No alarms and no surprises: There were few surprises when the Chancellor delivered his Autumn Statement last week, and in many ways this was the whole point. This was a fiscal event with the primary aim of reassuring the markets and the country that the government that the ‘grown-ups’ were back in charge and as a result the entire contents were extensively briefed beforehand. Rhetorically Jeremy Hunt attempted to do two things in the statement. The first was to deflect blame for the dire economic situation away from the government. The message was that a combination of Russia, Covid and (unspoken) his predecessor were responsible for the country's economic woes. The second was to reassure both voters and his own MPs that the choices he was making to manage those woes could have been worse, hence the talk of a “balanced approach” between spending cuts and tax rises.

• Context is king: The OBR was famously excluded from the last fiscal event, but the agency took centre stage here, predicting a long recession and the biggest fall in living standards on record. This combination, described as “horrific” by economist Duncan Weldon, was the main story from the day and presented a bleak picture of the next few years, with real disposable incomes set to be lower in 2028 than they were pre-pandemic and the value of workers’ pay packets not expected to return to their 2008 level until 2027 according to Torsten Bell of the Resolution Foundation.
• Moving the goalposts: In response, the main decision the Chancellor took was to loosen the fiscal rules set by his predecessor in order to avoid even greater spending cuts or tax rises. He extended the period until the debt-to-GDP ratio needs to be falling until the fifth year of the forecast period (up from three years), and introduced a new rule that total public borrowing in the same period should not exceed 3% of GDP. This loosening was in some ways a tacit admission that the government’s pre-statement rhetoric on the ‘fiscal black hole’ was always overblown, and the government always had the option of changing its fiscal rules. Interestingly, Hunt did not use the phrase ‘black hole’ once in the statement. (See our recent Digest on the fiscal debate). It is also a reminder that these rules define the terms of our political and economic debates, and they still receive relatively little scrutiny considering the enormous impact they have.
• Tough choices: These new rules may have been looser, but they still committed the government to a substantial fiscal tightening in the next five years. The Chancellor delivered this in two ways. The first was through a series of tax rises in the near term, billed as “asking more from those who had more”. In fact, the majority of the extra revenue came from freezing income tax thresholds for those on low and middle incomes - an effective reversal of the major tax policy of successive Conservative governments from 2010 onwards. CAGE’s Arun Advani unpicks the tax changes here, arguing that the government should have gone much further on taxing wealth. The second plank of the plan was a £28bn squeeze on public spending in the years after 2025, with some areas such as health and education protected. Tackling inflation was one of the justifications for these cuts, and inflation will make this squeeze feel even worse, with the TUC and NEF warning that public services needed an extra £43bn just to stand still.

That’s how you get a doom loop: The phrase ‘doom loop’ was heard from both sides of the chamber in the debate, referring to the idea that spending cuts and low investment would trap the UK in a cycle of economic stagnation, leading to more spending cuts. With the short-lived ‘plan for growth’ of the Truss era consigned to the scrapheap, the Chancellor reassured the Commons that the government was still committed to growing the economy. The problem, as IPPR’s George Dibb points out, is that the OBR thinks the measures announced will do almost nothing to lift the UK’s anaemic growth rate.

• Capital pains: In fact, the government announced cuts to the UK’s capital budgets from 2025 onwards, the very spending that is most likely to lead to growth in the future. With business investment also predicted to remain weak, and the government trapped by internal Conservative politics on issues like immigration and housing, it becomes increasingly difficult to see where growth is coming from in the next few years.

‍The big squeeze: The government saw stabilising the public finances as their task in this statement, but for the public the main issue is that their personal finances remain in crisis. Despite the squeeze on households, the government announced precious little help on the cost of living in the statement. The Chancellor attempted to present automatic upratings to pensions, universal credit, and the minimum wage as acts of generosity from the government, whilst announcing a small package of extra grants for the most vulnerable in 2023.

• High prices, guaranteed: Hunt also confirmed that his decision to abandon the pledge to freeze energy prices for two years would result in the level of the Energy Price Guarantee rising from £2500 to over £3000 from April 2023. As IPPR’s Carsten Jung points out, this is a far lower level of support than that being provided by comparable countries like Germany.
• Make me energy efficient, but not yet: Campaigners have long been calling on the government to invest in energy efficiency and home insulation programmes which would reduce bills, save government money, and cut down on carbon emissions. The Chancellor did at last commit to action on this front, establishing a new Energy Efficiency taskforce and a target to reduce energy consumption by 15% by 2030. But with funding not available until 2025, campaign group Warm this Winter warn that millions will still face fuel poverty this winter. 
• Pay under pressure: The other effect of the government’s squeeze on public spending will be to intensify the battle over public sector pay rises. Unison General Secretary Christine McAnea responded by warning that: “Health worker wages must be boosted now to prevent a damaging dispute this winter. Otherwise, the NHS can’t hang on to experienced staff, halt the damaging exodus of key workers or improve wait times for patients.”

A trap for Labour?: The decision to delay spending cuts until after the election in 2025 was justified by the Chancellor as a decision not to further weaken the economy going into a downturn, but has been widely interpreted as a trap for Labour. The message the government wanted voters to hear around the statement was that they are willing to take the tough decisions to deal with an economic crisis not of their making, while Labour refuse to face up to reality.

• Blame game: The first problem with this approach is that the public aren’t buying the argument that the cost of living crisis is not the government’s fault, according to polling for Channel 4 news. This largely explains why Labour continues to enjoy extremely healthy leads in general election polling, and this is before the energy price rises, tax rises, and biggest fall in living standards on record really hit home.
• Sound finances: For their part, Labour are not taking the bait. They have responded to the Autumn Statement by insisting that they are the party of ‘sound finances’, rhetorically accepting the need for fiscal discipline while stopping short of committing to specifics. Leader Keir Starmer explained that the economic context meant that Labour would be unable to do everything they want to do as fast as they had hoped. 

Cycle of stagnation: Labour’s main economic argument is that 12 years of stagnation and 12 years of chaos left the UK economy in a historically weak position, and that major investment (particularly in the green transition) is needed to force the UK onto a higher growth trajectory. Squaring this analysis, and the need to rebuild public services, with the commitment to fiscal discipline and the need to avoid the government’s spending trap will be the terrain for the coming years of political battle.

COP27 and climate finance. COP27 continues this week as 196 countries and the EU gather to the UN Framework Convention on Climate Change. A key issue at this year’s negotiations is ‘climate finance’ - money provided in different forms from advanced economies to countries in the global South. 

• Negotiations at COP26. Developed countries pledged in Copenhagen in 2009 and again in the Paris Agreement that they would mobilise public and private funding of $100bn a year by 2020. They failed to hit this target (providing $80bn in 2019) but said they expect to hit it in 2023. (Oxfam calculate the “true value” of climate finance provided to developing countries to be much lower than reported, once “dishonest and misleading accounting” is taken into account.) At COP26 last year, developed countries resisted the demand that they make up the shortfall since 2020 by providing more in 2024 and 2025. The level remains at $100bn a year, and a process is currently under way to define a New Collective Quantified Goal for how much they should pay after 2025.

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Finance for adaptation. Achim Steiner, the UN’s Global development chief, warned that more than 54 poor countries are in danger of bankruptcy and suggested that many were at risk of giving up on the climate talks if developed countries fail to provide the pledged climate finance required to implement their mitigation and adaptation goals. 

• Ensuring finance goes where it is needed. For many years poorer countries have expressed anger that around 75% of climate finance has gone to mitigation efforts, such as renewable energy, rather than on adaptation to help them cope with the climate change they are already experiencing. Last year’s UN Environment Programme report on financing for adaptation estimates that the costs for vulnerable countries to adapt to global warming are up to ten times higher than available funding. Last year’s Glasgow Climate Pact (see our analysis) saw the vulnerable countries achieve their demand that developed countries should “at least double” funds for adaptation. The Stockholm Environment Institute outline 6 principles to underpin climate finance so that it meets the needs and priorities of vulnerable communities

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Loss and damage. A key issue at COP27 has been the issue of ‘loss and damage.’ In UN climate negotiations 'loss and damage' is the term used to describe the principle that rich countries should compensate poor ones for the climate costs their historical emissions have caused. For many countries in the global South this is central to climate justice. 

• The Pakistan Megafloods. Devastation wreaked by the recent ‘megafloods’ in Pakistan increased the salience of loss and damage at COP27 this year as they highlighted mounting fiscal and climate challenges that vulnerable nations continue to face. Official reports estimate 33 million people have been affected by floods in Pakistan this year - significantly more than the 2010 ‘megafloods’. For context, one third of the country was underwater - an area equivalent to the size of the UK - with economic damages exceeding $30bn. Climate resilience experts Dr Amiera Sawas and Sobia Kapadia argue that “This is a clear cut example of loss and damage that can be used to amplify the calls of the most vulnerable states for a financial mechanism to support countries experiencing such devastation despite being low emitters.” 

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Who is responsible for climate change? Developed countries have always resisted recognising the concept of loss and damage; they fear it is the slippery slope to being held liable in international courts for trillions of dollars in damages although developing countries agree any mechanism would not legally establish liability. The largest 20 economies in the world (the G20) are responsible for 80% of greenhouse gas emissions, whilst the whole of Africa is responsible for 4%, but suffers disproportionate impacts. (See Carbon Brief’s video showing which countries are responsible for cumulative emissions.) A new study published by Christian Aid warns that, under current climate policies, African countries will lose 20% of their average expected GDP by 2050, and 64% by 2100.

• “Polluters must pay”. Research by Global Justice Now (GJN) found the ‘Big 5’ oil companies (including BP and Shell) are responsible for four times more carbon emissions than the 150 lowest-emitting countries, and have reported $170bn in profits this year - more than the annual amount being called for to compensate the global south for loss and damage. Campaigners have suggested extending the windfall tax on oil and gas companies into a ‘climate damages tax’ to raise-revenue for loss and damage payments. (25% more fossil fuel lobbyists registered to attend COP27 this year.)
• “Drowning not only in flood but in debt”. Debt Justice has highlighted that over 70% of climate finance has been in the form of loans, not grants, which add to the debt burdens of lower income countries. Bilawal Bhutto Zardari, Pakistan’s foreign minister said that this historic flooding means they “end up not only drowning in the floodwater, we also end up drowning in the debt as a result of having to rebuild" Pressure is building to reform international finance institutions to allow ‘debt-for climate swaps’, where creditors cancel some debt from a poorer country in exchange for a commitment to an equivalent or lesser amount of climate adaptation or mitigation investment. Debt Justice has previously explained why debt-for-climate swaps are “not a silver bullet”, particularly since new conditionalities must not be imposed on poor countries for a crisis they did not create.

