• 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”.‍

‍

• ...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.