There is nothing inherently fixed about the standard working week of 9-5 Mondays to Fridays. ‘Normal’ work hours have changed over time, with the weekend and bank holidays as we know them today being the products of campaigning by workers and trade unions in the past.
Reducing working hours has been a longstanding proposal to improve working life and the balance between work, leisure and important unpaid activity such as care.
Supporters note that as productivity rises it is possible to take the gains as increased leisure time rather than income. This would have the additional benefit of spreading the available work more widely. Some advocates argue that it could even help increase productivity, as employees may work harder in their reduced hours.
Some supporters of reduced working time today are proposing a four-day standard working week. Others argue for a reduction in hours per day, which might suit working parents better. Others propose an increase in the number of bank and public holidays.
Critics of working time reductions argue that they would be expensive - even when productivity is rising in some sectors, it is not in all.
A key issue for proponents of reduced working hours is whether this would be accompanied by a proportionate reduction in pay. Workers in many countries (including the UK) already have the right to ask for shorter and more flexible hours, but this is very difficult for those on low wages. A key feature of many shorter working time proposals is therefore that this should not be accompanied by a reduction in pay, especially for low earners. This would increase its cost.
A widely cited template for a shorter working week is the German Kurzarbeit (short-work) scheme (summarised here by the New Economics Foundation), which has been resurrected in the light of Covid to help support workers through its employment impacts; the German industrial union, IG Metall, secured an agreement to move its members to a 28-hour working week. In New Zealand, Jacinda Arden has proposed a 4-day week as a way to rebuild New Zealand's economy after Covid, and there are many other examples.
The shorter working week is part of the International Labor Organisation’s concept of ‘time sovereignty’ for workers, which aims to reframe the concept of workers’ time to give them greater autonomy.
A survey by productivity charity Be the Business found one in five small British firms are at least actively considering a four day week. Nearly 300,000 small and medium-sized UK businesses and over 840,000 employees are already working a four-day week and over 1 million UK firms and 3 million employees could move to a four-day week in the near future.
A comprehensive report from Autonomy and the 4 Day Week campaign situates the shorter working week as a response to some of the fundamental factors changing the nature of work in the UK, such as precarious work, the threat of automation, and inequalities. More recently, in response to the pandemic, Autonomy has proposed a reduction in working time to tackle rising unemployment.
Ireland has began a six-month trial to test the benefits and effectiveness of a four-day working week, with businesses in receipt of training, support and mentoring to facilitate a smooth transition.
Over recent years many countries have reduced their tax rates on businesses, hoping to attract inward investment from multinational corporations. But this can easily lead to a ‘race to the bottom’, in which tax competition leaves all countries with lower revenues. Low-income countries are hurt the most, and corporations are the beneficiaries.
Multinationals anyway find it easy to avoid high tax rates by ‘profit shifting’ and ‘transfer pricing’, the creative accounting methods by which profits are allocated to the countries and states where taxes are lowest. It is estimated that this costs governments globally up to 10% (approximately $240bn) of corporate tax revenues every year, money that could have been spent on public services, or that must instead be found from smaller businesses and citizens. Some large multinationals pay almost no corporate taxes in the UK (and other countries) at all.
At the same time both corporations and wealthy individuals have been able to make extensive of tax havens, usually small nations which seek to attract foreign capital by exempting it from tax altogether.
Proposals for international tax cooperation coordinated by the OECD have been given a boost by President Biden’s commitment to internationally agreed minimum corporation tax rates. A number of proposals have also been made for national taxes on multinationals, and for closing tax havens.
Economist Gabriel Zucman explains how multinationals engage in profit-shifting between different countries to lower their tax liabilities – and how governments can overcome this.
The Independent Commission for the Reform of International Corporate Taxation (ICRICT) argues for a globally agreed minimum corporation tax rate of 25%. Where countries levied lower rates, corporations’ home states (such as the US) would ‘top up’ the companies’ tax to the agreed rate. More detail here.
Public Services International explains the ‘unitary principle’ under which a multinational would be taxed as a single entity, not as separate companies in different countries. The Tax Justice Network proposes a ‘Minimum Effective Tax Rate’ to allocate the taxes due on a company’s global profits.
IPPR proposes an ‘Alternative Minimum Corporation Tax’ as a unilateral measure to tax multinationals consistently reporting low or zero profits. It would apportion a firm’s global profits according to its UK sales. Richard Murphy provides an illustrative example of how this would work.
TaxWatch proposes a digital services tax on the giant tech companies such as Google, which typically charge their subsidiaries royalties on their ‘intellectual property’, which they then claim is located in low-tax jurisdictions.
A working paper from Brookings explored “how elites use offshore banking” through shell companies and tax havens, using evidence from leaked account data from a bank in the Isle of Man.
The UK has the lowest rate of corporate taxation in the G7 group of wealthy countries, at just 19%. Despite this, business investment in Britain is easily the lowest in these economies.
Tax rates are not the key factor in determining the profitability and the attractiveness of investments; more important factors are the availability of skilled labour and efficient infrastructure, and the overall demand in the economy. These require government spending and investment.
Corporate taxation can be highly progressive because it is primarily paid by shareholders, and share ownership is concentrated among the wealthiest groups in society. In recent years a number of multinational corporations have paid very low taxes in some countries, because they have managed to shift their declared sales and profits to countries with lower tax rates.
Governments fear losing investment and tax revenues to other countries. This has led them to cut corporate tax rates. This combination of tax avoidance and “tax competition” is eroding overall tax revenues and allowing many of the largest firms to pay very little tax.
Simon Tilford argues that tax competition is not only cutting revenues, but undermining competition and fuelling monopoly.
The National Bureau of Economic Relations reports that close to 40% of multinational profits are shifted to tax havens globally, and that urgent action is required to prevent this practice from further aggravating inequality.
A World Bank blog calls for governments to improve the equity of the tax system, including through closing international loopholes for corporations and individuals
The IPPR proposes an "alternative minimum corporation tax" based on national sales revenues, to be levied on multinational corporations that consistently declare low or zero profits.
Tax Justice UK has published research by Laurie Macfarlane and Christine Berry which identifies six companies in finance, outsourcing, retal, real estate, mining and pharmaceuticals which have made £16bn in excess profits over the pandemic. The report calls for a one-off windfall tax on pandemic profits, amongst other proposals to equalise taxation of capital gains and more.
The Biden administration has released plans for a global minimum corporation tax with its “Made in America Tax Plan”. Tax Justice UK estimates that the American proposals would translate to a £13.5 billion increase in annual tax revenue for the British government.
Central banks, such as the Bank of England, have a major role to play in combatting the environmental emergency. They can do this through their own lending and by how they regulate the financial system.
An international network of central banks has become increasingly vocal about the risks to finance from climate change. They anticipate that growing economic damage will threaten financial stability. They are also concerned about the potential for a financial crisis when fossil fuels are no longer overvalued.
Proposals for further action include penalising loans to high carbon activity and ensuring that quantitative easing only promotes sustainable investment. The UK government has announced plans for large companies and financial institutions to report climate risk in the next five years.
The Centre for Climate Change Economics and Policy argues that macroprudential regulation and monetary policy by central banks is critical to effective climate action.
The Grantham Institute produced a policy report arguing for every bank in the European System of Central Banks to adopt net-zero strategies, and explaining how to green their prudential and monetary policy.
The Green New Deal Group discusses the importance of coordination between central banks and finance ministries on climate change. Positive Money argues that the Bank of England must be given a green mandate.
The New Economics Foundation, 350.org and Positive Money propose measures that the European Central Bank should take on climate change. NEF outlines a series of proposals for how the Bank of England could respond, including stress testing financial institutions in the UK economy for how resilient they are to climate change.
Prior to the pandemic, UK banks lent a smaller proportion of their total lending portfolio to businesses than did banks in other European countries, with a higher proportion going to housing and real estate mortgages. This has helped fuel the growth of house prices while doing little to develop the UK's productive base.
Although bank lending to small and medium sized enterprises (SMEs) has risen sharply during the Covid-19 crisis, it is widely believed that the underlying problem - the difficulty many businesses have in accessing affordable loans from banks - may return once the crisis is over.
A widespread criticism of the UK's financial system is that there is insufficient provision of 'patient capital' - long-term finance for innovation and business development - with too many financial institutions seeking short-term returns.
Reform proposals range from stronger credit guidance policies, to steer lending towards productive sectors, to the development of publicly-owned and other 'stakeholder' banks focused on financing innovation and business development.
UCL’s Institute for Innovation and Public Purpose argues that governments should experiment with credit guidance policies to support business development. Such policies could limit the proportion of bank lending which goes to housing and real estate and require higher proportions of lending to go to non-financial sector businesses.
UCL's Institute for Innovation and Public Purpose has examined the role which publicly-owned investment banks have played in a variety of countries to provide patient finance for innovation and business development, and proposed the creation of a UK National Investment Bank. The centre-right think tank Onward has also called for the establishment of a national investment bank, arguing that this could unlock £16 billion in capital for investment in small and medium sized businesses, municipal infrastructure and project finance to level up lagging regions. The Scottish Government established the Scottish National Investment Bank in 2020.
Business academic Colin Mayer explains why the UK’s big four clearing banks are ill-suited to funding the long-term growth of small and medium sized enterprises and calls for a new state-backed venture capital fund.
To meet housing demand an estimated 345,000 new homes are needed per year in England alone. The level of housebuilding has increased in recent years but is still far below this level.
It is widely argued that a core problem is the UK's developer-led model of housebuilding. Private developers compete for land and then 'bank' it, waiting until they believe they will make the most profit from increases in land values and from building homes. This causes significant delays and helps push up costs.
It also reflects the broader transformation of housing and the land it sits on into a financial asset. Over recent decades the public policy preference for private home ownership has been accompanied by the liberalisation of bank credit and accompanying financial innovation. Under these conditions, land and property have become both the most attractive form of collateral for the banking system and the most desirable form of financial asset for households and investors.
While some criticise the planning system for slowing development, the data doesn’t support this: 88% of new housing planning applications are granted. Local authorities are key to building more homes: the UK has never delivered homebuilding at the required scale without major locally-led public projects. Local authorities are under-resourced and often lack access to affordable land. They are also under significant pressure to sell off land they already own to balance their budgets.
The Resolution Foundation’s Intergenerational Commission examined how to tackle the housing crisis faced by young people. It calls for reform of the private rented sector, end the 'help to buy' scheme which raises housing demand, the reform of property taxes including stamp duty, and greater funding for local authorities to build homes.
Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane explores the relationship between the financial system, housing and land; it is summarised in this review for the LSE Review of Books. Noting how mainstream economics largely ignores the role of land, the authors show how land and housing have become key financial assets, and how wealth inequality is driven by housing and land ownership. Their policy recommendations include a Land Value Tax.
The New Economics Foundation explores the role of banks and the financial system, supported by government policies, in fuelling house price growth – with housing wealth now making up almost half of total household assets. In a separate report they argue that the housing crisis will only be solved if what they describe as 'the broken land market' is tackled.
Arguing that the 'broken land market' has played a key role in the financialisation of the UK economy and its poor productivity record and that high house prices have fed macroeconomic instability, IPPR call for a range of reforms. These include a housing price inflation target for the Bank of England, reform of compulsory purchase laws to allow local authorities to buy land at fair value, a requirement for new housing developments to include a minimum proportion of affordable housing, an annual property tax to replace council tax and a land value tax to replace business rates.
At the same time as neoclassically-based economics has been criticised for its influence over orthodox economic policy, its central role in the teaching of economics has also come under scrutiny.
Complaining that traditional economics courses did not reflect the post-financial crash world they were experiencing, economics students have campaigned for reform of the curriculum. They and others have argued for economic ‘pluralism’, an acknowledgement that there are a variety of economic perspectives, not a single correct one.
New ways of teaching the subject have been developed which start with real world problems and data about them, not stylised theory.
The student movement Rethinking Economics campaigns for a pluralist economics curriculum.
The CORE project has developed a new open-source curriculum for teaching undergraduate and postgraduate economics based on studying real world problems.
Members of Economists for Inclusive Prosperity, Can Erbil and Geoffrey Sanzenbacher explain Why, When, and How to Teach the Fundamentals of Inequality to economics students.
Felicia Odamtten, founder of The Black Economists Network (TBEN), explained that a lack of diversity in economics "can exacerbate the lack of attention paid to the issues faced by particular communities, and ultimately lead to poor decision-making and negative outcomes for these communities.”
People born outside the UK make up an estimated 14% of the UK’s population, or 9.5 million people, and just over half of BME residents of the UK were born overseas. Tackling racial inequality is therefore closely connected to improving the economic position of migrants to the UK. Discriminatory practices can particularly affect migrants, and public attitudes to immigration have impacts on the wider BME community.
Covid-19 has highlighted both the positive contribution migrants make to society and the challenges they face. Migrants are disproportionately likely to work in 'key worker' jobs. Notably, around 20% of care workers are foreign nationals, the majority from outside the EU. Many of these roles are low paid.
Migrants often have restricted access to public services and financial support. Many effectively pay twice for NHS care, required to pay an NHS surcharge as well as their taxes. They face significant barriers to care despite their disproportionate contribution to the UK's health and care systems.
In its report Access Denied: The Human Impact of the Hostile Environment IPPR provides a survey of the impact of the UK’s approach to migration on wider racial discrimination, housing, health, and vulnerability to violence.
The Women’s Budget Group analyses the effects of the pandemic on migrants and call for the end of the 'no recourse to public funds' policy, which prevents many migrants from accessing social security benefits.
The Joint Council for the Welfare of Immigrants (JCWI) has examined the lives of undocumented people in the UK and proposed a range of reforms that could break the cycle of insecure immigration status.
IPPR’s Marley Morris and Shreya Nanda published a report calling for reform to the system of charging migrants for healthcare. The report highlights the adverse impacts of the NHS charging system and draws on best practice from other European countries that have fairer systems for residents without immigration status.
The House of Commons Library has published data on UK asylum applications. In 2020, there were around 6 asylum applications for every 10,000 people living in the UK, compared with 11 across the EU. Polly Toynbee in the Guardian sets out the wider picture.
Women in full-time employment in the UK are paid 7% less on average per hour than their male counterparts. Among employees as a whole, women earn on average 15% less than men per hour. This is largely because women are over-represented in part-time employment, which is less well paid.
One factor behind the gender pay gap is illegal pay discrimination - unequal pay for equal work. Another is the uneven burden of unpaid care work. A key issue is the 'maternity penalty', the economic cost to mothers of taking on more unpaid child-rearing than men, which slows their career progression and leads many women to take on more flexible, less senior and less well-paid roles. Encouraging men to take on more childcare, for example by increasing paternity leave, could help redress this imbalance.
The introduction of mandatory gender pay gap reporting in large employers has generally been recognised as incentivising pay equality. But the pay gap is proportionately much greater among higher-paid jobs than lower-paid, a consequence of the fact that in many sectors senior positions are still dominated by men.
A report by the Women's Budget Group, the University of Nottingham and the University of Warwick found that the largest economic burden of the pandemic has been experienced by working class women, and called for sick pay to match the National Living Wage.
In its The State of Pay report IPPR provides an overview and explanation of the drivers of the gender pay gap in the UK, and how these might be redressed.
Examining the history and causes of the gender pay gap, Linda Scott of the Said Business School at Oxford argues that it is the result of entrenched biases in institutions run by men.
The final report of the Commission on a Gender-Equal Economy shows how unpaid and undervalued care work contribute to the gender pay gap and proposes a series of measures to invest in social care and childcare which would enhance women's pay both directly and indirectly by enabling more women to continue in paid work.
The Fawcett Society has conducted a comparative study of the gender pay gap indifferent countries. It finds that the UK approach is more light touch than elsewhere, resulting in fewer incentives on organisations to improve women's pay.
With the focus of green growth on environmental sustainability, the concept of ‘inclusive growth’ has been developed to emphasise how growth strategies can be redesigned to achieve reductions in poverty and inequality. The OECD defines inclusive growth as ‘economic growth that is distributed fairly across society and creates opportunities for all’.
Advocates of inclusive growth argue that redistribution through the tax and welfare systems is not sufficient to achieve genuine inclusion. They typically emphasise instead the importance of education and skills, labour market reform, asset ownership, the empowerment of local places and democratic participation.
The OECD’s Inclusive Growth programme generates research and policy on how to achieve a more fairly distributed form of growth.
The Royal Society of Arts’ Inclusive Growth Commission published its recommendations in 2017. It advocates for abandoning the ‘grow now, redistribute later’ model of economic growth, advocating instead an ‘inclusive growth’ approach that puts more power in the hands of local places to create good quality jobs and prosperity.
The bottom 50% of people globally have captured just 2% of the gains from global economic growth since 1995, while the richest 1% have captured 38%, according to the new Global Inequality Report. This busts the myth that growth of itself helps tackle inequality, argues economic historian Matthias Schmelzer.
The pandemic has put poorer households under great financial strain. On average, low and high income households have seen similar proportionate falls in income - but this does not mean that the pain has been equally shared. While richer households can cut back on non-essential spending and fall back on their savings, poorer households are unable to do so. Over half of adults in the poorest 20% of families have had to borrow to fund basic costs such as food or housing.
Unless action is taken, the unequal economic impact of Covid-19 will be felt well into the future. Job losses have been concentrated in the poorest households, threatening a longer-term divergence in employment chances. Many of the richest households have been able to build up their savings over the course of the crisis, further widening the gap between them and the increasingly economically insecure poor. They will use these increased savings to buy assets. Even as the economy has tanked, asset markets have remained reasonably buoyant. This divergence can in part be explained by the wealth gap because the asset-owning class has been least affected by the crisis and in part because of policy decisions that protect financial markets, even at the expense of the real economy.
Poorer households have also seen far worse health outcomes than the well-off. In part, this is because they are less likely to be able to work from home and are therefore more exposed to the virus. It is no small irony that the UK’s “key workers” earn, on average, 8% less than the median wage, reflecting in part the freeze on public sector pay under austerity and persistently low pay in sectors such as social care. At the same time, the UK’s high levels of economic inequality have given rise to wide health inequalities, which the Marmot Review found to have widened since 2010. One consequence of this is that the Covid-19 death rate in the most deprived parts of the country is double that of the most well-off.
Standard Life Foundation have launched a Coronavirus Financial Impact Tracker to monitor the economic effects of the pandemic on people’s finances.
Analysis from NEF has found that inequality in the UK has increased since the start of the pandemic. It finds that the poorest half of households are on average £110 worse off per year, while the top 5% have gained £3,300 on average.
Research by Citizens Advice has found that 6 million UK adults have fallen behind on at least one household bill during the pandemic, with those at the sharpest end of the labour market hit hardest.
The Health Foundation has warned of "rising health inequalities due to pandemic" - their research shows that poorer areas are more likely to have higher Covid-19 death rates.
There is as yet no widely agreed name for a new, post-neoliberal economic paradigm. But those seeking to build one largely agree on its core goals. They seek an economic system which is
In such an economy democratically elected governments would play a significant role, seeking to shape and regulate markets to serve the public interest, and limiting the power of major corporations and financial markets.
These goals cannot be achieved, it is argued, by minor reforms to present economic systems. Fundamental reform is required, a structural transformation which hard-wires these goals into the way the economy works.
The IPPR Commission on Economic Justice, whose members included the Archbishop of Canterbury and prominent business and trade union leaders, provides a comprehensive analysis of the failings of the UK economy and over 70 policy recommendations in a ten-point plan for fundamental reform.
