitments, the rest having been previously announced. Norway and South Africa had tabled a plan for the G7 to pay two-thirds of the $66bn cost of the comprehensive delivery plan to distribute vaccines through the international Covax initiative. This was not mentioned.
• ~~Intellectual Property (IP) protected. Before the Summit, the US had signalled its support for patents on Covid vaccines to be temporarily waived in order to facilitate their production in the Global South. But Germany, the EU and the UK resisted this. Instead, vaccines will be bought from pharmaceutical firms using public money and then donated to lower income countries.
• ~~Broader solutions. In the IMF’s proposal to end the COVID-19 pandemic, vaccine donations constitute only one part of a three-part package along with investment in vaccine manufacturing supply-chain capacity and testing/therapeutics. Gavi’s Dr Seth Berkley explains the importance of global manufacturing capacity to end the crisis more quickly and prevent future pandemics.
  

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• Climate finance. With the G7 Summit taking place just five months before the UN climate conference COP26 in Glasgow in November, a key demand of climate-vulnerable nations was for the G7 to finally achieve the $100bn per annum in financial support for low-income countries originally promised in 2009 and reiterated in the Paris Climate Agreement. The most recent OECD estimate is that in 2018 financial flows were around $80bn. But while reiterating their ambition to reach the $100bn figure over the next four years, the G7 announced no new climate finance commitments.
• ~~International reaction. Climate journalist Ed King collated a number of disappointed responses to the climate finance pledges from key figures in the Global South.
• ~~A “Green Marshall Plan”? Prior to the Summit, Boris Johnson had proposed a climate "Marshall Plan” to help the Global South decarbonise, named after the postwar US lending scheme for European reconstruction. By the second day of the Summit this had mysteriously become President Biden’s “Build Back Better World (B3W) Partnership”, framed as a strategic Western initiative to counter China’s huge Belt and Road investment programme in the Global South. The White House press release was reproduced in the Summit communique.  
• ~~The overall climate package. With G7 Environment Ministers having last month agreed to phase out international investment support for coal-fired power stations, the Summit saw additional funding announced to help developing countries move away from coal. The BBC’s Roger Harrabin analysed the overall package.
  

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• Economic recovery and debt relief. The G7 committed to “build back better” from the Covid pandemic, promising recovery plans “that create jobs, invest in infrastructure, drive innovation, support people, and level up so that no place or person, irrespective of age, ethnicity or gender is left behind.” But on debt relief for low-income countries and the reallocation of an expected $650bn issuance of ‘Special Drawing Rights’ (new money) by the IMF, the Summit made no new commitments, merely reiterating existing policy. These issues will be revisited at the Annual Meetings of the IMF and World Bank in October.
• ~~The current debt package. The Jubilee Debt Campaign (JDC) summarised the key problems with the current debt package: too many nations are excluded from the Common Framework for solving unsustainable debt burdens and the Framework fails to include private creditors.
• ~~The importance of debt relief. The JDC calculates that African countries spend three times more on debt repayments to banks and speculators than it would cost to vaccinate the entire continent against Covid-19, with private creditors alone receiving $23.4bn in debt repayments this year.
  

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• A new economic era? The Summit communique noted that a recovery focused on the above objectives “has not been the case with past global crises, and we are determined that this time it will be different”. This followed Boris Johnson’s pre-Summit urging that world leaders should not “repeat the mistake” of the 2008 financial crisis, when austerity response measures had exacerbated inequality. The G7 committed to maintain current fiscal support for their economies, with the long-term sustainability of public finances to be considered only “once the recovery is firmly established.” This was a clear repudiation of the previous policy orthodoxy adopted by all the G7 countries after 2008.  
• ~~International tax cooperation. The Summit also emphasised the importance of the path-breaking agreement on corporate tax cooperation achieved at the G7 Finance Ministers meetings a week before. For more on this, see last week’s Digest.

• UK-EEA free trade deal. The UK signed a trade deal with Norway, Iceland and Liechtenstein, cutting export tariffs on UK farm products such as cheese and meat and reducing costs for UK fish processing. Director of the UK Trade Policy Project explained that the UK-EEA free trade agreement offers better terms than WTO terms but with more barriers than the previous relationship under single market rules.
  

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• UK-AUS free trade deal. The UK is hoping to sign a trade deal with Australia after the G7 meetings close. The FT reports that this is the first big post-Brexit trade deal that isn’t simply a continuation of existing agreements the UK had as a member of the EU.
• ~~Farmers’ reaction. The head of the National Farmers’ Union warned of “irreversible” damage to UK farming from zero-tariff trade in meat (Guardian).
• ~~Stepping stone to CPTPP. UK international trade secretary Liz Truss is also looking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an 11-nation bloc including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
• ~~Analysis. Minako Morita-Jaeger concluded that the UK joining CPTPP is “more about achieving the UK’s Indo-Pacific tilt for foreign policy rather than an economic project”, (UK Trade Policy Observatory) and pointed to ISDS provisions (below bullet) as a controversial area which could threaten UK’s public policy objectives.

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• ISDS threatens UK climate policy. One live issue in the negotiations regards provisions for Investor-State Dispute Settlements (ISDS), which give international firms the right to sue governments for policy changes that could harm the value of their investment, including public interest laws such as public health and climate policies. (NB the investor behind the controversial planned coal mine in Cumbria is Australian).
• ~~ISDS background. See the International Institute for Environment and Development’s report on how ISDS could increase the public cost of climate action.

• Landmark report on energy. Last week, the International Energy Agency (IEA) called for an immediate end to new fossil fuel developments in its report Net Zero by 2050: A Roadmap for the Global Energy Sector. The report marks the first time the world’s most influential voice on energy has modelled a pathway consistent with the Paris Agreement goal of 1.5C of warming, and underlines the benefits of clean energy in terms of jobs, energy costs and energy access for poorer households. (Climate Home News coverage)
  

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• Why is this a big deal? For years, governments and companies have justified expanding fossil fuel production on the basis of IEA scenarios asserting this would be consistent with net zero commitments. Now, they can no longer do so. As Politico’s Karl Mathiesen puts it: “The consequences… are profound. The most august energy organisation has said any new $ spent on gas, oil or coal supply is incompatible with 1.5C. That could underpin court cases, state aid challenges and makes the stranded asset argument very simple.” (See summary thread from energy economist Greg Muttitt.)
• ~~Gas is not a transition fuel. Notably, the idea of expanding gas production – which has lower emissions than coal – as part of the transition to net zero was killed off by the IEA’s report, with major industrial and geopolitical consequences (Energy Monitor).
  

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• Critique. While the report has been widely welcomed by environment experts, a number have criticised the assumptions­ underlying the IEA’s modelling. Oil Change International’s excellent analysis of the report welcomes the step-change in the IEA’s messaging but highlights flaws in the modelling – underestimating wind and solar power, a dangerous gamble on bioenergy and carbon capture, and relying on oil from existing sites far more than e.g. the United Nations Environment Programme 1.5C-consistent pathways.
• ~~Degrowth. Its assumption of continued GDP growth in rich countries also implies an unprecedented rate of GDP/energy ‘decoupling’ – where GDP growth is achieved without corresponding growth in energy consumption. (Thread by Jason Hickel) Last week we covered new research on ‘degrowth’ pathways to emissions reductions (Beyond Covid). See also UCL Professor of Geophysical and Climate Hazards Bill McGuire’s article covering the research this week (Prospect).
  

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• Early impact. Said to have been “heavily influenced” by the IEA’s report, G7 environment ministers have agreed to deliver climate targets in line with a 1.5C of warming target, and have pledged to stop direct funding of coal power stations – though not gas (see above) - in poorer countries by the end of this year. (BBC)
• ~~Fossil fuel companies. Oil giants will also find it harder to justify fossil fuel expansion. Shell, for instance, asked shareholders to approve its ‘net zero’ strategy – which included expansion of oil production - on the day the report was published.
  

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• Next steps. The IEA will publish its massively influential World Energy Outlook (WEO) later this year. The question remains as to whether its new 1.5C pathway will be presented as the central scenario of the report. This matters, as the central scenario is used by governments and investors as their default in energy decision making (Kelly Trout, Oil Change International).
• ~~Government responses. The question remains as to whether governments will act on the findings – Reuters has a good summary of the mixed reception the report received from fossil producer governments.
• ~~City of London. While G7 governments’ commitments to stop funding coal are welcomed, steps must be taken to tackle private finance of fossil fuel expansion too. UK banks provided $56bn financing for firms involved in the coal industry between 2018 and 2020 (CityAM).
• ~~International green financing. Rich countries must go beyond tackling domestic emissions and financially support poorer countries in their transition to clean energy. See our previous Digest on climate targets for more analysis on industrialised countries’ “fair share” of emissions reductions and international climate justice.

• Social care can kicked down the road. In July 2019, the Prime Minister promised his Government would “fix the crisis in social care once and for all with a clear plan we have prepared”. But a plan for social care was missing from last week’s Queen’s Speech, which set out the Government’s legislative agenda for this year.
• ~~Response. Care organisations have been left “extremely disappointed” by the lack of announcements on social care last week. NHS Confederation Chief Executive Danny Mortimer says: “The NHS and social care are sister services – if one suffers so does the other – and the Covid-19 pandemic has shown how fragile and in dire need of reform England’s social care system has become… reform must no longer be delayed”.
  

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• State of care. Analysis from the King’s Fund this month reveals the “widespread decline” in adult social care prior to the pandemic following a “decade of neglect”. The Health Foundation’s submission to the Health and Social Care Select Committee’s inquiry on social care details the fragility of the social care sector - in summary, “increasing numbers of people are unable to access social care, there are systemic and significant workforce issues, and many care providers are at risk of collapse”.
• ~~Marketisation and financialisation. The Women’s Budget Group has also brought together evidence on the need for reform, highlighting in more detail the problems of deregulation and privatisation in the care sector and the effects on gender inequality through e.g. increasing strain on unpaid carers, who are predominantly women. The IPPR’s Grace Blakeley and Harry Quilter-Pinner also examined financialisation and outsourcing within care, arguing that continued private provision could lead to lower quality of service and financial instability.
  

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• What’s the delay? Politico reports that the hold-up is due to disagreement over how a new social care regime would be paid for (a question not covered by February’s White Paper setting out proposals for a Health and Care Bill either).
• Spending cuts and rising demand. Between 2010 and 2019, spending per person on adult social care fell by 12%,while demand has increased due to an ageing population and the rising prevalence of disability – and more recently due to the Covid-19 pandemic.
  

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• Debunking Treasury opposition. The Prime Minister’s favoured plan for funding reform is a cap on care costs to ensure those who need extensive adult social care do not face sky-high fees, as recommended in 2011 by the Dilnot Commission. Senior Health Foundation researchers explain this proposal and counter reported Treasury objections that the cap would not be affordable.
• ~~(The authors note that a cap alone would not be sufficient to ‘fix’ social care – see bullets below for resources on wider reform proposals.)
  

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• Childcare. The Government also failed to address the growing crisis in childcare, in the same week the Department for Education published data showing over 2000 childcare providers had closed over the course of the pandemic.
• ~~State of childcare. The Women’s Budget Group brings together evidence on the underfunding, unaffordability and lack of supply in the childcare sector, with implications for both children (especially in poorer areas) and parents (especially mothers).
  