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Progress so far. Egypt pushed ‘loss and damage’ to the top of the agenda at COP27, but the EU and US have “coordinated a gentle but firm pushback” against the idea of the creation of a dedicated fund for ‘loss and damage’ compensation so far, opting instead for a “mosaic of solutions”. 

• The “mosaic of solutions”. The Loss and Damage Collaboration explains that this term originated in a speech by Mia Amor Mottley, the President of Barbados, but has since been adopted by developed countries to focus on solutions outside the remit of the UN, such as Germany’s Global Shield Against Climate Risk. Her original vision included a dedicated loss and damage fund, reforming the IMF and World Bank to provide debt relief and mobilise finance through Special Drawing Rights, and taxing fossil fuel companies and other big emitters. Carbon Brief is tracking the ongoing negotiations and finds that only 10% funding pledges made from rich nations at the time of writing is for on the ground projects relating to loss and damage.
• The way forward. E3G argues that an ambitious outcome at COP27 would require parties to agree to the establishment of a loss and damage facility with “accessible, transparent and additional” funding, and more. The negotiations aim to be concluded later this week. Formation of a loss and damage fund at COP27 has become the clear litmus test for developing countries' trust in the UNFCCC process and the willingness of rich countries to step up and meet their responsibilities, thirty years since first signing the climate convention at the UN’s 1992 Rio Earth Summit.

The long march to economic ‘credibility’. Fiscal policy debates are heating up in the run up to the Autumn Statement on the 17th November. Treasury sources have been briefing journalists the gory details of the rumoured ‘black hole’ in the public finances and dropping hints about measures being considered to fill it. The latest estimates report that Chancellor Jeremy Hunt is planning cuts and tax rises totalling £60bn (at least half is expected to come from spending cuts) as he attempts to restore the Conservative party’s reputation for economic credibility. (Be warned: there is a large amount of expectation management going on from the Treasury, so take all reports of figures or policy options with a pinch of salt).

• A comprehensive explainer of fiscal responsibility. But what is fiscal space, how much does the government have, and what determines the options available to the Chancellor? Spending and Stability, a timely briefing by IPPR’s Carys Roberts and Carsten Jung, outlines the macroeconomic situation after the mini-budget and clarifies what the real constraints on tax and spending decisions are going forward.
• Inflation and sustainability are the only constraints. The authors explain there is little justification for the government narrative of a multi-billion pound ‘black hole’ which must be filled immediately to avoid economic calamity. In fact, the primary short-term constraint is the risk that any tax and spending decisions further stoke inflation (which they argue was the main driver behind the mini-budget “market turmoil” - read our analysis of the mini-budget’s contents and reaction) and the only medium-term constraint is the Chancellor’s choice of fiscal rules (a self-defined measure of sustainability).
• Room for additional spending. In the short term, IPPR argues that there is room for the government to raise spending to combat the cost of living crisis and invest in policies that will lead to economic growth, as long as inflation pressures are controlled. In the medium term, even the governments’ own fiscal rules do not prescribe spending cuts. Instead, a mix of policies (such as public investment) that increase growth (and thus lead to higher tax receipts and lower public spending) combined with some tax increases, would provide a credible fiscal strategy. This kind of countercyclical fiscal policy would be a more normal response to an impending recession, as the BBC’s Andy Verity explains. 

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Debt sustainability and fiscal rules. At the heart of this debate is the UK’s framework of fiscal rules. Fiscal rules are chosen by the Chancellor: they are a commitment to certain debt management policies to assure investors in UK public debt that there is a plan to ensure debt levels remain manageable - violating this can lead to higher risk premiums, leading investors to charge more interest on the debt. There are multiple fiscal rules, but the important one for this debate is the commitment to ensure the UK’s debt-to-GDP ratio is falling by the third year of the OBR forecast (i.e. by the end of 2025). This is a rolling target, so in some ways it can never be reached, but it does oblige the government to attempt to set out policies to meet it, which the Office for Budget Responsibility assesses. The ‘black hole’ is the anticipation of how far the government is away from meeting this self-imposed rule. 

• Debt-to-GDP ratios. Media commentary is estimating different sizes of the ‘fiscal black hole’ (from £10bn to £70bn) because it is based on different forecasts of GDP growth in three years time - or over five years if they assume the Chancellor will relax his fiscal rules and give himself more time to have debt falling as a % of GDP. The anticipated growth rate makes a huge difference to the estimated size of the ‘hole’, which is why policies that can raise the growth rate are also effective fiscal management policies. 
• The ‘moron premium’ and market reaction to the mini-budget. IPPR clarify that the market turmoil caused by the tax-cuts in the Truss government’s mini-budget was not due to a lack of faith from investors about the ability to repay the debt. They suggest that actually, it was caused by the lack of evidence about the effect of tax cuts to generate economic growth, citing recent analysis by the IMF (NB there is now a long-standing breadth of evidence that trickle-down economics - particularly via tax cuts - fails to generate growth), and that they might be inflationary which “combined with the fact that policies announced did not credibly address key upcoming challenges caused by the cost of living crisis.” 
• The market reaction to the Energy Price Guarantee. The tax cuts in the mini-budget were originally calculated to cost £45bn, however, the much larger Energy Price Guarantee was predicted to cost £150bn, but the latter didn’t provoke the same response from investors in UK government debt. IPPR explain that if public borrowing is used in ways that are much more likely to increase GDP growth, such as public investment to protect incomes, spending and demand, then this is more sustainable for the public finances in the long term. Further, there was good evidence that the energy support package would reduce inflationary pressure.

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Reducing the debt-to-GDP ratio through contractionary policy is self-defeating. IPPR’s point is that the size of the hole in public finances changes depending upon the policies chosen to fill it. George Osborne (in)famously tried to reduce the government’s debt-to-GDP ratio in the 2010s by heavily focusing on cuts to public spending. This approach has been roundly criticised by major economic institutions as a failure; across 32 of 32 advanced economies, reduced government spending led to slower economic growth. Contractionary fiscal policy, such as certain tax rises and spending cuts reduce spending in the economy and therefore negatively impact growth, making the hole in the public finances larger. In other words, if you want to meet a debt-to-GDP target, then the GDP is as important as the debt.

• This recession could be worse than the 2010s. The Guardian’s Larry Elliot explains that attempting austerity again now will be worse than in the 2010s because, unlike in the 2010s, the Bank of England is now also tightening its monetary policy; the Bank predicted last week that “higher interest rates would push the economy into the longest recession since the 1930s…Hunt’s fiscal squeeze is likely to worsen the forecasts, and the Bank said the economy was already contracting and would continue to shrink for eight consecutive quarters to the summer of 2024.” 
• Failure to learn the mistakes of austerity. The Institute for Government warned that £40bn of departmental spending cuts would require budgets to fall by 7.8% in real terms - the same severity of austerity as in 2010-2015 - but public services are already more fragile than they were in 2010 and “the methods used in 2010 are no longer politically or practically viable.” The UN’s envoy on extreme poverty also warned Rishi Sunak that a new wave of austerity could violate the UK’s international human rights obligations by increasing hunger and malnutrition: “This is the worst time to impose such cuts. You do not impose austerity measures when the whole population is facing a cost of living crisis. What you do is you raise taxes on the rich, you raise taxes on corporations.”

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Avoiding the “doom-loop”. The CBI’s Tony Danker, head of the UK’s largest business lobby group, warned PM Rishi Sunak against repeating the mistakes of the Cameron-Osborne years and creating a contractionary ‘doom-loop’; where tax increases and spending cuts harm growth so “the country could end up in a similar doom loop where all you have to do is keep coming back every year to find more tax rises and more spending cuts because you’ve got no growth.” The rumoured Treasury calculations admit the risk of this ‘doom-loop’ taking hold where estimates of the initial fiscal hole rose from ~£30-40bn to £50bn because more tax rises or spending cuts “will worsen the economic outlook, which will in turn hit future tax revenues”.

• Counter-cyclical approaches for economic growth. The PM has recently appointed Onward’s Director, Will Tanner, as his deputy chief of staff. Onward have a published a new paper by Tim Pitt (previously special adviser to Conservative chancellor’s Philip Hammond and Sajid Javid) calling on Chancellor Hunt to “loosen the interpretation of fiscal rules” to enable more investment in human capital, infrastructure and R&D. Pitt recently argued that Conservative economics must adopt a more pragmatic approach to fiscal policy, where they are “prepared to use it aggressively in downturns, esp when monetary policy is at ZLB, while accepting need for debt to fall materially in good times to build space for that”.
• Alternative fiscal rules. IPPR explain that debt-to-GDP fiscal rules have significant drawbacks as they limit borrowing to invest, even when this could be growth-enhancing and ultimately reduce debt in the long term. They propose instead a debt-interest-to-GDP rule or a net worth rule. NEF propose replacing fiscal rules with a Fiscal Policy Committee housed at the OBR and given a mandate based on resource constraints, full capacity utilisation, the private sector balance sheet position, and public sector net worth. 

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Achieving debt sustainability through growth. IPPR criticise the IFS’s estimate that £25bn of spending cuts are needed to meet the government’s current debt-to-GDP rule because this is based on near 0% growth in the medium term and 1% rise in interest on public debt. They argue that if the UK returns to pre-pandemic growth and interest rates closer to 2%, then the UK can afford to run a deficit of £49bn until 2025 and still be stabilising its debt - with £74bn more fiscal space than the IFS’s estimate.

• So how do we achieve growth? Fresh forecasts from the Bank of England last week predicted no or negative GDP growth until mid-2024. This can be broken with careful targeted measures to protect incomes and demand, in areas that don’t stoke inflation. IPPR’s paper outlines a strategy to tackle the cost of living crisis while ensuring sustainable growth and sound finances in the future; they give options for raising taxes that dampen inflation risk while also improving efficiency, equity and behaviour change. Carys Roberts outlines this approach in the New Statesman: “The fiscally responsible approach is to build a strong economy through public investment and tax increases on the wealthy.”  (Reminder: the UK is still a low-tax nation compared to Western standards.)
• Fiscally responsible policy options for 2023. The Telegraph reports that the Chancellor is looking at changes to the headline rate, reliefs and allowances on Capital Gains Tax and considering raising taxes on dividends. There is also speculation about whether the government will abolish non-dom status and the shape of a redesigned windfall tax. (The IMF ranks the UK’s oil and gas tax rate as the lowest amongst major producers.) The Guardian also reports that Labour are working on a “big policy intervention that will be a major overhaul of the tax system”, looking at taxing wealth in particular. Tax Justice UK have outlined 5 changes to wealth taxes that can raise £37bn a year. (Check out Economist Arun Advani’s Wealth Tax Reform Calculator for different revenue-raising options.)  