The New Economics Foundation, the Zoe Institute and the Wellbeing Economy Alliance set out a joint plan for systemic economic change in the UK, seeking a fundamental transformation towards a resilient economy promoting equality, environment and wellbeing.
Describing the principles set out in her book Doughnut Economics, Kate Raworth argues that economic activity needs to fall within the two boundaries, social and ecological, that together encompass human wellbeing. Such an economy would be ‘regenerative and distributive’ by design.
The scale and radicalism of US President Joe 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.
Tony Danker, Director General of the CBI, gave a speech to its annual conference dubbed as a “damning critique of free-market capitalism”. It exemplifies the new consensus (though not in the Government) around the importance of state intervention and industrial strategy. Danker noted that “we’ve had five decades where the free market has palpably failed” and called for a “partnership with government.”
In its ‘Reset’ report for a post-Covid society, the All-Party Parliamentary Group on a Green New Deal has set out a vision of a new economy, and the principles and policy ideas which could inform it.
The idea of ‘wellbeing’ is now widely used to characterise the goal of a flourishing economy.
Wellbeing includes income but is not limited to it: it also includes other factors, including the quality of work, physical and mental health and public goods (such as the natural environment and social cohesion) that make up people’s overall quality of life. The general concept of wellbeing includes both individual life satisfaction and the flourishing of society as a whole.
A common focus of those arguing for a ‘wellbeing economy’ is that we need new indicators to measure economic and social progress, in place of growth of GDP (see below). Economic and social policy needs to be designed to achieve wellbeing directly, rather than relying on economic growth.
A number of countries, including Iceland and New Zealand, are using ‘wellbeing budgets’ and new indicators to try and ensure that this is achieved.
The Wellbeing Economy Alliance (WEAll) defines what is meant by wellbeing, and explains the policy pillars which can help achieve a wellbeing economy. A range of policies are currently being implemented around the world which are promoting wellbeing economies in practice.
In 2019 the All Party Parliamentary Group on Wellbeing set out a £9.5 billion policy agenda to improve wellbeing. It proposes targeted action in key areas including mental health provision, childcare, job creation and wellbeing at work.
HM Treasury has published its supplementary guidance to the Green Book covering the consideration of wellbeing as part of the government’s cost benefit analysis and evaluation of spending decisions. The What Works Centre for Wellbeing provides a summary of the aims and links to resources in the document, as well as an evidence base for policies which can increase wellbeing, and a range of policy case studies.
Duncan Fisher explains how New Zealand, Iceland and Scotland are using wellbeing budgets and alternative indicators to change the way they make policy.
Even before Covid-19, the multiple crises experienced by western economies over the last decade and more – the financial crash, the climate emergency and rising inequality – have led some commentators to ask whether a new ‘economic paradigm’ may be in the making.
An economic paradigm is the framework of economic theories, policies and narratives which come to define a particular era. In the 20th century two major periods of economic crisis led to changes in the dominant paradigm. Old economic orthodoxies proved unable to provide solutions, and new economic theories and policies took their place.
In the 1940s, following the Wall Street crash of 1929 and the Great Depression of the 1930s, Keynesian economics replaced the previous orthodoxy of ‘laissez faire’, leading to the ‘post-war consensus’ of full employment and the welfare state. In the 1980s, following the economic crises of the 1970s, free market economics became the new orthodoxy. But free market economics seems to have caused the crises we have recently experienced, and to offer little by way of solutions. Is another ‘paradigm shift’ due?
Explaining the origins of the idea of economic paradigms, Laurie Laybourn-Langton and Michael Jacobs describe the paradigm changes of the 20th century. Analysing how the free market revolution was organised, they suggest that comparable conditions exist today.
Martin Jacques traces the political impact of the financial crash of 2008 and argues that it will lead to the end of the free market or ‘neoliberal’ era.
Economist Laurie Macfarlane and colleagues set out how economic theory and policy can be categorised in terms of ‘orthodox’, ‘modified’ and ‘alternative’ paradigms, and survey how economic thinking has been changing in major economic institutions such as the OECD and World Bank.
Political economists Will Davies and Nicholas Gane explain how the political right’s reactions to the covid-19 pandemic could signal a break with neoliberal orthodoxy ”and, in particular, from their overriding concern for the market”.
Laurie Laybourn-Langton explained why the emergency responses taken during the Covid-19 pandemic constitute an "unprecedented break from the norms and practice of the prevailing political-economic paradigm" and reflects on the strategies required for a paradigm shift in an age of coronavirus and environmental breakdown.
The free market economic ideas and policies which were first introduced in the 1980s under Margaret Thatcher in the UK and Ronald Reagan in the US came to be known as ‘neoliberalism’. Neoliberalism is the doctrine that economic growth and human freedom are best served by the expansion of deregulated markets and private enterprise, and a reduction in the activities and size of the state. It is often described as the dominant paradigm of the last four decades, effectively espoused not just by right-wing governments but by avowedly centre-left ones which (it is often claimed) failed to reverse or challenge its principal policies.
Neoliberalism has been widely criticised. Its economic policies have led to a significant growth in income and wealth inequality and pervasive environmental degradation. The globalisation of commerce and free trade promoted by neoliberalism has in many countries led to the destruction of traditional industries and the communities which have relied on them. Deregulation has led to a huge expansion of the financial sector, and of the influence of financial objectives in companies and society, a process often described as ‘financialisation’.
Though neoliberalism claims to promote market competition, in key sectors (such as digital platforms and public services outsourcing) it has enabled the development of extremely powerful companies operating as near-monopolies. The process by which wealth is extracted from the economy by a relatively small group of financial and monopoly asset owners has led some to describe the neoliberal economy as ‘rentier capitalism’.
The Adam Smith Institute defends the neoliberal ideal and sets out a neoliberal manifesto for the UK in the 2020s.
The Adam Smith Institute calls for the UK to become a ‘Singapore-on-Thames’. It argues that the UK should adopt a range of free market policies, such as cutting taxes and regulations, to make the economy more efficient. But the bulk of the report proposes greater marketisation and competition in key public services such as healthcare and education, in order to reap the rewards of higher growth and better outcomes.
US writer Robert Kuttner analyses the ‘political success and economic failure’ of the neoliberal project.
Describing the way in which its ideas took hold, the writer George Monbiot attacks the impact of neoliberalism over the past forty years.
The Harvard economist Dani Rodrik argues that the economic assumptions and policies associated with neoliberalism do not represent the thinking of mainstream economics.
Political economist Brett Christophers explains the concept of rentier capitalism and how the UK economy has become ‘rentierised’. (Long version here.)
The scale of the funding gap in addressing the environmental emergency has led many to suggest that private finance alone is not enough, and that public finance is particularly important.
Some propose that governments should increase their own borrowing to directly invest in critical projects that the private sector is reluctant to support, as well as those that are socially important but do not generate high returns.
Even before the pandemic it was argued that there was a strong case for greater direct public borrowing at a time of record low interest rates, which have since turned negative in many places.
The New Economics Foundation argues that the government has plenty of headroom to significantly increase its borrowing for green investment.
The Office for Budget Responsibility's (OBR) Fiscal Risks Report 2021 identifies unmitigated climate change as a "large, and potentially catastrophic," fiscal risk. 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. (Watch the OBR’s short video summary here).
The Grantham Institute at the London School of Economics argues that public finance is essential to make the green transition profitable for private companies. The economics of transition may not be initially appealing and up-front costs may be high.
Since the 1970s, in common with many other countries, the UK has seen a declining share of national income go to wages and salaries and a rising proportion returned to the owners of capital and assets. This period has coincided with a dramatic fall in trade union membership.
Many economists argue that the two are closely connected. Through collective bargaining, trade unions are able to raise workers’ wages and to improve their working conditions. Where unions are absent, employers have greater relative power.
This recognition has led to calls for a revival of trade unionism and of collective bargaining. In a more fragmented workforce where many workers are now self-employed or on precarious contracts this is difficult, but many trade unions have been finding ways to organise insecure workers.
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.
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.
Arguing that stronger trade unions can boost productivity, particularly when the fruits of automation need to be more fairly shared, IPPR argues for easier statutory recognition to enable firm-level collective bargaining, accompanied by sectoral collective bargaining in low-paid sectors.
In Work in 2021: A Tale of Two Economies the Centre for Labour and Social Studies (CLASS) brings together analysis of ONS data, interviews with trade union reps and a survey to paint a picture of workers’ differentiated experiences of the pandemic and how they are organising in response.
'Community wealth building' is an approach to local economic development which seeks to retain as much wealth and economic activity as possible within a local area, and place local assets and democratic control in the hands of local people. It aims to promote more resilient local economies and local job creation.
Core to this idea is harnessing the spending power of local 'anchor' institutions, such as local authorities, hospitals and universities. By using their procurement budgets to buy wherever possible from local small and medium sized businesses, such institutions can support local economic and civic renewal and retain wealth and jobs within the community. At the same time the local authority can support the development and financing of such businesses.
Many community wealth building initiatives are particularly focused on socially-owned enterprises such as cooperatives and community businesses. The best-known application of the model in the UK is the city of Preston, where the city council has transformed local models of procurement and quadrupled the local spend of its anchor institutions.
The Centre for Local Economic Strategies (CLES) has helped shape the community wealth building approach in Preston. Here they describe how they did it and the key lessons learned. In particular they highlight how replicating the success is not a one-size-fits-all but must evolve from the people and resources within each place.
Making Spend Matter, a network of 7 cities exploring best practice in progressive procurement, released their final newsletter detailing their 3 year journey of sharing learning from partner cities across Europe.
Community Wealth Building and citizen-led transformation are key to the Amsterdam City Doughnut. This is the first city-scale application of Kate Raworth’s model of doughnut economics, which sets delivering wellbeing within environmental limits as the goal of economic policy.
Community wealth building initiatives and proposals in the devolved nations include: the Bevan Foundation’s proposal for ‘Anchor Towns’ in Wales; proposals by CLES and Development Trust Northern Ireland; and CLES's work with the Scottish and Welsh Governments.
The Covid-19 pandemic caused the deepest recession in modern economic history. As lockdowns and other measures to protect public health were introduced, consumption and production slumped and unemployment rose. In the UK the fall in economic output was among the largest in the world, with GDP (Gross Domestic Product) declining by 9.8% in 2020, estimated to be the steepest fall in three hundred years.
Government support measures have kept many businesses going and the job furlough scheme at its height was keeping nearly 9 million workers in employment. But many firms have already gone out of business, and when the furlough scheme comes to an end unemployment is projected to rise to 2.2 million people, or 6.5% of the labour force.
The economic crisis has not affected everyone equally. Workers on insecure employment contracts saw their jobs go first, while many others on low incomes who cannot work from home have been required to continue working in often risky workplaces. Those on good incomes have been able to save. But many of the least well off have seen their debts increase. Many people have been pushed into poverty. Women, young people and those from black and ethnic minority groups are disproportionately represented among those whose living standards have been hit.
Analysis by the Resolution Foundation showed that in the first wave of the crisis 2 million employees fell below the minimum wage, leading to a gathering private debt crisis for lower-income households.
The Women’s Budget Group has analysed the impact of the pandemic on women in terms of health, employment and unpaid work, noting increased levels of poverty, debt and mental health deterioration.
The Resolution Foundation’s analysis of the economic impact of the Covid crisis on different age groups finds the young and old most badly affected.
The Runnymede Trust has looked at the impact of the crisis on black and ethnic minority communities, finding that long-standing inequalities have led to disproportionately severe health and economic effects.
In its Living Standards Outlook the Resolution Foundation forecasts household incomes to continue falling in 2021-22, and without a policy change the largest increase in poverty since the 1980s.
The TUC noted in June 2021 that only 14% of the 790,000 jobs lost across manufacturing, retail, hospitality and the arts during Covid had been recovered.
The Covid-19 crisis has revealed how vulnerable our economies and healthcare systems are to the threat of pandemics. In doing so it has also shown how exposed we will be to any future environmental breakdown.
Britain has been slow to respond effectively, despite extensive prior knowledge of pandemic risk and having developed sophisticated plans. This could partly be explained by a reduced capacity in government after austerity cuts to public spending and the focus on preparations for Brexit.
Health funding is under huge pressure in many low-income countries and there have been acute shortages of healthcare workers. Globally there is a mixed record of cooperation on pandemic or wider disaster risk reduction.
Professor Paul Rogers writes for the Oxford Research Group on how years of austerity have undermined the UK’s ability to effectively respond to pandemics.
The World Health Organisation has a major report on understanding and managing epidemics. It focuses on three key responses: engaging communities; the effective communication of risk; and both treating patients and protecting the healthcare workforce.
The Overseas Development Institute’s Global Reset Dialogue series explores issues of global leadership and resilience after Covid-19. Among its focus areas are how to deliver more effective global cooperation to reduce inequality.
The Covid-19 pandemic was not an unexpected event, viral outbreaks of this kind have been predicted by medical and environmental scientists for many years.
The risk of global contagion is increasing as the world becomes more densely populated and interconnected. These risks can be minimised if governments make better preparations for pandemics, both within and between nations.
Cooperation over the production and distribution of vaccines is essential. There are wider factors at play as pandemic risk is intertwined with wider social, environmental and economic challenges.
The Global Preparedness Monitoring Board sets out why the risks of pandemics are rising and explores the actions that governments can take to prevent pandemics and reduce their impacts.
The United Nations Environment Programme’s major Preventing the Next Pandemic report explores the causes of, and how to reduce, pandemic transmission. These include the need for better food systems and greater support for poorer nations suffering an outbreak.
The complex connections between disease, ecosystems and wellbeing are demonstrated by the Disease Scenarios Africa project. Its interactive models explore how factors including population growth, climate change and food prices interact with social change, conflict, and land use to determine pandemic risk.
The Covid pandemic has forced governments across the world to spend huge amounts of money supporting their health systems and emergency public services, and sustaining business and household incomes. In the UK, the government spent an estimated £372bn in 2020-21 tackling the crisis.
This money has come from increased government borrowing. In the fiscal year 2020-21, the budget deficit (the gap between revenue and expenditure) was £298 billion (14.2% of GDP), its highest peacetime level, and total public debt rose to 99.7% of GDP, the highest since 1961.
Unsurprisingly, this has led to questions about how and when this money should be repaid. Some people have argued (or assumed) that there will need to be a return to austerity – public spending cuts and tax rises – to reduce the deficit and the debt.
But most macroeconomists, including international economic institutions such as the OECD and IMF, argue that at current very low interest rates, high levels of debt can be supported for a long period. This is what happened after the second world war, when UK debt reached nearly 250% of GDP. It came down gradually with growth, to around 50% of GDP in the early 1970s.
Since the pandemic started the Bank of England has bought £450 billion of government bonds, equating to almost all of the new debt issued by the government. This has kept the interest rate low, thereby making the debt much cheaper for the government. Some argue for this arrangement to become permanent, a mechanism known as ‘monetary financing’.
The chief economist of the OECD has urged governments not to return to austerity to reduce deficits and debt levels. Laurence Boone said that the austerity policies brought in after the financial crash were wrong and that fiscal policy should play the primary role for recovery.
The IMF says that fiscal rules limiting debt to GDP ratios are inappropriate in today’s conditions and should be abandoned. Ultra-low interest rates mean that servicing debt (paying the interest) is cheaper now than it was when debt levels were much lower.
In an editorial the Financial Times has admitted it was wrong to advocate austerity after the financial crash, and that balancing the budget should be no longer be a fiscal goal.
Economist Daniela Gabor shows why the frequently heard idea that the government budget is like a household budget, and that the UK has now 'maxed out on its credit card ', are misguided economics and lead to the wrong policy conclusion.
Former chair of the Financial Services Authority Adair Turner argues that monetary financing of public debt by central banks is both necessary and inevitable, and in today’s conditions economically appropriate. (A shorter version here.)
The Economist argues that Chancellor Rishi Sunak should not worry about the prospect of an interest rate rise raising borrowing costs because of the maturity of UK debt.
The economic crises of the last decade have generated significant reassessment in the discipline of economics. The failure of mainstream analysis to anticipate the financial crash of 2008, the growth of inequality, the unexpected stalling of productivity and wage growth, and the increasing evidence of environmental breakdown, have led to a questioning of the theoretical foundations upon which much economic policy has been based. Mainstream economics has increasingly taken new perspectives on board, while alternative or ‘heterodox’ schools have become increasingly prominent.
In macroeconomics, ‘post-Keynesian’ analysis has emphasised the critical role of the financial sector and of uncertainty. Institutional and political economists have focused on the role of institutions and power relationships. Evolutionary and complexity economists have sought to understand the economy as a complex, adaptive system with a path-dependent history of technological and institutional development. Ecological economics has pointed out the environmental basis of all economic activity. Feminist economists have forced attention on its gendered nature. Behavioural economists have shown how people actually behave, contradicting the neoclassical model of ‘rational economic man’.
These developments have not yet led to any grand synthesis, but economics is in greater flux, and generating more interesting ideas, than it has for a generation.
In a report for the OECD, a group of leading economists describes how a convergence of mainstream and ‘heterodox’ economic thought is enabling a much richer understanding of how modern economies work and appropriate policy solutions.
In an interview with Evonomics, Eric Beinhocker, Director of the Institute for New Economic Thinking at Oxford, discusses how the integration of evolutionary and complexity economics can provide a new foundation for economic theory.
Launching their network of ‘Economists for Inclusive Prosperity’, US-based economists Suresh Naidu, Dani Rodrik and Gabriel Zucman argue that economics needs to escape its fetish of markets, and in doing so can provide important tools to improve society.
The Bruegel think tank describes recent developments in macro and microeconomics which challenge formerly dominant orthodoxies.
Mariana Mazzucato, Director of the UCL Institute for Innovation and Public Purpose, summarises her influential thinking on financialisation, innovation and ‘mission-oriented’ industrial policy.
Policymakers can also introduce less targeted financial taxes such as bank levies, which can help to curb systemic risk and ensure that the taxpayer benefits from the rewards of financial risk-taking rather than simply bearing the costs.
The UK introduced both a corporation tax surcharge for banks and a bank levy in the wake of the financial crisis of 2008. This was levied on the global balance sheets of large banks operating in the UK, but the revenue generated by the tax has fallen since the financial crisis in part due to changes to its structure introduced in 2016.
Sheffield Political Economy Research Institute assesses the effectiveness of the bank levy and the corporation tax surcharge, and the impact of subsequent changes to these taxes. It warns that the tax now appears to hit smaller and challenger banks more than global banks, and that those that contributed the most to the 2008 crash are not bearing the highest cost.
Michael Devereux, Niels Johannesen and John Vella of the Saïd Business School assess the effectiveness of bank levies across Europe, arguing that while they did reduce risk, they had less of an impact on systemically important financial institutions.
The principle of financial transactions taxes can also be applied to currency trading. Currency transactions taxes (CTTs) act to slow down currency transactions by raising their cost, thus reducing volatility. This makes them effectively a form of capital control – a tool that can be used to help regulate the flow of money into and out of economies.
As Covid-19 unfolded many countries faced significant capital outflows, strengthening arguments for using CTTs as a partial response, particularly for emerging markets.
The International Monetary Fund’s series of recent papers marks a softening in its position on capital controls, advocating their use in certain circumstances. One of the tools they cautiously recommend using is currency taxes.
IPPR calls for the introduction of a currency transaction tax. It suggest thats the tax starts low and rises over time, with an additional rate levied for 'speculative' large capital outflows. Its report notes that such a tax could be introduced unilaterally but would be more effective if internationally coordinated.
A financial transactions tax (FTT) can be used to shift the incentives financial firms face when deciding on their trading strategies. In particular, such taxes can disincentivise high-frequency trading, which is associated with rising volatility in financial markets.