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• Care spending as investment. The Women’s Budget Group (WBG) argues that chronic underspending on care reflects a gender bias in economic policy-making, and calls for such spending to be seen as investment in social infrastructure to counter this.
• ~~Biden’s shift on social infrastructure. In line this approach, President Biden treated care as infrastructure spending in his American Jobs Plan, allocating $400bn to investment in care and health systems (see our summary and analysis here).
• ~~Care as stimulus. Previous analysis from the Women’s Budget Group estimated that investing in care as part of an economic stimulus package would provide almost three times as many jobs than the equivalent investment in construction.
  

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• Care workers. Central to the problem is the undervaluing of care work. On a Health Foundation podcast on why care is undervalued, commoditised and ignored, Professor of Nursing Policy Anne Marie Rafferty argued “every part of the care labour force is desperately underpaid, chronically underpaid, because of this fundamental cultural distortion in which we don't recognise a form of emotional labour that can be enormously demanding”. (Episode with transcript here)
• ~~Falling wages, low recruitment. In the decade before the pandemic, local government residential care workers’ wages fell by £1900/year in real terms, contributing to recruitment and retention challenges in health and social care and a combined shortage of over 222,000 full-time equivalent staff across NHS England and adult social care pre-Covid. In the childcare system, one in eight early years professionals are paid under £5/hour.
  

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• Blueprint for reform. The Women’s Budget Group Commission on a Gender-Equal Economy has laid out the roadmap for a creation of a “Caring Economy", including recommendations both for particular public services (e.g. including a Universal Care Service) and for how public services are treated within the UK’s broader economic policy framework, ending the chronic undervaluing of care.
• ~~Health and care. The King’s Fund has published “five priorities for health and care” as part of the “road to renewal” for the health and care system considering together.
• ~~An industrial strategy for care. CLES's Isaac Stanley and Common Wealth's Adrienne Buller and Mathew Lawrence released a report outlining a people-centred industrial strategy for a care-led recovery in England. The report is backed by UNISON and the TUC calls for councils ending the use of private care providers, a living wage for care workers and properly funding care through progressive taxation. (Independent coverage here)
• ~~Childcare. The New Economics Foundation has made the case for a Childcare Infrastructure Fund to sustain the childcare sector in the face of both Covid-related and longer-term pressures.

• What should the winners do? Following last week’s elections, the Centre for Local Economic Strategies (CLES) has outlined eight priorities for local, regional and devolved governments with accompanying resources. Proposals include targeting wellbeing, not GDP; community banking and mutual credit networks; using procurement to promote public values; reform of land use and ownership (see Liverpool’s groundbreaking Land Commission with CLES) and rethinking retail centres.
  

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• Class. Many analyses of the results have focussed on Labour losing ‘working class’ seats, as glossed by e.g. percentage of workers in routine manual employment or percentage of graduates. In counterpoint to this narrative, Novara’s Ash Sarkar critiques the often invoked dichotomy between the working class and urban liberals; the Times’s Hugo Rifkind argues the idea of Labour as the party of the more comfortable is untrue, pointing to the 50% graduate rate among under-35s; while The Economist’s Duncan Weldon argued last month the support for Conservatives in Northern towns lies not in “post-industrial misery” but in “comfortable suburbs”.

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• Policy and vision. Guardian North of England editor Helen Pidd argues that the areas where Labour bucked the national trend and did well are where local candidates “led with conviction, promoting a positive vision for their local area”, e.g. through community wealth building approaches. The Guardian also reports that last week saw a slew of UBI-supporters elected, including almost half of Wales’ Senedd.
  

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• New Conservatives and Labour’s challenge. Exemplifying the new direction of the Conservative Party, Ben Houchen (Conservative Metro Mayor of Tees Valley) has written for ConservativeHome calling for the PM to “double down on levelling up” and invest in a Green Industrial Revolution to drive job creation in the North. (See also: ConHome’s Rachel Wolf on “tests for the delivery of levelling up”.) James Meadway writes for the New Statesman on this new brand of ‘red-green Toryism’ and how Labour could respond.

• Local elections, local action. It’s local election day tomorrow in England (and parliamentary elections in Scotland and Wales), so today’s Digest looks at what’s happening at a local level to build a fairer, more sustainable and more resilient economy.
• ~~Local elections, devolution and the North. IPPR North set out the importance of this year’s local elections, particularly for cities, towns and rural districts in the North of England, and argue that the Government’s forthcoming devolution and local recovery white paper offers an opportunity for a clearer, more transparent framework for allocating and distributing devolved powers.
• ~~Mapping local action. The New Economics Foundation’s ‘Change the Rules’ gathers together lots of resources on the policies needed at local level, and maps a wide range of local enterprises and projects including cooperatives, mutuals and community businesses.
  

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• Community wealth building. One of the most interesting ideas to emerge from local government in recent years has been that of ‘community wealth building’. Pioneered in the US city of Cleveland, and in Preston here in the UK, community wealth building is the idea that, as far as possible, local spending in a city or locality should remain in that city or locality, so that it can create jobs and wealth locally rather than elsewhere. Under a ‘CWB’ strategy, local councils and other ‘anchor institutions’, such as hospitals and utilities, commit to sourcing as much as possible of their services from local businesses, enabling jobs to be created and retained locally. Some cities, including Preston, have been particularly focused on supporting cooperatives and other community enterprises to meet local demand, ensuring that local wealth is even more equally spread.
• ~~Community Wealth Building after Covid-19. In their October 2020 report, think tank Common Wealth offered a vision for democratising the economy after Covid-19, with recommendations including the reform of procurement practices and the creation of a Community Wealth Building Act.
  

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• Local government and the response to Covid-19. CLES sets out a practical framework for local authorities to respond to the economic crisis and rebuild fair, inclusive and secure local economies.
• ~~The ‘Preston model’. The Byline Times describes how Preston’s approach to community wealth building offers a model for other austerity-hit and Covid-damaged local authorities.
• ~~Social value and procurement. Under the 2013 Social Value Act, local authorities are able to apply non-financial criteria to procurement contracts, thereby enabling them to support local businesses and insist on good working conditions. David Burch of CLES describes how Manchester City Council has been doing this (with CLES’s support).
• ~~A new model for local economic development. The Centre for Local Economic Strategies and the US-based Democracy Collaborative suggest that the economic shock of Covid should be an inflection point for a new approach to local economic development. With the pandemic having reminded many people of the importance of the community, they describe community wealth building as the ‘new common sense’ .
• ~~Insourcing. A key element of community wealth building is procurement of goods and service. Over recent decades many public services have been ‘outsourced’ to private providers, with mixed success at best, and some scandals of profit-taking and incompetence at worst. Tom Lloyd-Goodwin and Neil McInroy argue in the Guardian that outsourcing as a strategy has failed, and that ‘insourcing’ - taking services back in house - along with ‘social licensing’ of ethical businesses fit to provide public services - should increasingly replace it.
  

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• Climate action at local level. In the last few years a growing number of local councils have ‘declared a climate emergency’ and committed themselves to action on climate change, including the ultimate goal of ‘net zero’ emissions..Local authorities’ powers are limited, however, and most have few resources for non-statutory work. So in their place there is a great deal of imagination and innovation going into local authority action in this field - as well as a demand that central government gives local councils more powers and resources.
• ~~Local powers to act on climate. UK100, the network for local elected leaders (including city mayors) taking action on climate change, has published a comprehensive examination of the powers local authorities have, and need, to deliver on climate.
• ~~Net zero. UK100’s ‘Net Zero Local Leadership Club’ brings together those councils now committed to achieving ‘net zero’ emissions, as soon as possible and by 2045 at the latest. The UK100 ‘knowledge hub’ provides a series of case studies of how different local authorities are acting to reduce their own and local emissions and to adapt to the climate changes we are already experiencing.
• ~~Climate Emergency. A new organisation, Climate Emergency UK, is seeking to map and coordinate local declarations and activities. They have produced a list of councils which have declared climate emergencies, and their website allows members of the public to search for their local council and what (if anything) it is doing about climate change.
• ~~Global local action. C40 Cities is the collaborative network of city mayors from the world’s largest cities committed to action on climate change and a sustainable future. Led by the mayors of Los Angeles and Milan, these cities last year committed to investing in a ‘green and just recovery’, and showcased what they are doing to deliver it.
• ~~Green recovery. Jonty Leibowitz, then at CLES but now adviser to Labour Shadow business and climate minister Ed Miliband, has set out how local authorities can build secure green recoveries at local level.
  

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• Local and regional banking. In pursuit of more locally and regionally governed economic development, there has been increasing interest over recent years in a more localised and regional banking system. Unlike many countries the UK’s banking system is more or less entirely national (and international), and the argument is made that this inevitably skews financing for business investment towards London and the South East of England. In other countries, notably Germany, local and regional ‘stakeholder’ banks, largely or wholly publicly-owned, have played a critical role in ensuring that investment and job creation are well distributed geographically, and that small and medium sized businesses which might be ignored by large private banks are provided with patient (long-term) finance.
• ~~Regional banking in Germany. Daniel Ticsher explores the benefits that regional banks bring to diversity and resilience, finding that Germany's more diverse banking sector weathered the global financial crisis better than the UK’s highly concentrated private banking system.
• ~~A more diverse banking sector. The New Economics Foundation establishes the economic case for a more diverse banking sector, arguing that this ecosystem would be more resilient, socially focused and give better returns to customers than commercial banks. Elsewhere NEF proposes that the UK government retains its majority stake in the Royal Bank of Scotland and transforms it into a public banking network.
• ~~Regional banks in the UK. Responding to the closure of local branches by retail banks in many communities, All In, the Royal Society of Arts and others make the case for a community savings bank for the North East, In the South West, South West Mutual is aiming to be a regional high street bank exclusively focused on the south west of England.  
• ~~Stakeholder banks. In OpenDemocracy’s e-book New Thinking for the British Economy, Christine Berry proposes a UK ecosystem of stakeholder banks.
• ~~A Post Bank network. The Communication Workers Union and the Democracy Collaborative propose the creation of a publicly owned Post Bank network supported by regional development banks.
• ~~Local banking in Scotland. Common Weal presents the case for a local, mutually-owned 'public-good banking network' in Scotland to restore bank branches to communities which have lost them.
• ~~Cooperative local banking. The New Economics Foundation explores the benefits of cooperative banking. It cites international evidence showing that mutually-owned banks are more focused on supporting high streets, are better at lending to SMEs, and are likely to be better managed and more stable in a crisis. It has published a guide for people and community organisations interested in establishing a new regional community bank.
  

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• Devolution. A decade of cuts to local authorities, sharp regional inequality and the continued effects of centralisation of power in Westminster (e.g. the Covid-19 response) has led many to argue for greater devolution of money and power to local authorities.
• ~~City-regions. Former banker and Tory minister Jim O’Neill argues that city-region mayors must be given greater powers if the Government’s ‘levelling up’ agenda is to work.
• ~~Devolution in Cornwall. Cornwall is the only non-metropolitan area in England to have a devolution deal. IPPR North analyse what has been achieved and what new powers are needed.
• ~~Regional inequality. Anton Jaeger in New Left Review explores the new regional politics of England.

• New developments. The past week saw both the announcement of the UK’s new emissions target - an increase in ambition from the target announced just four months ago in December - and Biden’s Leaders’ Summit on Climate, “a starting pistol for the six-month countdown to COP26”.
  