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No public appetite for austerity. Another consideration in this debate is how politically deliverable a programme of fiscal restraint would be in practice. Public attitudes on the economy have shifted since the 2010s. Deficit management is much less salient in the public's judgments about economic performance than it was in 2013; voters are now “most likely to be influenced by information concerning inflation/increases in prices”. NatCen’s latest British Social Attitudes survey shows “Appetite for government intervention in the economy is rising, as is concern about inequality, and enthusiasm for redistribution of income from the better-off to the poorer”. Those who want to increase taxes and spend more on health, education and social benefits was at its nadir at 31% in 2010, but has been climbing since - since 2017 more of the public want the government to “increase taxes and spend more” than those who want it to “keep taxes and spending at the same level as now”. 62% of 2019 Conservative voters think wealthy people should pay more tax.

• The pandemic changed people's views on welfare. Pollster Sir John Curtis argues that the public is much more sympathetic to working age people in need and more tolerant of welfare spending than in the Cameron-Osborne years. More than two-thirds now believe that ordinary working people do not get their fair share of the nation’s wealth - the most since 1991 and 10% more than in 2019. There is also growing support for redistributing income from the better-off to those with less (+10% since 2019). 71% of 2019 Conservative voters think the minimum wage and social security system don’t provide enough to live on. 

Splitting the bill for the cost of living crisis. The two week pause ahead of the Chancellor’s Autumn statement on 17th November has left plenty of room for speculation and debate about the likely contents. We will explore the wider macroeconomic context in next week’s Digest, but, for now, one question dominates: who should ultimately pay the bill for the cost of living crisis? 

• Filling the fiscal ‘black hole’. Jeremy Hunt reportedly “confronted” the Cabinet with a “demand to find new spending cuts” when he became Chancellor and reversed Kwarteng’s tax cutting mini-budget in a bid to repair the Conservatives reputation of fiscal responsibility, earlier in October. Bloomberg reported the Treasury has prepared a list of 104 spending cuts for the government to choose from in order to fill the £35bn fiscal ‘black hole’ which still remains to meet the fiscal rules Sunak had previously chosen as Chancellor. 
• Fiscal rules. However, as PEF’s James Meadway notes: “Change the forecasts, change the target, and the black hole shrinks.” The FT reports that the Chancellor might change fiscal rules to have debt to gdp ratios falling after five years, rather than three, so that “much of the fiscal pain will not be felt until after the next general election”. In a separate blog post, James explains how this leaves a “trap” for Labour who may be tempted to partly accept the premise of spending cuts in an attempt to appeal to perceived notions of fiscal responsibility. (Reminder: Across 32 of 32 advanced economies, reduced government spending led to slower economic growth and Osbourne-era austerity failed to reduce the UK’s debt to GDP ratio.) 
• Defining fiscal responsibility. The Telegraph’s Ambrose Evans-Pritchard argues that the OBR “must stop pushing the economy into a contractionary vortex” as “Jeremy Hunt is more or less forced to tighten hard into the teeth of recession, even if such a course is macroeconomic lunacy”. He continues: “The clear danger is that the OBR mechanism will push us into ill-timed austerity, inflicting far more lasting damage than the storm of over the mini-Budget…until they reframe their definition of what constitutes budget responsibility, they are objectively complicit in economic vandalism.” (Check out NEF’s proposals for scrapping fiscal rules entirely and replacing them with ‘fiscal referees’ - a new Fiscal Policy Committee at the OBR.)

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Wealth tax reform is preferable to austerity. More recently, the Telegraph reported that “Hunt is considering up to £20 billion of tax rises in the [now delayed] Halloween budget, with high earners to bear the brunt of his quest to balance the books.” 

• Raising money without harming growth. The FT’s Martin Sandbu argues that the government should levy a 1% annual tax on net wealth “above the level needed to get into the top 10% richest in the UK” could raise £35bn and encourage more productive uses of capital.
• Other revenue-raisers that don’t harm the majority. Tax Justice UK has set out 5 ways the Chancellor could raise up to £37bn through wealth taxes. Taxing income from wealth at the same level as income from work could raise up to £14bn, applying national insurance to investment income could raise up to £8.6bn, a 1% wealth tax on assets over £10 million could bring in up to £10bn, ending inheritance tax loopholes could raise another £1.4bn and scrapping non-dom rules raises a final £3.2bn. (Guardian coverage from Rupert Neate.) 
• Wealth taxes are politically popular. Polling by Opinium on behalf of the Stop The Squeeze campaign has shown that a majority of voters who backed the Conservatives in 2019 would support wealthy individuals paying more in tax than they do now. Centre-right think tank Bright Blue’s sets out the Conservative case for reforming taxes on work and wealth: “A centre-right Government that is committed to ‘levelling up’ the UK should rebalance the tax system from income associated with work and effort and onto income associated with privilege and luck.”

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What about the energy sector? Chancellor Hunt had previously also avoided ruling out the introduction of a new windfall tax. Current loopholes in the current windfall tax on oil and gas producers mean that drilling in new oil fields (such as Equinor’s new site at Rosebank) amount to a net loss for the taxpayer. 

• Reforming the windfall tax. NEF calculated that reforming the windfall tax on oil and gas producers could raise an extra £9bn. The Counterbalance newsletter explains how to turn temporary windfall taxes into longer-term excess profit taxes on monopolies. The Balanced Economy Project argue that “a deeper and more long-lasting source of unproductive unearned income is, of course, monopoly power.” 
• Taxing dividends and share buybacks. Last week, Shell announced their 2nd highest quarterly profits ever as their profits increased by $5.4bn. IPPR and Common Wealth calculated that $4bn of increase went directly into share “buybacks” to artificially inflate the share price of the company. (BP made $8.2bn in Q3 and gave $2.5bn to shareholders via share buybacks.) Share buybacks hit record levels in 2022, where FTSE 100 companies have announced $46.9bn so far in 2022. IPPR’s George Dibb argues that share buybacks are “a symptom of a firm that can identify no productive investments beyond boosting their own value.”  (IPPR’s Shreya Nanda explained why share buybacks are part of a wider cycle of business failure in this thread.) The report finds that new taxes on share buybacks and dividends could raise up to £17bn per year, help encourage more productive uses of capital investment and avoid cutting public services even further.
• Lost revenue from private ownership. The TUC calculated that the cost of privatisation of the UK’s power sector means the public misses out on £63-122bn over the next two years (£4,400 per household). The TUC’s Mika Minio-Paluello stated: “If the UK had publicly owned energy like our European peers, the profits would instead flow to the public…£122 billion would have gone a long way to lower bills and retrofit our homes.”

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Stop The Squeeze. Nick Gutteridge reports that the Chancellor is “not considering measures that would hit the poorest Britons who are already struggling with rising prices.” A new coalition campaign, Stop The Squeeze, has launched calling on the government to deliver “a real plan for an affordable Britain” and tackle the cost of living crisis by guaranteeing affordable energy, boosting incomes, and raising taxes on wealth. The campaign has a wide range of supporting organisations from anti-poverty charities like Oxfam and Save the Children, climate campaigners like Uplift and Possible, progressive think tanks, trade unions and more. You can read more about their aims and get involved here.

• Public support? The new campaign group launched by releasing polling which demonstrates that only 1 in 5 of the voters that backed the Conservatives in 2019 believe cuts are inevitable in response to the current economic situation. The campaign also finds that 71% of the same voters believe that the minimum wage and social security system do not provide incomes people can live on.
• Uprating benefits. JRF has co-signed a letter with over 100 anti-poverty organisations calling on Rishi Sunak to “honour the promise he made this spring to increase benefits in line with inflation, and to do so now rather than waiting until April.”

New Chancellor, new fiscal plan. This week began with the new Chancellor Jeremy Hunt announcing further U-turns on the government’s ‘mini-budget’, after Kwasi Kwarteng was sacked late last week. All of the tax cuts announced in the government’s Plan for Growth have been reversed, however the government still plans to abolish the Health and Social Care Levy and keep the cut to Stamp Duty. (HMT has listed the U-turns here.) 

• Financial markets dominated fiscal policy. In the words of Martin Lewis “Trussenomics totally hunted down and gone.” But, as IIPP’s Josh Ryan-Collins explains, “The defeat of free market ideology will be worthless if it results in a fear of public spending and an unquestioning faith in the markets.” Hunt justified the U-turns on tax cuts in an attempt to “reduce unhelpful speculation” ahead of the medium-term fiscal plan. The IFS has calculated the ‘credibility cost’ of the mini-budget was ~£10bn in extra debt payments each year as investors charged higher rates on government debt. 
• But what did bond markets actually fear? IIPP’s Josh Ryan-Collins makes the important point that “investors lost confidence in the government’s ability to bring down prices”, not expansionary fiscal policy in general: “High inflation reduces the real value of government debt and will lead to higher interest rates that will push down their price. This is bad news for the investors who hold such debt, hence the sell-off of bonds…it was the £45bn of tax cuts on top of already rising inflation that the market didn’t like. Even bond traders understand that making rich people richer is likely to stoke inflation and won’t on its own increase growth.”
• New advisory council to calm markets? The Chancellor also announced a new board of economic advisors at the Treasury. Four have been announced at the time of writing; economist and former MPC member Andrew Sentance notes that the “problem is all members are from the financial sector” One advisor, Rupert Harrison, was George Osbourne’s Chief of Staff at the height of the austerity years, who is now working for the US investment management firm, Blackrock. (IIPP’s Josh Ryan-Collins also notes that Blackrock “are designers of the LDI schemes that created financial chaos over the last two weeks and required BoE bailouts.” Economist Carolyn Sissoko has a timely paper out on Financial Dominance: Why the ‘Market Maker of Last Resort’ Is a Bad Idea and What to Do About It.)