FTTs can also generate significant revenue. At least forty countries already have taxes on financial transactions of one kind or another, including the UK where stamp duty acts as a form of FTT on trading in equities. It was estimated in 2017 that a modest extension of a FTT in the UK could raise an estimated £23.5 billion over the course of a Parliament.
Financier Avinash Persaud proposes a financial transactions tax for the UK, extending the current stamp duty on shares.
The Brookings Institute assesses proposals for the introduction of a FTT tax in the US, noting that it would be overwhelmingly paid by the most well off in society. The Institute on Taxation and Economic Policy argues that FTTs can curb inequality, improve markets, and raise “hundreds of billions of dollars” over a decade.
The kinds of FTT used in different jurisdictions are explored in this report by BNY Mellon.
Since the financial crash of 2008 national and international authorities have implemented a range of reforms aimed at reducing the risks which individual financial firms can take, and the systemic risks which the financial system as a whole poses to the rest of the economy.
But critics of the structure and behaviour of the financial system argue that these reforms do not go far enough. They note that the incentives faced by financial companies and the herd-like behaviour of financial markets tend to drive asset bubbles in an upswing and exacerbate recessionary forces when the economy experiences a downturn. Closer regulation of the shadow banking sector and stronger counter-cyclical measures are required if financial instability is to be reduced.
The financial crises of 2008-12 showed that, while shareholders gain the benefit of financial firm profitability, major losses will be borne by debtors, and by society and taxpayers. A number of reform proposals therefore focus on ensuring that financial firms share the liability for failure.
The financial system connects savers and investors. But recent decades have seen the growth of 'agency capitalism', in which a wide range of financial intermediaries manage investment funds. Reformers seek to ensure that such companies have stronger fiduciary duties to act in the interests of savers.
Deeper financial reform proposals centre on the goal of creating a 'purpose-driven' financial system, designed to serve the rest of the economy rather than itself, and in particular which supports efforts to build a more environmentally sustainable and inclusive economy.
The NGO Finance Watch sets out why deeper financial system reform is needed, and the principles on which it should be based.
The Finance Innovation Lab explains the concept of 'purpose-driven' financial regulation, exploring how current regulatory assumptions hinder financial firms focussed on social and environmental impact. It argues that regulators need to be given new mandates on the purpose of finance; a different mindset, embracing purpose-centred business models; and new metrics that assess how well the financial system and financial firms are fulfilling their ultimate purposes.
The Finance Innovation Lab explains the different ownership structures and business models of purpose-driven and non-shareholder-based financial institutions, including building societies, credit unions, mutual and ethical banks, and community development finance institutions (CDFIs). It discusses the barriers to a further scaling-up of these models and how they can be overcome.
In a policy briefing for Economists for Inclusive Prosperity, Atif Mian examines the economic impact of the growth of credit and debt. Among his policy proposals to reduce financial volatility is the use of ‘state-contingent contracting’ which allows a more equitable sharing of risk between creditor and debtor in the event of a wider economic downturn.
In a SPERI blog, economist Johnna Montgomerie proposes a 'modern debt jubilee', in which targeted debts of low-income households would be written off. Such a measure, she argues, would bring macroeconomic renewal by freeing up household cash-flow in the same way as a tax cut, and help relieve poverty. It would signal an end to debt-dependent growth.
Achieving an environmentally sustainable and net zero economy requires a significant increase in investment in green technologies and sectors. This in turn will require much larger financial flows into these investments. At the same time, investment in high-carbon and polluting activities needs to diminish.
Over recent years the Bank of England other central banks have begun to pay attention to the risks to financial stability posed by climate change and climate change policy. They have sought in particular to ensure that financial institutions disclose their exposure to climate risk.
Some reformers are now calling for financial regulation to be tightened for financial firms with significant exposure to assets - for example investments in fossil fuels - which could become devalued or 'stranded' as a result of future climate change policy.
Various proposals are now being made to incentivise financial investment in green technologies and sectors. The European Commission has set out a taxonomy of sustainable economic activity to underpin its 'Green Deal' strategy.
A paper for the Climate Change Committee sets out a series of recommendations to enable the UK to build a "net zero financial system". It argues that both sector-specific strategies and system-wide instruments are required to enable market innovation and increase demand for climate-aligned financial products. It proposes that the Bank of England should fully integrate climate risk and net-zero into financial regulation and monetary policy, and net-zero targets should be made mandatory for financial institutions.
UCL’s Institute for Innovation and Public Purpose and the EIC-Climate KIC set out a comprehensive framework for green financial reform, including the stress-testing of UK financial institutions for how resilient they are to climate change.
Finance Watch calls on regulators to break the "climate finance doom loop", in which financing of fossil fuels causes climate change, and climate change threatens financial stability. It argues that higher capital requirements should be required for banks exposed to stranded assets. By the same token, Breugel propose that central banks offer a lower cost of capital to low carbon firms.
Columbia University historian Adam Tooze argues that central banks need to move from managing the financial risk posed by climate change to altering the direction of economic growth so as to minimise those risks arising in the first place
In the 1980s and 1990s western governments deregulated the financial system, and removed obstacles to the cross-border movement of capital. One of the results was a significant expansion in the size and profitability of the financial sector relative to the rest of the economy.
As restrictions on banks and other financial institutions were lifted, and the global economy grew, lending increased. Private debt - owed by businesses and households - rose rapidly in the period up to the financial crash of 2008, which revealed the increasingly risky nature of credit practices and the greater financial instability to which it led. Public debt increased after the crash as governments were forced to bail out the financial sector and respond to the recession. In 2021 total global debt had risen to over three and half times the value of global GDP.
The same period saw many financial companies focus on essentially short-term financial activities - trading and speculating in shares, bonds, currencies and other assets - rather than providing investment capital for new and growing businesses.
These processes of financial sector growth - and the increasing use of financial metrics in other parts of the economy - are often described as the 'financialisation' of the economy.
In the UK the City of London and the wider financial sector employ over a million people and make a major contribution to the UK's trade balance. However some analysts argue that the financial sector has now become too large, acting as a drain on the rest of the economy rather than as a net asset. Critics of financialisation argue that the financial sector is now too much focused on extracting value from the economy and not enough on helping create it.
The Transnational Institute explains the concept and history of financialisation and explores its impacts in the economy and society.
In a report for the IPPR Commission on Economic Justice, Grace Blakeley analyses the impact of financialisation on the UK economy. Arguing that the City of London's role in the global financial system has damaged UK manufacturing and exporting sectors by pushing up the value of sterling, contributed to a model of economic growth overly dependent on house price inflation, and fuelled inequality, she proposes a range of reforms.
A report from the Sheffield Political Economy Research Institute argues that the UK's financial sector is now too large. Arguing that the UK economy suffers from a ‘finance curse’ through which the finance sector skews the development of the economy as a whole, the authors seek to estimate the scale of the economic damage caused.
Economist William Lazonick shows how the growth of 'share buybacks' (where companies buy their own shares) reveals the financialisation of modern corporations, and the extent to which they and the financial sector have become value extractors rather than value creators.
Economist Daniela Gabor explains the growth of 'shadow banking', the network of financial institutions which act like banks but are not regulated or supervised in the same way, and examines their impact on overall financial stability.
Economists Brian Bell and John van Reenen examine the significant increase in financial sector pay and bonuses over the last three decades and show how this has contributed to extreme wage inequality in the UK.
Ensuring that banks hold enough capital to withstand a moderate crisis is a critical part of 'macroprudential' policy and was a key response to the 2008 crash.
In 2010 the Basel III regulatory reforms allowed regulators to require banks to increase capital held during financial upswings and reduce it during downturns.
Some argue that the time is right for loosening capital requirements to encourage financial institutions to keep lending, although there are warnings that this will increase the risk of a future crisis.
Finance Watch warns that easing bank regulation and supervision could further increase the risk of a financial crisis and cautions against abandoning requirements for banks to hold more capital in times of crisis.
Researchers at the Bank for International Settlements outline a quantitative assessment of the impact of releasing bank capital buffers in response to the crisis. In the event of a financial crisis similar to 2008 it warns that without loosening regulatory requirements lending would severely contract.
Breugel suggests that existing bank capital requirements are not enough to avoid major crises. It proposes a tighter set of capital requirements for those parts of the system that are the most leveraged.
Leaving the EU means the UK needs to negotiate many new trade agreements – indeed the freedom to do so was one of the main arguments used in favour of Brexit.
Trade deals are no longer only, or even mainly, about reducing tariffs. They primarily focus now on reducing other ‘barriers to trade’, for example by aligning national regulations in areas such as product standards, professional qualifications and environmental protections.
Trade deal proposals are therefore often highly controversial, with many fearing they will lead to a lowering of existing standards and protections. The UK’s early discussions with the US around a post-Brexit deal were a case in point, with warnings that it would lead to the arrival of chlorinated chicken on UK shelves or the risk of further privatisation in the NHS.
One of the elements of trade agreements which has led to particular opposition is the widespread use of ‘Investor-State Dispute Settlement’ (ISDS). This is a mechanism under which a company from one signatory state investing in another can argue that new laws or regulations could negatively affect its expected profits or investment potential, and seek compensation in a binding (and often secret) arbitration tribunal. This effectively elevates the rights of corporations above a country’s democratic right to decide its own laws.
Economist Dani Rodrick shows how recent developments in trade agreements have focused on national regulations, intellectual property and labour and environmental laws. He argues for a new global trade paradigm that prioritises national prosperity and ‘peaceful economic coexistence’ between nations.
The Trade Justice Network describes the principal issues involved in recent and proposed trade deals, including those between the UK and EU, and UK and US.
War on Want explores the UK’s trade policies with countries in the global South, calling for agreements that will allow low-income countries to support their own industries and economies.
The ISDS Platform sets out how Investor State Dispute Settlement mechanisms work.
The International Institute for Environment and Development produced a report explaining how ISDS could increase the public cost of climate action.
The Corporate Europe Observatory and Transnational Institute explain the little-known Energy Charter Treaty, which allows energy companies to sue governments for changes in energy policy which might lose them money, including policies supporting renewable energy.
One of the reasons that gig workers have few rights is that it is very difficult to organise and bargain collectively when workers are dispersed and have a fragile relationship with their contracting company. However a number of trade unions have been organising gig economy workers and in some cases winning significant improvements in working conditions and workers’ rights.
The fundamental imbalance between the power of digital work platforms and the workers who use them has led some to call for ‘platform cooperatives’, in which the platforms would be owned by the workers themselves.
The TUC and Cooperatives UK have explored the challenges of trade union organising among precarious workers and how precarious workers’ bargaining power can be strengthened.
IPPR has proposed that gig workers should be auto-enrolled into trade unions (with an ‘opt-out’ provision mirroring auto-enrolment into pensions).
The New Economics Foundation argues for the formation of platform cooperatives, owned by the workers using them, which would fundamentally change the current power imbalance between platform operators and workers.
Wired magazine surveys the growing global movement of gig economy workers organising to improve their working conditions.
Automation is the process by which human work is substituted by machines or software programmes of different kinds. Automation has been occurring continuously since the beginning of the industrial revolution, and in general has been responsible for the overall rise in living standards in that time.
Automation is often associated with job loss, but economists point to the difference between its immediate impact on the jobs of those whose labour is substituted, and its effect in the wider economy. Historically, the increase in productivity brought by automation has tended to lead to higher income and employment in the economy as a whole. Some jobs of certain kinds are lost, but more are created.
Today there are widespread fears that a new wave of technologies, particularly those associated with artificial intelligence (AI), may lead to mass unemployment over the coming years.
Sceptics argue that jobs will certainly change with AI, and are already doing so, but there is no reason to believe that the historical pattern of higher overall employment will not continue. Some do however argue that new technologies could worsen job quality for many people and could exacerbate overall inequality, both between highly-skilled groups of workers and others, and between workers and the owners of the capital.
Proposals for policy responses to automation and AI vary according to the analysis of their impacts. Most speak to the need to 'manage' the process of automation to ensure that its benefits are better shared. This could be through workplace bargaining, higher taxation, or widening the ownership of firms. Those who believe that automation may lead to large-scale unemployment propose the development of institutions that either better share available work (such as through shorter working time) or provide non-work-based income such as a Universal Basic Income (see above).
Research published by the IMF (Jan 2021) examines how the Covid-19 pandemic could interact with longer-term trends of automation, concluding that “concerns about the rise of the robots amid the COVID-19 pandemic seem justified”.
MIT economist David Autor explains the historical evidence on the impact of automation on employment, showing how new technologies complement as well as replace labour. He argues that while artificial intelligence will allow computers to substitute for workers in performing routine, codifiable tasks, there will remain a comparative advantage for workers in supplying problem-solving skills, adaptability, and creativity.
Carl Benedikt Frey, Director of the Oxford Martin School’s Future of Work research programme, examines in his book The Technology Trap how the history of technological revolutions can shed light on the political and economic challenges of automation, and warns against increasing inequality. See Frey's lecture here.
The IPPR Commission on Economic Justice outlined proposals for “managing automation” to ensure that automation does not exacerbate existing inequalities and concentrate wealth in the hands of capital owners.
The Institute for the Future of Work launched a project to develop best practice guidance for businesses as they introduce technology to balance employee concerns about work intensity, surveillance and work-life balance.
MIT economist Professor Daron Acemoglu argues that the American tax code’s privileged treatment of capital is encouraging firms to embrace inefficient levels of automation at workers’ expense, demonstrating the importance of correct policy for managing the challenge of automation.
The Covid-19 pandemic has exposed the large number of jobs in the UK economy which are highly insecure. 5 million people are self-employed, a status which includes many who work on contracts for a single company. Over 900,000 people now work on ‘zero hours contracts’ under which they have no fixed working hours.
Altogether it is estimated that 3.6 million people are in various forms of insecure work, including agency, casual and seasonal workers and the self-employed earning less than the minimum wage. Research suggests that nearly 1 in 10 workers in the UK do ‘platform work’ via an app at least once a week, with nearly two-thirds of those under the age of 35. Many such ‘gig workers’ were among the first to lose their jobs as the economy closed down in the pandemic. But it is estimated that over 1.5 million self-employed people were unable to get government support.
‘Gig economy’ jobs can provide welcome flexibility. But many come with very low pay, and by definition a high degree of insecurity which makes normal household budget planning very difficult. They tend to have few employment rights, such as paid holidays, sickness pay, and protection against unfair dismissal. And it is difficult for gig economy workers to organise collectively, for example through trade unions.
The UK government has commissioned independent research on the size of the gig economy, the characteristics of those participating in it and their experiences.
Research conducted for the TUC has shown how work organised through digital apps has been spreading throughout the economy, with 15% of the workforce having undertaken 'platform' work of this kind at some point.
The TUC has surveyed the rise of insecure work across the economy.
The Fairwork Foundation examines the impact of the Covid crisis on the 50 million gig economy workers throughout the world.
The Institute for the Future of Work's 2021 Global Labour Market Resilience Index listed the UK as the 12th most resilient labour market in the world. It recommends greater devolution to enable more dynamic responses to inequality and insecure work and devolving vocational training to the local level to fill national policy gaps.
A key route to improving the conditions of gig economy and other insecure workers is to extend to them some or all of the labour rights and protections covering employees and other workers. This was the broad approach taken by the 2017 Taylor Review of Modern Working Practices, which has been partially acted upon by the government. But it was widely criticised for not going far enough.
One idea gaining traction is that of ‘portable benefits’. Attached to the employee and not the employer, a portable benefits account would allow workers and employers – and potentially the government – to pay into services such as sick leave, pension contributions, maternity leave and health insurance.
The Taylor Review of Modern Working Practices commissioned by the government in 2017 recommended reform of labour law to give self-employed workers dependent on labour platforms access to legal protections such as the minimum wage. The House of Commons Library has published a review of the report and responses to it.
The TUC has called for a much wider set of reforms, including the effective abolition of zero hours contracts by giving workers the right to a contract that reflects their regular hours, along with a statutory presumption of employment rights unless an employer can demonstrate that an individual is genuinely self-employed.
The RSA has proposed a portable benefits scheme to provide rights and protections for gig economy workers.
Proposals for Universal Basic Services take the principles underlying the NHS - the universal provision of healthcare, free at the point of need - and argue these should be applied to a wider range of public services, such as transport, shelter, food and information (e.g. Internet access).
UBS is often contrasted to UBI (above). While the two proposals are not diametrically opposed, the difference in focus leaves room for disagreement. Some UBS supporters argue, for instance, that the best way to spend our resources and political capital in ensuring people’s core needs are met is in the radical expansion of public services, and that unconditional cash transfers would not achieve the same uplift in living standards.
Conversely, while many progressive proponents of UBI support wider and improved provision of public services - e.g. health, social care, education, information - they take issue with some proposed universal basic services (e.g. food provision) and argue that cash transfers are a more efficient, less paternalistic route to ensuring some basic needs are met.
A 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, generally regarded as the first articulation of UBS.
The idea of Universal Basic Services is now widely becoming known as the 'Social Guarantee'. A new group of that name is coordinating information and campaigning in the UK, and has gathered together a range of papers by Anna Coote and others setting out and analysing the proposal.
Henrietta Moore, founder and director of the Institute for Global Prosperity, writes on how UBS could invigorate local economies in the context of Covid-19 and the work IGP has been doing with local authorities in this area.
Professor Guy Standing argues against the idea that Universal Basic Services are an alternative to UBI, engaging with a number of arguments that UBS supporters make against Basic Income.
UBS supporter Anna Coote and UBI supporter Barb Jacobson debate the merits of their proposals with Ayeisha Thomas-Smith for the NEF podcast.
The proposal for a Universal Basic Income (UBI) is that all adults should receive a regular cash payment without means-testing or a requirement to work.
Supporters of UBI argue that it would simplify the social security system, reducing the bureaucracy, intrusiveness and stigma associated with claiming means-tested and conditional benefits. It would recognise and reward valuable unpaid work (such as care work and voluntary work) and would force up the quality and pay of currently low-paid jobs in order to make them attractive enough for people to do. Supporters often argue that automation will make full employment impossible, so a UBI would ensure everyone had at least a subsistence income.
Critics of UBI question the administrative cost of providing payments to every adult citizen. The government revenue needed to provide such payments would be substantial, requiring higher taxes; many recipients would effectively have the entire benefit taxed back. There would still need to be other benefits (possibly means-tested) for children and special needs such as disability. A UBI, critics argue, might also reduce incentives to work.
There are significant differences between various UBI proposals, for example concerning the size of the payment and the extent to which it would replace existing social security benefits. There are no examples of UBI being implemented at a national state level, but a number of trials and experiments are currently under way in different parts of the world.
The House of Commons Library’s research briefing on “The introduction of a basic income” (Oct 2020) offers an overview of the debate around introducing a 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.
Economist Guy Standing outlined the moral and practical case for “Basic Income as Common Dividends” (2019) in his independent report to the Shadow Chancellor on piloting a basic income scheme in the UK.
A policy paper for the Women’s Budget Group Commission for a Gender-Equal Economy examines the pros and cons of basic income from a feminist perspective, and reviews recent proposals in this area.
The Basic Income Earth Network (BIEN) website features the latest news and research from supporters of UBI around the world. The Basic Income Conversation provides regular information on UBI campaigning and pilots in the UK.
The Liberal Democrats and the Green Party are both committed in principle to a UBI, and in October 2020 a cross-party group of over 500 parliamentarians and councillors wrote to the Government calling for UBI trials.