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• New UK target. The UK announced a new goal of cutting emissions by 78% by 2035 compared to 1990 levels, a more ambitious target than the previous 68% target announced in 2020. For the first time, the target includes emissions from international aviation and shipping, as has been campaigned for by green activists and civil society.

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• “Magic decarbonisation tree”. The 78% target is in line with the Committee for Climate Change’s (CCC) advice (Carbon Brief summary). But the Government has not followed the CCC’s policy recommendations, particularly around politically difficult topics such as reducing meat consumption and other behavioural changes, instead emphasising “new green technologies”. BusinessGreen’s James Murray argues that the Government cannot rely on such “techno-optimism” to meet its targets, and must instead show political leadership and policy development on trickier areas of the transition to net zero.
• ~~Target versus delivery. While the new target has been welcomed, many have highlighted that there is a gap between a target and delivery. In his analysis of this gap, GreenAlliance’s James Fortherby highlights we were not on track to meet the previous target and that emissions are set to be 40% higher in 2030 than needed on the basis of current policies.
• ~~Enforcement of legal targets. Former Director of E3G and GreenAlliance Tom Burke has written on the need for stronger enforcement and institutional frameworks surrounding legal environmental targets. The CCC’s recommendations for 2035 (above) arise from the legal obligations placed on it and the Government under the 2008 Climate Change Act (explainer here).
  

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• Critique of net zero targets. The UK’s and other countries’ climate targets are based on the idea of “net zero”. Climate justice organisations including ActionAid and the Third World Network have argued net zero targets drive a form of “carbon colonialism” and delay meaningful action on climate change - by e.g. relying on unproven or harmful carbon offset technologies (see above). These sentiments were echoed in last month’s Nature editorial on net zero pledges.
• ~~New proposal for better targets. A new, peer-reviewed paper in the Frontiers in Climate journal examines the issues with treating emissions reductions and offsets as equivalent in climate goals, and suggests different and differentiated targets to encourage ambitious and just climate action.
  

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• Biden’s summit. A number of countries (re)announced stricter emissions targets at the US Leaders’ Summit on Climate last week. Achieving these would close just ~13% of the “emissions gap” (the gap between forecast emissions and the level of emissions in 2030 consistent with 1.5C of warming), leaving a gulf between present commitments and ambitions to limit warming and avoid some of the worst effects of climate change.
• ~~New US target. As the single largest emitter, Biden’s announced target of halving emissions by 2030 relative to 2005 levels accounts for the majority of this closure. While this is the biggest commitment to emissions reduction from the US thus far, it falls short of the 57-63% domestic emissions reduction needed to get on track for the US’s 2050 net zero target.
• ~~Critique of Biden’s plans. In his in-depth analysis of Biden’s climate plans, Adam Tooze concludes that “for all the high-flown rhetoric… Biden’s climate programme appears hobbled by constraints, lacking in focus and inadequate in ambition”.  

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• Fair shares. How much should each country spend on mitigating climate change? There are differing analyses of each country’s “fair share” based on interpretations of two principles built into the Paris agreement (see Civil Society Review pp. 14-16)
• ~~Responsibility for climate change: based on accumulated historical emissions, with some interpretations e.g. excluding or underweighting emissions arising from fulfilling basic needs.
• ~~Capacity to help: countries’ financial capacity, which may factor in within-country inequality by weighting wealthy citizens’ income more strongly.

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• ‍International justice and climate finance. For major emitters and wealthy countries like the US and the UK, “fair shares” analyses often amount to over 100% of domestic emissions, necessitating international action to support poorer and less responsible countries. E.g. ActionAid USA and other civil society groups have called for a US “fair share” emissions reduction of 195%, with 70% coming from domestic reductions and 125% from supporting poorer countries through “climate finance”, while War on Want has argued for a 200% emissions reduction in the UK by 2030.
• ~~Biden’s climate finance plans. Many campaigners have expressed their disappointment at the US pledge to contribute $1.2bn to the UN’s Green Climate Fund, which does not even cover the shortfall between money promised under Obama that was then not delivered under Trump. Alex Lenferna of 350 Africa told Climate Home News the sum was an “insult to the Global South”. (See also The Third Pole’s Joydeep Gupta’s assessment of the state of play: “Biden’s pledge inadequate for climate justice”).
• ~~American foreign policy. Kate Aronoff argues that “the U.S. needs to rethink its foreign policy if it has any chance of meeting its climate commitments” in the New York Times. ‍
• ~~Private finance. The Guardian editorial on Biden’s climate plans cites Professor Daniela Gabor’s research, criticising the US approach for leaving poorer countries dependent on private finance and calling for rich world concessions on sovereign debt and climate finance at the G7 and COP26. ‍
• ~~UK climate reparations. Lawyer and organiser Harpreet Kaur Paul made the case for “reparative climate justice” in her report for Common Wealth based on a “fair share" analysis. Recommended reparative mechanisms cover climate financing, debt cancellation, trade and company reform, and needs assessments.‍

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• Road ahead. As we approach COP26 in Glasgow later this year, the issues above - international climate justice and finance, ambition and feasibility of emissions targets - will continue to climb the agenda. E3G gives an overview of the climate-diplomatic run-up to November.

• Covid-19 and the public-private sector relationship. Over the course of the pandemic, a string of procurement gaffes, outsourcing failures, and allegations of cronyistic relationships between public officials and private contractors - most recently surrounding Greensill - has led to increased scrutiny of the relationship between the government and the private sector.
• ~~Greensill overview. The Institute for Government’s Inside Briefing podcast examines the most recent developments in the Greensill scandal, the state of lobbying rules and the promise of various inquiries.
• ~~Inside Britain’s pandemic spending. In December 2020, the New York Times investigation into “waste, negligence and cronyism” analysed 1200 publicly available Covid-19 contracts (many remain secret), and found that half of the £22 billion spent went to companies with connections to the Conservative Party, no prior experience and/or a history of controversy.
• ~~Health service. The British Medical Association has published excellent overviews of the acceleration in outsourcing within the health service during Covid-19 and the windfall gains to private providers, despite a “litany of mistakes”. (See also: Drs Rebecca E Glover and Nason Maani’s “Have we reached ‘peak neoliberalism’ in the UK’s Covid-19 response?” for BMJ Opinion).
  

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• Rentier capitalism and outsourcing. Economic geographer Brett Christophers and others have argued the best way to understand major outsourcing companies is as specialists in winning long-term government contracts, and not in actually delivering services. They are then able to extract value from ownership of these contracts without providing commensurate social value, in the same way as owners of other scarce assets do. (See Christophers on the rentierisation of the British economy and Christine Berry’s review of Christophers’ book.)
• ~~Serco and Test-and-Trace. An example from the pandemic is the surge in Serco’s profits from its test-and-trace contract, despite its poor performance compared to local public health teams and its history of fraud and false accounting in public service provision.
• ~~Podcast. Listen to Brett Christophers, Ed Miliband and Geoff Lloyd discuss rentier capitalism during the pandemic on the Reasons to be Cheerful podcast.
  

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• Outsourcing, consultants and the erosion of public sector capacity. The government’s overreliance on the private sector to deliver core public services and develop strategy over recent decades has led to an erosion of public sector capacity, which in turn encourages further outsourcing.  
• ~~Rebuilding public sector capacity. UCL Professor Mariana Mazzucato has written extensively on the state as a creator of value - undermining the rationale for outsourcing and privatisation - and the need to improve public sector capacity to tackle societal “grand challenges” (see e.g. her article with Professor Rainer Kattel on the need for governments to build dynamic capabilities to prepare for future pandemics).
• ~~The Covid-19 gravy train. Former Cameron speechwriter and Times columnist Clare Foges has written on the need to “restore expertise and capacity to the public sector” in order to end the “coronavirus gravy train” - whereby private companies and consultants stand to make huge amounts of money at the taxpayers’ expense, even if they provide poor-quality services.
• ~~Lessons from Carillion. This is a longer standing issue. Following the Carillion scandal, the auditor general claimed that “there are lots of areas where the government does not have the capacity to do anything else but outsource”.
• ~~Consultants. The problem of lost capacity extends beyond service provision. Cabinet Office minister Lord Agnew argued last year that an “unacceptable” reliance on management consultants had “infantilised” the civil service at great cost to the public purse.
• ~~Public sector pay. Before the pandemic, public sector wages had fallen to a 25 year low relative to the private sector. At the same time, funding cuts have led to increased pressures on workers, further exacerbating recruitment and retention difficulties. This has undermined public sector capacity across a number of areas, e.g. recruitment and retention challenges in health and social care led to a combined shortage of over 222,000 full-time equivalent staff across NHS England and adult social care.
• ~~Guidelines for insourcing. The Institute for Government claims that insourcing of public services “can improve quality, increase reliability, and save money” and lays out guidelines for when and how public services should be brought back into government hands.

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• Procurement and contracting. The Government has also been criticised for its approach to procurement of goods and services (as distinct from the critique of outsourcing services that should be delivered by public bodies). Prior to the pandemic, the Institute for Government had criticised the government for failing to learn the lessons of Carillion and continuing to engage in risky contracts.
• ~~NASA and contracting. Prof Mariana Mazzucato used NASA as an example of how public sector expertise prevented “brochuremanship” - where private contractors can dictate terms in their favour because of a lack of public sector capacity - in her article for Project Syndicate on Biden’s need to reforge the social contract and build back the state.
• ~~Socially responsible outsourcing. The Centre for Local Economic Strategies’ (CLES) Neil McInroy and Tom Lloyd-Goodwin argued the present approach to outsourcing has failed, and that a combination of insourcing and a system of “social licensing” - criteria that non-government providers of public services must meet - would improve provision.
• ~~Community Wealth Building after Covid-19. In their October 2020 report, think tank Common Wealth offered a vision for democratising the economy after Covid-19, with recommendations including the reform of procurement practices and the creation of a Community Wealth Building Act.
• ~~Using the power of procurement. Public procurement creates large markets for goods and services. IPPR has argued the government could use this power to improve business practices - focussing on housing as an example - by strengthening legislation around procurement and social value. (Guardian coverage) ‍

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• Transparency. Further to the problems outlined above, a lack of transparency in public-private sector dealings creates the conditions for corruption. Corruption researcher Lucas Amin has written for openDemocracy on the need to change transparency law to allow for proper external scrutiny of public-private contracts.
• ~~Covid-19 contracts. The National Audit Office concluded that the Government did not meet transparency standards in its procurement of PPE and other goods and services (British Medical Journal coverage). ‍
• ~~Legal action. The Good Law Project has taken legal action against the government for its lack of transparency in awarding contracts during Covid-19 (see founder Jolyon Maugham’s article for the Guardian).‍

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• Lobbying Act. Polly Toynbee has written on how the Lobbying Act - introduced by Cameron - has failed to prevent the conditions for corruption between business and government, and instead has hamstrung charities.

• Global corporation tax. The Biden administration has released plans for a global minimum corporation tax with its “Made in America Tax Plan”. The two pillars of the plan are (a) provisions for allowing countries to tax multinationals based on a company’s sales in that country, and not registered profits (as these can be shifted to lower tax jurisdictions) and (b) an effective global minimum corporation tax, whereby multinationals paying lower than this minimum in a particular country would face a “top up” tax in their home country, reducing the incentive and ability to shift profits to a tax haven. (See Guardian explainer)
• ~~Rationale. Over the past thirty years, there has been a race to the bottom in corporation tax rates around the world, undermining countries’ ability to raise revenue, and profit-shifting to tax havens has increased (60% of multinationals’ foreign earnings are now channeled through tax havens, compared to 30% in 2000).
• ~~Context. The proposal builds on long-running OECD talks on global corporate tax reform, and may break the recent deadlock in these talks. The US government also hopes its proposals limit the incentive for countries to unilaterally impose taxes on US-based tech companies (e.g. a ‘digital services tax’). The New York Times’ Jesse Drucker outlined the history of advocacy leading to these developments on Twitter.
• ~~Benefits to the UK. Tax Justice UK estimates that the American proposals would translate to a £13.5 billion increase in annual tax revenue for the British government.
  