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Risk of reverting to austerity. The episode of ‘financial dominance’ over the government's fiscal policy has sparked renewed fears of spending cuts. The BBC reported that yesterday the Chancellor warned the Cabinet of “the extent of the black hole in government finances means he needs to find tens of billions to balance the books”, which may force some ministers to resign. Polling from Ipsos Mori has found ‘The level of the deficit’ is now 8th in the list of important economic indicators for the public. (A recent study published in the Journal of Epidemiology and Community Health found there were 334,327 excess deaths in England linked to austerity from 2010-2018.)

• “Black holes'' and fiscal rules. BBC Newsnight’s Ben Chu calculates that a £38bn shortfall remains in the public finances to meet the government's fiscal rules - to have the government’s debt-to-GDP ratio falling at the end of three years. Hunt suggested that the measures will ‘raise’ £32bn every year but warned of more “difficult decisions” to come as the government tries to reduce its debt to GDP ratio through cutting spending. It is now widely acknowledged that Osborne-era experiment to  reduce UK’s debt-to-GDP ratio through austerity failed.
• You can’t cut your way to growth. Finance Watch’s report Fiscal Mythology Unmasked explains why debt-to-GDP ratios are poor arbitrary indicators for debt sustainability. For a modern explanation of fiscal responsibility, read Lord Nicholas Stern and Dimitri Zenghelis paper explaining why public investment in economic growth is key to debt sustainability: “G7 countries should increase post-pandemic public investment...recognise the potential economic and social returns to increasing public debt for the purpose of investment…[and wait] to pay off the public debt until the economy is undergoing robust growth.”

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Renewed call for wealth taxes to raise revenue. The Telegraph’s Tony Diver reports that “Labour is looking seriously at reform to capital gains tax – better balancing it with income tax – but rule out more radical measures that would tax assets directly.” Church Action for Tax Justice and several prominent UK Christian leaders have written to the Chancellor urging him to “introduce wealth taxes to reduce inequality, instead of cutting public services and benefits.” Tax Justice UK’s response to his announcement argued that “to avoid further austerity we need to tax wealth more. Capital gains taxes should be aligned with income tax rates. We should end inheritance tax loopholes open to the wealthy. And we need to tax the wealth of anyone with £10 million of assets.” 

• They can reduce inflation. The International Monetary Fund has urged the UK government to consider ‘raising windfall or wealth taxes’ to reduce inflationary pressure. This would be preferable, it argued, to the sole use of higher interest rates to tackle inflation. 
• And don’t have to compromise economic growth. Economists Linus Mattauch, David Klenert, Joseph Stiglitz and Ottmar Edenhofer have published a paper showing how governments can tax wealth to fund public investment and reduce wealth inequality, without compromising economic growth.

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Political flashpoint for energy bills in April 2023. Hunt announced the Energy Price Guarantee will now only remain in place until April, in order to avoid long-term exposure of the public finances to volatility in international gas prices. The Treasury is launching a review into how to support energy bills beyond April in ways that will lower cost to taxpayers whilst remaining supporting household needs. Sky’s Rob Powell’s analysis of leaked photos also suggest the Treasury is looking at a targeted grant scheme for vulnerable businesses, such as the hospitality and the most energy intensive sectors.

• Macroeconomic impacts of unfreezing the Energy Price Cap. Economist Samuel Tombs calculates that “current wholesale prices point to a 73% jump in energy bills, to £4334…That's a big change in the outlook for CPI inflation (↑) and GDP (↓).” (For an explanation of how freezing (or lowering) the Energy Price Cap has deflationary effects, read our previous digest covering research from IPPR.)
• A package to fix the UK's energy price crisis. NEF proposes to replace the Energy Price Cap with a new system for ‘free basic energy’ as part of a rising block tariff, so that all households receive the same amount of energy for free, and everyone pays the same premium price or further energy above this. They also argue that the government should create a new permanent energy element in all means-tested benefits – similar to housing or child benefit – to help the poorest families cover their remaining energy bill, paid for by increasing capital gains tax. Finally, the package includes a £750 “cost of living allowance" for all households funded through a reformed windfall tax on oil & gas.the package would  The package costs half that of freezing the price cap for 12 months, increases incentives to improve home energy efficiency and increases disposable incomes for 80% of families on average (for the poorest 50% it would be enough to fully reverse the squeeze since April 2021). Fuel Poverty Action is handing in a petition with nearly 650,000 signatures to 10 Downing St. today calling for a universal band of free energy, paid for by ending fossil fuel subsidies, windfall taxes on excess profits and higher tariffs on excessive energy use.

Mortgage affordability and the cost of living crisis. As financial markets remain in flux following the government’s mini-budget, commentators and analysts have been debating the effects of rising interest rates on the housing market. Higher interest rate expectations are leading to soaring costs of mortgage repayments for homeowners, exacerbating the already chronic affordability crisis in the UK housing market.

• Housing market crisis? Last week, the interest rate on a typical two-year fixed rate mortgage surpassed 6% for the first time in 14 years. If mortgage rates remain at 6%, a family with a £300,000 mortgage, coming off a 1.5% fixed interest rate would end up paying £659.79 more a month in mortgage repayments (a ~65% increase). Sky’s Ed Conway notes that “the impact for mortgage affordability will be the worst this country has seen since the late 1980s/early 1990s…the worst housing crash in the modern era.” MoneySavingExpert Martin Lewis argues that a “ticking time bomb” on mortgages may come in the Spring, where higher mortgage rates interact with more difficult affordability tests and falling house prices. He called for a raft of regulatory changes put in place before Christmas, including “forcing the banks - with the extra money they’re making by putting mortgage rates up and not putting saving rates up - [to have] much stronger forbearance measures for people who can’t pay.”
• End of an era. The sharp rise in the Bank of England base rate and therefore in mortgage rates brings to an end the post-financial crisis era of rock bottom rates, which has been the only reality that many younger homeowners have known. This era has been defined by cheap mortgages, soaring house prices, and demand-side policy interventions such as Help to Buy, which have encouraged people to borrow huge sums in the belief that rates would remain low and the value of their property would continue to rise. Adjusting to the end of this era will be painful, especially when put alongside high levels of inflation.‍
• Ongoing fiscal fallout and interest rate predictions. Chancellor Kwasi Kwarteng has brought forward the date of the next fiscal event to the end of October in an attempt to calm financial markets. There will now be a ‘medium-term fiscal plan’ with associated independent assessments and forecasts from the OBR, but no formal spending review until next year. Chair of the Treasury Select Committee Mel Stride says that if the OBR’s forecast “lands well with markets then the MPC meeting on 3rd Nov may result in a smaller rise in interest rates”. However, the interest rate on government borrowing is now (at the time of writing) almost the level before the Bank of England announced its bailout less than two weeks ago, making a steeper interest rate rise more likely. (Read last week's Digest for more on the impact of the government’s tax-cutting fiscal plans on financial markets.)

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The housing market and the Conservative’s electoral coalition. A drop in house prices and increase in mortgage interest rates could harm the government's chances of winning the next election. Resolution Foundation’s Torsten Bell highlighted that although 50% of Conservative voters own their home outright, two in five households in Red Wall seats will be affected by rising mortgage rates. A recent YouGov poll for the Times asked respondents who is most to blame for fixed-term mortgage rates rising beyond 6%: 52% blamed the UK government, 24% blamed the global economy and 5% blamed the Bank of England. Academics Jane Green and Roosmarijn de Geus have previously highlighted the cost of living crisis could ‘very easily change’ the Conservatives’ electoral fortunes as more people become economically insecure. 

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Could a housing market dip increase affordability? Credit Suisse have predicted house prices “could easily fall 10 to 15 percent” next year. City economist Roger Bootle argues that this “plunge in house prices is now inevitable” as interest rates constrain people's ability to afford to buy housing and demand falls through the floor. However, he notes that there may be benefits to this as, “For new borrowers, lower prices will improve affordability”, but they must fall gently as “it is in no one’s interest that they should crash” due to the risks of financial and macroeconomic instability. (For more on the relationship between the financial system, housing and land read this summary of Rethinking the Economics of Land and Housing)

• Navigating a crash. If a wave of homeowners are forced to sell their homes, there is a risk that richer buyers (without the need for expensive mortgages) could snap up more of the UK’s housing stock, further increasing asset inequality. An independent report for the Labour Party from 2019, Land for the Many, explored the risk of falling house prices for recent buyers. Chapter 4 proposes setting up a Common Ground Trust, a publicly-backed but member-owned organisation that supports housing demand by buying up the land underneath houses being sold. Tenants apply to take out lower mortgages on the bricks and mortar, usually at only 30% of the average property price. In a situation of lower housing demand, having a public entity standing ready to buy up properties that come on the market can ensure that tenants can afford the houses being sold to protect demand. Longer term, this also “creates a mechanism for the gradual, voluntary, but potentially large scale, transfer of land – our single most valuable asset – into a form of shared ownership, so that the associated land rents can be pooled and distributed according to need (in the form of discounts), rather than captured by private landowners and banks at society’s expense.”

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Could renters benefit from falling house prices? The New Statesman’s Emma Haslett explores whether falling house prices could bring a “silver lining for the UK’s beleaguered renters”. Katrina Hill, of the estate agent Chestertons, explains how decreasing mortgage affordability could lead to more homeowners renting out their houses when they need to move, instead of selling their homes at lower prices. This would, she argues, create more rental stock and provide a solution to “one of the rental market’s most inflationary problems”. However, Haslett argues that instead, landlords are more likely to pass on higher mortgage rates in the form of increased rents meaning that it is “unlikely” that renters will benefit from falling house prices. 

• Rent controls are growing in popularity. Rent controls are a form of price control which are used in many cities across the world to prevent housing becoming unaffordable. Economist J W Mason explains how and when they work (for a wider survey of the evidence see this by the Economics Observatory). The Scottish government has recently introduced legislation which will freeze most rents until the end of March 2023 and put a six month ban on evictions. However, exceptions apply to situations in which a landlord faces increased property costs, mortgage interest payments or some insurance costs leading the Scotland tenants’ union, Living Rent, to say that the legislation is not comprehensive enough. The New Economics Foundation has called on the government to “protect those most exposed to the cost of living crisis” and freeze social rents at a cost of £2bn.‍
• Renters reform. The Times’ Steven Swinford reports that Liz Truss “is shelving Michael Gove's plans to end no-fault evictions”. However this move has met with criticism, including from Onward’s Will Tanner who argued that “there is now broad consensus between landlords, tenants and campaigners on the package of reforms that's needed, including abolition of no fault evictions. Everyone agrees.”

