All crises create winners and losers. In 2008 progressives failed to anticipate and define a compelling story about the financial crisis. Over the following years, house prices have risen more than twice as fast as wages and the highest paid chief executives are now paid twice as much as their 2010 counterparts. A crucial chance to transform the UK’s economic model was squandered.
The economic crisis wrought by coronavirus will be different. But a clear diagnosis of the nature of this crisis, the longstanding weaknesses it has exposed, and a progressive story of how we might recover from it, are as vital now as they were in 2008. This is a task for progressives everywhere: in society, in our workplaces, in our politics. For Labour, seeking to rebound from a disastrous election defeat, this task will be critical.
A row has broken out in the Labour party that speaks to this very challenge. The party’s proposal to give people longer to pay back rent arrears that accrue during the crisis would be an improvement on renters’ current situation, in which repayments are left to the discretion of individual landlords. But the party has been criticised for stopping short of a more radical measure that renters’ unions have been calling for: waiving some or all of these rents altogether.
Whatever one’s position on the specific policy in question, the argument reflects a broader question about whose interests politicians should be prioritising. Coronavirus has magnified the inequalities in our society. While office workers stay protected at home, security guards, taxi drivers and carers have died in disproportionate numbers from Covid-19. While the outgoings of higher income households have declined as they work from home – which we calculate will save some an extra £189 per week – more than 1.4 million people have turned to universal credit as a result of the crisis.
The chancellor’s job retention scheme, which has now been extended to October, has been hugely important in enabling social distancing, supporting businesses and keeping people in their job on a decent income. But it has also ensured people can continue to pay their bills, rent and debts, to the benefit of those they are paying. In a new paper published today by the Institute for Public Policy Research, we find that as much as 45% of the money spent on the job retention scheme will be passed straight on to landlords, banks and other lenders. Without this scheme, many more people would have lost their jobs and been unable to meet these payments, and landlords and lenders would have seen a significant hit to their cash flow and income.
Similarly, the government is guaranteeing business loans – up to 100% for small businesses – and paying the first year of interest and fees. Yet despite the low risk attached to these loans, and access to very cheap borrowing, banks will be able to make substantial profit from them. Interest rates have only been capped for the smallest loans, and even here at a generous 2.5%.
When we follow the money, it leads to an implicit bailout for landlords and banks, and particularly “rentier” activity - making money from controlling assets, rather than from work or productive investments. Those least financially able to weather the crisis are being asked to get into debt, whether through accruing rent arrears or taking on unsecured debt to cover the costs of living. These debts are income that flows to those who are most financially insulated from the crisis. The consequences of this will not just be inequality and injustice, but a drag on an already stuttering economy.
There are a number of short-term measures policymakers could adopt to ensure government support does not prop up rentier activity rather than ordinary people. This could include rent waivers (the details and practicality of which would need to be worked out), or bans on dividends and share buybacks to ensure support goes to firms that genuinely need it to pay wages. It could also include capping the interest rates that banks can charge on government-backed loans, for instance to the rates set by the Swiss emergency loan scheme : 0% or 0.5%.
If the government fails to implement short-term measures like these, it will be all the more important to ensure those who have been insulated during this crisis are asked to contribute more after the recovery. There was a strong case for bringing wealth taxes closer in line with income taxes prior to this crisis. Now that case is louder than ever. Wealth taxes could recoup gains likely to be made as a result of the crisis and help fund a more resilient welfare state.
But the task is greater still. The measures taken through the crisis protect rentier interests because they pump money into a broken economic model in which rentierism has become a defining feature. Ultimately, addressing this problem will require democratising the ownership of assets and reducing the power of rentiers. It is likely that we will have to endure the deepest recession the UK has experienced in hundreds of years: the time is ripe for bold ideas, not tinkering. Progressives missed an opportunity after the 2008 crisis. This time, we must ask much sooner, and define much better: who wins, and who pays?