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• Policy analysis. Tax expert Richard Murphy argues in the Financial Times that Biden’s plans are "unexpectedly robust" but would require a comprehensive system of country-by-country profit and tax reporting to work, and criticises the plans for only applying to the largest 100 multinational companies.
• ~~Fairness for low-income countries. Last month, Chief Executive of the Tax Justice Network Alex Cobham wrote on the history of the OECD talks to date and profiled an alternative proposal for global corporate taxation. In particular, he argues reforms should not grant superior rights to the “home country” of multinationals - which the second pillar of Biden’s plan does - as this disadvantages lower-income countries (World Economic Forum).
• ~~Not just about tax rates. The Tax Foundation’s Daniel Bunn emphasised the need for a minimum tax base in addition to a minimum tax rate (Twitter).

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• ‍$2 trillion infrastructure plan: climate, care and unions. The Biden administration has followed up its radical American Rescue Plan (see our analysis here) with an ‘American Jobs Plan’ which, if passed, “would be the most far-reaching climate bill ever enacted” (Economist). Further, the President has allocated $400bn to investment in health and care systems, marking a shift towards treating spending on social infrastructure as investment, as has been called for by the Women’s Budget Group. The plan also includes a “sweeping” pro-union bill. ‍
• ~~Analysis. For more details, see Ella Nilsen’s excellent summary for Vox, while clean energy writer David Roberts examines the climate-related elements of the proposal in detail.‍
• ~~COP26. Biden is expected to announce the US’s ‘Nationally Determined Contribution’ - its emissions reductions target ahead of the UN climate negotiations in Glasgow this year - and try to build international ambition at a climate summit on 22-23 April. ‍

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• Paradigm shift. The scale and radicalism of Biden’s proposals since entering office have strengthened the argument that a paradigm shift is underway in American, and global, economic policy making. Economist Noah Smith (Noahpinion) argues Biden’s policy reforms are comparable to the New Deal or Reaganomics in scale, and offers an analysis of the “unifying philosophy” of Bidenomics.‍
• ~~Biden the radical? Noting the break between Biden’s radicalism as president and his previous political career as a moderate, the New York Times’ Ezra Klein examines the reasons for such a shift, including the revival of the American left.‍
• ~~ICYMI, last month Economist J. W. Mason outlined 10 reasons why Biden’s American Rescue Plan bill represents a decisive break with neoliberal views on macroeconomics.

• Suez and supply chains. The blockage of the Suez Canal by container ship Ever Given (freed yesterday) provoked a major disruption to global trade - 12% of which passes through the canal. It also prompted widespread reassessment on the "just-in-time", complex global supply chains that characterise today's economic architecture.
• ~~Overview: For an analysis of recent developments in global supply chains, see WTO and World Bank's 2019 report on Global Value Chain Development).
• ~~Industry reaction. The CEO of Maersk, which carries a fifth of the world's seaborne freight, argued that the canal blockage will accelerate the shift to "just-in-case" supply chains - e.g. holding higher levels of inventory, building in redundancies - to protect against supply chain fragility.
• ~~In-depth analysis. The McKinsey Global Institute published last year a report on rebalancing 'global value chains' in a world of increasing environmental and political-economic fragility, offering a taxonomy of potential shocks, analysis of how these would affect supply chains and recommendations for building resilience. See also the World Economic Forum's 'White Paper', building on consultations with 400+ operations and supply chain executives.
  

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• Political pressures. The crisis builds on existing political pressures on global supply chains. Ngaire Woods, professor of global economic governance at Oxford University, has highlighted two such pressures:
• ~~'Reshoring'. Governments and firms are under pressure to reverse offshoring and bring areas of production back to 'host' countries, either because of economic populism/nationalism (e.g 'bringing jobs home') or due to concerns over national resilience, i.e. ensuring countries can produce food, medical equipment, vaccines and other baseline goods or goods of strategic import to reduce reliance on other countries.
• ~~Demand for ethical supply chains. Institutional investors and consumers have been pressuring businesses to improve labour practices and environmental standards across their international supply chains.
  

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• "Outsourcing exploitation" to Global South. Academic Dr Intan Suwandi has written on how multinational corporations (MNCs) based in the Global North exploit workers in the Global South in their supply chains, in a continuation of historical colonialism and imperialism. (See also the Washington Post investigation into human rights violations and environmental degradation in lithium battery supply chains used by Apple, Amazon and other major companies).
• ~~German government action. This month, the German labour ministry has "ramped up pressure" for a groundbreaking Supply Chain Law that would make large German companies responsible for ensuring adherence to human rights in their global supply chains, and is pushing the European Commission for a corresponding Europe-wide framework. The bill has wide public and mixed industry support, but some human rights and environmental groups have criticised the bill for leaving room for exploitation and violations.
• ~~A climate retrofit for trade. Think tank Common Wealth's proposals for 'greening trade' examine and address the exploitation, environmental degradation and inequalities arising from global value chains.
• ~~A new multilateralism. Academics from SPERI have outlined the contours of a "new multilateral compact" to address sustained global inequality and the "paradoxes of inclusive growth", engaging with the issue of exploitation in global value chains.
  

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• Within-country inequalities in Global North resulting from free trade. Pushes to reshore industries or otherwise restrict trade are often framed in economic nationalist or security terms. Professor Dani Rodrik has proposed the possibility of a "legitimate case for restricting trade to promote domestic social inclusion" - when within-country inequalities resulting from international trade arise due to 'offshore' violation of domestic laws or norms - and has proposed a "social safeguards clause" to tackle this inequality and promote a "more inclusive globalisation".
• ~~A collective bargaining strategy for trade. The union Unite has published a report arguing for a new industrial strategy for post-Brexit trade, based on coordination between workplace representatives. They argue that collective bargaining and "supply chain solidarity" can prevent "races to the bottom" on worker pay and conditions. (Tribune article from report authors here).
  

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• Other international issues. See below for an overview of recent developments relating to immigration, vaccine nationalism, debt justice, international financial institutions and more.

• New commission: Yesterday, Conservative-aligned think tank Bright Blue launched a cross-party commission to advise on reforms to the social security system. The commission brings together Conservative MPs Shaun Bailey and Stephen Crabb alongside Labour's Baroness Lister, the TUC's Anjum Klair, campaigner Jack Monroe and other academic and civil society figures. (Guardian coverage)
• ~~No return to the 2010s. Bright Blue Chief Executive Ryan Shorthouse commented: "After the last economic crisis in the late 2000s, those claiming working-aged benefits experienced deep and disproportionate cuts to their incomes as the Government repaired the public finances. That can't happen again."
  

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• Budget 2021. Shorthouse's statement contrasts with the Chancellor's relatively austere stance on social security at the March Budget - only deciding to extend the £20/week Universal Credit uplift at the eleventh hour, before a cliff-edge reduction in September that the Institute for Fiscal Studies' Paul Johnson has branded "remarkable" and "unanswerable".
• ~~What would ending the uplift mean? The Resolution Foundation highlights that ending the uplift as planned would see the basic level of benefits cut to levels last seen in the 1990s, right as unemployment is set to peak, which they argue would be both"disastrous for family incomes" and "bad macroeconomics (pp. 23-24).
• ~~Select committee response. Stephen Timms MP, head of the Work and Pensions Committee, has warned that ending the uplift in September "will be very difficult to justify" and criticised the Government for having "once again" ignored the needs of those on pre-UC 'legacy benefits', including many disabled people and carers.
• ~~The uplift is not enough. Even with the uplift, analysis from the New Economics Foundation finds that ~21 million people are set to fall into hardship by May, while the Joseph Rowntree Foundation has argued the Chancellor's social security and housing decisions will mean "more people are swept into poverty".
  

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• Longer-term reform. In addition to assessing the changes to social security introduced during the early stages of the pandemic, the commission hopes to: "consider which principles and approaches should guide future policies on social security, and develop a policy programme supported by the public and policymakers from across the political spectrum".
  

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• Momentum for change. The commission comes amid increased scrutiny of Britain's social security system during the pandemic, leading to calls for reform from across the political spectrum. Last year, for instance, the cross-party House of Lords Economic Affairs Committee published a comprehensive overview of the failings of the social security system in its report "Universal Credit isn't working". The authors argue that UC has "undermined the security and wellbeing of the poorest in our society" and outline a suite of recommendations to improve the system. Other proposals for reform include:
• ~~Trades Union Congress: The TUC (represented on Bright Blue's commission) has called for a suite of reforms, including raising the basic level of UC and legacy benefits to 80% of the national living wage; removing the five-week wait for first payment, conditionality requirements, and 'No Recourse to Public Funds' restrictions on migrants' access to support; and reform of Statutory Sick Pay so that it is paid at the Real Living Wage and that low-income workers can access it.
• ~~Minimum income guarantee: The New Economics Foundation (NEF) outlines how Universal Credit can be reformed to address the immediate crisis and improve the system over the longer-term in their "Universal Credit in the Time of Coronavirus" briefing, which proposes a Minimum Income Guarantee, amongst other measures.
• ~~Supporting families: In view of rising child poverty, the TUC and IPPR made the case for a "family stimulus" (Oct 2020), modelling the benefits of either doubling child benefit or scrapping the two-child limit and benefits cap for means-tested child support. They also outline proposals for targeted investment in childcare infrastructure.
  

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• Investment in public services. One question for the Bright Blue commissioners is whether their examination of the social safety net goes beyond the welfare system to include public services. Many have argued that cuts to public services have increased the strain on households and the social security system, and that provision of welfare and services like social care should be seen as part of the same system and examined holistically (e.g. NEF's Alfie Stirling and Sarah Bedford).
  

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• Universal Basics. Earlier this month, NEF's Anna Coote and Compass's Neal Lawson called for enhanced public services integrated with a basic income to form part of a new social guarantee after the pandemic. The article is notable, given that - as the authors note - UBI and UBS have often been framed as mutually exclusive alternatives in debates around social security reform.
• ~~Universal Basic Income. The House of Commons Library's research briefing on "The introduction of a basic income" (Oct 2020) offers a great overview of the debate around introducing basic income in the UK, highlighting research from the University of Bath as the most detailed work on what a UBI scheme in a British context would look like.
• ~~Universal Basic Services. The most comprehensive case for Universal Basic Services can be found in the UCL Institute for Global Prosperity's (IGP) literature review on the theory and practice of UBS (2019). The review builds on the Institute's original 2017 proposal, the first articulation of UBS.

