UK: wishing for a V-shape

Last week, the Conservative Chancellor (finance minister) Rishi Sunak in the UK presented a plan to support businesses and workers as Britain emerges from the pandemic lockdown.  The financial support for workers ‘furloughed’ by their employers is being ratcheted down by the government to zero by end October.  After that, workers and employers are on their own.  But not quite.

Ex-hedge fund manager and multi-millionaire Sunak announced that the government would pay up to £1000 for each furloughed worker taken back on after October and other incentive measures and subsidies to encourage employers to employ, workers to work, and households to spend – to the tune of £30bn.  Added to approximately £160bn already pledged in the form of loans and grants to firms and higher welfare benefits and credits to workers, this makes close to a fiscal injection of £190bn, or about 8% of 2019 GDP.  Along with the fall in tax revenues and the rise in welfare benefits, the UK government budget deficit will be about £350bn in 2020, or 18% of GDP.

The latest measures are really designed to wean workers and businesses off government ‘furlough’ subsidies that have paid up to 80% of the wages for nine million workers sent home. By end-October, these payments will go and be replaced by a one-off payment to employers of £1000 for every worker re-employed before end-January.

At the same time, the government is offering employers funds to take on young people on six month contracts, more money for job centres and local authorities; a cut in sales tax for the leisure industry and a £10 voucher to reduce prices in cafes and restaurants.

The measures are designed to get people back to work and for businesses to resume as before.  So all this funding is just temporary.  It all runs out at the end of January, by which time the government hopes the COVID virus and the lockdowns will just be a bad nightmare and everybody can wake up to a new bright 2021.

But none of the measures can have any lasting impact on achieving sustained recovery. They are mainly directed to persuade employers in leisure industries with nothing for other sectors.  And they rely on private businesses to make decisions about re-employing their laid off workers.  There is no state jobs project and a limited investment programme. The Job Retention Bonus hardly meets the average wage costs of employers.

Tony Wilson, director of the Institute for Employment Studies, said the value of the kickstart subsidy was a third lower than that offered under the Future Jobs Fund introduced by Gordon Brown’s Labour government after the 2008 financial crisis, but was intended to create four times as many jobs. The City and Guilds Group, which works with education providers and businesses on skills development, said the kickstart scheme would only help tackle long-term unemployment if young people emerged with skills and a qualification that would help them secure a permanent job. Kirstie Donnelly, chief executive, said: “If this is not the case it’s just a sticking plaster solution, or even a ‘revolving door’ back to the unemployment queue.”

The Eat Out vouchers are an ironic joke, given that the government was forced, kicking and screaming, to maintain vouchers for school meals during the pandemic, but now wants to pay £10 for meals in restaurants at a higher cost.

In a ‘photo opportunity’ for the £10 meal vouchers, the Chancellor Sunak serves food – without a mask!

There is an extra £15bn for personal protection equipment (PPE) for health and care staff.  This a huge bill that will deliver too late for most workers and just confirms that the government had run down stocks before the pandemic to save money – now they have the benefit of hindsight, but with no benefit to health workers.  Meanwhile the extra funding for local authorities falls well short of the cost that the councils have incurred in the last three months, so a whole round of cuts and job losses are now being imposed by councils.

Then there is the grotesque decision to raise the stamp duty threshold on house purchases.  The Chancellor, who apparently owns seven luxury homes, will be a beneficiary, along with buy to let landlords.  But the average first-time buyer already pays no stamp duty in all regions and nations except London and therefore won’t benefit.  And anyway, why is the government trying to boost house prices in this crisis?  Indeed, the huge loss of tax on this could have been better used to build new affordable homes, given the dire shortage of good housing in Britain.  Indeed the new investment on housing and infrastructure announced is not ‘new’ at all, but simply previous plans just accelerated.