Financial markets vs neoliberalism? As economic fallout from the ‘mini-budget’ continues and a chaotic Conservative party conference concludes, Onward’s Will Tanner writes “The party of free markets has been clobbered by the invisible hand.” This week the Chancellor Kwasi Kwarteng attempted to calm financial markets by bringing forward publication of his plan for how the government will pay for their planned tax cuts (see our analysis of the mini-budget here). The Bank of England’s Deputy Governor, Sir Jon Cunliffe, has written to the Treasury Select Committee to clarify the mini-budgets' direct impact on undermining the price of long-term government gilts, which triggered panic among pension funds who were highly exposed to falls in gilt prices, in turn prompting a significant intervention from the Bank to sure up gilt prices. 

• The smallest of U-turns. After the IMF recommended that the government “consider ways to provide support that is more targeted and reevaluate the tax measures, especially those that benefit high income earners”, and amid pressure from backbench Conservative MPs, the Chancellor quickly announced a U-turn on their plans to abolish the top rate of income tax, claiming that the tax cut was a “distraction” from their “overriding mission” to deliver economic growth. But this was not an admission that tax cuts are a poor strategy for growing the economy (as 50 years of evidence suggests) because £43bn of the original £45bn package of tax cuts still remain. In the words of the IFS’s Paul Johnson the U-turn has “limited fiscal significance” as it “represented only a small fraction of the Chancellor's mini-Budget announcements.” (The Resolution Foundation’s analysis shows that the remaining tax cuts still disproportionately benefit the top 5%.) 
• Staying the course despite widespread opposition. The government is (at the time of writing) still committed to a tax-cutting growth strategy, despite widespread opposition from commentators in the Economist, the FT, the Telegraph and others. Sovereign credit rating agency Fitch lowered its UK rating from “stable” to “negative”, despite the 45p u-turn: “We consider that statements by the Chancellor hinting at the possibility of additional tax cuts and the likely modification of fiscal rules legislated in January reduce the predictability of fiscal policy”. The CBI’s Tony Danker told LBC that abolishing the 45p rate of income tax wouldn’t even be “in the top 30 things that would get growth going”. The Director of the LSE, Minouche Shafik, notes that the World Bank “did hundreds of investor surveys on what determined their willingness to invest in a country...Low taxes and enterprise zones were always near the bottom."
• A reminder on government borrowing. It is important to note that financial markets did not react negatively to the £150bn package of energy bills support. In the words of Wall St Journal’s Jon Sindreu: “the turmoil in financial markets may have more to do with the plan’s unclear return on investment than its hefty borrowing requirements… The problem with ‘Trussonomics’ isn’t as much the spending as where the spending will go.” Read NEF’s Frank van Lerven’s piece explaining the difference between borrowing for investment and borrowing for increasing the wealth of the already-rich. 

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Free-market zealots in the driver’s seat. Commentary has shone a light on the influence of free-market ideologues over the government’s new economic strategy. The Spectator’s Fraser Nelson notes that Liz Truss’s “premiership has so far been distinguished by major decisions being taken by a tiny number of advisers, very much excluding her cabinet.” Those advisors include many alumni of free market think tanks. The IEA’s director, Mark Littlewood’s praised  the Chancellor’s “revolutionary new economic playbook” after the mini-budget was announced, arguing it “could be seen as merely the first move in a much wider and most intrepid game of economic chess”.

• Libertarians vs communitarians. Not all conservatives are happy. Onward’s Will Tanner argued that “the libertarians who claim a monopoly on conservatism are not, in fact, conservative” after the IEA’s Kristian Niemetz criticised “communitarian bores”. More splits have occurred between conservative environmentalists such as William Hague reiterating “why an attack on nature is a mistake Tories can avoid” after the IEA’s Andy Mayer called for scrapping the Net Zero target at their panel during the Conservative Party Conference. Unherd’s Aris Roussinos notes: “there is no home for postliberal Tories, always wary of the free market as a force destructive to tradition and social order, in the Conservative party that now exists…the libertarians have discredited their doctrine as electoral poison in a few short and tumultuous days.”

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Will they drive the Conservative’s electoral fortunes off a cliff? While the market reaction to the mini-budget may have been dramatic, it is the seismic shift in the polls that will really have Conservatives worried, with current numbers suggesting a landslide win for Labour at the next election. Boris Johnson’s former Director of Communications Lee Cain suggests that Liz Truss’ reputation may never recover because: “Beginning her tenure with a flurry of unpopular policies without considering how they would land as a package has allowed her opponents to frame her government as being in favour of the uber-wealthy, at the expense of those on lower incomes.” Cain also notes that “This will be exacerbated if the government drops the existing pledge to raise benefits in line with inflation.“ 

• The politics of austerity, again. Media commentary has pointed to the difficulty of finding departmental budgets with anything significant left to cut to pay for the tax cuts, but the FT’s Stephen Bush points out that political opposition on the Conservative benches also makes deeper rounds of austerity difficult to deliver: “There is no viable course on tax and spend which won’t be vetoed by one faction in her party or another”. This has played out over conference with senior Conservatives such as Michael Gove and cabinet member Penny Mordant voicing their opposition to rumours of uprating benefits inline with earnings rather than inflation. The Resolution Foundation calculated this could save £5bn, but reduce the already stretched incomes of low income families by £500 and “would therefore deepen - and extend - the cost of living crisis well into next year, and possibly beyond that”. NEF’s Frank van Lerven argued that “Instead of looking for funding cuts across the public services... it [the government] could stop paying interest altogether” on reserves it owes to commercial banks. (See NEF’s paper on the case for a tiered reserve monetary policy framework.)
• More tax cut U-turns coming? Tax Justice UK argue that the government should “scrap its inequality budget’, particularly given they are still committed to revoking the planned corporation tax rise, which costs a similar amount to the £18bn spending cuts coming to public services. NEF’s Jeevun Sandher calculated that more than half of the corporation tax cut will go to the most profitable companies and the IPPR’s George Dibb explained why won’t increase business investment. (Telegraph’s Ben Riley-Smith thinks the corporation tax vote won’t go through parliament until Spring.)

“A Fairer, Greener Future”. If there is one economic message Labour wanted people to take away from their party conference in Liverpool, it is that their plan for growth is a green industrial strategy. The Shadow Chancellor, Rachel Reeves, and later the Labour leader, Keir Starmer, used their conference speeches to outline an alternative to Liz Truss’ “trickle-down” vision for growth which Starmer says has “lost control of the economy” and “crashed the pound”. In launching a “Green Prosperity Plan”, Starmer regularly linked growth to the climate, outlining a future in which people look at Labour as the party that “built a fairer, greener, more dynamic Britain by tackling the climate emergency head on and used it to create the jobs, the industries, the opportunities of the future”. The word “mission” was used several times to describe the proposed Green Prosperity Plan, echoing Mariana Mazzucato’s language of a “mission economy” in which productivity, industrial strategy and strong economies are built by a state focus on country-wide missions. In this case, the mission is tackling the climate crisis, with Labour’s 2022 strategy putting meat on the bones of Rachel Reeve’s £28 billion climate pledge last year.

• National wealth fund. In plans outlined on Monday, Rachel Reeves announced that in Government, Labour would introduce a National Wealth Fund for green investment, inspired by the sovereign wealth funds of the likes of Norway and France. The fund would allow the state to retain a share in the renewable assets in which it invests. The £8 billion fund acts as Labour’s answer to levelling up, with £2 billion earmarked for eight new ‘gigafactories’ in the West Midlands, the North East, the North, West and the South West. A further £3 billion would be spent on six new clean steel plants Cardiff, Rotherham, Sheffield, Port Talbot and Scunthorpe. £1 billion of the fund is set aside to create “net-zero industrial clusters” in Grangemouth, South Wales, Humberside, Teesside, Merseyside, Southampton and the Peak District. Both Reeves and Starmer stressed the role of the private sector, with Starmer saying that Labour would “make sure” that public spending would spur on private investment. The New Statesman’s Freddie Hayward argues that the problem with the national wealth fund, along with Labour’s other big commitments, is that the economy is in a very different place to what it was back when Reeves began writing her speech in July.
• Great British Energy. One of the most significant announcements was saved for Starmer’s speech on Tuesday: the establishment of a publicly owned Great British Energy company within Labour’s first year. Starmer said that GB Energy would be “right for jobs…right for growth…right for energy independence from tyrants like Putin”. The plan does not involve nationalising any existing companies. Instead, GB Energy would enter the market as an energy producer that would compete with private firms. Though operationally independent, GB Energy would have a mandate to invest in clean energy, which it could do individually or in partnership with the private sector. Labour hopes that GB Energy would be able to make riskier investments, such as new tidal technology or modular reactors, that the private sector may often “shy away from”. Public ownership campaigners We Own It welcomed the move as “a hugely important first step” towards a shift in energy ownership. Common Wealth’s Mat Lawrence said that public ownership of energy was “superior and more affordable” due to the state’s ability to invest in clean energy technology at lower rates and the fact that it would not have to consider shareholder interests. 
• 2030 clean energy target. Labour’s proposed industrial strategy is underpinned by a mission to reach 100% clean energy by 2030, giving the party less than six years to achieve this mission should it come to power at the next general election in 2024. Targets include doubling the UK’s onshore wind capacity, trebling solar power, quadrupling offshore wind, investment in tidal, hydrogen, nuclear, carbon capture and the insulation of 19 million homes. Starmer hailed the mission, which would start within 100 days of governing, as “the biggest partnership between government, business and communities this country has ever seen”.  Right wing commentators have criticised the plans as hypocritical for still using fossil fuels as Labour have said that it would “maintain … a strategic reserve of backup gas power” if renewable resources were scarce. However, Carbon Brief’s Simon Evans argues that it is perfectly possible for the UK to rely 100% on clean energy, “even during so-called “kalte dunkelflaute” with cold weather and little wind or sun”.
• What business wants. Labour’s plans involve significant state intervention in the economy, but Labour insist they are more in tune with business opinion than the government. Rachel Reeves argued: “When I talk to businesses, they don’t tell me that their priority is corporation tax”. Likewise, “don’t be fooled into thinking they buy into the Tory trickle-down fantasy”, said Starmer. Instead, Labour affirmed its commitment to replacing business rates with a “fairer system”. While many welcomed the proposals, some businesses criticised the proposals as “woolly” and expressed concerns that business rates could be replaced with a Land Value Tax. 