• New ONS analysis on well-being. Last week the ONS published analysis of the gendered effects of Covid-19 in the UK, finding that women's wellbeing has been more negatively affected over the past year than men's - reporting higher levels of loneliness, depression and anxiety - and that women have consistently spent more time on unpaid childcare and housework than men during the pandemic.  
• ~~Ethnicity and mental health. Research from January this year found that both women and ethnic minorities experienced higher increases in mental distress from 2017-2019 to April 2020, with ethnic minority women seeing a higher increase than ethnic minority men or white women. UCL research from November found similar results.
• ~~Mortality rates. The ONS noted that men have suffered higher mortality rates than women. A peer-reviewed, global Covid-19 meta-analysis published in Nature Communications plays down the role of gender-based socioeconomic or cultural differences in explaining this disparity and argues "fundamental differences" between male and female immune responses are "likely to be a driving factor".

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• Socioeconomic inequalities during Covid-19. The ONS report builds on evidence from earlier in the pandemic that Covid-19 has exacerbated socioeconomic inequality between men and women, with ethnic minority women, disabled women, working class women and migrant women suffering disproportionately.
• ~~Overview. The Women's Budget Group's report "Lessons Learned: Where Women Stand at the Start of 2021" brings together evidence on the gendered economic and health impacts of Covid-19.

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• The burden of care. Throughout the pandemic, women have been picking up the slack with even more unpaid care work, which exerts a toll on their mental health. Research published this year, for example, found that working parents experienced a worse deterioration of mental health than other groups, especially when they spend more time on unpaid childcare and home-schooling, and that this pain is unevenly borne by women and financially-insecure parents.
• ~~Effects on employment. This uneven burden of care threatens women's labour market prospects over the longer-term, because e.g. mothers are more likely to be interrupted at work or to leave paid work to take on caring responsibilities.
• ~~International comparison. The uneven impact of the Covid-19 recession on women's economic prospects has been observed across the globe, reversing the gains of the past decade, and contrasts with previous recessions that did not have as gendered an impact.
• ~~Discrimination against pregnant women. A July survey of 19,950 mothers from campaign group Pregnant Then Screwed found significant employer discrimination against mothers, e.g. 15% of mothers had been or were expecting to be made redundant during the pandemic, 46% of which said that lack of childcare provision played a role in their redundancy. The group have also criticised the Government's SEISS scheme for discriminating against women taking maternity leave.
  

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• Budget 2021. Last week, the Women's Budget Group published its full gendered analysis of the 2021 Spring Budget, arguing that it represented a "missed opportunity to build back better" Key points included:
• ~~Public services. The planned cuts to public services (£14-17bn per year from 2022 relative to pre-pandemic plans) reflect a "concerning" focus on fiscal consolidation and risk ignoring the lessons of the previous decade, in which spending cuts undermined the public services necessary for an effective pandemic response and disproportionately impacted women, ethnic minorities, low-income and disabled people.
• ~~Social care and childcare. The Chancellor did not mention social care in the Budget, despite the Prime Minister's promises to "fix" social care, and made no funding available for this. Early years childcare was similarly overlooked, despite the acute financial pressures on both care homes and childcare providers. (See WBG's detailed briefings on social care and childcare for more information.)
• ~~Gender budgeting. Echoing calls from the EHRC, the Treasury Select Committee and Women and Equalities Select Committee have called on the Treasury to do more to meet its Public Sector Equality Duty obligations and criticised the lack of Equalities Impact Assessment.
  

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• A care-led recovery. The Women's Budget Group's analysis also criticises the Government for "unambitious" investment plans, arguing that these overlook the benefits of investing in social infrastructure.
• ~~Social infrastructure. Previous analysis from the Women's Budget Group estimates that investing in care as part of an economic stimulus package would provide almost three times as many jobs than the equivalent investment in construction, with wider benefits for decarbonisation and gender equality. Last year, the Greater Manchester Independent Prosperity Review argued that social infrastructure investment was vital for reducing regional inequalities.
• ~~Creating a caring economy. The final report of the WBG Commission on a Gender-Equal Economy lays out a blueprint for economic reform, including eight steps for building a care-oriented economy.
  

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• Violence against women and girls (VAWG). During the pandemic, there has been an increase in male violence against women and girls. Low income, migrant status and disability all increase women's likelihood of facing domestic abuse, underlining the need for policymakers to understand how gender intersects with other axes of inequality.
• ~~Funding for VAWG services. The WBG's briefing on violence against women and girls welcomes the Domestic Abuse Bill but argues this needs to be matched by funding. The additional £19 million promised at the Budget, in addition to the £125 million promised in the 2020 Spending Review, falls short of the £343 million that Women's Aid estimate is necessary for a "safe and sustainable" network of domestic abuse services.
• ~~Universal Credit. The structure of Universal Credit - e.g. its distribution at a household, not individual level - has been criticised for increasing women's exposure to financial abuse.
• ~~Policing. Following the tragic murder of Sarah Everard and cross-party outcry over the police handling of vigils, the Government's proposed Police, Crime, Sentencing and Courts Bill has come under criticsm for "failing to protect women" (BBC).

• Short-term business and job support measures. In a widely welcomed move, the Chancellor extended the Government۪'s business and job support schemes until the autumn.
• ~~Excluded. An estimated 600,000 more people - the newly self-employed in 2019-20 - are now eligible for the Government support through SEISS. Millions remain excluded from support schemes, however, as highlighted by Martin Lewis on Andrew Marr.

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• Social security measures. Maintaining the £20/week uplift in Universal Credit was widely welcomed, but many campaigners have argued for a more permanent reform of social security.
• ~~Millions facing income crisis. NEF research has found that even with the uplift, a third of people are expected to fall into hardship by May, and almost 1 in 5 will be living with an "exceptionally high risk of material deprivation".
• ~~Cliff-edge. The Resolution Foundation has highlighted that the planned cut in Universal Credit is set to coincide with unemployment peaking in the UK, which would be both "disastrous" for families and undermine macroeconomic recovery efforts.
• ~~Legacy benefits. The Resolution Foundation also pointed out that many people on "legacy benefits" (pre-UC benefits such as Income Support) have not received an equivalent uplift, which the Disability News Service argues leaves 1.9 million disabled people worse off.  
• ~~Sick pay. The RSA has highlighted the need to reform Statutory Sick Pay - amongst the least generous in the OECD - a measure which gains clear majority support from both Conservative and Labour voters.
• ~~Longer-term reform. The RSA also argued the Government should replace Job Centres with Job Security Centres (bringing together unions, employers and others) as part of a new "Blueprint for Good Work" and look towards introducing a Universal Basic Income to address economic insecurity, elements of which could be put in place now.
  

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• Rebuilding public services? Despite widespread coverage of this being a "high spending" Budget, the Chancellor's announcements took £16bn out of pre-pandemic spending plans and "bizarrely made no provision whatsoever for virus-related costs beyond next year" (Economist). Day-to-day spending per head is set to be 6% below 2010 levels in real terms by the middle of this decade, in sharp contrast with the "build back better" narrative and popular support for increased public service spending.
• ~~Is that possible? The Economist coverage of the Budget highlights demographic pressures and argues "it is hard to find waste in the public sector", limiting scope for cuts. The IFS argue the Government's public spending plans "simply look implausibly low", in light of ongoing pressures on education, the backlog of court cases, and the need to reform social care, of which there was no mention in the Budget.
• ~~Health. The Health Foundation argues that major pressures on the health service were not factored into public spending plans: the cost of managing Covid-19 as it becomes endemic, the need for more capacity in the health system, and the backlog of patients that has built up over the pandemic.
• ~~Social care and inequalities. Beyond these direct pressures, the Health Foundation argues the pandemic has exposed the fragility of the NHS to shocks and the need to tackle the "broken" social care system and "deep-seated" socioeconomic inequalities, both of which increase the burden on the health service and neither of which were addressed by the Budget. (See the "Inequalities" section below for detail on the proposed 1% pay rise for nurses.)
• ~~An austerity Budget? Oxford economics professor Simon Wren-Lewis has labelled Sunak's budget "an austerity budget" while the Independent's Ben Chu has a Twitter thread examining "how exactly Sunak is bringing austerity back to public services".

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• Taxation. The Chancellor reaffirmed the Conservative manifesto commitment to not raising income tax, VAT or National Insurance, limiting the Party's room for manoeuvre when it comes to raising taxes in future.
• ~~Freezing income tax thresholds. The decision to freeze income tax thresholds - bringing more people into paying income tax and into higher tax bands - is one way to raise revenue from income tax while sticking to this commitment. While this measure is progressive, it is also the least progressive way of raising income tax.
• ~~Corporation tax to rise to 25% in 2023. The Chancellor has accepted arguments that corporation tax cuts have not stimulated investment (e.g. the final report of the IPPR Commission for Economic Justice), and the planned rise would bring headline rates of corporation tax more in line with the G7. There remains a question mark as whether the proposed rise will actually occur in full.
• ~~Council tax. Meanwhile, local authorities under financial pressure are already being forced to plan increases in council tax - which is highly regressive (see Sun coverage) - due to cuts in funding from central government, which the Financial Times has branded "austerity by stealth".

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• Super-deductions. In the near term, an est. £25bn will be spent on allowing businesses to write 130% of the cost of their physical investments against taxable profits. This could stimulate investment in the near-term, though there is a risk of "deadweight loss" - lowering taxes for businesses who would have invested anyway. Another risk is that super-deductions distort investment patterns by subsidising investment in plant and machinery compared to intangible assets.
• ~~Amazon wins. The untargeted nature of the tax cuts means that digital business who already pay low levels of tax in the UK - e.g. Amazon - will be able to further reduce their tax bills for investment that would go ahead anyway.

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• Levelling-up. Two of the Chancellor's "levelling-up" measures - freeports and the Levelling Up Fund - have come under fire.
• ~~Pork-barrel politics. Financial Times analysis has found that Conservative seats were consistently placed in a higher priority category for the Levelling Up Fund than their deprivation level would indicate, and the reverse is true for Labour seats. The Government is yet to publish its methodology, as promised. The Times' George Grylls has a thread on communities secretary Robert Jenrick's constituency receiving the "maximum amount of money it could have possibly received".
• ~~Freeports. The Chancellor announced the Government's freeport areas in the Budget. The criticism of freeports is that these encourage a politically costly race to the bottom, while the "advantages to business are almost non-existent", as argued by the UK Trade Policy Observatory. Tax Justice UK's submission to the Government's freeports consultation highlights significant money-laundering risks in addition.  

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• Recovery. IPPR has argued the Chancellor's stimulus is only half of what is needed to secure recovery, comparing the Budget's proposals to Biden's rescue package (see below), which is more generous despite the UK facing a deeper recession.  
• ~~Fiscal constraints? A popular narrative (e.g. Daily Mail) that works against arguments for higher spending is that the government's "colossal" debt will have to be paid back over "many generations". BBC economics correspondent Andy Verity has argued against this narrative here.
• ~~Stimulus and the deficit. The IMF and OECD have argued that the Government should prioritise recovery over fiscal consolidation - but these two goals aren't necessarily in tension. IPPR has argued that stimulus may also consolidate the public finances, as it would increase tax receipts and employment. The BBC's Andy Verity has highlighted that efforts to "balance the books" over the past decades have coincided with an increase in public debt, speaking to the need for governments to prioritise recovery.