Len McCluskey, general secretary of Unite, the union, said the cut in stamp duty might well please “the better off with little to fear from this crisis”, but it was “no use to the tens of thousands of workers who have lost their jobs in recent weeks and the millions more we fear could follow them”.

Frances O’Grady, general secretary of the Trades Union Congress, the unions’ umbrella body, said the government needed to do far more to stem the “rising tide” of redundancies. She called for extra investment in jobs across public services — including the 200,000 vacancies in the NHS and social care. “And if the chancellor wants people to have the confidence to eat out, he should have announced a pay rise for hard-pressed key workers rather than dining out discounts for the well-off,” she said.

The problem is that the pandemic is not over in the UK or elsewhere.  Britain, in particular, has handled the pandemic very badly, achieving the second highest death rate in Europe and the second highest rate of ‘excess deaths’ over normal in the world.

The damage of the three-month lockdown and the continued level of new infections has scarred the economy permanently.  Many people are now unwilling to go back to work, travel on public transport or go to cafes and restaurants, gyms etc where the risk of infection remains high.

The prospect of a V-shape recovery from the pandemic that the government prays for does not look likely. The UK economy is going to contract this year by the largest margin in 100 years.

And government borrowing and debt will hit historic highs by the end of 2020.

This debt would be manageable, given current low interest rates, if the UK economy were set to bounce back in 2021.  But British businesses do not expect that to happen – instead they are getting ready to sack staff and hold back on spending.  British consumers are not racing to the shops either.

The worst is yet to come on jobs, incomes and public services, as companies in all sectors announce redundancies and local authorities the same.  And as businesses go bust, the burden of unpaid loans for the banks will rise.

The underlying weakness in British capitalism has been exposed by the pandemic.  Even before the lockdown, economic growth was grinding to a halt, business investment was falling, and corporate profitability had never been lower since records began.

Profitability and investment will reach new lows during 2020.  And Britain has a history of slow and weak recoveries from slumps.

But this government does not want to take the lead in investing for recovery. It wants the market and capitalist companies to do that.  That is its ideology and that will be the cause of its failure to make its wish for a V-shaped recovery come true.


7 thoughts on “UK: wishing for a V-shape

  1. Come on Michael you are mean. The cut in stamp duty is needed to pay for deep cleaning of properties every time they are visited by prospective buyers and their estate agents. As for the £10 luncheon vouchers, Sunak knows they will never be spent. By August, the combination of booze and proximity will have ensured that restaurants are closed once more as the R rate goes above 1 and by R alas, I do not mean the Revolution rate.

    Every country and state that has gone down the route these incompetents have chosen have had to reverse re-opening. Its not whether you or I recognise that no V shape recovery is imminent, its when the markets realise it. We were in the eye of the storm which has now moved on, replaced by the more destructive trailing winds making themselves felt. In the end, the current deficits and debt levels are meaningless. The damage will only become visible in a year’s time, by which time we could be in the middle of a war.

  2. > this government does not want to take the lead in investing for recovery. It wants the market and capitalist companies to do that. (…) and that will be the cause of its failure to make its wish for a V-shaped recovery come true.

    Does this means that if the state take the lead and invests ‘for recovery’ then a V-shaped recovery could come true?

    1. Not if just one state ‘took a lead’. And what I mean by taking a lead is for the state to become the main controller, planner and generator of investment and employment and that would only be possible with ownership and control of the financial and strategic sectors of the economy. But even one state had that (say China), that would not be enough to get the world going in a V-shaped recovery if the rest of the major economies remained as before under the capitalist mode of production (with global trade and investment flows damaged). But at least China is likely to be closest to a V-shaped recovery because of a state-led economy

  3. Curious as to the ‘war’ we will be in. With whom, over what?Especially as war gives (mobilisation, investment, political control, etc.) but also takes away (demoralisation, destruction, loss of political control, etc.). What kind of war, these days. Not nuclear, or even touching on it, one assumes (and hopes). Still, high risk. Oh, this is Boris we’re talking about.