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Public services. Starmer focused on public services for much of his speech, saying that “Strong public services are the foundation of a successful economy– always”. Labour have rejected a narrative that spending on public services must be balanced with helping the economy, instead arguing that long NHS waiting lists and expensive childcare are some of the factors undermining economic performance. However, Starmer also warned that while he “would love to stand here and say Labour will fix everything”, the “damage [the Conservatives] have done” will mean that “the rescue will be harder than ever”. 

• Health. Health made up a large chunk of Labour’s announcements on public services, with Shadow Health Secretary, Wes Streeting, stressing the need to “modernise and change the NHS”. NHS workforce announcements included doubling the number of medical training places and creating an extra 10,000 nursing and midwifery clinical placements each year. Streeting also announced 8,500 additional mental health workers while Rachel Reeves affirmed last year’s pledge of one month waiting times for mental health support. 
• Childcare. Shadow Education Secretary Bridget Phillipson used her speech to focus heavily on childcare announcements, saying that a Labour government would “build a modern childcare system” including fully funded breakfast clubs for every primary school in England. Phillipson used social infrastructure framing around her childcare announcements, saying that giving “mams and dads choices” would “help us build the economy we all need and the society we all want”. Labour have hinted that more policy on childcare will be forthcoming, and a new internal pressure group has been formed to argue for childcare reform.

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Equality and work. The government’s new economic strategy also opened the space for Labour to make a more philosophical argument about the relationship between equality and prosperity, with Starmer saying that “Britain won’t be better off just because we make the rich, richer”. Inequality and low pay were central to Starmer’s critique of Britain’s low growth, arguing that insecure, low-paid work and public services that can’t support people make for “weak” economic foundations for growing an economy. 

• Pay. Rachel Reeves announced that Labour would introduce a “genuine Living Wage” that “reflects the real cost of living”, though what this figure would exactly be is so far unclear. The announcement comes as the Living Wage Foundation, supported by Resolution Foundation research, raised its living wage by the largest margin since it was established to £10.90 an hour (£11.95 in London). The TUC has previously called for a £15 minimum wage.
• Industrial relations. Rachel Reeves announced that if elected, she would “bring together a National Economic Council that will bring together industry and trade unions, so working people and businesses were at the heart of economic decision-making”. The Guardian’s Larry Elliot described the announcement as “a revival of the tripartite approach pioneered in the early 1960s and scrapped by John Major three decades later”. This comes on the back of a previous set of policies dubbed a ‘New Deal for Working People’ including fair pay agreements.
• Tax. Labour have said they would not reverse the Government’s cut in the basic rate of income tax, but there was a clear message that tax cuts for the rich would not be welcome in a Labour government. On the Government’s recent cut in the top rate of tax, Starmer told conference: “Don’t Forgive. Don’t Forget”. He also suggested that corporation tax cuts are not a priority for business. 
• Home ownership. Starmer pitched Labour as “the party of home ownership in Britain today”, setting a target of 70% home ownership. The Labour leader also stressed that home ownership support will be focused on first time buyers, saying that Labour would introduce a mortgage guarantee scheme. 

£45bn worth of tax cuts by 2026/7. Chancellor Kwasi Kwarteng announced the biggest tax cutting event since 1972 in a ‘mini-budget’ aimed at ending the UK economy’s ‘cycle of stagnation’ and boosting growth. The IFS’s Paul Johnson noted the similarities with former chancellor Anthony Barber’s attempted a ‘dash for growth’ via tax cuts, which ultimately failed and led to stagflation. The Resolution Foundation notes that “the decision to combine the largely unavoidable higher deficit caused by rising energy prices/interest rates with permanent tax cuts will drive up borrowing by £411bn in coming years”. (NB. See NEF’s Frank van Lerven’s paper explaining when borrowing is good and when it is bad.)

• Growth via tax cuts? 'Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise,' said Kwarteng. 'This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s. We are determined to break that cycle. We need a new approach for a new era focused on growth'. (For more resources on the relationship between tax cuts and economic growth, read our previous digest.)
• This approach lacks evidence. Trickle down economics has been debunked, perhaps most comprehensively by analysis published by the LSE which found that tax cuts for the rich have not had a significant impact on unemployment or growth, but they have increased income inequality. IIPP’s Josh Ryan-Collins provided a thorough critique of the package as a strategy to increase economic growth: “Firstly, it is well established that tax cuts have a weaker impact on growth than public spending, as households and firms save a proportion of the new income. Second, wealthier people tend to spend a smaller proportion of any new income than poorer households, so further weakening the multiplier effect of the borrowing. Third, the major challenge facing the UK economy is a lack of public and private capital investment; and there is no evidence that cutting business or personal taxes results in more investment, employment or growth.” 

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Which taxes have been cut? 

• Income tax. The 45% higher rate of income tax has been abolished and the basic rate of income tax will be cut to 19p in April 2023 (a year earlier than planned). IPPR’s Henry Parkes calculated that the personal income tax cuts “overwhelmingly channel cash to the richest households, with nearly half (48%) going to the richest decile” and those who live in London and the South East.
• NICs. The government will cancel the increase in National Insurance Contributions in November. This was originally dubbed as the ‘Health and Social Care Levy’, branded to raise money for the NHS. However achieving the Chancellor’s key metric for fiscal sustainability (falling debt) by the mid-20s will require spending cuts of £35bn by 2026-27.
• Corporation tax. Kwarteng cancelled the planned corporation tax rise to 25% which was previously promised by ex-Chancellor Rishi Sunak. The new chancellor vowed 'we will have the lowest rate of corporation tax in the G20’, but, as the BBC’s Andy Verity notes, business tax cuts don’t necessarily lead to growth, e.g. if £18bn worth of tax cuts gets spent share buybacks rather than investments that improve productivity. Further, the Women’s Budget Group notes that this cut will largely benefit men, who are more likely to be businesses owners and shareholders.
• Investment zones. The Chancellor announced the government is “in discussions with 38 local authorities to establish investment zones in England.” These are areas with localised deregulated planning permission and lower taxes aimed to “encourage rapid development and business investment”. Fair Tax Foundation’s Paul Monaghan explained how this “mini-tax haven network” distorts local economic activity and depresses areas around the zones as firms move to exploit tax and regulatory advantages. Women’s Budget Group highlights HMT’s previous studies which showed enterprise zones only creating 32% of the jobs expected, which were mainly low-skilled.
• Stamp duty. The government raised stamp duty threshold from £125,000 to £250,000 and also increased the threshold for first-time buyers to pay stamp duty from £300,000 to £425,000 and enabled them to claim relief on properties up to a value of £625,000 (up from £500,000), partly as an attempt to prop up a housing market that is being depressed by spiralling mortgage costs. NEF’s Frank van Lerven notes that stamp duty cuts increase asset prices and make housing more unaffordable. Housing market analyst Neal Hudson notes that the previous stamp duty holidays were “a tax cut for the top end of the housing market with large numbers of investors and second home buyers also taking advantage of the savings”. IPPR’s Shreya Nanda argues replacing stamp duty with an ongoing proportional property tax would be a fairer way of building a stronger economy. Her previous paper outlines the economic benefits and explains how the political barriers could be overcome.
• Other measures. Aside from tax cuts, the mini-budget also included a number of other controversial measures. The Chancellor placed further restrictions on the right to strike, with a pledge to introduce minimum service levels and to force unions to ballot on every pay offer. There was also an announcement of further obligations on universal credit claimants to demonstrate they are seeking work or face cuts to their benefits (See our previous digest for more on the economics of sanctions). In a move welcomed by climate campaigners, the Chancellor lifted the restrictions on onshore wind development, and provided a small amount of extra money for home insulation projects.

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Responses: Tax cuts mainly benefit rich men. Many responses highlighted the distributional impact of the tax cuts being “one of the most regressive in living memory”. The Resolution Foundation calculated that almost half (45%) of the gains from personal tax cuts will go to the richest 5% alone, while just 12% of the gains will go to the poorest half of households. Women’s Budget Group have calculated that “Around 80% of those who benefit from the nearly £2.4bn a year spent cutting the 45% tax rate will be men” and that “77% of workers who earn too little to pay income tax, so will gain nothing from the nearly £5.3bn a year spent cutting the basic rate, are women.” The TUC dubbed the budget “Robin Hood in reverse”.

• Inflation and monetary policy. Financial markets appear to have lost confidence in the government, with the pound at a 37-year low against the dollar at the time of writing and yields on 10-year government debt jumping to almost 4%. IIPP’s Josh Ryan Collins notes that the collapse in the exchange rate will add even more inflationary pressure through rising import costs. The tax cuts are likely to provoke a sharper contractionary response from the Bank of England, which already increased interest rates again this week; the market is potentially predicting an unprecedented emergency hike and foreign central banks have also been applying pressure. 
• Free market think tanks in the driving seat. ConservativeHome’s Founder Tim Montgomerie called the mini-budget a “massive moment” for free market think tank, the IEA, who have been advocating for many tax cuts for years. Similarly, the CPS’s Director Robert Colvile called it a “CPS full house”. The TaxPayers’ Alliance’s John O’Connell welcomed “the most taxpayer-friendly budget in recent memory” and called on the Treasury to “get serious on spending and ensure borrowing doesn’t weigh down on generations to come.” ‍
• Public not convinced. Snap polling from YouGov gas found that the tax package is being met with scepticism by voters. 52% of voters said they thought the measures would not be effective at growing the economy, compared to just 19% who think it will lead to growth. Meanwhile only 19% of voters think the budget will leave them better off, and an overwhelming majority think that the richest in society will benefit the most. Interestingly, even a majority of Conservative voters agree with this assessment. Further polling by Patriotic Millionaires found strong support (70%) for raising taxes on extreme wealth to help cover the cost of living crisis and pay for public services, with a majority (64%) of Conservative voters also in agreement.

Energy Price Guarantee. Freezing consumer energy prices at current levels or below has become a key policy demand from all sides of the political spectrum over recent months (see our recent New Economy Digest where we have examined various proposals to freeze the energy price cap). Pressure on the government to take action intensified over the summer as Ofgem announced that the energy price cap would increase to £3,549 per year from October. Last week, after mounting pressure, the new Prime Minister Liz Truss announced an ‘Energy Price Guarantee’ package which will limit average annual household bills to £2,500 over the next two years. The plan also involves retaining the £400 energy bill discount as well as a temporary suspension of green levies, bringing down bills by a further £150. 

