Globally, the Covid-19 pandemic has triggered the greatest economic contraction in living memory. Tens of millions of jobs have been lost, and for the UK it has been predicted that upward of five million people, or more than 15% of the workforce will soon be unemployed. This pending tsunami of job losses will be of a scale that has not been seen since the Great Depression of the 1930s. And the consequences of this day of reckoning – personal, social, political and economic – will be far reaching.
We Must Do Something
Nobody saw this crash coming but now that it is upon us, what should the policy response be? Clearly, the collective imperative is that we must do something. We must act. But what actions should we take that will make the biggest difference and most quickly? There are immediate actions that could be taken to ease the economic effects of the lockdown such as reducing the social distancing rule from two metres to one metre, exempting younger people from the restrictions and taking a regional view of the infection risks. But what should be done at a more strategic level to preserve jobs and protect livelihoods?
Since its launch in April, the Keep Britain Working campaign has been inviting people to share their ideas for protecting livelihoods. The suggestions have come from companies, workers and the wider public. They have included a lot of ideas about taxation, regulation, apprenticeships, research and development and investment. Many of the ideas are very good ideas. Here are my top five:
- Reform the tax structure on jobs, otherwise known as National Insurance
- Unleash apprenticeships and training
- Develop smarter employment law by reforming the application of European Directives to better suit the UK labour market, post-Brexit – including the Agency Workers Directive
- Invest in infrastructure
- Expand research and development
Reform National Insurance
This tax on jobs has progressively risen over the last twenty years and its burden is felt most by the low paid, who often pay a lot more National Insurance than they do income tax. The overall rate should be reduced for employers and employees and the burden should be shifted from the lower paid to the broad shoulders of the higher paid. Employers’ National Insurance is a tax on job creation – lowering it will help the labour-intensive firms hardest hit by this crisis. This measure would protect lower paid and entry level jobs and improve incomes for these workers in a tough time.
Unleash Apprenticeships and Training
When the government introduced the Apprenticeship levy, the number of people doing apprenticeships actually dropped. This was a result of the law of unintended consequences. The levy was a tax that reduced resources available for training. The bureaucracy around establishing an apprenticeship programme and claiming the levy back was too intimidating for many businesses. This area should be deregulated and firms given more ability to choose the training that works for them. Let’s learn from successful levy models like those in France and Singapore, where exemption schemes were used to reduce the levy for those firms already spending enough on training. These measures actually raised the levels of training overall. This would lead to more companies establishing programmes and to an explosion in business relevant learning.
Develop Smarter Employment Law
Our employment law has changed a lot in the past thirty years, and the EU played a big role in that. But, post-Brexit, we have the chance to look at how we apply these rules with the aim of making them work better – whether they originated in London or Brussels.
European Directives are an example of this. The different legal system in the UK means that they were always more specific and process-driven here than in some other countries. A good example is the European Agency Workers regulations which stipulate parity of terms between temporary and permanent staff after just 13 weeks. Another is the cost of severance, because both are currently acting as deterrents to employment. The agency workers rules are incentivising employers to take people on for up to 13 weeks and then to replace them because the regulation forces costs up when temporaries do not have the same long-term commitment to the client business that their own employees have. This isn’t good for anyone. If the principle of parity is to be upheld, 52 weeks would make more sense. The high costs of severance, particularly for highly paid workers has several negative consequences: they strip employers, often small businesses or public services, of scarce resources; they make it more likely that low paid, young or entry level workers will be dismissed first; and they disincentivise employing people over installing technology. Let’s limit all severance pay for all grades of worker to the equivalent of three months’ notice. This is more equitable and will promote employment.
Bring Forward National Infrastructure Investments
Now is the time to accelerate the improvements to the UK’s infrastructure that are already in the pipeline. Let’s build those 40 hospitals, accelerate broadband rollout especially in rural areas, improve the rail network and complete the road building programme that is years overdue. Let’s also address the housing shortage by reforming the planning system and introducing a national home building programme that will address the chronic shortages that have made home ownership an impossibility for all but the very wealthiest of the younger generation. These investments would create many jobs and lead to lasting improvements in the national infrastructure and housing markets. These are the kind of investments that enlightened Victorians implemented so effectively in the nineteenth century, the benefits of which endure to this day.
Expand Research and Development
Technology has been a growth sector in the economy for fifty years now and it has provided the engine for a remarkable period of job creation. Additionally, there continue to be persistent skills shortages in engineering and technology which reflect the high levels of demand for skills in these areas which are likely to accelerate further due to the nature of the recession we face – more focus on digital interactions means a greater need for technology related skills. A strategy to embed research and development in the economy that incentivises companies to invest in research and to work with universities and other organisations to develop ideas into products and services would support an already dynamic entrepreneurial sector. For small companies in particular, creating bridges to channel funding into research and development will be critical to their future health and to the future health of the economy. This is where the jobs of the future will come from and the technological leadership that is the cornerstone of a successful high productivity, high wage economy.
The Covid-19 pandemic has demonstrated that the ingenuity and adaptability of both individuals and organisations is greater than most imagined when it began. Our circumstances have changed dramatically. And new circumstances demand new ideas. None of the five ideas I have listed are rocket science but taken together I do believe that they will help to preserve jobs, to protect livelihoods and to Keep Britain Working.
9th June 2020