The New Economics Foundation’s Anna Coote offers a critique of UBI from a progressive perspective, and argues that Universal Basic Services (below) would be a better route to radical social security reform, while Harvard political theorist Alyssa Battastoni wrote for Dissent on the “false promise” of UBI for radicals.
The two main provisions for children in the social security system are Child Benefit and the child element of Universal Credit (or child tax credits in the legacy benefits system). Child Benefit is provided for all children, although there is a reduced effective rate for children after the eldest, and for families with one or more higher income earners (over £50,000 p.a.).
Means-tested support for families through Universal Credit or child tax credits is largely limited to two children. This aspect of child support has faced particular criticism for penalising children born into larger families. Nearly half (47%) of children in families with three or more children live in poverty.
Overall there were around 3.4 million children living in poverty in 2019-20. Nearly half (46%) of all children from black and minority ethnic groups are in poverty, compared with a quarter (26%) of children in white British families. 75% of children growing up in poverty live in a household where at least one person works.
Good affordable childcare enables parents to work and provides early years learning. But only a little over half (57%) of local authorities in England have enough childcare places for parents who work full-time, and less than a quarter (22%) have sufficient for those who work atypical hours.
The Child Poverty Action Group’s research on 'the cost of a child' shows that two parents working full-time on the minimum wage will still be £47 a week short of the income they need to raise a child. It wants the child element in Universal Credit restored, child benefit increased by at least £5 a week and both the two child limit and overall benefit cap abolished.
IPPR and the TUC make the case for a “family stimulus”. They show that increasing the child element of Universal Credit (UC) and child tax credit (CTC) by £20 per week per child and removing the two-child limit would increase GDP by 0.5% (£14 billion a year) and lift 700,000 children out of poverty. They also propose an increase in childcare spending.
The Women's Budget Group explains the current landscape of childcare and childcare support in England. The TUC analysed the cost of childcare prior to the pandemic. It found that childcare fees rose three times faster than wages; for lone parents, seven times. In a 2021 survey of 20,000 parents in the UK coordinated by Mumsnet, 97% felt childcare was "too expensive", and a third said they paid more for childcare than their rent or mortgage.
The Coram Family and Childcare Trust argues for universal availability of affordable childcare for all children, including school age children. It argues that the cost of childcare must be such that every parent is better off working after childcare costs; there must be good child care available for disabled children and those with special needs; and the value ofchildcare professionals should be recognised through pay, professional development and representation.
The introduction of Universal Credit in 2013 replaced a number of separate working-age benefit schemes. The stated aim was to simplify the system and to avoid a 'cliff edge' whereby recipients would lose money if they found work - 'making work pay' and smoothing moves in and out of the labour market.
Since then, Universal Credit has been widely criticised, both before and during the pandemic. Targets for criticism include its bureaucracy, its low rates, the 'two child' limit for child support, the delay in receiving the first payment, the harsh nature of its sanctions, and the distribution of benefits at a household, not individual, level - which increases the risk of financial abuse, especially for women.
While some argue for reforms to Universal Credit to address these issues, others call for it to be scrapped altogether due to objections to its core principles (e.g. conditionality and means-testing). One far-reaching reform would be the establishment of a 'Minimum Income Guarantee' - which would set a ‘living income’ floor below which no household would fall and could be implemented within the Universal Credit system.
NB Some households are still on the ‘legacy’ system of benefits. The Government expects all households to have ‘migrated’ to Universal Credit by September 2024.
The cross-party House of Lords Economic Affairs Committee’s report Universal Credit isn’t working: proposals for reform is a comprehensive overview of the problems with UC. It argues that UC has “undermined the security and wellbeing of the poorest in our society” and outlines a suite of recommendations to improve the system.
IPPR examines the prevalence of poverty among working families and argues for greater priority to be given to bringing down the high costs of housing, childcare and other essential goods as a proportion of household income, as well as reforms to genuinely ‘make work pay’.
The New Economics Foundation's Living Income campaign finds that, without a change in policy, by 2022 almost a third of the UK population (over 21 million people) will be living below a needs-based ‘minimum income standard’. NEF calls for a new approach to social security, including a Minimum Income Guarantee of £221 per week. The Child Poverty Action Group has similarly proposed a minimum income guarantee in Scotland.
The Fabian Society’s year-long study of public attitudes to welfare used surveys and a citizen’s jury to identify a public consensus for additional social security payments totalling around £10 billion, as well as the retention of the £20-a-week Universal Credit uplift introduced during the pandemic.
The multiple drivers of income and wealth inequality mean that many different kinds of policies and approaches are needed to reduce them. One of the core features of the growth of inequality in most high-income countries since the 1970s is the significant fall in the proportion of national income which has gone to wages and salaries (the 'labour share') and the corresponding rise in the proportion which has gone to the owners of capital assets (such as company shares and land and property). This suggests that policy needs to focus, on the one hand, on raising the productivity of labour and the bargaining power of workers; and on the other on reducing the rate at which assets appreciate in value. Both kinds of approach would reduce the growth of 'market' income and wealth, before tax. Reforms to the tax system and welfare measures can then further reduce inequality.
In recent years the growth of low-paid and insecure jobs has led many to argue that there needs to be a revival of the role of trade unions in the labour market, able to bargain collectively on behalf of workers and employees. There is a strong correlation between the decline of union membership in most high-income countries since the 1970s and the rise of income inequality. Productivity improvement - for example through automation - will enhance wages, but only if the benefits are shared between workers and the owners of the automating technologies and software.
Over recent decades there has been an increasing concentration in the ownership of company shares, and the values of stocks and real estate have grown substantially faster than national income (GDP). Companies have become more 'financialised', using more of their profits for dividends and less for investment, and and banks (particularly in the UK and US) have lent increasing sums for land and property. Various proposals have been made to counter these trends, including stronger financial regulation, higher taxation of financial companies and transactions and new forms of corporate governance. There have also been proposals to widen the ownership of company shares, both to their workers and the population as a whole.
Writing for Economists for Inclusive Prosperity, Dani Rodrikand Stefanie Stantcheva have created an organising framework for policies to tackle inequalities, including a taxonomy of policies to distinguish the types of inequality being addressed and where the intervention takes place.
The TUC argues that collective bargaining is a public good that promotes higher pay, better training, safer and more flexible workplaces and greater equality. It proposes a range of measures to give unions greater access to workers and workers greater rights to join unions. Detailing trends in union membership and the evidence relating this to inequality, a report for the IPPR Commission on Economic Justice makes similar proposals.
A paper for the IPPR Commission on Economic Justice sets out how trends in automation and artificial intelligence are likely to increase inequality, and proposes a process of 'managed automation' to share the benefits of productivity improvements between workers - including those displaced - and the owners of capital.
The final report of the IPPR Commission on Economic Justice, Prosperity and Justice, sets out more than 50 policies which can reduce inequalities in income and wealth, between geographic areas and between genders and ethnic groups.
A report for the Friends Provident Foundation proposes the creation of a Citizens' Wealth Fund, a national sovereign wealth fund which would take gradual ownership of company shares on behalf of the public and distribute a dividend to citizens. IPPR has made a similar proposal.
A report published by the LSE's Inequalities Institute examines the economic consequences of major tax cuts for high income earners in a variety of countries over the last 50 years. It shows that such tax cuts increase income inequality but do not have any significant effect on economic growth or unemployment. A report for the IPPR shows how the UK income tax system could be made more progressive.
Wealth is far more unevenly distributed than income. In 2016-2018 the wealthiest 12% of households owned half of the UK's wealth, while the least wealthy 30% of households held just 2%. The poorest tenth of the households have negative wealth: that is, their debts exceed their assets. Measured by the Gini coefficient, wealth inequality has increased since 2006-8, with financial and property wealth showing the largest rise.
Pension wealth has become more equal in this period, as automatic pension enrolment has been rolled out. The rise in property values has led to a sharp increase in intergenerational inequality. For the most part, income and wealth are closely linked, with high incomes allowing people to accumulate assets, which have consistently grown faster in value than national income over recent decades. The poorest households most exposed to income shocks often have no savings to fall back on.
One consequence is the increase in low income households turning to debt to cover essential needs - rent, food, utility bills - over the past decade, and the increasing use of food banks.
The World Inequality Database, established by Thomas Piketty, Gabriel Zucman, Emmanuel Saez and colleagues, provides a comprehensive set of data on income and wealth inequality in countries across the world.
The Resolution Foundation has published a series of reports outlining the extent and character of wealth inequality in the UK.
The Resolution Foundation's Intergenerational Commission has documented the inequalities between generations in the UK, noting in particular how today's younger generations are much worse off in terms of housing and pensions than previous generations.
The disruption caused by the pandemic has exposed serious issues in the UK's labour market and social security system.
As more people have had to rely on the social safety net, Covid-19 has drawn attention to its shortfalls - particularly in relation to Universal Credit and statutory sick pay. At the same time the unequal impact of the pandemic has shone a light on sharp inequalities within the labour market, in terms not just of income, but of precarity, flexibility, and exposure to risk. Some people have found new freedoms in being able to work from home; others have been made redundant and then re-hired on worse pay and conditions.
Calls for reform of the welfare system range from proposals to increase the amounts paid by Universal Credit and other benefits to more radical ideas such as a minimum guaranteed income or an unconditional 'Universal Basic Income'. Reform of employment law is often suggested to give self-employed and casual workers more rights, while an increasing number of voices argue that trade unions should be given greater access to workers to organise collective bargaining over wages and conditions.
For information on job and income protection and job creation during and after the pandemic, see our 'Stimulating economic recovery' pages. For more on inequality, see our 'Driving down inequalities' pages.
The House of Commons Library’s briefing on Coronavirus: Universal Credit during the crisis reviewed Universal Credit claims and changes up to January 2021, and calls for reform. A parallel briefing on Coronavirus: Impact on the labour market tracks changes in employment, pay and the furlough scheme.
The Resolution Foundation's Low Pay Britain 2021 report looks at the impact of Covid-19 on poorly-paid workers and explores whether the recovery may improve both pay and job quality.
In its latest review of workplace conditions across the UK the TUC has found that one in 9 workers (3.6 million people) are now in insecure work, with black and minority ethnic workers more likely to be in such work than their white counterparts. The TUC calls for a new package of workers' rights.
In its research on sick pay the TUC found that one in 12 key workers (788,000 people) do not qualify for statutory sick pay (SSP), despite many of them being at greater risk from Covid-19 due to the frontline nature of their job. It calls for the lowest paid workers to qualify for statutory sick pay for the first time and for the rate of SSP to be raised from its current £96 per week to at least the level of the real living wage (£330 per week).
The Reset Inquiry commissioned by the All-Party Parliamentary Group on the Green New Deal heard from over 57,000 people on what ‘life after Covid’ should look like. Their nationally representative poll found majority support for a jobs guarantee, a reduction in working time and some form of monthly, guaranteed set income for every household.
In the decade before the pandemic, public sector pay fell behind the rising cost of living, so that on average in real terms the UK's 5.5 million public sector workers earned £900 less per year in 2020 than they did in 2010. Some workers have seen particularly sharp falls in real-terms pay, including teachers (£1349), local government residential care workers (almost £1900), firefighters (£2500) and early career nurses (over £3000).
In this context, the Government’s decision in November 2020 to freeze pay levels for most public sector workers has attracted criticism. Many argue that it undervalues the work of millions of 'key workers' who have already seen a decade of declining pay. Many economists have questioned the wisdom of cutting wages while simultaneously trying to stimulate economic recovery. Public sector pay restraint will also exacerbate inequalities, as women, members of ethnic minorities and those living in poorer regions of the UK are disproportionately likely to work in the public sector.
The wider issue is about maintaining public sector capacity and the quality of public services. Low and declining pay makes it harder to recruit and retain high quality public service workers.
The TUC's analysis of the pay and conditions of public sector key workers proposes a three reforms: raising the minimum wage, which would improve earnings for 2 million workers, giving meaningful pay rises to another 4 million workers, and banning zero-hours contracts, which particularly affect those working in health and social care, and wholesale and retail.
Prior to the pandemic, the House of Commons Library estimated that recruitment and retention challenges in health and social care in England had led to a combined shortage of over 222,000 full-time equivalent staff across the NHS and adult social care.
IPPR has proposed a post-pandemic workforce strategy for the NHS, drawing on polling of healthcare professionals and based on the principles of 'recover, reward and renew'.
The IFS calculates that teachers have experienced a 4-8% real-terms fall in salaries since 2007. This is considerably worse than for other sectors, and is likely to have serious consequences for teacher recruitment and retention.
A string of well-publicised failures and allegations of 'cronyism' (such as in test-and-trace and other Covid-related procurement) has brought attention to the government’s procurement practices and its use of 'outsourcing' to provide public services.
In the decades prior to the pandemic, the UK had come increasingly to rely on private providers to deliver many public services. Originally motivated by a belief that putting public services out to tender would generate competition and therefore improve efficiency and value for money, the evidence in practice has been mixed, with many questioning whether the profit motive leads corners to be cut and service quality to deteriorate.
As the use of outsourcing has increased, the capacity of the public sector to deliver services ‘in house’ has declined, often leaving authorities with little option but to look to private providers. But so far from increasing competition, a very large proportion of major government contracts go to a very small number of firms which specialise in winning such contracts.
This has led to growing calls for a reassessment of procurement practices and for a return to 'insourcing' (direct service provision) by public authorities.
Analysing the circumstances where insourcing of public services can improve quality, increase reliability and save money, the Institute of Government proposes guidelines for when and how public services should be brought back into government hands.
UCL professors Mariana Mazzucato and Rainer Kattel argue that an over-reliance on outsourcing in recent decades has led to a collapse in UK public sector capacity and expertise, undermining the government's to respond to shocks such as Covid-19.
The British Medical Association has published analyses of the acceleration in NHS outsourcing during Covid-19 and the windfall gains to private providers to which this has led.
Neil McInroy and Tom Lloyd-Goodwin of CLES (the Centre for Local Economic Strategies) argue that the present approach to outsourcing has failed, and that a combination of insourcing and 'social licensing' - the requirement that non-government providers of public services must meet certain minimum standards - would improve the quality of provision.
Examining financialisation and outsourcing within the care sector, IPPR argue that the growth of debt-financed private provision can lead to lower quality of service and financial instability. They propose a financial regulator. Common Wealth has proposed an industrial strategy for the care sector.
In the decade before the pandemic, public services saw the longest sustained reduction in public spending on record. In 2019-20 day-to-day spending per person on public services was 7% lower in real terms than a decade before. Outside of health, real-terms public service spending was cut by 20% (25% per person).
Even without any change in policy, the UK's ageing population will require higher spending on health and social care and other services to maintain service quality. There are also widespread demands for better services and higher spending in areas such as schools and further education, childcare, public transport, policing, justice and legal aid and local services such as libraries and youth provision.
The UK spends less on public services (including social security and defence) than most other higher income (OECD) countries. The UK also raises less in tax as a proportion of national income than most others, though government plans are for this to rise in the next few years.
A higher level of spending on public services could be supported by an increase in borrowing (see our pages on 'Stimulating economic recovery'), but a sustained increase is likely to require a higher overall level of taxation. This could be achieved by raising the rates of existing taxes, or by tax reforms which sought to raise more revenue from other sources, such as from asset wealth or multinational companies. Our pages on taxation provide more information.
Analysing the March 2021 Budget, the Institute of Fiscal Studies notes that the government plans to cut public services by £16bn a year compared to pre=-pandemic levels. IFS Director Paul Johnson called the Chancellor’s medium-term spending plans “implausibly low”.
Bringing together evidence on underinvestment in the NHS, social care and public health prior to the pandemic, Anita Charlesworth of the Health Foundation argues that this, along with overly centralised decision-making and a reliance on non-competitive outsourcing, lies behind the UK’s high Covid-19 death toll.
A July 2020 survey by the National Centre for Social Research (NatCen) found majority support for increasing tax and spending on health, education and social benefits, as there has been since 2017.
A four-year commission of inquiry on the future of the NHS led by the London School of Economics and the Lancet argues that increases in public spending of at least 4% in real terms are needed for health, social care and public health over the next decade.
The Women’s Budget Group calls for spending on key public services (health, care, education) to be seen as investment in social infrastructure. It argues that a focus only on physical infrastructure reflects a gender bias in economic policymaking and leads to underspending on vital public goods.
A growing number of voices, including 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.
Over the past 18 months there has been an outpouring of appreciation for NHS staff, carers and other workers delivering key public services under extraordinary strain. Yet at the same time the pandemic has exposed a lack of resilience within many of these services.
It is now widely recognised that the task beyond Covid-19 is to rebuild public services so they are better equipped to handle future challenges: both acute shocks, such as another pandemic, and chronic pressures such as the ageing population. Public services will also play a crucial role in achieving long-term national goals, such as decarbonisation and reducing regional inequality. Other insights from the experience of Covid-19, such as the importance of digital access and data governance, could also inform future public service provision.
Even before Covid many public services were under severe pressure, particularly at local level. A decade of major reductions in public spending had been accompanied by other important trends in service provision, such as outsourcing. At the same time a measure of devolution to city regions had created opportunities for innovation and more integrated service provision.
There are close relationships between public services and the social security or welfare systems. See also our Improving work and welfare pages.
The Institute for Government’s report How fit were public services for coronavirus? found an acute lack of resilience across the NHS, local government, education and criminal justice systems, and blame underfunding over the previous decade.
The House of Lords Public Services Committee’s report A critical juncture for public services: Lessons from Covid-19 identified a number of weaknesses in public service provision during the pandemic - inequality of access, over-centralisation, lack of integration - and outlines recommendations for reform.
The British Academy has conducted a major enquiry into the long-term social impacts of Covid-19 and the implications for the design and funding of public services in the 2020s. It sets out seven strategic goals for policymakers and five principles for a successful recovery by 2030.
The Women’s Budget Group Commission on a Gender-Equal Economy has laid out the roadmap for the creation of a 'Caring Economy', including recommendations both for particular public services (e.g. social care, health, housing) and for how public services are treated within the UK’s broader economic policy framework.
Extending the principles behind the NHS - universal services, guaranteed at a decent level to all citizens - to other public services is the rationale behind the proposal for 'Universal Basic Services'. See our analysis here.
The United Kingdom - especially England - has a highly centralised political system and economic geography. Decision-making power is more concentrated in central government than in comparable Western countries, and regional inequalities in income, wealth and health are larger.
The centralised management of public services has been a contentious topic during the pandemic. Many have argued the Government’s centralised response impeded effective provision of services, particularly with respect to public health and test-and-trace.
At the same time, the last decade has seen a degree of enhanced devolution, particularly to English city-regions. This has allowed new kinds of more integrated service provision and 'joined-up' policy making.
Covid-19 has also drawn attention to the financial fragility of many local authorities. In 2020-21, English local authorities’ spending power was 26% lower than a decade prior. This period also saw population growth of 7%, with rising demand and cost pressures, and new statutory duties for councils relating to public health, social care and homelessness.
For more information see our sections on 'Stronger local economies' and regional inequality.
The National Audit Office describes the financial position of local authorities “a cause for concern”. On top of pre-pandemic funding pressures, they find a £600m shortfall between Covid-related financial pressures and government support, and that 94% of single tier and county councils surveyed expected to cut services in 2021-22.
The House of Lords Public Services Committee has criticised the 'over-centralised' delivery of public services and argued that the pandemic has “demonstrated that certain [services] are best delivered locally”. The Committee also highlighted how underfunding has led to a lack of resilience in local authorities.
Think tank Reform has proposed a radical devolution of public service provision in England. It recommends devolving 95% of NHS England’s budget, along with the devolution of employment and justice services to 38 local commissioning areas.