• Support for businesses. Though support for households spans a two year period, support for businesses and non-domestic energy users is capped at six months. After this, the Government will provide targeted support to “vulnerable industries” following a review of the businesses that need to be targeted. However, businesses may face delays of several weeks in receiving this support. Emma McClarkin, the chief executive of industry body, the British Beer and Pub Association, said these businesses “will not be able to wait days, let alone months to get clarity on their energy bill”. The TUC has highlighted that there is no guarantee that the support for businesses will be used to protect jobs. 
• Liquidity support for energy companies. The plan will not be funded, as some have suggested, through further windfall taxes on energy companies. Instead, the Government will provide a £40 billion “liquidity facility” to support energy companies deal with market volatility. Progressive Economy Forum’s James Meadway compares the six month package for regular businesses with “the extraordinary generosity the government has found for the energy companies” through liquidity support. However, even this support for energy “middlemen” pales in comparison to the excess profits that energy producers will be able to continue making thanks to the government scheme, he argues. 
• Oil and gas extraction. The Government aims to increase domestic energy production by controversially lifting the ban on fracking and licensing new North Sea oil and gas projects. The first fracking licence in nearly three years is due to be issued as soon as next week, despite warnings from the British Geological Survey (BGS) about the “significant existing knowledge gaps” on the link between earthquakes and fracking. The publication of the report has been postponed due to the death of Queen Elizabeth II. “A wave of protests” is likely over the coming months as campaigners plan to step up action in response to Government plans to double down on fossil fuel extraction.

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Is it enough? The Energy Price Guarantee caps bills at £2,500 per year, which is still significantly higher than last year’s cap of £1,138. Some have criticised the plan for not targeting support to lower income households. The Institute for Fiscal Studies outlines how over half of the £60 billion earmarked for households will go to the top half of the income distribution. Consumer finance expert Martin Lewis also highlighted that the plan “means those with the biggest bills (often the wealthiest) gain the most”. Through the case study of one family, the Guardian explores how households will still suffer this winter despite the Energy Price Guarantee.

• Won’t somebody think of the price signal? One additional criticism of a price freeze is that it will do little to discourage energy saving in a time of scarcity as it disrupts the price signal. Some have warned that this could lead to blackouts and rationing this winter. 
• Impact on inflation. The Government has argued that its new plan will curb inflation, but figures suggest that lowering energy prices, rather than maintaining them, would have a much more significant impact on inflation. Research conducted by the Institute for Public Policy Research (IPPR) finds that while maintaining energy bills at current levels could reduce projected inflation by 3.9%, lowering prices to the level of the October 2021 cap could reduce project inflation by 5.6%. 

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Funding the freeze. The Telegraph reports that the government is still unclear about the exact cost of the scheme, and may only announce the cost for an initial period of a few months. The plan is expected to cost around £150 billion, however this could be more depending on the wholesale gas market. For comparison, £70 billion was allocated to the pandemic furlough scheme. It will be funded by borrowing rather than an extension of the windfall tax on energy companies as many have called for, however this has not been outlined in any great detail. The Institute for Fiscal Studies’ Paul Johnson said: “Given the scale of the package, the failure to provide any official sense of a costing was extraordinary, and deeply disappointing”.  

• “Tax profits properly”. Energy bill support could be partially funded by a 95% tax on the “record breaking profits” of oil and gas producers, according to Tax Justice UK. Tax Justice UK’s analysis shows that UK oil and gas producers are predicted to make £51 billion in excess profits over the next year, which is nearly four times more than the £13.5bn excess profits predicted in May. Such a tax would raise £44 billion a year for two years, which would represent a significant chunk of the £150 billion expected to be spent on the Energy Price Guarantee. 
• Creating future problems. Despite the opportunity to raise revenue through taxing excess profits, the Government’s decision to fund the scheme through borrowing is “an unnecessary waste of its capacity to borrow and creating the risk of a future row about the size of the government debt and the need for spending cuts”, argues James Meadway. Stephen Bush argues that this marks a “new fiscal policy era” in which borrowing is the order of the day. 

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Free basic energy? An alternative plan has been put forward by the New Economics Foundation, who argue that a short-term price freeze should be superseded by tariff reform including a system of free basic energy. Under this system households would be entitled to a basic allowance of free energy, with additional usage charged in rising block tariffs. NEF’s Alfie Stirling argues that this would protect the lowest income households and discourage excess energy usage, while costing the government less than the price freeze. NEF has also proposed a new energy element of universal credit to ensure more targeted support.

Green finance. While most proposals for funding the green transition focus on fiscal policy, private financing will also play a key role as the need for more green investment intensifies. Creating the conditions for that private green investment is a key policy challenge, and one that governments around the world are grappling with. Much of the debate so far has occurred in an era of historically low interest rates, but that era may be coming to a close with rising base rates in response to high inflation. How to adapt to this new lending environment becomes increasingly urgent as there is a risk of vital green investment slowing down at a point where we need it to accelerate.

• The green finance gap. This year, the UK government received two awards from the Climate Bonds Initiative (CBI) for its work as a “global leader in green finance”. This comes despite the fact that there is a large gap in green finance with the Climate Change Committee estimating that annual capital investment needs to increase by around £50 billion per year in the second half of the decade.
• Private sector investment. Private sector green investment currently falls far short of what is needed according to Office for Budget Responsibility (OBR) statistics. The OBR estimates that private sector investment must exceed £30bn of additional green investment over the next three years which would be a 10% rise from current levels. However, UK private sector green investment grew by roughly 0% in the three years leading up to the pandemic meaning that this would be a significant jump. At the same time, since signing the Paris Agreement, UK banks have financed over £287 billion worth of fossil fuel projects with over £200 billion of this coming from HSBC and Barclays alone. 
• Interest rates and the impact on green finance. In 2020, the Climate Change Committee argued that “historically low interest rates” should be taken advantage of to further green investment. However, as inflationary pressures have grown this year and central banks have steadily increased base rates, green finance is already starting to suffer. The issuance of green bonds globally fell by 34.63% from the first quarter of 2021 to the first quarter of 2022, according to the Climate Bonds Initiative, or CBI. China was the leading issuer for green debt in the first three months of 2022 with $21.4 billion green bonds issued, followed by Germany and France. 
• Financial Services and Markets Bill. The Financial Service and Markets Bill has its second reading in the House of Commons on 7 September and is an opportunity to implement a statutory objective requiring regulators to ensure financial institutions make progress against their net zero transition plans, according to Green Alliance. For more on the bill, see our previous Digest. 

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Greening targeted credit policy. The Bank of England must adapt its “policy toolkit” to combat the climate and cost of living crises, according to a new report by the New Economics Foundation (NEF). NEF argues that instead of “demand management relying on a blunt single interest rate tool”, green targeted credit policy interventions could both help the transition to net zero while also enabling the bank to better meet its price and financial stability targets. The report notes that both China and Japan have recently greened their targeted credit policy in the form of refinancing operations providing cheap credit to banks to lend for sustainable investments. NEF makes five recommendations for how to green targeted credit policy: 

• Repurposing the Term Funding Scheme (TFS). The TFS offers funding to banks lending to businesses and households on specific conditions on rates either close to or at the base rate. The TFS could be used to incentivise projects such as retrofitting or investment in electric vehicles and related infrastructure. 
• Decarbonise the existing TFS. As well as steering the TFS towards green investment, NEF also suggests ensuring that the current TFS is not implicitly subsidising banks to lend to carbon intensive activities. 
• Additional TFS conditionality. The TFS already requires banks to prove that they are using the TFS to expand their lending to households and firms, so a green TFS must also require evidence of lending to green initiatives, NEF argues. 
• Bank lending metrics and targets. While the Bank of England’s remit now accounts for climate change, it does not put quantitative targets on the central bank to plug the green investment gap. NEF suggests this should be changed and that a green TFS could be part of new quantitative targets.‍
• Lending to state-owned investment banks. Finally, NEF suggests that the TFS could be extended to the state-owned investment banks: the UK Infrastructure Bank and the British Business Bank in order to boost lending to the alternative banking sector and transition activities by small businesses.

Drought, flash floods and extreme weather. Heavy downpours hit parts of the UK last week resulting in flash floods in the South East, and the closure of train platforms and theatres in London. The flooding came after experts warned that rain would “offer little relief” after the driest spell in almost 50 years. Several parts of the country have announced hosepipe bans including Thames Water, Yorkshire Water and Southern Water. Recent flash floods have also caused serious problems in other parts of Europe as well as western China where at least 16 people have died due to the recent extreme weather.

• UK adaptation to climate change. Last October, the Environment Agency warned the government to “Adapt or Die”, pointing to the impacts of more extreme weather from increased rainfall and flooding in the UK in a 2 degree warming trajectory. The report details sea level rises, changes to winter and summer rainfall and peak river flows, and the need for extra public water supplies. The Climate Change Committee’s 3rd Independent Assessment of UK Climate Risk argued that “Adaptation action has failed to keep pace with the worsening reality of climate risk. The UK has the capacity and the resources to respond effectively to these risks, but it has not yet done so. Acting now will be cheaper than waiting to deal with the consequences.”

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Water companies. The UK’s current water crisis has been dramatically compounded by a myriad of failings by water companies. The Environment Agency has described the environmental performance of England’s nine water companies as “the worst we have seen for years”. 

• Sewage dumping. Companies have recently come under heavy criticism for the huge increase in the amount of raw sewage they have pumped into seas and rivers. According to new figures from the Environment Agency, since 2016 raw sewage has been pumped into waters around the UK for more than nine million hours. Despite the Environment Agency reporting faulty monitoring systems, data shows a 2,553 per cent increase over five years in the amount of sewage found in seas and rivers. Environmentalists unsuccessfully pushed for a legal duty on water companies to stop discharging raw sewage into rivers in the Environment Act 2021. However, after a House of Lords revolt, the bill was amended to require companies to deliver a “progressive reduction” in sewage. 
• Water wastage. Water companies in England and Wales lost more than one trillion litres of water via leaky pipes last year, according to Ofwat. This equates to 2.9 billion litres per day which, if spread across an area of the same width and depth as an olympic swimming pool, would stretch from Westminster to Reading. 
• Where are all the reservoirs? The National Farmers Union (NFU) has called on both Conservative leadership candidates to tackle “immoral” water wastage as farmers worry about the effect of the drought on their crops and call for more reservoirs to be built. According to the former head of Natural England, water companies have sold off 25 reservoirs since the 1980s and have not replaced them. 