  4. Hey this doesn’t really have to do with the post but I just had a question. I was in an Austrian economics discord server and I came across an objection to the LTV that I can’t quite seem to figure out why it’s wrong. It’s worded really poorly so try to be charitable when reading it, but I’m still confused about if he’s right about the LTV being circular. Anyways here is the objection:

    “In the first volume of Capital Marx describes the value of labour as the labour required to reproduce itself, labour time determines labour time. However, in the third volume of Capital, this changes to the extent one might assume given the differences between the volumes of Capital. In the third volume, the wage rate is not determined directly by the socially necessary labour time needed to reproduce it, but instead, the socially necessary labour time needed to reproduce labour is an equilibrium around which the wage rate fluctuates in disequilibrium. Under Marxism, labour is no different from any other commodity, wages are determined by the cost of reproducing it, the commodities required to sustain the labourer. For example, imagine that the worker only requires bread to survive, the wage would then depend on how much bread the worker requires, “how much” meaning the value of the quantity of bread (as opposed to the physical quantity.) If wages depend on the value of bread, then we obviously need to know that value. But bread, like all other commodities, is subject to the labour theory of value, in Marx’s view. To determine the value of bread, one needs to determine the value of the labour that produces bread. But the wages of bread-producers, like all other wages, depend on the value of labour-power. This is turn depends on the value of bread. The circularity here is apparent, before once can determine the value of labour-power one needs to determine value of labour-power, one needs to know the value of bread, a value that in turn depends on the value of labour-power. Unless one can break out of the circle, the labour theory’s explanation of wages and profits. Marxists (primarily Analytical) would later come to these conclusion themselves independently, unaware that Bohm-Bawerk had already done so the century before.”

    1. The value of bread does not depend on the value of labour power – this is a key argument of Marx against Ricardo. The value of bread is determined by the average socially necessary labour time taken to produce it. The value of the bread (in labour time) is C+V+S ie the previously used labour time to make bread machines and flour (C); plus workers wages (V); PLUS the surplus value appropriated by the bakery owner/ employer (S). Say that C = 50 and V = 50 and S = 50, then the value of bread is 150. If there are 100 pieces of bread made, then the total value is 15000. The workers get 5000 of that NEW value of 10000 to eat, that is the value of their labour power (50 pieces of bread approx.), leaving 5000 (50 pieces) for the capitalist bread owner to eat or to sell or hoard.

      There is no circularity here. Of total new value produced 10000, the bread workers eat 5000V or half, which is the value of their labour power; and the capitalist gets 5000S, the surplus value. It is Marx’s great contribution to the labour theory of value that the value of a commodity is not the same as the value of labour power. See this:

  5. Marx didn’t make up his labor theory of value out of thin air.

    It assumes: the subversion of the feudal system, widespread use of money in the exchange of goods, the creation of a reserve army of labor made up of uprooted peasantry and artisans, merchant capitalism, the conquest of the Americas, colonialism, large scale, mining and plantations worked by colonial slave and domestic wage labor, an established domestic labor market with established prices for wage goods (the monetary value of which is important in calculating the value of socially necessary labor time.

    The value of bread was predetermined by historical processes independent of the bourgeois economists who found it necessary to calculate the value of commodities and the rate of profit. That’s why Marx, in his critique political economy, begins by pointing out the contradiction between use and exchange value in commodities.

    Of course, it’s only a theory, and is even questioned by some marxists (who insist on still calling themselves marxists). But on the basis of his theory, Marx made some amazingly prescient predictions (in Grundrisse, vol.3 of Capital, and elsewhere) about the destructive evolution of capitalism: ecological collapse, increasing concentration of capital, increasing and deepening of crises (of overproduction), massive and increasing unemployment, immiseration of workers everywhere, imperial wars, and, in the absence of revolutionary change, capitalism’s anarchic collapse.

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