IPPR North has set out an agenda for devolution in England, including the development of regional authorities.
So far most governments have focused their economic policies during the pandemic on keeping businesses alive and workers in jobs, and supporting household incomes.
As social restrictions have been eased and economies opened up again, there has been a sharp recovery in GDP. Consumer spending has risen, particularly in areas where there is pent-up demand such as hospitality and leisure activities. But the loss of many businesses during the crisis, and much higher levels of unemployment, mean that a full-scale recovery will not occur quickly. Although the growth rate is temporarily high, the level of output - national income - remains below pre-pandemic levels, and permanent damage is likely to have occurred.
There remains therefore a strong case for further fiscal stimulus measures to boost economic output and bring unemployment down. Both the OECD and the IMF have urged governments not to return to austerity. They note that with interest rates already near zero, there is little more that monetary policy can do.
An expansionary fiscal policy is needed, they argue, to create demand and boost investment, and thereby to create new jobs. Where interest rates are very low, they note, the ‘multipliers’ from government spending (the mechanism by which spending expands throughout the economy) are particularly strong.
Summarising its latest Economic Outlook, the OECD’s chief economist has urged countries to maintain their fiscal spending until full employment is reached, particularly through public investment in the digital and green transitions.
The IMF’s chief economist explains why an expansionary fiscal policy is needed to create jobs and stimulate private investment. The IMF highlights the critical role of public investment.
Assessing the March 2021 Budget, the Institute for Fiscal Studies notes that the Government's future spending plans are 'implausibly low' relative to social needs and demands.
Oxford economist Simon Wren-Lewis argues that, while the UK government has adopted broadly the right macroeconomic policy since the pandemic struck, it is still pursuing the austerity public spending programme introduced in 2010.
Nobel prize-winning economist Paul Krugman explains why a sustained stimulus programme is the economically rational response to the economic downturn.
The wide disparities in the distribution of wealth have led to an emerging consensus that the way in which wealth is taxed needs to be reformed. While wealth has soared relative to incomes over recent decades, with these gains concentrated very narrowly among high-income households, the tax take from wealth has remained flat.
Property wealth constitutes an important part of this. House prices in the UK have tripled relative to incomes since the 1970s, a key driver of economic inequality. But soaring property values have been left largely untaxed, with a council tax system still based on 1991 property values. Economists point out that land and property taxation is an efficient mechanism since they are fixed and their rise in value often occurs without any work, effort or skill on the homeowners’ part.
Income from wealth , including dividends and capital gains, is currently taxed at lower rates than income from work, one reason why the very wealthy pay a much lower effective average rate of tax on their remuneration. The system of inheritance tax includes a range of reliefs and exemptions, which can allow the wealthiest estates to avoid it: the effective rate of inheritance tax paid on estates valued at over £10 million is half that paid on those with a value of £2-3 million. Tax avoidance schemes also allow the very wealthiest to circumvent tax. Among the wealthiest 0.01% of household, who hold 5% of national wealth, approximately 30-40% of wealth is held offshore.
Proposals for tax reform include equalising the rates of tax on income from wealth and income from work; reforming land and property taxation; reforming inheritance tax; and proposals for annual or one-off taxation of household wealth.
IPPR have published proposals to equalise the rates of tax on income from work and wealth and integrate all income into a single progressive tax schedule. It estimates that such reforms could raise around £100bn in annual revenue.
The Resolution Foundation outlines how a series of relatively minor reforms to the taxation of wealth which could raise significant sums without, it argues, significant political opposition.
The broadly-based campaign group Fairer Share outlines the case for a proportional property tax to replace council tax, thereby bringing property taxation into line with the principle that taxes should be progressive (rising with ability to pay). The Institute of Fiscal Studies has argued for the reform of council tax to make it more progressive, while IPPR has proposed the abolition of business rates and the introduction of a land value tax which would capture the increase in land value when planning permission is given.
University of California economists Emmanuel Saez and Gabriel Zucman outline how a progressive wealth tax could work, drawing on a wide range of evidence on wealth inequality, technical feasibility and economic impact.
The UK Wealth Tax Commission established by the LSE has explored the viability and desirability of a wealth tax in the UK. Its final report concludes that a one-off wealth tax set up to respond to the impacts of Covid-19 could raise £250 billion over five years. The IMF has proposed a similar temporary 'solidarity levy' on richer households to pay for measures to combat post-pandemic inequality.
IPPR proposes the abolition of inheritance tax and its replacement by a donee-based gift tax which would tax all gifts over a minimum amount, thereby encouraging the dispersal of estates and reducing avoidance.
The UK has one of the highest levels of income inequality in Europe. There was a sharp increase in all measures of economic inequality over the course of the 1980s. Measured by the commonly-used Gini coefficient, relative income inequality has stayed largely flat since 2000. But this means that the real income gap between richer and poorer households has been increasing in absolute terms.
Other measures of income inequality show a continuing rise over the same period. Between 2003-4 and 2018-19, the poorest 20% of non-pensioner households saw no overall rise in their incomes at all, while the incomes of the richest tenth and of the median (typical) household grew around 15%. The poorest fifth did see their incomes rise in 2019-20, but this will almost certainly have been reversed in 2020-21. In this period pensioner poverty has fallen, though it rose to just under a fifth (18%) in 2019-20, while the proportion of children living in poverty has increased to nearly a third (31%).
The Gini coefficient also hides the accelerating incomes of the richest 1%, who now take almost 14% of all national income, compared to around 7% in 1981.
The Equality Trust has brought together evidence on the drivers of inequality in high-income countries such as the UK in recent decades, including political systems, institutions and policies, technological change, patterns of globalisation and childhood and family factors.
The Resolution Foundation's annual Living Standards Audit examines trends in household incomes in the UK, including the impacts of the Covid-19 pandemic. It shows that while better-off households have been able to increase their savings and pay off debts, many of those on the lowest incomes have seen their debts increase.
Gathering multidisciplinary evidence from over 200 academics and research institutes, the British Academy has published a wide-ranging report on the likely long-term impacts of the Covid-19 crisis, and the policy implications. It forecasts that significant intervention will be needed to avoid an acceleration towards poorer health and social and economic outcomes and a more extreme pattern of inequality.
The final report of the Resolution Foundation's Intergenerational Commission sets our a comprehensive analysis of intergenerational inequality and a policy agenda to reduce it, including action on education, employment and housing.
The UK has one of the highest levels of income inequality in Europe, with a sharp and sustained increase in all measures of economic inequality over the course of the 1980s. According to the Gini Coefficient, income inequality has stayed relatively flat since 2000, but other measures tell a different story.
The income gaps between richer and poorer households have been increasing in absolute terms, even if measures of relative inequality have remained stable. You can measure relative inequality itself in different ways. If we focus on the poorest 20% of households, for example, we see that incomes for this group are now no higher than they were 15 years ago, while the average household has seen its income rise 9% over this period.
The Gini coefficient hides the "runaway rise" of the richest 1%, who now take 8% of all national income (compared to 3% in 1970 and 6% in 1990). Changing the way we measure income, by factoring in housing costs or income from capital gains or inheritance, can reveal a widening disparity even over the past decade.
Wealth is far more unevenly distributed than income. From 2016 to 2018, the wealthiest 12% of households owned half of the UK�۪s wealth, while the least wealthy 30% of households held 2%. In the past decade, the wealth gap has increased. The wealthiest 10% hold �2.5m more in wealth per household than the least wealthy, a significant increase from the �1.5m gap in 2006 to 2008.
For the most part, income and wealth are tightly linked, meaning that the households most exposed to income shocks often do not have savings to fall back on. This goes some way to explain the increase in low income households turning to debt to cover essential needs - rent, food, utility bills - over the past decade.
A review by the British Academy, bringing together 200 academics and headed by the Government's chief scientific adviser Sir Patrick Vallance, argued ���failure to understand the scale of the challenge ahead and deliver changes would result in a rapid slide towards poorer societal health, more extreme patterns of inequality and fragmenting national unity.�
The IFS Deaton Review's New Year Message summarises how inequalities widened in 2020 and outlined the action needed in 2021 to address this.
Analysis published by the LSE of 18 OECD countries over the last 50 years suggests that tax cuts on the rich have not had a significant impact on unemployment or growth, while they have increased income inequality.
The Resolution Foundation has found that the first wave of furlough pushed 2 million employees below minimum wage, while 1 in 8 furloughed workers have defaulted on a payment, heralding a private debt crisis for lower-income households.
An argument widely made by those seeking to address racial inequalities is that policy is typically made without any assessment of the impact on different ethnic groups, and therefore without specific plans to counter racial inequality. This was a particular criticism of the UK government in relation to Covid-19, given the disproportionate vulnerability of BME groups. Equality impact assessments of policy when it is being made are now widely advocated.
There are now widespread calls for mandatory ethnic pay gap reporting for larger firms, in the same way as gender pay gap reporting.
Research on tackling racial inequalities shows the importance of mandated targets and positive action within equality law, the de-biasing of recruitment and progression processes, mentoring and leadership programmes, diversity and unconscious bias training, and the adoption of explicitly anti-racist and action-oriented approaches to organisational culture. Adoption of the ‘Rooney rule’, under which at least one BME candidate is required to be shortlisted for job vacancies (originally introduced in the US National Football League) is often advocated.
By using social value criteria in procurement processes (requiring high quality practices from suppliers and contractors), governments and public bodies can mandate action on racial equality, including on low pay. Overall, however, more fundamental economic change is likely to be needed if the legacy of historic and structural discrimination is to be eliminated.
The Runnymede Trust’s The Colour of Money report provides an overview of racial inequalities in the economy, including in wealth, vulnerability to poverty, and employment. It argues that tackling racial inequalities requires measures to address low pay, poverty and poor housing in general alongside specific measures to tackle racial discrimination, particularly in the labour market. Ultimately structural economic change is needed to counter the longstanding effects of historical racism.
The report of the Intersecting Inequalities project and the Equality and Human Rights Commission’s report on the impact of tax, minimum wage and welfare reforms since 2010 both found austerity-related policies to have disproportionately impacted ethnic minority women and disabled people. They argue that policy needs specifically to be assessed for its impact on disadvantaged and discriminated-against groups, including the cumulative impact of policy over time.
The TUC, CBI and Equality and Human Rights Commission have issued a joint call for the government to introduce mandatory ethnic pay gap reporting, arguing that this would transform understanding of race inequality at work and drive action to tackle it in companies and government. Professor Susan Milner at the University of Bath argues that mandatory reporting is both necessary and feasible.
The Wales Centre for Public Policy has reviewed research on policies to tackle racial inequalities in the economy. They show the need for active workplace measures to counter discrimination and encourage anti-racist organisational cultures, and at an overall policy level for governments to engage in sustained action targeting institutions, workplaces and individuals, with effective implementation mechanisms, visible support from leaders, and better data collection.
The impacts of the Covid-19 pandemic and economic shutdowns have not been evenly experienced. The evidence shows that the effects have largely played out along existing lines of inequality. In the UK people living in the most deprived areas and on the lowest incomes, and those from black and minority ethnic (BME) communities, have been both most likely to die from the disease and most likely to lose their jobs and to face serious financial pressure.
Globally Covid has also been experienced in very uneven ways. Varying national responses to the virus have made a big difference, but within most countries it has been those on the lowest incomes who have experienced the most severe effects, and internationally countries with the poorest health systems.
The extremely unequal distribution of vaccines has exacerbated the crisis, with much slower rates of vaccination between richer and poorer countries. Vaccination rates will largely determine how quickly countries recover economically from the pandemic.
Nobel laureate Joseph Stiglitz reviews the international evidence on inequality and Covid-19, and argues that systemic economic reform is needed to reduce inequalities.
The Institute for Fiscal Studies Deaton Review on Inequality has analysed how Covid-19 has affected various aspects of inequality in the UK. It shows how the pandemic has interacted with many longstanding inequalities, with those on low incomes and in disadvantaged areas, women and BME communities most affected by job loss and financial hardship.
The Institute for Health Equity's 'Build Back Fairer: The COVID-19 Marmot Review' examines the health inequalities and the socioeconomic determinants of health exacerbated by the pandemic.
A report by the World Health Organisation, UN Development Programme and Oxford University analyses the global distribution of vaccines and shows that the highly unequal rate of vaccination will largely determine the speed at which countries recover economically from the pandemic.
Social infrastructure is the term now commonly given to those sectors of the economy - health, education, adult social care and childcare - which are critical for its effective functioning but which are often neglected in both economic theory and policy. Spending on social systems is rarely classed as ‘investment’, despite the investment-like returns in these areas. It can be argued that this reflects a gender bias in economic policy making.
The majority of jobs in social infrastructure sectors are held by women, and many of them by people of colour. Pay is often very low. Investment in these sectors could therefore help to reduce both gender and racial inequalities. Social infrastructure sectors are also 'green', using less energy and material resources than many other sectors, particularly physical infrastructure.
Improved access to affordable childcare is a critical part of social infrastructure provision, giving parents, particularly women, the ability to take up and stay in paid work.
Analysis by 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 as the equivalent investment in construction. It would narrow gender inequality and also have positive environmental impact.
The Greater Manchester Independent Prosperity Review argues that investment in physical infrastructure alone will not narrow the UK’s unusually pronounced regional inequalities, emphasising the need for social infrastructure spending.
Coram Family and Childcare argues that four key goals should inform childcare policy: making sure every parent is better off working after childcare costs; making sure there is enough high quality childcare for all children, including those of school age; making sure children with special education needs or disabilities can access high quality childcare; and recognising the value of childcare professionals through pay, professional development and representation.
The pandemic has sharpened the pre-existing economic disparity between men and women. Women are more likely to have lost work and income. They are more likely to work in low-paid, insecure frontline roles. In many of the sectors that have suffered most - retail, hospitality, tourism - women are over-represented.
During the pandemic women have continued to do more unpaid domestic and care work than men. During school closures, for instance, 70% of mothers reported being completely or mostly responsible for homeschooling, and mothers were 50% more likely to be interrupted during paid work hours. Covid disproportionately affected women’s mental health.
Covid lockdowns also sharply increased the incidence of domestic violence. Low income and migrant status both significantly increase women’s vulnerability to domestic abuse, underlining the need for policymakers to understand how gender intersects with other axes of inequality.
The Fawcett Society has collated evidence on the social and economic impacts of Covid-19 on women and how these have intersected with other axes of inequality.
A 2020 survey of 19,950 mothers by campaign group Pregnant Then Screwed found significant employer discrimination against mothers. 15% of mothers had been or were expecting to be made redundant during the pandemic, nearly half of whom said that lack of childcare provision played a role in their redundancy.
The Women’s Budget Group has published an analysis of the gender differences in access to coronavirus government support schemes, finding women more likely to be furloughed than men, and young women aged 18-25 were the largest group furloughed by age and gender.
Under the Public Sector Equality Duty, public bodies are required to have 'due regard' to gender and other types of equality. Many organisations concerned with equalities argue that this requires public bodies to undertake equality impact assessments (EIAs) to ensure that policy does not discriminate against women, ethnic minorities and other groups protected under the 2010 Equality Act.
Many economists have argued that assessments of policy from government, as well as the media, should be based on a broader account of economic and social progress. This means targeting the reduction of inequalities as well as focussing on GDP growth. 'Gender budgeting', analysing government spending and tax decisions in terms of their impact on women, is one such approach.
The Women's Budget Group sets out how Equality Impact Assessments can ensure that policy makers take account of the different impacts of policy on women. Meaningful equality impact assessments should consider cumulative impact, intersectional impact (for example on women of colour and disabled women), the impact on individuals as well as households, impact over a lifetime and the impact on unpaid care.
The Women’s Budget Group has curated a set of resources on gender budgeting, the analysis of tax and spending decisions from a gender perspective. It argues that this approach can also be applied to other types of inequality.
The Fawcett Society has proposed a new Equal Pay Bill which would modernise UK law on equal pay. The Bill would give women who suspect they are not getting equal pay the ‘Right to Know’ what a male colleague doing the same work is paid, thereby enabling women to resolve equal pay issues without having to go to court.
It is generally acknowledged that social care services in the UK have suffered from a long period of political neglect, and entered the Covid-19 pandemic in a fragmented, under-funded and under-staffed condition. There is widespread consensus on the need for reform to make the care system more resilient, expanding access to and increasing the quality of services.
Investing in public care services would make a significant contribution to tackling gender inequality. Greater public care provision could relieve the burden on unpaid carers, the majority of whom are women. As 80% of the adult social care workforce are also women, action to tackle recruitment and retention challenges in the sector would so much to improve pay and conditions.
There is evidence of majority public support for extending the principles underlying the NHS to social care, making it free at the point of need and largely taxpayer-funded.
Over recent decades, as most of the UK's social care provision was outsourced from the public sector, private equity companies have taken over a significant proportion of care homes. It is widely argued that the 'financialisation' of care provision has undermined the quality of service.
Modelling by the New Economics Foundation for the NHS has analysed the economic and health cost to society of unpaid care work in England. NEF estimates these costs to be £37bn per year including lost tax revenue and mental health treatment. It argues that this underlines the economic case for greater public investment in care provision.
The final report of the Commission on a Gender-Equal Economy outlines eight steps required to create a 'caring economy'. These include the creation of a Universal Care Service. The Commission argues that a care-led approach to economic policy could form the basis of economic renewal, akin to the creation of the welfare state in 1945.
IPPR have laid out proposals for a social care system free at the point of need, supported by research on public opinion and on the effects of financialisation in the social care system.
The Women’s Budget Group has brought together evidence on the need for reform of social care, highlighting the problems of deregulation and privatisation in the care sector and the effects on gender inequality, for example through increasing strain on unpaid carers.
Black and minority ethnic (BME) residents of the UK have been disproportionately affected by the pandemic in two distinct ways. First, they have suffered worse health outcomes, with people of colour both more likely to contract the virus and less likely to survive it than white people. Public Health England has highlighted how pre-existing inequalities, including the impact of racism and discrimination, have contributed to these unequal health outcomes. BME people are also more likely to work in frontline, 'key worker' roles where they have been more exposed to the virus.
Second, long-standing economic inequalities between white and BME Britons, a product of structural and historical factors, have been exacerbated by the effects of the economic downturn. People from ethnic minority groups have been more likely to lose their jobs and to experience problem debt as a result of Covid-19. Ethnic minority households on average have far less wealth than white households with which to weather economic hardship.
Curating evidence from a broad coalition of organisations, the Runnymede Trust has reviewed the state of race and racism in England. Its report argues that racism is systemic. Disparities facing BME groups in England exist across the areas of health, housing, the criminal justice system, education, employment, immigration and political participation.
Ten years after his landmark review of health inequalities in 2010, Professor Sir Michael Marmot has examined the progress made in the subsequent decade. He finds that people can expect to spend more of their lives in poor health; improvements to life expectancy have stalled, and declined for the poorest 10% of women; and the health gap has grown between wealthy and deprived areas. The report includes an analysis of the link between health and racial inequalities.
Research by IPPR and the Runnymede Trust suggests that the ‘second wave’ of the virus disproportionately affected people of colour in a way that cannot be explained by genetics or co-morbidities, suggesting that this inequality results from 'structural and institutional racism'.
The UK is more geographically unequal than any other comparable advanced economy. This regional inequality exists across output, income, productivity, employment, and political power.
The UK has long suffered from regional health inequalities. Even before Covid-19 people in the most deprived areas could expect to live 19 fewer years in good health than those in the richest parts of the country. The death rate from Covid-19 in the UK’s poorest regions was over double the rate in the wealthiest.