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• Environment. Carbon Brief features a detailed look at environmental measures in the Budget and summarises the media response - overwhelmingly that the Budget fell short of the UK's environmental ambitions.
• ~~Political pressure. SPERI Professor Michael Jacobs has argued that COP26 and a shift in the Conservatives' electoral coalition has pushed the Government to change its approach to environmental policy, and that the Chancellor will likely have more "green goodies" to announce in the autumn as the climate summit draws near.  
• ~~"No vision for sustainable economic growth". UCL IIPP's Josh Ryan-Collins has argued that, despite the appearance of radicalism, this Budget is a reversion to economic orthodoxy. Common Wealth's Mat Lawrence argued that in the face of climate change, we need a "post-carbon growth coalition" in his analysis for the New Statesman.
• ~~Fuel duty. For the 11th year in a row, fuel duty has been frozen. Carbon Brief argued last year that these freezes have increased CO2 commissions by up to 5%.

• Corporation tax debate. A major focus of pre-Budget debate has been the proposed rise in corporation tax, in part because of an apparent, eyebrow-raising reversal of roles - the Conservative government is proposing higher taxes on businesses, while the Labour opposition argues a rise in corporation tax should not be introduced until later in the recovery. The issue is particularly thorny because it speaks to a number of interrelated debates.

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• No need for fiscal consolidation... Sunak has outwardly justified the proposed tax increase on fiscal grounds - arguing that there’s a need to ‘repair the public finances’. Labour have cited the IMF and OECD in arguing that the focus now should be on recovery, not on fiscal consolidation. (See e.g. our analysis of fiscal policy narratives and a thread from the BBC’s Andy Verity on why there’s no urgency to “pay down the debt”.)  
• ~~...but would raising corporation tax slow down recovery? Some have argued that given the UK’s low rate of corporation tax and the fact it is only paid on profits, not revenue, raising corporation tax would not unduly dampen recovery if accompanied by a large enough stimulus elsewhere. (See e.g. IPPR’s paper on taxation and the Budget, and Beyond Covid analysis of tax and recovery).

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• Narrative and political challenges. Many people now agree that the UK corporation tax rates (19%, down from 30% a decade ago) is too low. It is much lower than other G7 countries, where the average rate is 24%. But among those who support a rise in corporation tax in the long-term, there is disagreement over the politics of supporting the near-term increase.
• ~~Support. Critics of Labour’s strategy, for instance, have argued that opposing corporation tax now risks wasting a time-limited opportunity to reform the tax system to make it more redistributive, and/or that Labour risks landing on the wrong side of public opinion. There is also a danger that opposition to tax rises helps reinforce their perception as anti-business.  
• ~~Opposition. The opposing argument is that supporting a rise in corporation tax now may reinforce the government’s claim that the public finances need to be ‘repaired’ through another round of austerity and fiscal consolidation. Regardless of other reasons to support an increase, it is this austerity narrative (it is argued) which will inevitably dominate debate and public perceptions.  

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• Other tax rises. The Government is thought to be proposing a freeze in income tax thresholds. The Resolution Foundation has pointed out that this is progressive in nature, as has the New Economics Foundation, which has previously argued for personal allowance reform. Meanwhile, councils are already being forced to plan increases in council tax - which is highly regressive (see Sun coverage) - due to cuts in their funding from central government, which the Financial Times has branded “austerity by stealth”.
• ~~Tax Day. The Government will signal its long term policy direction on tax on March 23, when it will publish consultations expected to cover capital gains tax, environmental taxation and more.

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• Supporting businesses and households. IPPR research has highlighted that more than 500,000 businesses are at risk of bankruptcy (equating to 9 million jobs) and argued for continued support, including through public equity stakes. Meanwhile NEF research estimates that around a third of UK residents will be living in hardship by May, even with the Universal Credit uplift.
• ~~Public attitudes. Surveys indicate that public support for increasing the generosity of social security far outweighs support for cutting benefits - a reversal from in 2014.
• ~~Universal Credit. The New Statesman’s George Eaton has highlighted that the UK’s unemployment benefits as a proportion of previous income are the least generous in the OECD. (See House of Lords review “Universal Credit isn’t working” for a comprehensive overview).

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• Size of stimulus? President Biden’s proposed $1.9 trillion economic recovery package has received a huge amount of attention. IPPR has highlighted that the UK faces a deeper recession than the US, but is planning to spend far less as a proportion of GDP on stimulus - and has called for planned spending to be increased 4x to match American ambition. (See FT coverage here)

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• ‍Environment. Guardian environment correspondent Fiona Harvey has analysed pre-Budget announcements will mark a test of the government’s green credentials ahead of COP26.‍
• ~~A green and fair recovery. A group of MPs and peers have written to the Chancellor outlining five priorities for a green and fair economic recovery, including investment in social infrastructure and green job creation, reform of the Bank of England mandate, and a move towards wellbeing budgets, echoing the recommendations of the widely-supported Dasgupta Review (which we analysed here).

• $1.9 trillion. Biden’s proposed American Rescue Plan (ARP), which if passed by Congress would see an injection of $1.9 trillion into the US economy, would constitute a “huge fiscal experiment”, with government borrowing and spending ($1.9 trillion is around 8.9% of US GDP) on a scale unseen since WW2. The package includes $2000 cheques being sent to most American households.
• ~~Analysis: Economist Professor Steven Fazzari examines the proposal’s four main components for INET (public health funding, unemployment benefit, support for state and local government and stimulus cheques) and argues that we should not be concerned by the public finance implications. The Brookings Institute examines the macroeconomic implications of the package.

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• Economists’ support. The proposals have attracted a wide range of support in academia. Indeed, support for ARP unites the unlikely pairing of Paul Krugman and Kenneth Rogoff, who have previously disagreed bitterly over the economics of austerity.
• ~~Opposition. Some high profile economists, including former Obama advisor Lawrence Summers and former Bundesbank head Axel Weber, have argued that the plan would risk large inflationary pressures - though it is worth noting that the latter has a history of being extremely hawkish on inflation (e.g. calling for monetary policy tightening in the Eurozone in 2011). Olivier Blanchard defended concerns over the ARP for the Peterson Institute, while asserting that he still believed in the need to “go big” on fiscal policy.
• ~~Explainer: Vox’s Emily Stewart offers an excellent overview of the economic debate around ARP, arguing on balance that the risks of not going big enough outweigh the risks of timidity.
  

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• Inflationary risk? In response to Summers and others’ concerns around inflation (above), Head of the IMF Research Dept Gita Gopinath has argued that “structural factors and central bank liquidity limit inflation risks”. Additionally, Wall Street’s investment banks are “increasingly saying that concerns about runaway inflation are misplaced” (Business Insider).
  

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• The politics of stimulus. Paul Krugman has highlighted that Biden’s proposals are “overwhelmingly popular” with both Democrat and Republican voters, despite otherwise deep partisan divisions and efforts by Republican lawmakers to discredit the stimulus package. Additionally, Krugman’s analysis highlights the political risks of undershooting, including undermining trust in the state to deliver security.
  

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• Implications for macroeconomics. The outcome of the ARP Act, if passed, would have enormous implications for debates over macroeconomic policy around the world. In recent years, the economic consensus has shifted decisively in favour of fiscal policy (see Lord Skidelsky in Project Syndicate and our overview of macroeconomic policy debates in 2021). If Biden’s “huge fiscal experiment” is successful, we might expect it to further strengthen the case for fiscal spending and against austerity. On the other hand, if it does stoke inflation or fail to create jobs rapidly enough, or if money is perceived to have been ‘wasted’, this is likely to strengthen the arguments of fiscal conservatives everywhere.
  

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• Eurozone debate. Already, President of the Peterson Institute Adam Posen is fearful that fiscal conservatives in Europe would jump at the chance to use the Biden plan to undermine efforts to increase fiscal ambition in the Eurozone.
• ~~Europe needs stimulus. The FT Editorial Board, on the other hand, has called for the Eurozone to follow Biden’s lead and “go big” on fiscal policy, arguing that the Eurozone’s deeper recession both increases the need for stimulus and undermines the risk of inflation.
• ~~A new fiscal framework. The debate in the EU is now over the entire fiscal constitution of the EU, in which the Stability and Growth Pact limits deficit spending. Over a hundred civil society leaders and academics have written to EU leaders calling for a review of economic governance, arguing that the bloc’s current fiscal framework is “the exemplar of irresponsibility”.
  

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• British debate. In the UK, the American Rescue Plan has inspired calls for the Government to “Boost it like Biden”. IPPR has highlighted that the UK faces a deeper recession than the US, but is planning to spend far less as a proportion of GDP on stimulus - and has called for planned spending to be increased 4x to match American ambition. (See FT coverage here)
  

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• Investment. A major difference between the IPPR proposals and the Biden plan is the former’s inclusion of public investment spending - while the Biden plan focuses entirely on Covid-19 relief and support for businesses and households.

March Budget. The Telegraph reported last week that the Chancellor is “thought to be moving away from major tax increases in next month’s Budget… delaying any fiscal pain to a second Budget later this year”. In their coverage, the Financial Times emphasised that while Sunak will focus on supporting the economy through lockdown, he will also use the March Budget to be “open and honest” about what “fiscal discipline” means - introducing some tax rises now and signalling more for the autumn.

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Conservative disagreement.The FT cites former Cabinet member David Davis and former Thatcherite minister Sir John Redwood as examples of Tory opposition to “fiscal discipline” in the short- to medium-term, e.g. Davis: “I would aim to start thinking about balancing the books in three years’ time. The aim now should be to do everything conceivable to help the economic recovery”.

• ~~Political concerns. Sunak’s motivations are in part political - reflecting a desire to put “clear blue water” between the Conservatives and Labour with his approach. The Chancellor might also hope that bringing forward tax rises will give him the freedom to cut them again before the next election, as reported in September.

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‍False trade-offs.The debate around tax rises is characterised by a supposed, binary trade-off between tax rises to ‘pay down the debt’ on one hand, and supporting recovery on the other - but this is misleading. ‍

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Do we need to pay down government debt? No - in the short-term, the overwhelming economic consensus is that there is no pressing need for fiscal consolidation, and that the focus should be on supporting recovery, as we have covered here and here. The OECD’s chief economist has expressed concern that the UK and other Western governments remain too fiscally conservative in this respect. ‍

• ~~Even once recovery is well underway, the case for tax rises still does not come from any need to “pay down the debt”. Oxford’s Professor Simon Wren-Lewis has written about how it makes little sense to target government debt reduction in light of its role as a shock absorber. Rather, higher taxes would support an ageing country with better public services in the long term, as SPERI’s Michael Jacobs has highlighted.