The economic fallout of Covid-19 could increase regional inequalities, with London and the Southeast experiencing smaller reductions in hours worked during the pandemic. But the increase in working from home, if continued, could benefit smaller towns, and rural and coastal areas, if firms and employees realise they do not need to be located in major cities.
The Institute for Fiscal Studies Deaton Review on Inequality analyses the extent and character of geographic inequalities in the UK and how they have changed in recent years.
Analysing the causes of geographical inequality in England, IPPR North ascribes these partly to the large highly centralised structure of government in England, with few powers held at local or regional level, along with the decade of regionally-imbalanced austerity since 2010. Its annual State of the North report identifies key tests for the government's 'levelling up' agenda.
The Centre for Local Economic Strategies (CLES) argues that reshaping local economic development to reduce inequalities requires policies which 'devolve, redirect and democratise' economic powers.
Cambridge economist Diane Coyle argued that addressing regional inequalities requires the devolution of economic decision-making power from Westminster.
As governments around the world are urged to ‘build back better’, a major focus has been to ensure that their economic recovery packages support environmental objectives. The language varies slightly – green, sustainable, resilient, ‘green and fair’, ‘green and just’, decarbonisation – but the core idea is consistent.
This is that governments should invest and create jobs in sectors and activities which align with long-term greenhouse gas emission goals (notably ‘net zero’ by 2050 or before), improve resilience to climate impacts, slow biodiversity loss, reduce pollution and increase the circularity of resource use.
Analysis of spending programmes of this sort – including those implemented after the financial crash in 2008 – show that green spending tends to have high job creation potential, which can often be geared towards economically disadvantaged people and areas. Many green projects can be delivered relatively quickly.
Calling for a ‘sustainable, resilient recovery’, the OECD urges governments to adopt economic policies which will reduce the likelihood of future shocks and increase society’s resilience to them.
In collaboration with the IMF, the International Energy Agency has set out a global ‘Sustainable Recovery Plan’ designed to boost economic growth, create millions of new jobs and put global greenhouse gas emissions into structural decline.
Leading economists including Nick Stern and Joseph Stiglitz have examined the potential economic benefits of a green recovery. Cataloguing more than 700 stimulus policies and surveying 231 experts from 53 countries, they found that green projects create more jobs, deliver higher short-term returns and long-term cost savings than traditional fiscal stimulus measures.
The World Resources Institute has drawn lessons from the green stimulus packages enacted in 2008-10 for the current Covid response.
The ownership of UK firms is highly concentrated. Apart from institutional investors such as pension funds, individual share ownership is dominated by the wealthy, many of whom are based overseas. Since the 1980s successive governments have privatised previously public-owned industries such as rail, water and energy. Few workers hold shares in the firms in which they work and the UK cooperative sector is smaller than in many other countries.
Over recent years there has been increasing interest in how ownership can be widened. One way is through nationalisation, in which the state would take equity stakes in companies in major sectors, such as energy or rail. Another is by giving ownership stakes in companies to their workers. This can be done either through individual or collective employee share ownership schemes.
A particular proposal is for democratic ownership funds, in which firms above a particular size would be required to transfer ownership of a percentage of their equity to funds managed by representatives of their workers. This would widen the distribution of profits and, in the process, give workers a say over how the firm is run.
The idea of widening ownership can also be applied to other assets. For example, in online transactions consumers provide large amounts of personal data for free. This data has considerable commercial value to the firms who collect it. Proposals to reform the regulation of digital companies include making ownership of data a common resource of benefit to the community or requiring private companies to make data publicly available.
Co-operatives UK's 2021 report on the UK’s co-operative sector found that co-operatives were four times less likely to close in 2020 than firms in general and the number of co-ops grew by 1.2% despite the economic downturn.
Common Wealth calls for the establishment of democratic ownership funds as a way of democratic ownership funds as a way of democratising the ownership of firms and giving employees a share of company profits.
CLES explains how promoting social enterprises (businesses with social aims and democratic structures) can address local inequalities and ensure that wealth is retained within local areas.
CLES's Community Wealth Building Centre for Excellence illustrates where and how local authorities are promoting democratic ownership across the UK.
IPPR argues that big tech companies should be required to open up their data to the public to prevent them monopolising the benefits of the digital economy and enable other businesses and civil society to use data for the public good.
The Democracy Collaborative and Common Wealth show how digital infrastructure can be democratised as a 21st century public good, underpinned by democratic ownership and governance.
Corporate governance in the UK is strongly shaped by the principle of shareholder primacy. This means that the interests of shareholders take priority over those of other stakeholders in a firm, such as workers, suppliers or consumers. There is strong evidence that this encourages an excessive focus on short-term profitability, at the expense of long-term investment.
It is often argued that the UK’s model of corporate governance should better reflect the wider interests of a company’s stakeholders, not just its shareholders. Proposed reforms include giving firms an explicit duty to pursue long-term purpose or value creation, and to tie executive pay to a range of metrics rather than just a firm's profitability or share price.
A particular focus for reform is the make-up of company boards. Advocates of worker representation on company boards - which is commonplace in many European countries - argue that it would tend to strengthen investment, because workers have a longer-term interest in their companies than short-term shareholders. By fostering a culture of cooperation between managers and workers, it would also boost productivity. There are also widespread calls for mandatory improvement in the gender and racial diversity of company boards.
The Big Innovation Centre calls for firms to have an explicit duty to pursue long-term value creation and for executive pay to be linked to long-term firm performance. They advocate for shareholders to have differential voting rights and for measures to encourage the inclusion of more long-term shareholders.
The IPPR calls for changes to company law to make it explicit that directors have a responsibility to promote the long-term success of a company and to institutionalise employee representation on company boards.
The Trades Union Congress has called for regulatory reform to give workers a voice in the running of companies, arguing this would boost productivity and overall economic performance.
Common Wealth's report on 'Asset Manager Capitalism' explores how asset management firms have become the dominant shareholders in corporations throughout the global economy. It articulates a new framework for more democratic corporate governance.
The Covid-19 pandemic has placed a renewed focus on how governments can use fiscal policy to stabilise their economies and create jobs.
With the base interest rate at near-zero (which means that when inflation is taken into account it is actually negative) the principal tool of monetary policy - changes in interest rates - has reached its limit. The IMF and OECD have therefore recommended that governments continue with public spending to support hard-hit economies until the recovery is well established.
The policy of 'austerity' - spending cuts and tax rises - instituted in many countries after the financial crisis is now widely seen as having failed. It slowed the recovery and damaged long-term growth, which in the end is needed to reduce debt, by weakening public services and investment. It also widened inequality.
It is widely argued now that governments should exploit low borrowing costs to boost public investment. The Bank of England has been financing a large part of government borrowing during the pandemic and can continue to do so. It can hold public debt on its balance sheet indefinitely, a phenomenon known as 'monetary financing'. (See Stimulating economic recovery.)
There is also growing interest in how central banks could stimulate economic activity by transferring money directly into the hands of households. At the same time there are strong calls for central banks to use their position in the financial system to steer capital away from carbon-intensive sectors.
The IMF argues that developed country governments should maintain public spending to invest in recovery, and that debt levels can be stabilised without recourse to austerity.
IPPR has proposed a new framework for UK macroeconomic policy to give policymakers a reliable set of tools for combatting recession. It offers three areas for reform: new fiscal rules, revision of the Bank of England's mandate and a National Investment Bank.
Nobel prizewinning economist Joe Sitglitz and colleagues set out a new fiscal framework capable of dealing with uncertainties about future interest rates, shocks and climate risks. Rejecting 'fiscal anchors' - simple limits on deficits or debt as a share of GDP - they propose stronger 'automatic stabilisers' with provision for policymakers to use discretion when conditions change.
The New Economics Foundation argues for a new mandate for the Bank of England. As publicly-owned institutions, central banks should be required to support the long-term public good, including environmental sustainability.
US Treasury Secretary Janet Yellen has set out the Biden Administration's new approach to fiscal policy to address the country's longstanding economic challenges.
The Resolution Foundation argues that the UK's fiscal rules need to focus on the level of 'public sector net worth', the value (as a proportion of GDP) of the government’s total financial and fixed assets minus its debts and other liabilities. This net figure for both debts and assets would help clarify how governments can borrow to invest.
There is a growing awareness of the role the state plays in driving innovation and how industrial policy can foster sustainable economic development.
In the past UK governments have been dismissive of active industrial policies on the grounds that the market was better at determining where capital can be used most productively. But the UK's poor record of research and development, and of investment outside London and the Southeast, has prompted calls for a greater role for the state in steering investment towards economic, social and environmental objectives.
By making strategic investments in particular sectors, such as green industries, an active industrial strategy can kick-start the development and take-up of new technologies, develop new markets for UK companies, trigger greater private sector investment, and tackle major environmental challenges.
A key feature of many economies with a tradition of strong industrial strategy is the presence of state-owned investment banks, with Germany’s KfW often cited as a leading example. This has led to calls for the establishment of a UK national investment bank, to help drive higher investment into innovative firms.
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.
Drawing on the analysis of its founder and Director Mariana Mazzucato, the UCL Institute for Innovation and Public Purpose argues that government needs to explicitly steer the direction of economic activity in order to achieve sustainable, inclusive, investment led growth. It calls for a 'mission-oriented' approach to industrial and innovation policy.
The IPPR argues that industrial policy must go well beyond correcting market failures. It should seek to change the structure of the economy, including the volume and direction of private and public sector investment and its geographic location.
The centre-right think tank Onward has called on the Treasury to establish a national investment bank modelled on Germany's KfW as a tool to unlock capital for investment in small and medium sized enterprises, municipal infrastructure and project finance to level up lagging regions.
The Sheffield Political Economy Research Institute (SPERI) established a Commission on Industrial Strategy to examine how the state could accelerate innovation. Its final report called for a new institutional basis for industrial policy with the aim of shifting the volume and direction of investment.
The UK faced multiple economic challenges even before the onset of the Covid-19 pandemic.
Business investment as a proportion of national income is the lowest in the G7, which helps explain the country’s poor productivity performance. The UK’s manufacturing sector is now under 10% of GDP, contributing to a large structural trade deficit. The UK has some of the largest income and regional inequalities in Europe.
The UK has also become a highly financialised economy, in which the financial sector's growth has outpaced the rest of the economy in recent decades.
One of the arguments often made is that investment and innovation are discouraged by the UK's system of corporate governance, in which the short-term interests of shareholders tend to take precedence over those of other stakeholders. Coupled with low levels of public investment, this has undermined long-term wealth creation in the economy.
Britain has had a relatively good record of jobs creation. But many of those created are low-wage and low-skill. Many workers are now on temporary, part-time or zero-hours contracts with fewer rights and benefits than full-time employees.
Cheap labour and flexible labour markets can discourage firms from making the investments in training or equipment needed to raise productivity. Both the decline of trade union membership and the casualisation of work have undercut workers' bargaining power. One result is the near-stagnation of average real wages since the 2008 financial crisis.
The IPPR Commission on Economic Justice, whose members included leaders from business, trade unions, civil society and academia, conducted a two-year enquiry into the condition of the UK economy. Its final report Prosperity and Progress calls for fundamental reform, setting out a comprehensive ten-part plan with over 70 policy recommendations.
The New Economics Foundation analyses the structural failings of the UK economy in three dimensions – environmental breakdown, social services, and people’s sense of a lack of agency and power. It proposes a comprehensive set of reforms to 'change the rules'.
The LSE Centre for Economic Performance analyses the dramatic variation in economic outcomes in different parts of the UK, before Covid. The report concludes that both more investment and greater local control of it are required in disadvantaged areas, along with benefit uplifts to raise household incomes.
With unemployment likely to rise when the furlough scheme is ended, many organisations have urged the government to introduce a further fiscal stimulus package to create jobs and meet pressing social needs.
Many of these argue for higher government spending on infrastructure, particularly on ‘green’ and low-carbon projects. Since physical infrastructure spending tends to lead to male employment, others have argued for an equal emphasis on ‘social infrastructure’: sectors such as health, education, social care and childcare which are also necessary for the economy to function and have high levels of female and black and minority ethnic employment.
Increasing the minimum wage, giving public sector workers (especially key workers) a pay rise, and raising benefit levels, would all mitigate the unequal impacts of the pandemic and give a boost to consumer demand.
The government’s youth employment scheme, Kickstart, supports 6-month job placements for those aged 16-24. With youth unemployment known to have a long-term scarring effect on life chances, some have argued that this should be much more ambitious, with a stronger emphasis on skills training.
IPPR argues for a £190bn fiscal stimulus package in 2021-22 to put the economy back on its pre-pandemic track and ensure no permanent economic scarring. Comparable to the size of President Biden's stimulus proposals, this should focus on green investment, increased welfare spending, a reversal of post-2010 public spending cuts, and support for training and worksharing.
The New Economics Foundation’s Winter Plan for Jobs, Incomes and Communities proposes a ‘living income’ that guarantees at least £227 a week to those that need it, greater protection for furloughed workers and investment to create over a million new low-carbon jobs.
The TUC’s Better Recovery plan proposes a raft of measures to create a fairer and more sustainable economy, including a government ‘job guarantee’ to prevent long-term unemployment, a greater role for unions in the economy, and an economic stimulus for a ‘just transition’ to a net zero carbon economy. A more detailed plan for jobs shows how investment in broadband, green technologies, transport and housing could deliver a 1.24 million jobs boost.
The Women's Budget Group explain the concept of social infrastructure, and the economic benefits of public investment in it.
Robert Skidelsky and Will Hutton for the Progressive Economy Forum propose a guarantee of work or training for all young people as part of a plan for economic recovery and reform.
The call for a green recovery has been widely supported in the UK, by businesses, environmental organisations, and think tanks on both left and right.
For some green recovery is a way of rebooting the existing economy. For others it offers a chance for more radical change in the objectives and outcomes of economic policy.
The CBI has published a ‘Green recovery roadmap’, outlining six priorities to ‘reignite business investment’ and create jobs. These include government investment in a battery manufacturing ‘gigafactory’, carbon capture, utilisation and storage (CCUS) and sustainable aviation fuels.
The UK Climate Coalition, an alliance of over 75 organisations, has produced a ten-point plan for a ‘green, healthy and fair recovery’, including policies for homes, transport, renewable energy, nature and global cooperation.
A report by Onward on the labour market challenge of the net zero transition shows the better pay and gender make-up of clean economy jobs compared to carbon intensive sectors. It proposes the funding 'net zero aligned' PhDs in engineering and establishing 'net zero academies' in regions with a high proportion of carbon intensive industries.
To keep businesses running and people in jobs during the Covid-19 crisis, the UK government established a number of emergency measures.These include the Job Retention Scheme, which supports companies to put workers on furlough rather than lose their jobs; a support scheme for the self-employed; and loan schemes for various sizes of business.
Specific measures and funding were provided for badly affected sectors, such as hospitality and the performing arts. At the same time the government temporarily increased the rate of Universal Credit and Working Tax Credits paid to those on low incomes.
These measures have supported many businesses and households. But there have been a number of criticisms. In January 2021 over 1.5 million self-employed people were estimated not to qualify for support because less than half their incomes came from self-employment or they had not been self-employed long enough.
The government’s business loan schemes have been criticised for favouring landlords, who in many cases continued to be paid rent in full while their tenants had to take out emergency loans. Meanwhile the significant increase in poverty caused by the pandemic has led to a widespread call for permanent increases in Universal Credit and child support levels.
The Institute for Fiscal Studies has highlighted how many self-employed people were excluded from the Government’s support schemes and the impact of delays in payments and the reintroduction of the ‘Minimum Income Floor’.
The IPPR has shown that up to 45% of emergency payments made during the crisis, including the Job Retention Scheme, effectively go to landlords, banks, and other lenders, with ‘bounce back loans’ one of the government support measures criticised for channelling money primarily to those with assets.
Examining the impact of the pandemic on the finances of low-income households, the TUC has called for an increase in statutory sick pay, an increase in Universal Credit and other benefits to at least 80 per cent of the national living wage, among other measures. A coalition of health organisations including the British Medical Association have called for similar reforms.
A Women’s Budget Group briefing summarises a set of social security reforms which would help prevent the unequal gendered impacts experienced in the first lockdown.
The New Economics Foundation has proposed a ‘Minimum Income Guarantee’ that would prevent people falling through the gaps in current social security provision by setting an unconditional, non-means-tested income floor of £225 a week.
As the UK embarks on agreeing new trade agreements, there are increasing calls for such deals to be designed around clear principles of public interest, not simply on increasing the volume of trade as an end in itself. Many for example argue that trade deals should be used to protect and enhance labour and environmental standards, rather than to reduce them.
With the final Brexit deal rushed through Parliament at the last minute, there have been calls for MPs to have a much stronger scrutiny role in future, and for trade unions to be involved in agreement design where labour standards are at stake. More widely there are calls for the World Trade Organisation to be reformed to focus on major global challenges and greater accountability.
The Trade Justice Movement has drawn up model UK-EU trade and regulation agreements. These prioritise social and environmental goals and protect public services, thus preserving jobs and trade flows while retaining national flexibility for the UK to make its own rules.
A University of Warwick study recommends that the UK’s post-Brexit deals should aim to ‘protect, promote and empower’ workers, given them a proper voice in shaping deals which will affect them.
Simon Evenett and Richard Baldwin propose reforming the World Trade Organisation to give it a common purpose for what it hopes to achieve through trade, actively pursuing policies that respond to global problems like vaccine availability and climate change.
A healthy natural world is a necessary precondition for healthy societies. Hunger cannot be kept at bay without fertile soil, long term economic planning is impossible in a world of persistent catastrophic storms. In many ways, the fundamental benefits of nature to our economies is not included in how markets and governments value economic decision-making.
Natural capital, a concept that underpins the Government’s 25 year plan for the environment, seeks to calculate the value of those bits of nature that are typically seen as being free. The idea is that putting a figure on the value of nature will lead to better decisions by government and in markets. Some reject this idea, questioning how a value can be put on the aesthetic beauty of a river or on the value of the global nitrogen cycle.
WWF’s Living Planet Report from 2018 includes estimates of the economic value of nature, which it claims amounts to $125 trillion globally.
Green Alliance’s work on Natural Infrastructure Schemes explores how farmers and landowners can profit from protecting the environment, working with others who could benefit, such as local authorities.
The government's Natural Capital Committee, which explored the state of natural capital in England, has released a report that summarises all it has learned and its recommendations, including an upcoming environment bill.
Even before Covid-19 there were calls for governments to write off some or all of mounting personal debt, on grounds of social justice and the impacts of debt on the poorest in society.
Some governments have now taken measures to guarantee existing or new corporate and/or personal borrowing to prevent defaults. There are two main drawbacks: firstly, the guaranteeing of loans transfers risk from private banks to the state without imposing costs on the former. Secondly, it can create moral hazard by failing to differentiate between more and less creditworthy borrowers. Guaranteeing borrowing may be a less effective measure than other approaches, such as converting corporate loans to equity.
The flip side of reducing debt is to increase incomes. Many governments have already introduced such measures temporarily – for example, the UK’s coronavirus furlough scheme. More broadly, campaigns and proposals for a universal basic income or similar argue for a permanent floor on incomes. One key issue with income support is that unless high outgoings are reduced, much of it will accrue in practice to banks, landlords and other rentiers.
Economist Johnna Montgomerie proposes a cancellation of a significant portion of the UK’s household debt in a blog for Sheffield Political Economy Research Institute, starting with those most harmful to poorer people.
The End the Debt Trap coalition - which includes the New Economics Foundation, Toynbee Hall, Jubilee Debt Campaign and others - call for the cost of credit, including on credit cards or overdrafts, to be capped. The government has already done something similar by capping payday loan rates.
At the start of the coronavirus outbreak Emmanuel Saez and Gabriel Zucman, writing for Economics for Inclusive Prosperity, set out the rationale for government becoming a payer-of-last-resort by guaranteeing incomes.
Analysis from the IPPR suggests that the government's emergency responses to the Covid-19 pandemic will exacerbate inequalities by insulating creditors and asset-owners from the worst effects of the pandemic while driving many of the most financially vulnerable deeper into debt.
Burning fossil fuels can have economic, environmental and social costs. It is widely considered fair and efficient to require energy users to bear these costs.
Carbon and other environmental taxes also encourage more efficient use of energy and resources, reducing environmental impact. Under the EU’s Emissions Trading Scheme, carbon emissions from the power and industrial sectors are effectively taxed, though not at a very high rate.
Petrol and diesel are taxed more highly, but these taxes have been frozen in the UK in recent years. Aircraft fuel is not taxed at all. So there is a strong case for a more comprehensive system of carbon taxation.
Taxes on consumption are regressive, with poorer consumers tending to pay more as a proportion of their income. Carbon and environmental taxes need to be carefully designed to ensure that they are perceived as fair.
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.
Common Wealth and the New Economics Foundation set out principles for green tax reform. They argue that doing so must help to contribute to rapid decarbonisation, address inequalities, and support global solidarity.
The ‘A Free Ride’ campaign is behind proposals for a frequent flyer levy, with underlying modelling conducted by the New Economics Foundation. Under the levy aviation taxes would increase for every additional flight taken by an individual in a year.
Tax Justice UK, along with a range of partners from the Green Alliance to Greenpeace and Oxfam, have outlined a set of principles for reforming the UK tax system to help achieve net zero goals, in a way that is fair, popular and effective.
Covid-19 vaccination programmes in most low-income countries have been proceeding much more slowly than in richer countries. This is both because of lack of finance, and because most of the available supply has been bought by the global North. It is generally accepted that the pandemic will only end when almost everyone in the world is vaccinated, since without this there will be a high risk of new variants being transmitted across borders. Universal vaccination will also hasten global economic recovery. But in practice ‘vaccine nationalism’ has so far dominated.
A global scheme for vaccine distribution, Covax, has been established, and high income countries have pledged money and vaccines to it. But both finance and supply are running well behind demand.
Many proposals for reform focus on the dominant private sector-led model of vaccine development and supply, which it is argued puts profit and the retention of intellectual property rights ahead of meeting human need. New international frameworks for financing and developing vaccines, medicines and health services in the global South have been proposed.
Olivier Wouter and colleagues in The Lancet review the challenges of producing affordable global vaccines at scale, warning that the lack of a global approach to vaccine allocation by national governments is both an economic and ethical failure.
The People’s Vaccine Alliance is calling for public funding for research and development to be conditional on research institutions and pharmaceutical companies freely sharing all, data, biological material and intellectual property, and all vaccines priced at cost.
A blog from the IMF head Kristalina Georgieva and others outlined A Proposal to End the COVID-19 Pandemic, setting out targets to vaccinate at least 40% of the global population by 2021 with estimates of financing requirements; through upfront grants to COVAX, investing in additional vaccine production capacity and test and tracing capabilities.
Analysing how the pharmaceutical industry currently develops new drugs and health treatments, the UCL Institute for Innovation and Public Purpose propose a new health innovation model which would reward public investment, keep prices low and therefore support more equal global access to healthcare.
The World Health Organisation describes the aspiration for universal health coverage (UHC), giving all individuals and communities the health services they need without suffering financial hardship. Writing in Nature Medicine, Stéphane Verguet and colleagues propose how this can be achieved in low and middle income countries.
There are few quick fixes for reducing zoonotic transmission of diseases. The causes are linked with the wider impacts of human activity on the natural world. Major global health bodies are calling for a One Health approach, with public health investment being based on the intrinsic connection between the health of people, plant and animals.
A range of policy ideas flow from this agenda. Improving food security, particularly in low-income nations, could stop international markets encouraging environmentally destructive food production.
There are growing calls for companies to do more to prevent deforestation and biodiversity loss. Reducing demand for meat and dairy products could also drastically reduce destruction of nature and improve health globally.
The Soil Association explores the links between zoonotic transmission and intensive farming. It states that pigs in particular are known to be vulnerable to coronaviruses and could be a key vector for transmission.
The Zoological Society of London argues that closing wet markets risks forcing activity into illegal and less regulated markets. The real drivers of zoonotic exposure are biodiversity loss and the unsustainable exploitation of wildlife.
WWF calls for global action to protect people and nature in response to Covid-19. It focuses on the impacts of human activity on the natural world as a driving force in the transmission of zoonotic diseases.
Geographically-focused banks can play a major role in boosting investment, particularly in disadvantaged areas. They can help to retain wealth within local areas and support greater economic resilience. Distinct from merely the local branch of a high street bank, there are two types of such bank.
The first are localised branches of publicly-owned national investment banks, with a specific remit to support the investment needs of local areas. In the UK it has been proposed that this could be done by creating publicly-owned Post Banks through the Post Office network, or by the government retaining its stake in the Royal Bank of Scotland (RBS) and repurposing it as a series of local banks.
An alternative model would see the expansion of locally-focused cooperative, credit union and community finance organisations. Such institutions have a greater emphasis on high-street and branch banking and excel at lending to smaller businesses.
There is a growing movement to create a network of regionally owned and controlled mutual banks, where customers automatically become co-owners.
All In, the Royal Society of Arts and others make the case for a community savings bank for the North East, in response to the abandonment of many communities due to the closure of retail bank branches. South West Mutual is aiming to be a regional high street bank exclusively focused on the south west of England.
The New Economics Foundation proposes that the UK government retains its majority stake in the Royal Bank of Scotland and transforms it into a public banking network.
The Communication Workers Union and the Democracy Collaborative propose the creation of a publicly owned Post Bank network supported by regional development banks.
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.
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 those who might wish to establish a new regional community bank.
A number of proposals for solving the housing crisis focus on giving power and ownership of land to communities.
In one model, that of Community Land Trusts, land is gifted to or purchased by a community-run body to develop affordable housing and hold it for the long term. In Scotland such trusts are supported by a Community Right to Buy for neglected land.
A second area of focus is ensuring more land is brought into, or kept in, the public sector. Campaigners call for a halt to the programme of selling off public land for development which, they warn, is leading both to unaffordable housing and a reduction in the state’s ability to decide what gets built where.
Proposals have been made for the establishment of a Public Land Bank or similar body to take an oversight of how best strategically to use land in the public sector, and to bring more land into public ownership.
The National Community Land Trust Network supports community land trusts through funding, resources, training and advice and works with government, local authorities; lenders and funders to establish the best conditions for CLTs to grow and flourish.
In 'The Policies of Belonging', centre-right think tank Onward recommends giving communities the right to establish Community Land Trusts to develop community-led housing.
Civitas called for a change to the law so that compulsory purchase by the state would only require compensation at existing, not potential future, use values. This would disincentivise land banking and allow councils to lead development in the interests of local communities.
The New Economics Foundation calls for a halt to the government’s programme of selling off public land to build houses and recommends establishing a Public Land Bank for purchasing and selling land.
The ownership of UK firms is highly concentrated. Over the last fifty years there has been a dramatic decline in the proportion of shares held by ordinary individuals. Share ownership is dominated by institutional investors such as pension funds, asset managers (many now operating passive investment funds), and the wealthy, many based overseas. Since the 1980s successive governments have privatised previously public-owned industries such as rail, water and energy. Few workers hold shares in the firms in which they work and the UK cooperative sector is smaller than in many other countries.
In recent years there has been increasing interest in how ownership can be widened. One way is through public ownership, in which the state takes equity stakes in companies in major sectors, such as energy or rail. Another is by giving ownership stakes in companies to their workers. This can be done either through individual employee share ownership schemes, or through collective worker ownership funds which would both widen the distribution of profits and give workers a say in how businesses are run.
Another route increasingly advocated would be through the creation of a national ‘citizen’s wealth fund’, which would build a portfolio of company shares and distribute a dividend to every citizen.
Common Wealth and the Democracy Collaborative argue that ‘democratic public ownership’ – assets, services, and enterprises held collectively by everyone in a specific geographic area, either directly or through representative structures – must play a crucial role in a more equitable and sustainable economic system.
The IPPR calls for the creation of a publicly-owned ‘Citizen’s Wealth Fund’, built up by the gradual acquisition of equity stocks, which would distribute a dividend either to all citizens or to all younger people. The Friends Provident Foundation makes a similar proposal.
Common Wealth calls for large companies to be required to distribute a small percentage of their shares over time to democratic ownership funds owned and managed by their workers. This would both democratise the governance of firms and give employees a share of company profits.
The ESOP Centre describes the benefits of employee share ownership schemes, under which employees can either own shares in their company directly, or through collectively managed trusts.
Economists Emmanuel Saez and Gabriel Zucman proposed a tax on corporations’ stock shares for all publicly listed companies with headquarters in G20 countries. The authors propose a 0.2% tax on the value of company stocks to raise approximately $180bn each year, levied through share issuance to directly redistribute ownership of companies so that the tax avoids liquidity issues and does not affect business operations.
Scotland, Wales and Northern Ireland all have different forms of devolved powers. Each of the devolved governments is seeking to expand its programmes for economic development activities, even though most economic powers are reserved to the Westminster government. Both Scotland and Wales have established national development banks to support their economic investment strategies. (See Stakeholder Banks.)
In England local authorities have some economic development powers but many argue that the geographic scale of government needs to be larger. Since the abolition of the Regional Development Agencies in 2010 semi-independent Local Economic Partnerships (LEPs) have been tasked with supporting business development, but these have widely criticised for inadequate powers, funding and democratic accountability.
Where they have been established, combined authorities and city mayors are developing economic strategies at the 'city region' level; all argue that they need more powers and greater resources to do this properly. Some have called for the creation of larger regions in England comparable to those generally found in other developed countries. But the issues of regional identity and democratic control remain a source of debate.
IPPR’s proposals for an industrial strategy for the North of England have at their core more pan-Northern collaboration in transport, trade and investment, innovation and more. It separately argues for decentralisation of power in England and calls for a new constitution that would permanently reform central-to-local relationships.
Nesta argues for a much greater role for Metro Mayors in leading local strategies that are the core to national recovery. It suggests that this will require greater resources from national government as well as local leadership from Mayors to convince local people that “local politics is something worth caring about”.
Former banker and Tory minister Lord Jim O’Neill argues that city-region mayors must be given greater powers if the Government’s ‘levelling up’ agenda is to work.
The Centre for Local Economic Strategies (CLES) proposes three "central tenets to reshape local economic development in the UK… devolve, redirect, democratise”. The authors give a history of regional inequality and English devolution, and argue that 'levelling up' will require constitutional change, rather than "top-down tinkering".
Harvard University’s Growth Lab's Metroverse is a data visualisation tool comparing the local economies of different cities.
Social housebuilding has declined sharply in recent decades. The 'right to buy' policies of the 1980s and 1990s led to greatly reduced income for local authorities, whose ability to borrow in order to build homes was capped until 2018. Today there are widespread calls for a major new programme of council-led social housing. Housing charity Shelter proposes that 3.1 million homes should be build over the next 20 years. While local authorities now have the power to borrow, the reality of their funding situation means they will need support from national government to deliver on that kind of ambition.
Around 20% of UK homes are privately rented, up from 10% in 1996-97. In 2018 it was estimated that 16% of millennials will end up privately renting 'from cradle to grave'. The booming private rental market includes some of the worst quality housing stock and many renters have insecure housing tenures.
Proposals for tackling this include giving renters legal protection from sharp price increases, maintaining and regulating a central register of private landlords, and bringing in controls on the rents that can be charged. Giving renters indefinite leases – as is currently the norm in Scotland – would allow evictions to be banned except for specified reasons such as the sale of the property.
In its review of the future of social housing, Shelter calls for a 'decisive and generational shift in housing policy'. Its proposed programme of investment and reform includes a new housing regulator, a renewal of public housebuilding in mixed communities, with all homes sold being replaced, and the creation of permanent tenancies as a legal minimum for all private renters. .
CLES is working with the London Borough of Newham to create a municipally owned property and redevelopment company, using a 'community wealth building' approach to embark on a municipal housebuilding programme to create affordable homes for the borough’s residents.
Shelter proposes a programme of New Civic Housebuilding, combining land market reform with public investment to channel private competition into raising the quality and affordability of homes.
In its review of the private rental market, IPPR calls for a range of reforms, including the establishment of a national landlord register and a 'property MOT', a new specialist housing court to deal with landlord-tenant housing disputes, mandatory open-ended tenancies, limiting rent increases to the consumer price index, and changes to Universal Credit to better support renters.
IPPR call for an affordable housebuilding programme in England's rural areas to close the 'affordability gap' between house prices and average incomes.
Corporate governance in the UK and US is based on the principle of shareholder primacy. This means that the interests of shareholders take priority over those of other stakeholders in a firm, such as workers, suppliers or consumers. There is good evidence that this can encourage an excessive focus on short-term profitability, at the expense of long-term investment.
It is widely argued therefore that the Anglo- American model of corporate governance should better reflect the interests of a company’s stakeholders, not just its shareholders. Proposed reforms include giving firms an explicit duty to pursue long-term purpose or value creation, and to tie executive pay to a range of performance metrics rather than just a firm's profitability or share price.
A particular focus for reform is the make-up of company boards. Advocates of worker representation on company boards – which is commonplace in many European countries – argue that it would tend to strengthen investment, because workers have a longer-term interest in their companies than short-term shareholders. By fostering a culture of cooperation between managers and workers, it is said, it would also boost productivity. There are also widespread calls for mandatory improvement in the gender and ethnic diversity of company boards.
The Purposeful Company calls for firms to have an explicit duty to pursue long-term value creation. It argues for executive pay to be linked to long-term business performance, and for differential voting rights for short-term and long-term shareholders.
The IPPR calls for changes to company law to give directors an explicit responsibility to promote the long-term success of a company and for a new Companies Commission to regulate corporate governance.
The World Economic Forum sets out the theory and practice of ‘stakeholder capitalism’, in which firms are accountable to their wider stakeholders, not just shareholders.
The TUC proposes that one third of the boards of all large businesses should be made up of workers elected by the workforce, arguing that this would boost productivity and overall economic performance.
Surveying more than 1000 companies in 15 countries, McKinsey find that greater diversity in executive teams increases the likelihood that a firm will financially outperform its competitors. They argue that ‘diversity wins and inclusion matters’.
Economics blogger Noahpinion collated and summarised recent scholarly work on the various economic harms of concentrated corporate power.
The idea of a circular economy turns on the current linear model of resource extraction, usage and disposal on its head.
It aims to design out waste, eliminate toxic chemicals, and transform product design. This means going beyond simply increasing recycling and instead reducing the creation of waste in the first place, intentionally using the waste that remains as new economic inputs.
The rationale for this is economic as well environmental. Global demand for resources is rising, scarcity is increasing, wasteful resource use costs large amounts of money, and digitalisation is allowing for greater disruption of traditional business models.
The Ellen MacArthur Foundation has a series of in depth reports on the circular economy, including on the business and economic rationale, and a shorter summary of the key arguments and evidence.
The EU’s Green Deal involves a Circular Economy Action Plan (CEAP) to assist their net zero target and halt biodiversity loss.
The World Resources Institute lists five ways to operationalise the circular economy includes calling for commitments to the circular economy to be central to climate agreements.
Many cities around the world have used the Covid crisis to prioritise walking and cycling and the provision of green space.
There is a growing global movement of cities committed to improving the quality of urban life through environmental improvement and decarbonisation, particularly of buildings and transport.
Many local authorities in the UK are looking to pursue a more sustainable form of economic development.
Led by the mayors of Los Angeles and Milan, major cities across the world have set out principles for a ‘green and just recovery’ and showcased what they are doing to deliver it.
Former CLES employee Jonty Leibowitz explores how UK regions and local authorities can develop green recovery plans centred on social, economic, and environmental justice.
As multinational corporations throughout the world have grown over recent decades, they have developed complex supply chains. Globally traded commodities and goods may go through many stages of production in different countries before being made into the final products we buy. In this process it is easy for companies to profit from exploitative wages and conditions, forced labour and environmental harm, particularly in the global South where workers and local communities may have little bargaining power and enforcement is difficult.
Most of the initiatives designed to prevent abuses of this kind have been voluntary, where companies commit to codes of ‘corporate social responsibility’. But there is strong evidence to suggest that these are often ineffective. Companies are insufficiently motivated or incentivised to audit their supply chains properly.
One response has been the development of ‘worker driven social responsibility’, where trade unions and workers’ organisations agree higher standards with companies, and are able to enforce them. Another has been the development of ‘due diligence’ laws, by which multinationals are obliged under the law of their home states to audit their supply chains and ensure high standards, in areas such as labour conditions, human rights, environmental impacts and anti-corruption. The evidence suggests that a requirement to report on their supply chains is not enough; companies need to be criminally liable to ensure compliance.
The Worker-Driven Responsibility Network calls for agreements between multinationals and their local workforces to ensure decent labour standards, while the Corporate Accountability Lab proposes ‘worker-enforceable codes of conduct’ which would give workers the legal right to take violators to court.
Genevieve LeBaron and Andreas Ruehmkorf at the University of Sheffield analyse different methods by which the impacts of multinational corporations through their global supply chains can be regulated by their ‘home’ states. They conclude that criminal liability achieves more than voluntary reporting requirements.
Reviewing 16,000 corporate statements made over the first five years of the UK’s Modern Slavery Act, the Business and Human Rights Resource Centre concludes that the Act has not prevented human rights abuses in corporate supply chains. Legally binding and enforced obligations on companies are needed, not simply reporting requirements.
The French Government introduced a ‘duty of vigilance law’ in 2017, under which French multinationals are criminally liable for the activities of their subsidiaries and subcontractors in the event of human rights or environmental violations.
In the EU a proposed due diligence law is working its way through the Commission and Parliament, based on a report identifying the different mechanisms by which standards of behaviour in corporate supply chains can be defined and enforced.
The CORE coalition is calling for a UK ‘failure to prevent’ law, under which companies would be legally obliged to take action to prevent human rights abuses and environmental harm anywhere in their global value chain.
Businesses are fundamental to any economy. They come in all shapes and sizes, from sole traders to multinational giants. But in recent years there has been growing criticism, both of the way some businesses behave, and of how they are governed. Much of this has come from within the business community itself.
A key argument is that many large businesses have lost their sense of ‘purpose’. Increasingly focused on financial metrics of success, many are now seen as prioritising short-term returns above long-term investment, and the interests of their shareholders above those of their wider ‘stakeholders’, such as their workers and consumers.
Partly as a consequence, new models of business have become more prominent. These include companies committed to an explicit statement of purpose. New types of ‘stakeholder’ corporate governance and financial investing are on the agenda, along with new forms of ownership giving a greater stake to workers. In these and other ways, an increasing number of businesses are seeking to change their impact on society and the environment. But some critics have expressed doubt as to whether some of these initiatives are far-reaching enough.
The British Academy’s Principles for Purposeful Business offers eight principles for business leaders and policymakers to enable companies to solve the problems of people and planet profitably, while not profiting from causing harm.
Advocating a ‘responsible capitalism’, the Financial Times surveys the issues involved in making businesses purposeful, and the experience of companies declaring their commitment to it (paywalled).