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‍Will tax rises inhibit recovery? While the case against overall fiscal consolidation, especially with respect to spending cuts, is clear-cut - as above, the economic consensus is that large scale fiscal policy is needed - tax is more complicated. Wealthier households and certain businesses have done disproportionately well during Covid-19 - raising taxes on these groups is unlikely to suppress economic activity, especially if combined with redistribution. Indeed, taxation could play an important role in shaping the recovery to be e.g. more equitable and more green.‍

• ~~Analysis. The Times’s Philip Aldrick and Tax Justice UK’s Robert Palmer both offer good overviews of the role tax can play in recovery.‍
• ~~Excess Profit Duty? Economic historian Norma Cohen writes for the FT on how a tax innovation from after WW1 could be used to target the “outsize profits” some companies have made during Covid-19 to prevent a “K-shaped recovery”.‍
• ~~Green taxation. The Grantham Institute has designed a fiscal framework for climate action, while Common Wealth and the New Economics Foundation have laid out principles for green taxation reform.‍
• ~~Wealth tax? Conservative MP and chair of the Treasury select committee Mel Stride appeared supportive of a wealth tax on Times Radio this week (video and details of proposal on Twitter).‍
• ~~Other forms of wealth taxation. The Chancellor’s review of capital gains tax suggested raising tax rates on income from wealth so they are closer to rates on income from work. (See IPPR for a good overview of wealth taxation.‍

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Tax reforms. There is also the opportunity to reform the tax system along these lines without necessarily raising taxes in any individual area, e.g.:‍

• ~~Personal allowances. In view of reports that the Government is looking into freezing the personal allowance, read NEF’s report on a cost-neutral alternative to the allowance that is both highly distributive and better for macroeconomic stabilisation. ‍
• ~~Property taxation. A number of Conservative voices (Onward, the Property Research Group) have made the case for reform of property taxation. As it stands, the present system is highly inequitable and inefficient - which is why coming rises in council tax are of serious concern (FT: “austerity by stealth”). ‍
• ~~Conservative view of tax reform. Last week Kevin Hollinrake MP set out a number of areas for tax reform on ConservativeHome, showing a considerable degree of overlap with progressive proposals. ‍

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Tax cuts. Conversely, it is unlikely that tax cuts - which for the most part benefit wealthier households with lower propensities to consume - would spur growth, especially if that entailed lower public spending. For instance, recent analysis of 18 OECD countries over the last half a century suggests, contrary to the promises of trickle-down economics, tax cuts on the rich have had no significant positive impact on growth or employment, while they have exacerbated inequality.

• ~~Corporation tax. ICYMI, the Conversation has an excellent article on ending the “race to the bottom” on corporation tax.

• What is it? Last week, HM Treasury published the landmark Dasgupta Review - the Final Report of the Independent Review on the Economics of Biodiversity. It is the first time a finance ministry has published a comprehensive analysis of the relationship between economics and the protection of Nature (capitalised in the Review).
• ~~Summary. The Review’s own short “headline messages” document can be found here. Our summary: the demands on Nature are dangerously unsustainable as a result of “deep-rooted, widespread institutional failure”. “Transformative change” is needed urgently, and for this “we cannot rely on technology alone: consumption and production patterns will need to be fundamentally restructured”. Key steps are to “change our measures of economic success” - at the very least, de-emphasising GDP - to incorporate the value of Nature and the cost of its degradation, and to transform our finance and education systems.
• ~~Analysis. James Murray, editor-in-chief of Business Green, offers an excellent overview of the report and surrounding debates. UCL IIPP’s Katie Kedward offers a more focussed, in-depth analysis of the Review’s implications for central banks and financial supervisors (Twitter).

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• International context. The report is published amidst alarming recent evidence that humans are destroying nature on an unprecedented scale and that none of the world’s internationally agreed targets for 2020 have been met (Leaked UN research).
• ~~British context: The Public Accounts Committee last week published its searing critique of the Government’s progress towards its long-term environmental goals. The report notes that “nine years [from setting these goals] it still does not have the right framework for success”. The Environment Bill’s passing has been delayed again (Guardian) and last week the Government rejected Caroline Lucas MP’s proposed amendment to replace GDP as the headline measure of economic success. It declared that “economic objectives and decision-making processes are already aligned with ambitious commitments to… improving the natural environment”. This is flatly contradicted by the Dasgupta Review.
  

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• Reception. The report was welcomed by a wide range of economists and environmentalists, including Nobel Prizewinner Joseph Stiglitz: “It provides, for the first time, a framework for the difficult global decisions we must have on how to restore sustainability, not just in climate but in all dimensions of the environment”.
• ~~Government: Boris Johnson gave the review an “early welcome” but the minister of the department that published the report - Rishi Sunak - has not made any public comment. He left it to a junior Treasury minister.
  

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• Natural capital. The most controversial aspect of the Review is its embrace of “natural capital” approaches to giving Nature a monetary value. The Review calls for an alternative headline measure of economic success - “inclusive wealth” - to acknowledge that GDP does not incorporate the value of the natural world. Its rationale is that by putting a value on biodiversity and other key functions, we would move away from the current situation where we “pay people more to exploit Nature than protect it” to the tune, it estimates, of USD $4-6 trillion per year.  
• ~~Background: The idea of natural capital is explained by proponent economist Dieter Helm here.
  

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• Critiques and alternatives. George Monbiot issued a searing critique of the Review and attempts to “put a price on nature”, arguing that natural capital approaches encourage a counterproductive “commodification” of the natural world.
• ~~Prior critique of natural capital approaches. UCL IIPP’s Katie Kedward has written on the limits to market-based mechanisms to protect biodiversity, and NEF have published an in-depth critique of natural capital specifically. Writing for CUSP in 2018, Aled Jones argued that natural capital approaches through monetising nature may in fact accelerate diversity loss.
• ~~Natural and man-made capital. One particularly interesting point is that natural capital approaches seem to imply a degree of substitutability both within natural capital and between natural capital and man-made capital, which is fiercely contested (see e.g. research from Oxford Martin School).
• ~~Economists as ecology experts? At the Dasgupta Review launch event, David Attenborough claimed that economists understand the importance of biodiversity more than ecologists do, which was criticised as “galling and absurd” by Doughnut Economics proponent Kate Raworth. Her critique of natural capital approaches is here (video).    
  

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• In defence of the Review. Other environmentalists and progressives welcomed the Dasgupta Review, highlighting its calls for complementary approaches to natural capital for protecting Nature.
• ~~Step in the right direction. James Murray in Business Green argues that though “natural capital” approaches are imperfect, the all-too-normal alternative is that the value of the natural world is simply ignored in economic decision-making - the Review’s proposals are a step in the right direction.
• ~~Other approaches to protecting Nature. Environmental campaigner Guy Shrubsole notes that the review does not simply call for the environment to be given a monetary value, but makes the case for “putting large parts of the biosphere off-limits to the market” and - radically for a report published by the Treasury - points out that material economic growth is inevitably bounded by environmental limits.

• ‍What’s going on? r/WallStreetBets (WSB) – an irreverent Reddit forum (or ‘subreddit’) where users discuss stock and options trading – has dominated financial news over the past week, as retail investors from the forum piled into the shares of games retailer GameStop in a ‘short squeeze’ aimed at hedge funds betting against the company.
• ~~Short squeeze? Redditors identified that a number of hedge funds held significant short positions on GameStop - that is, they were betting its share price would fall. By coordinating the buying of shares in enormous quantities, retail investors sent the price skyrocketing, making short sellers lose money – e.g. as of Sunday, hedge fund Melvin Capital had sustained a 53% loss of $4.5bn.
• ~~Explainers. Vox’s Emily Stewart offers a good overview of the situation, as does economist and trader Gary Stevenson on LBC (video here).‍

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• Next stop, silver? Retail investors also poured into silver markets– seemingly in an attempt to apply the same tactics – but this market is much harder to influence and, unlike GameStop, there is no significant short position on silver amongst speculators. Hedge funds and other speculators would likely gain from a rising silver price.‍
• ~~Who is driving the squeeze? Many WSB members have objected to the media narrative that the forum is behind the silver squeeze – indeed, posts warning against the squeeze dominate the forum, unlike with GameStop stock – and have alleged some sort of false flag operation. FT coverage raises the possibility that “silver promoters may have used Reddit to advance their own agenda”, speaking to broader dangers (see below).‍

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• Why is this happening? The astronomic rise of GameStop’s share price clearly transcends any argument based on “business fundamentals” – yesterday’s falls suggest the bubble may already be bursting. What explains the rise, and what lessons can we draw from it?‍
• ~~David and Goliath? It is tempting to project an underdog narrative onto these events – ordinary people taking on the hedge funds. The fact these funds were “betting against” the fortunes of a bricks-and-mortar store adds to its memetic/political charge. Indeed, it’s notable that the companies targeted by Redditors (GameStop, Blackberry, Nokia) have nostalgic appeal. But this is an oversimplification:‍
• ~~Goliath wins. Investment management firms (e.g. BlackRock), as owners of GameStop stock, stand to benefit hugely from the saga. FT Alphaville suggests the saga is probably “a phenomenon born of a clandestine action between several hedge funds”. Financial institutions will almost certainly have got in on the Reddit action, perhaps in bad faith (see silver, above), for their own gains. All this undercuts the populist narrative.‍
• ~~David loses. When the bubble bursts, the danger is that amateur investors are left holding the bag, losing savings they cannot afford to lose – and while the saga benefits GameStop’s owners, it’s unclear how it benefits its workers.‍

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• Money to burn. Some traders have been motivated by political cause, perhaps enough to bear a loss, but most are looking to make money. Covid-19 has dramatically reduced consumer spending and, for those who haven’t lost their jobs and incomes, this has translated into a rise in savings. Stimulus cheques have given middle-class Americans even more money to burn, and interest rates are at record lows. These factors all increase the appeal of riding the GameStop wave in an attempt to outsmart other, amateur investors and make a quick buck.‍
• ~~Decade of asset price inflation. The backdrop to this exuberance is that since 2008, a reliance on monetary policy and protection of the financial system in times of crisis has pushed asset prices – including stocks – up, as wages have stagnated, driving wealth inequality. This has been true during Covid-19 too, as stock markets have performed well despite a shutdown of the real economy and spiralling unemployment.
• ~~Where to channel this money? James Meadway proposed "recovery bonds" as a vehicle for increased middle-class savings in the UK - highlighting how increased public investment (and "crowded-in" private investment) could provide an alternative destination for these savings to financial speculation.‍

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• Regulation. Trading of meme stocks will not address the fundamental problems of wealth inequality and financialisation. But the saga has shone a light on hedge funds and is expected to expedite a regulatory review under Treasury Sec Janet Yellen.‍
• ~~Politicisation. More broadly, the perceived hypocrisy of hedge funds complaining after they have “treated the stock market like their own personal casino” (Sen. Warren) and the decision of Robinhood to stop GameStop stock trading – whether or not this was the result of a regulatory need to cover the risk from volatile trading – has strengthened the narrative that it is one rule for ordinary people, and another for the hedge funds. Alexandria Ocasio-Cortez and Ted Cruz have both sided with the former. The question is how this diffuse political force translates into addressing wealth inequality.

• Singapore-on-Thames... The Times reported last week that the Prime Minister was “pushing for Britain to become a low-tax, low-regulation regime like Singapore” in the aftermath of Brexit. Some suspect Chancellor Rishi Sunak - who now leads a Whitehall committee on regulatory reform - will use the March Budget to set out “substantive ‘divergence’ plans from the EU”, though this conflicts with previous reports that this will be “just another emergency statement”.‍

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• ...but with tax rises? At the same time, it is reported that the Government plans to raise corporation tax and make progressive reforms to property taxation (Times). ‍
• ~~Political divides. The mixed messaging reflects ideological divisions within the Conservative Party (small state versus “levelling up” interventionism, in brief), and indeed a tension between the free market libertarianism of the party’s most prominent Eurosceptics and its new electoral base (see Unchecked UK's research on public attitudes to regulation in Red Wall seats).‍
• ~~Electoral strategy. The FT reports that Sunak hopes to put “clear blue water” between the Conservatives and Labour with his proposed tax rises (and spending cuts). The Chancellor might also hope that bringing forward tax rises will give him the freedom to cut them again before the next election, as reported in September.‍
• ~~Need for stimulus. The progressive tax changes Sunak is considering could well support recovery, but the Chancellor’s hopes for restrained spending in the near-term go against consensus among the IMF, OECD and others on the need for large-scale fiscal stimulus. Read our analysis here.

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• Labour market deregulation. New Business Secretary Kwasi Kwarteng has confirmed his department is reviewing EU employment protections, following reports that “worker protections enshrined in EU law… would be ripped up” under proposals for a post-Brexit labour market overhaul. ‍
• ~~“Own goal for Britain”. The measures reportedly under consideration - ending the 48-hour work week, excluding overtime in holiday calculations, changing rules around rest breaks and logging of work hours - have been roundly criticised by the Financial Times as unaligned with the needs of both employers and workers.‍
• ~~UK labour market standards. In defence, Conservative MPs are pushing the line that the UK’s labour market standards currently compare favourably with the EU’s (e.g. here). The category error here is comparing the UK with an EU-wide floor. Most individual EU countries go beyond this minimum and more so than the UK, which has “one of the most lightly regulated markets in the OECD in terms of employment protection”.‍
• ~~Britannia Unchained. Kwarteng has insisted that the Government is not trying to “whittle down standards”. Sceptics point out that he - alongside fellow Cabinet members Priti Patel, Dominic Raab and Liz Truss - advocated strongly for the removal of worker protections in Britannia Unchained, a publication which accused British workers of being “among the worst idlers in the world”.‍

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• Environmental protections. IPPR has warned that the Government’s Brexit deal leaves both workers’ rights and environmental protections at risk of erosion. It is worth noting that the “build back better council” of business leaders being consulted by Johnson on regulatory reforms include the CEO of BP, the Chairman of Heathrow and other representatives from big polluters. (Independent)‍
• ~~Level playing field? While safeguards in the UK-EU deal are meant to prevent too much regulatory divergence on e.g. labour market and environmental measures, IPPR argue that the bar for proof of infringement is so high that enforcement would be rare. ‍

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• Financial deregulation. This month, the Chancellor promised the UK financial sector a “Big Bang 2.0”, harking back to the explosion of financial deregulation in the 1980s. City of London bosses have welcomed the Government’s keenness to engage with businesses, but have argued there is “little need for wholesale deregulation in the UK” and the focus should be on “reregulation”.  ‍

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• Freeports. The Government hopes to establish its first freeports this year, and we may see announcements on these in the Budget as part of the Government’s deregulatory stance, Meanwhile the SNP have proposed “green ports”, though it is unclear how much these differ in substance. ‍
• ~~Analysis. The criticism of freeports is that these encourage a politically costly race to the bottom, while the “advantages to business are almost non-existent”, as argued by the UK Trade Policy Observatory. Tax Justice UK’s submission to the Government’s freeports consultation highlights significant money-laundering risks in addition. ‍

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• Red tape. The irony is that Brexit has, in some cases, led to a lot more red tape for British businesses. Over the weekend, the Times reported that “tens of thousands of small British firms are being crippled” by the new administrative burden of trade with the EU, while the Observer revealed that the Department for International Trade has advised British firms to set up in the EU to avoid extra costs resulting from Brexit. ‍
• ~~Northern Ireland. Earlier this month, NI first minister Arlene Foster came under fire as Brexit red tape has left the country facing the prospect of prolonged shortages.

• OECD: “Rethink constraints on public spending”. At the beginning of the year, OECD chief economist Laurence Boone made headlines for pushing governments to revolutionise their approach to macroeconomic policy - and showing concern that the UK government among others has not yet made this leap.‍
• ~~No return to 2010. Boone argued that the mistake following the 2008 financial crisis was to withdraw stimulus too early, and that fiscal tightening should be avoided for the first one or two years of recovery. Fiscal, not monetary policy, should do the heavy lifting, for macroeconomic and distributional reasons. ‍
• ~~IMF: “Spend as much as you can. Then spend a little more.” IMF MD Kristalina Georgieva made similar appeals to governments to push ahead with stimulus, and in particular for global coordination in green stimulus packages.‍
• ~~Sunak’s approach. The IMF and OECD’s position - both former cheerleaders for austerity - lies in contrast to the Chancellor’s narratives around a “fiscal emergency”, deployed to support e.g. the public sector pay freeze and potential cuts to Universal Credit. (Read our analysis here.)‍

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• Ditch deficit and debt targets. Beyond immediate stimulus, Boone argued that “one-size-fits-all” fiscal rules based on short-term deficit/debt targets are unfit for purpose, and that governments should “embrace long-term sustainability goals”. ‍
• ~~No more rules! In the same vein, a recent paper from an unlikely trio of authors - former US Treasury Sec Robert Rubin, former head of Congressional Budget Office Peter Orszag, and Joseph Stiglitz - outlines a new approach to fiscal policy that abandons top-down anchors or rules, which they argue are unfit to deal with radical uncertainty.‍
• ~~New buzzwords: “Semiautonomous discretion”. Their proposals focus on significantly increasing the budget’s responsiveness to broader economic changes - e.g. through beefing up “automatic stabilisers” - thereby making the task of discretionary fiscal policy easier and more streamlined. Read the paper here.

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• Mais lecture. Shadow Chancellor Anneliese Dodds addressed these themes in her Mais lecture. Her proposals included testing “every single budget line” against the Government’s net zero goal - part of centring resilience in economic policymaking - and asking the National Audit Office to submit an annual report to Parliament on the effectiveness of public spending, which the Government must respond to.‍
• ~~Fiscal responsibility. Glowing Financial Times coverage emphasises Dodds’ responsible approach to spending - it is worth noting that this fiscal framework appears more expansionary than Labour’s 2016 Fiscal Credibility Rule, doing away with a debt-GDP target but maintaining the current spending balance target. (See Stephen Bush on the politics of her speech.)‍
• ~~Fiscal anchor? Dodds does propose a “fiscal anchor” that would limit increases in discretionary current spending during a crisis - the rigidity of this goes against Stiglitz et al's approach (above) to fiscal policy-making “in a deeply uncertain world”, and is based on an Institute for Fiscal Studies paper written before the Covid-19 pandemic.‍
• ~~Public sector net worth. While a lot of coverage has contrasted Dodds’ approach to the Fiscal Credibility Rule, relatively little has touched on the “public sector net worth” approach adopted by Labour in 2019, based on a paper written by the now head of the Office for Budget Responsibility. This would take a broader view of public sector liabilities and, crucially, assets. James Mills picks up on this for the Independent.

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• Financial Times mea culpa. In their coverage of the emerging fiscal consensus, the FT editorial board acknowledged their mistake in supporting fiscal retrenchment after 2008, though a number of prominent economists, including Oxford’s Simon Wren-Lewis and Lord Robert Skidelsky, question the FT’s assertion that “the facts have changed” as an explanation. (See Laurie Macfarlane’s Twitter thread on the FT position here).‍

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• Weird QE. A graph showing that QE bond purchases have “perfectly tracked government borrowing needs” raised some eyebrows earlier this month, as did the assertion - by its own internal watchdog - that “the Bank of England does not understand its own flagship quantitative easing programme”. ‍
• ~~Would monetary financing be so bad? The CIO of BlueBay argued that monetising the debt needs to be “an option in the toolkit”, citing the successful Canadian monetisation of its debt in the 1930s as precedent. (See IIPPs review of fiscal-monetary coordination for other examples.) Before Covid-19, Blackrock published an article on how monetary financing could help us “deal with the next downturn”.‍

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• Financial Times U-turn. In their editorial on fiscal policy(above), the FT draws a line between QE and monetary financing, and argues the latter cannot be part of the policy toolkit. This contrasts with their April editorial - in which they argue “there is no clear distinction between QE and monetary financing” and that “printing money is a valid response to the coronavirus crisis”.

• Lockdown. UK hospitals are facing their “worst crisis in living memory” (infographic Twitter thread here) and the situation will likely deteriorate further, as the effects of mixing over the Christmas break emerge. Politico reports government projections of a peak of 2,000 deaths per day. This points to an extended lockdown to begin 2021, with March 23 seen as the date “coronavirus restrictions might realistically begin to be eased” within Whitehall (Sunday Times).‍

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• Is low compliance to blame? Aside from the highly-transmissible new strain of the virus and the easing of restrictions in December, reduced public compliance is being blamed for this most recent wave of infections. While strict compliance is increasingly crucial, recent evidence suggests that adherence to and support of regulations remains high. Psychologists writing for the BMJ Opinion blog argue that “the narratives of blame… project the real frailties of government policy onto the imagined frailties of public psychology”.
• ~~One exception is low adherence to self-isolation rules, e.g. following a positive test or contact with a Covid-positive person. But here, the authors argue this has “less to do with psychological motivation than with the availability of resources''. ‍

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• Support for self-isolation is therefore crucial. Dr Alex Crozier (UCL) profiles the workers who cannot afford to self-isolate and argues for:‍
• ~~Increasing the rate and coverage of statutory sick pay (SSP). UK SSP is amongst the least generous in Europe, and millions of low-paid and migrant workers do not qualify. ‍
• ~~Increased practical support - e.g. New York has made use of the thousands of empty hotel rooms to offer free accommodation, food and care to support self-isolation.
• ~~(ICYMI: The British Medical Association and other health bodies wrote to the Prime Minister last month on the measures needed to tackle financial insecurity and improve compliance.)‍

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• Protecting household incomes. The Government has extended the evictions ban in a welcome move, but it is still due to cut Universal Credit by £1,040 per year in April. Back in October, the Resolution Foundation argued this would have an “unimaginable” impact on the living standards of the poorest households and on the wider economy - read their analysis here.
• ~~Child Poverty Action Group analysis has revealed that over 1m households face “debt deductions” on their UC payments, leaving them with up to 30% less in benefits than their Government-assessed need.‍
• ~~Gaps in coverage: Up to 3 million people are estimated to have fallen through the gaps in Government support schemes (Financial Times), with no new measures in the Chancellor’s recent announcements to address this (ExcludedUK).‍

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• Protecting businesses. The CBI welcomed the Chancellor’s “swift” response to the changing circumstances, but argued for an extension of the furlough scheme until at least the end of June. Delaying this decision could lead to unnecessary redundancies, as it did last autumn.‍
• ~~Fragility. Recent surveys suggest a large number of businesses face collapse, including up to 250,000 small businesses (Financial Times) and 4,000 City firms (Guardian).‍
• ~~Public equity stakes. IPPR has argued that cash support for businesses should be approximately 10x more generous to help firms handle the £180m drop in cash flow they face according to December Bank of England figures. They, along with think tank Common Wealth, argue this support should take the form of an equity stake, as is normal in Germany. (Explainer thread on Twitter.)‍
• ~~Tighter lockdown? The New Statesman’s Stephen Bush has argued that the continued spread of the virus is explained not by lack of compliance, but by the range of legally allowed economic activity. This could be targeted by tighter lockdown measures, necessitating further support measures.

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• ‍Light at the end of the tunnel? The Government’s vaccination roll-out has been lauded, with the UK far outstripping its European peers. ‍
• ~~Room for improvement? Nevertheless, a range of voices, including the University of Oxford’s regius chair of medicine and the IEA’s Christopher Snowdon, have argued that roll-out could be much faster - though the vaccination plan published yesterday may go some way to allaying those concerns.‍
• ~~Safety. There is also concern over the Covid-protection measures in vaccination sites (UnHerd). ‍
• ~~Beyond the vaccine. A successful roll-out is not a guaranteed silver bullet. Professor Devi Sridhar spoke to the New Statesman on the path out of lockdown, and argued for a “zero Covid” strategy.