‘B Corporations’ are businesses that meet certified standards of social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps seek to use profits and growth as a means to achieve positive impact for their employees, communities, and the environment.
Supported by the CBI and TUC, the Good Business Charter is an accreditation system which measures corporate behaviour in ten areas, including a real living wage, fairer hours and contracts, employee representation, diversity and inclusion, environmental responsibility, paying fair tax, and ethical sourcing.
Imperative 21 is a network of 70,000 companies promoting new principles for a ‘reset’ of the economic system. It aims to equip business leaders to accelerate their transition to stakeholder capitalism; to shift the cultural narrative about the role of business and finance in society; and to realign business incentives and public policy.
Over recent years there has been a huge increase in the number of companies and financial investors committing to ‘ESG’ principles, under which they aim to achieve not just profit and financial returns but better environmental and social impact and corporate governance. Globally, assets classed as ‘ESG’ were valued at over $30 trillion in 2018, an increase of a third on 2016. ESG investment funds have consistently outperformed the average, and there is strong evidence that an attention to ESG can improve shareholder returns.
ESG principles commit companies and investors to assessing their performance through the ‘triple bottom line’ of ‘people, planet and profit’ (sometimes known as TBL or 3Ps). But there is no universal agreement on the specific standards of behaviour which define ESG, or the metrics which should be used to measure performance. With so many different criteria used by ESG investment funds, critics argue that too many allow for ‘greenwashing’ of companies with unsustainable and socially damaging impacts.
When the US Business Roundtable released a statement in 2019 arguing that US businesses should be committed to a broad range of stakeholders – including customers, employees, suppliers and communities as well as shareholders – this was widely interpreted as a significant shift in business philosophy. But others argued that ‘stakeholder capitalism’ in practice looked insufficiently different from shareholder capitalism. Activist investors, both corporate and individual, are increasingly seeking to hold businesses to account in order to raise ESG standards.
Reviewing the evidence, consultants McKinsey find that business ESG strategies are positively correlated with financial performance and explain how they can contribute to growth, cost reduction and productivity improvement.
The Principles of Responsible Investment are a set of guidelines on how financial investors should incorporate ESG issues into their investment analysis and decision-making. With 3000 signatory companies, the PRI organisation promotes responsible ESG investing.
Seeking to provide standard measures of ESG performance, the World Economic Forum has published a set of ‘stakeholder capitalism metrics’ to enable companies to report consistently on their long-term ‘sustainable value creation’.
Author of the original concept John Elkington argues that 25 years on the ‘triple bottom line’ needs rethinking: environmental sustainability requires greater radical intent to stop the overshooting of planetary boundaries.
Analysing the rise of ESG investing, Common Wealth shows that ESG funds can include companies with both environmentally and socially damaging impacts, and argues for much stricter criteria and their incorporation into the fiduciary duties of shareholders.
Activist investor groups, such as Share Action, CDP and Ceres seek to use the power of individual shareholders and fund managers to influence the behaviour of companies and to improve their reporting of environment and social impacts.
A key part of the green finance equation is ending government support for fossil fuels. This has been described as one of most important measures to deter high carbon investment.
There are a number of ways in which government funding supports the continued use of fossil fuels. UK Export Finance has been criticised for giving loans and guarantees to companies who invest in fossil fuel projects overseas.
While many subsidies exist to encourage the production of fossil fuels – such as tax relief for North Sea oil producers – many exist ostensibly to keep energy prices low for consumers. The pandemic’s impact on oil prices may create a window to reduce subsidies.
The Overseas Development Institute catalogues fossil fuel subsidies across the G20. One of its major findings is that the G20 spends almost half a trillion dollars annually subsiding oil, coal and gas production.
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 agency 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.
Oil Change International, Platform and Friends of the Earth Scotland argue for a phase out of North Sea oil and gas extraction. They advocate for subsidies to be redirected to support a just transition for workers. IPPR's Net Zero North Sea outlines ‘A managed transition for oil and gas in Scotland and the UK after Covid-19’.
Tax systems can play a central role in creating fairer and more efficient economies. Economic growth increasingly depends on the quality of public goods that only governments can provide, such as education, healthcare, and childcare. Taxing high incomes too lightly will increase inequality, which can damage social and political cohesion and weaken economic growth, as acknowledged by the IMF.
Many economists agree as to what constitutes a fair and efficient tax system. They believe the tax base, the activities and entities on which taxes are levied, should be as broad as possible, with few ad hoc deductions and exemptions. It could be made more progressive, with taxes levied according to taxpayers’ ability to pay. Some propose that tax systems could penalise activities that do harm, such as pollution or financial speculation.
The Institute for Fiscal Studies identifies a programme of tax reform for the UK in the final report of a major review led by the late James Mirrlees.
In the Journal of Economic Perspectives Henrik Jacobsen Kleven cites reasons why Scandinavian countries are able to levy so much tax. These include broadness of their tax base; the subsidisation of goods, such as childcare, that make it easier to work, and public tax returns.
This report from the Center for American Progress explains how cutting taxes on one form of income can mean pushing up taxes on another.
A coalition of charities, think tanks and NGOs, including Oxfam UK and Christian Aid, has called for progressive reform of the tax system, in preparation for a fairer post-Covid world. Demands include no bailouts for those seeking to avoid tax and proper and fair taxation of wealth.
One response to concerns about environmental degradation has been to argue, not that economic growth per se is impossible, but only its current patterns and forms.
If the world switches to renewable energy, becomes much more resource-efficient and institutes a ‘circular economy’ in which resources are reused and recycled, GDP growth can continue at the same time as environmental damage is reduced.
Growth in global income remains morally necessary, it is argued, to end poverty and give everyone on the planet a decent living standard.
Advocates of ‘green growth’ include major economic institutions such as the World Bank, and many governments and companies.
They acknowledge that the world is very far from achieving green growth now.
But they maintain both that it is possible to ‘decouple’ GDP growth from environmental damage, and that it is politically and socially infeasible to call for growth to cease.
The OECD adopted a ‘green growth strategy’ in 2011 and has a programme of work focused on how to implement it.
The Global Green Growth Institute supports governments to define and implement green growth strategies, while the Green Growth Knowledge Platform hosts a range of analytical and policy studies.
Political economist Michael Jacobs explores the origins of the concept of green growth, why it took hold and its relationship to the concept of sustainable development.
Tim Jackson and Peter Victor explain the difference between relative and absolute decoupling of environmental impact from GDP, finding ‘no evidence at all’ for global absolute decoupling.
Reviewing the evidence for decoupling of GDP growth and environmental impact, Jason Hickel and Giorgos Kallis ask ‘Is green growth possible?’ With ‘net zero’ by mid-century requiring global carbon emissions to fall by 7-10% per year – far beyond anything achieved so far – they conclude that it isn’t.
Rather than either ‘green growth’ or ‘degrowth’, some economists have begun to use the term ‘post-growth’ to characterise an economic policy stance focused directly on achieving environmental sustainability and individual and social wellbeing.
A ‘post-growth’ society and economy would be one where economic growth – and its attendant consumption patterns – is not regarded as a good in itself. While some of those using the term believe degrowth is necessary, others are (in Kate Raworth’s phrase) ‘growth agnostic’.
Some analysts have pointed out that western economies have for some time been experiencing much lower growth rates than in the past, with the idea of ‘secular stagnation’ suggesting that this may be a long-term condition. So adjusting to a post-growth economy may be necessary, whether designed or not.
The dependence of current economies on growth to sustain employment and raise tax revenues has led some researchers to model a ‘post-growth’ economy which lives within planetary boundaries and focuses on redistributing wealth and improving wellbeing rather than growing output.
In a report for the OECD, leading economists argue that high income countries should adopt ‘beyond growth’ strategies focused on four paramount goals: environmental sustainability, reducing inequalities, improving wellbeing and system resilience.
In a Centre for the Understanding of Sustainable Prosperity (CUSP) paper on the ‘post-growth challenge’, Tim Jackson the warns how ‘secular stagnation’ (economic slowdown) may be the new economic normal.
The Institute for Ecological Economy Research in Germany critiques both degrowth and green growth approaches. It recommends instead a ‘precautionary, post-growth’ approach to delivering social well-being within planetary boundaries.
Tim Jackson and Peter Victor have developed macroeconomic models capable of describing a sustainable national economy operating within ecological limits.
The Zoe Institute has initiated a ‘policymaking beyond growth’ project seeking to show how economic and political stability can be ‘unbound’ from economic growth in order to pave the way for a sustainable prosperity.
One of the most common arguments in the growth debate is about the value of Gross Domestic Product (GDP) as a measure of economic progress. This was not what GDP, which measures national income and output, was originally designed for. But economic policy and analysis has generally used it as such: GDP growth is the primary (though not only) economic goal of most governments.
The argument against GDP is that it does not measure environmental degradation or the depletion of ‘natural capital’; it ignores productive activity (such as childcare and housework) that occurs outside market transactions; it cannot take into account intangible but important public goods such as social cohesion and trust; it does not reflect subjective happiness or life satisfaction; and does not measure the distribution of income or wealth.
Many attempts have therefore been made to construct alternative metrics of economic and social progress, with the aim of ‘dethroning’ GDP from its paramount position. Some seek to adjust GDP in various ways. Others have compiled an index of various measures.
The most common approach is to use a ‘dashboard’ of multiple economic, environmental and social indicators. These more complex datasets have the ability to track a breadth of concerns, but make it harder to track overall progress and tell a clear narrative story.
The Centre for the Understanding of Sustainable Prosperity explores the four main approaches to measuring economic and social progress, finding a clear distinction between indicators of use to policy makers, and those designed to tell a public story.
The OECD has taken a lead in devising and publishing alternative indicators. Updating a landmark 2009 report on the limitations of GDP by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, its ‘Beyond GDP’ report argues that good policy needs better measures. The OECD’s Better Life Index published dashboards of economic, environmental and social indicators for 36 high income countries.
National-level examples of alternative indicator sets include the UK Office for National Statistics’ Measurement of National Wellbeing dashboard, and New Zealand’s Living Standards Framework.
In a paper for the ILO surveying a range of approaches to devising alternative indicators, Günseli Berik argues that the Genuine Progress Indicator, a composite indicator which makes roughly 25 adjustments to GDP, is the most useful in comparing countries and conveying a simple narrative of progress.
The UN’s Sustainable Development Goals, are an internationally accepted measure of national progress. They divide 17 domains of human life into 169 targets for 2030. While broadly welcomed at the level of ambition, their value in driving policy in practice remains a subject of some debate.
For some environmentalists and economists ‘green growth’ and ‘inclusive growth’ are mirages. The root problem in our economy and society, they argue, is the obsession with economic growth. Exponential growth cannot be achieved within the earth’s planetary boundaries, and cannot satisfy human needs.
‘Degrowth’ is the term increasingly used for strategies which seek a deliberate and planned contraction in the economies of high-income countries. Proponents argue that reducing the throughput of materials and energy can be achieved at the same time as maintaining and even improving people’s standards of living. As unplanned recessions exacerbate inequality, a central tenet of degrowth proposals is to ensure social justice by equitably sharing out resources, and reducing consumption and income by reducing working time.
Proponents of the idea of a ‘steady-state economy’ or ‘prosperity without growth’ argue for an economy in which environmental resources and absorptive capacities are sustained at an ecologically healthy level. This will require a contraction in the current size of high-income economies.
Economist Tim Jackson, author of Prosperity Without Growth, explains the economic and scientific ideas underpinning ‘growth scepticism’, based on the pioneering work of economists Nicholas Georgescu-Roegen and Herman Daly.
Economist and author of Degrowth Giorgos Kallis argues that degrowth is not about implementing a better or greener form of development but ‘an alternative vision of a prosperous and equitable world without growth’.
Anthropologist Jason Hickel explains the economic logic of the degrowth idea, arguing that it could lead to ‘radical abundance’. He defines degrowth as being at core about equality, with a focus on the progressive redistribution of existing income.
Friends of the Earth Europe collects a series of essays on the idea of ‘sufficiency’, where a cap on material resource consumption would be achieved through equitable distribution and sustainable lifestyles.
Leigh Phillips argues against what he calls ‘the degrowth delusion’. He identifies environmental degradation as arising from market capitalist economies and describes degrowth as ‘an end to progress’.
The modern debate about economic growth first kicked off in 1972, with the publication of the influential Limits to Growth report by the Club of Rome.
The argument of the report was that exponential growth of production and consumption could not be sustained over the long term due to the finite resources and absorptive capacities of the Earth’s environment.
In the half century since then global environmental degradation has greatly worsened, with climate change, soil depletion, deforestation, ocean pollution and the loss of biodiversity all at critical levels.
This has led environmentalists and environmental economists to revisit the question of whether economic growth can be environmentally sustainable.
Asking ‘can we have prosperity without growth?’, John Cassidy surveys the various players and arguments in the growth debate.
In a report for the All Party Parliamentary Group on Limits to Growth, Tim Jackson and Robin Webster revisited the 1972 Limits to Growth report. They found that its predictions appear to be essentially still correct and that new understandings of planetary boundaries have added new dimensions to the challenge.
A 2012 report by the Institute of Actuaries and Anglia Ruskin University found strong evidence of resource constraints to economic growth, with serious economic and political implications.
Writing on Columbia University’s Earth Institute blog, Steve Cohen argues that economic growth and environmental sustainability can be made compatible through the use of human ingenuity, enlightened design and cutting-edge technology.
COP26 is not the only major environmental summit on the horizon. In May 2021 world governments are due to meet in China for a crucial meeting convened by the Convention on Biological Diversity.
It aims to reach ambitious new agreements on the protection and restoration of biodiversity. This meeting is as critical for nature as COP26 is for the climate. Global biodiversity loss has not slowed since the signing of the first biodiversity plan in 2010, with the world having missed all of its twenty targets.
Greenpeace’s Unearthed blog runs through the main issues at stake within the Convention on Biological Diversity process, including analysing why it receives far less international attention than climate summits despite its importance.
Birdlife International has a series of briefings for what it wants from the post-2021 framework, including new targets to halt species decline by 2030.
The Forest People’s Programme calls for more support for indigenous peoples and communities to help deliver on the Convention’s ambitions.
Tackling the climate emergency has become the focus of recovery efforts around the world.
Global greenhouse gas emissions must be nearly halved by 2030 in order to limit global temperature rises to 1.5 degrees celsius above pre-industrial levels.
However, climate change is just one part a wider environmental emergency being driven by economic systems around the world.
The planet also faces major challenges with depleted soil quality, water shortages, and mass species extinction.
These crises are expected to pose a greater threat to health, society and the economy than the Covid-19 pandemic.
In This is a Crisis, IPPR warns that we are already living in the "age of environmental breakdown", which is destabilising societies and economies around the world. It also warns that decision-makers and key institutions are not taking the threat seriously.
The UN's Global Assessment Report on Biodiversity and Ecosystem Services provides an authoritative summary of the health of the natural world, the factors driving its destruction, and actions that should be taken in response.
The United in Science 2020 Report provides a global update on the climate emergency. It warns that global temperatures have risen by 1.1 degrees celsius and dramatic emissions cuts are needed to keep it below 1.5.
Responding to the environmental emergency requires changes in many aspects of everyday life, such as how we eat, with concerns growing over the high environmental impact of meat and dairy.
It can be politically challenging to increase environmental ambition without growing inequalities or negatively impacting people who depend on environmentally unsustainable work.
A particular concern is the fate of workers in high carbon industries. Trade unions call for a just transition for these workers to avoid the lasting impacts on people and places resulting from the closure of coal mines in the 1980s.
The New Economics Foundation situates the need for a just transition within the UK’s recent industrial past. It points to the lack of trust in deprived communities and suggests addressing this is central to delivering fair and rapid decarbonisation.
Demos and WWF's climatecalculator.co.uk is a website to help readers explore how different policy approaches to decarbonise the UK could change weekly living costs for consumers.
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.
The Green New Deal is a broad term that describes a concerted, state-led programme of green economic stimulus with a specific focus on social justice.
Originally proposed in 2008 as a response to the looming financial crash, today's version stems from its 2018 adoption by the Sunrise Movement in the USA. Backing from influential USA Congresswoman Alexandra Ocasio-Cortez has brought it to a global audience.
There are different conceptions of the Green New Deal, but common to all are commitments to ambitious decarbonisation, a significantly enhanced role for the state, and a focus on the just transition for those particularly affected.
The original Green New Deal plan was put together by the UK Green New Deal Group and published by the New Economics Foundation in 2008. It proposed the creation of hundreds of thousands of jobs in clean industries and significant regulation of the financial sector.
A Green New Deal for Europe sets out a manifesto for a Brussels-led Green New Deal, with a particular focus on a green public works programme and a European Environmental Justice Commission.
New Consensus and the Sunrise Movement summarise American proposals for a Green New Deal. Data for Progress have put together an extensive manifesto.
One of the most insistent criticisms of trade agreements has been in relation to their impacts on the environment. International trade is of its nature carbon-generating, as goods are transported around the world. But trade agreements can also open up new markets for commodities produced in unsustainable ways, from fish to palm oil, tropical timber to cement.
Many people therefore argue that environmental protection should be a core principle of trade agreements. Indeed, trade deals could be a powerful mechanism to promote stronger commitments on climate change or biodiversity conservation, rather than weaker ones.
One proposal gaining increased attention is for ‘border carbon adjustment’. This would enable countries with strong climate policies to impose tariffs on imports of goods from countries with lower standards. This would ensure that trade did not become a ‘race to the bottom’ in which lower standards were effectively incentivised. But many developing countries are worried that any such border tax could simply turn into a form of trade protectionism which froze them out of developed country markets.
The UK Trade Policy Observatory has set out how UK trade and climate policy need to be brought together if trade agreements are to contribute to the UK’s climate objectives.
Common Wealth proposes a series of measures to put trade policy at the service of delivering climate justice, as part of a Green New Deal.
A report from the International Energy Agency found the mineral supplies for electric cars “must increase 30-fold” to meet global climate targets. Carbon Brief summarised the report to communicate the scale of the challenge ahead and what needs to be done to prevent a mineral ‘bottleneck’ stifling the clean energy transition.
The Centre for European Reform’s Sam Lowe explains how an EU border carbon adjustment policy might work, and its benefits and costs.
Emerging economies expressed a ‘grace concern’ over the EU’s plans for a carbon border tax, which supporters argue is necessary to avoid carbon leakage but critics argue amounts to “protectionism disguised as climate action which will damage the economies of countries poorer than the EU”.
Far more money needs to be mobilised to avoid the worst impacts of the environmental emergency. Not only must investment in green activity increase, funding for environmentally destructive activity must decrease.
Governments are committing to a green recovery from the pandemic and interest rates are at a record low - so a range of voices argue that there is a case for greater public and private spending on sustainable investments.
Evidence shows that sustainable investments deliver high financial returns and can create lots of quality jobs, offering an opportunity to improve social and economic outcomes as well as restoring the environment.
UCL's Institute for Innovation and Public Purpose suggests that green investment must increase threefold over the next 15-25 years to finance the transition to an economy run on low-carbon energy.
Another independent panel of economists chaired by the former head of the UK Civil Service, Sir Bob Kerslake, presented a green financial strategy to the previous Shadow Chancellor. Some areas explored include central banking, public investment banks, and the regulation of private banks.
UCL's Institute for Innovation and Public Purpose and the EIC-Climate KIC sets out a comprehensive framework for green financial reform. They focus on the three tiers of central banks and regulators; state investment banks; and how to match firms with green finance.