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Has privatisation been a failure? As the water and sewage crises worsen, many (including Jonathan Portes who worked on the privatisation of water companies in 1989) argue that the private ownership of these companies is to blame. “It’s time to admit that water privatisation has been a failure”, argues former David Cameron advisor Camilla Cavendish, saying that “as customers, we are captives with nowhere else to go”. Similarly, musician and campaigner Feargal Sharkey recently argued that the current crisis is the result of “30 years of underinvestment, 30 years of regulatory failure, 30 years of mismanagement and all of it topped off with 30 years of a political vacuum, devoid of oversight and scrutiny”.

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Calls for renationalisation. The Green Party has called for the renationalisation of water companies to “end the scandal of wasted water”, as has the Guardian, which argued in an editorial that services such as water “can clearly be managed by the state in a way that makes sense”. We Own It has long campaigned for the public ownership of water, with director Cat Hobbs arguing that as the UK anticipates an increase in extreme weather, “we need to bring water into public hands so it can be run for people, not profit”. The renationalisation of water is overwhelmingly popular with the public, with 91% of Express readers saying that they would back bringing private water companies back into public control.

• Funding. One argument frequently put forward in defense of water privatisation, for example by Director of the Centre for Policy Studies, Robert Colville, is that it plugged an investment gap, after an “extraordinary backlog” under nationalisation. However, water privatisation has failed to deliver a promised “new era of infrastructure funding”, argues Paul Waugh. Since privatisation, water companies have borrowed large amounts of debt not for investment, but to pay for dividends. In contrast, all £123 billion of capital expenditure since 1991 has been financed by customer bills. Similarly, Labour for a Green New Deal’s Chris Saltmarsh argues that “if we do not remove the profit-motive from our water system, we will not see investment in infrastructure upgrades”.
• “Nationalisation by stealth”. The project of bringing water back into public ownership must start with regulation, argues Paul Mason. “The regulator has to set prices and profits so low that only a non-profit or mutual ownership structure makes sense. Then the government has to oversee the creation of successor companies to privateers… by creating democratically elected regional water authorities to oversee a sector composed largely of mutuals or public corporations, you would achieve something close to “common ownership” by stealth”, Mason explains. 
• Other ownership options. The “straightforward state ownership through nationalisation… is not the only alternative”, according to a paper by Common Wealth. Public-common partnerships (PCPs) could “be used to govern a diverse range of assets”, such as water companies, it argues. PCPs enable communities to work with local authorities in a “commons-led approach” for collective ownership. 
• “Build back wetter”. Water management should be “considered one of the key ‘public goods’ we provide through public money”, argues Ali Morse of the Wildlife Trusts. Beyond ownership, public intervention could look like an effort to “build back wetter”, Morse argues, describing how the restoration of wetlands can “play an important role in retaining more water”. 

The policy debate around rising energy bills. Politicians from different parties have proposed freezing the Energy Price Cap at its current level as a way of easing the impact of rising energy bills, which the latest forecasts predict to reach £3,582 on average per year from October and £4,266 a year by January 2024. Labour outlined their £28.9bn plans to freeze the energy price cap for six months, amongst other measures. This followed similar calls from Liberal Democrat leader Ed Davey, the SNP’s Nicola Sturgeon and former Prime Minister Gordon Brown. 

• Inaction will lead to a bleak winter for many. The Bank of England now estimates the UK inflation rate to peak at 13% this year. As a result, households face a once-in-a-generation fall in their real incomes. And inflation is not predicted to fall back to its 2 per cent target until 2024. The latest forecasts show the expected annual real pay will fall by an unprecedented 7.75% in the last quarter of 2022 as inflation erodes disposable incomes. This marks the biggest quarterly fall in real wages for 100 years, which comes after the longest wage squeeze (period of stagnant wages) for 200 years. Analysis carried out for CPAG shows that more than half of British households will be in fuel poverty by October and two-thirds by January; 6m households will be forced to spend an unprecedented 25% of their income on energy. The Resolution Foundation calculated that almost half of annual gas use occurs in the January - March period, where the typical household could find its energy bills rising from £82 a month this summer to over £500 a month. 
• What is the government currently planning? The Times reports that the Treasury under Nadhim Zahawi is planning a government-backed lending scheme to compensate suppliers and enable them to cut an extra £400 off energy bills, costing £9bn. Whether this is adopted or not will depend on who wins the Conservative leadership election; Liz Truss has flip flopped about whether to provide more “handouts” and emphasised her preference for tax cuts over direct payments (read our previous digest on the limitations of using tax cuts to ease the cost of living crisis) and Rishi Sunak proposed scrapping VAT on energy bills and extending the Energy Bill Rebate to provide targeted financial support for pensioners and the most vulnerable. 

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Reducing inflation with fiscal policy. The Bank of England estimates that half of the headline rate of inflation is due to rising energy and food prices. New analysis from IPPR calculates that freezing the Energy Price Cap at its current level could reduce the peak rate of inflation by 3.9% from 13% to 9.1% and save households £2,050 on average in energy bills over the next year, costing £45bn - less than Liz Truss’ £50bn plan for tax cuts and extra spending. If this was funded, at least partially through windfall and/or wealth taxes, inflation could be reduced by a further 0.7%. (IPPR also calculated that reducing the Energy Price Cap to its November 2021 level could reduce the peak rate of inflation by 5.6% from 13% to 7.4% and save households £2,744 on average, costing £60bn. If this was funded, at least partially through windfall and/or wealth taxes, inflation could be reduced by a further 0.9%.) 

• The Bank of England’s contractionary response isn’t working. Criticism is mounting over conventional monetary policy’s failure to tackle inflation properly. The Bank of England is trying to prevent inflation becoming embedded into expectations through ‘second round effects’ of price increases spreading to other goods and services. Earlier this month the Monetary Policy Committee was criticised for the largest interest rate rise since 1995 even though it will have little immediate impact on today’s inflation and is likely to exacerbate the now-forecast recession. The TUC argues this will further erode household incomes through the loss of one million jobs. 
• ‘Fiscal price caps’ are a more effective response to the cost of living crisis. IPPR argue that ‘fiscal price caps’, such as setting an upper limit for the energy price, subsidised through fiscal policy, could reduce inflation straight away, protect households from the increase in bills this winter, and help prevent inflation from becoming embedded by reducing the risk of further snowballing price rises in the future. About half of European economies have some form of price limiting measure in place; e.g. the French government has frozen gas prices and limited electricity increases to 4 per cent, with an estimated cost of €38 billion. 

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Funding the energy price cap freeze.  Labour argues their £28.9bn proposal can be funded by backdating the windfall tax imposed in May to January and closing the investment loophole that grants oil and gas producers a tax break worth up to 91p in every £1, scrapping the £400 Energy Bill Rebate and by making £7bn in savings on debt interest payments by reducing inflation. The IFS’s Paul Johnson called this latter point as an ‘illusion’ because it wouldn’t bring inflation down permanently, however IPPR argues that it could have a significant effect by reanchoring expectations and reducing ‘second round effects’. (A YouGov poll for the Times found that 75% of Conservative voters support “fixing the cap on energy bills even if it means more government borrowing”.)

• Consider other options as revenue-raisers. Windfall and wealth taxes have also been proposed as revenue-raising options to fund proposals to reduce inflation and stabilise energy prices. Tax Justice UK modeled how a 95% tax on excess profits could raise £12.9bn instead of the £5bn in the government's package. (NB The tax rate on oil and gas was 75% in 2015 and 80% in 2014, and the global average is 70%.) Excess profits taxes could also be expanded to other sectors (e.g. commodities companies) that have been reaping windfall profits, as argued here by IPPR’s Carys Roberts. (Read the first report from Unite’s Corporate Profiteering and the Cost of Living Crisis. Private Eye exposes the profits of top companies benefiting from the pandemic, with testing company Randox Laboratories Ltd making £308 million in profit since the pandemic having only made a profit of £12 million before Covid.) The package could also be accompanied by reforms to the UK’s unequal taxation of wealth. Rebalancing taxes on work and wealth has increasing support on the centre-right. 

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Criticism and counterarguments. The proposal has come under fire for a variety of reasons, detailed below. One free market counterargument was given by IEA fellow Julian Jessop, who argued that price caps distort price signals such as “increasing the incentives for producers to raise output and for consumers to economise”. IPPR provides a rebuttal to this, arguing that a 73% increase in energy prices since last year is enough of a strong incentive to transition to lower carbon homes, and freezing the energy price cap at its current level should always come in combination with another package of support to increase investment in clean energy and energy efficiency upgrades, such as Labour’s ‘energy efficiency revolution’.

• Why not target support at those that need it most? Labour’s plan has also been criticised by economists, such as Tax Research Network’s Richard Murphy, on the basis that it “delivers a significant gain to the best off households”. However Resolution Foundation Chief Economist Mike Brewer argues that the higher prices go, the more justification there is for a universal intervention while the FT’s Stephen Bush points out that even among the richest fifth of households, median income is £62,700, so there is a case for intervening high up the income distribution. (A YouGov poll for the Times shows voters slightly favouring support applied equally to all households (47%) than means tested (40%).)

• What about other types of support? IPPR have argued that, though gas prices could remain well above their 2021 levels until 2025, freezing the price cap in place for an extended period has “significant costs”. They argue that “Instead, it could be better to use the time provided by a one-year freeze to put in place a ‘social-tariff’, a measure designed to cap or reduce energy bills for those on the lowest incomes, and accelerate a programme of clean energy and reducing energy demand through home retrofit (though the benefits of the latter two policies will take time to come to fruition).” Retrofitting proposals, such as NEF’s Great Homes Upgrade, and income support proposals such as a Living Income could be seen as complimentary packages and not mutually exclusive. The TUC’s Kate Bell argues that the price cap freeze should come alongside other measures such as increases to social security and minimum wage “at least in line with inflation to October”, funding decent public sector pay rises, fair pay agreements and replacing Universal Credit with a decent system paid at 80% of minimum wage.
• What about businesses? The FSB has been calling for more support as the Energy Price Cap and cost of living packages of support have so far failed to protect businesses from rising costs, some of which are facing five-fold increases in their energy bills. Commenting on the FSB’s Small Business Index, the FT’s Oliver Barnes predicts that “many SMEs, which together employ around three-fifths of the UK’s workforce, will probably collapse without government intervention”. IPPR’s paper suggests that the energy price cap could be broadened to cover all or some businesses, which could further reduce the headline rate of inflation as high energy costs are likely to be feeding into non-energy price rises. (The Mirror’s Dan Bloom also reports that some schools are considering shutting at least one day a week to protect already stretched budgets from rising heating bills. NHS trusts are also struggling with rising energy costs.)

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Public ownership for bankrupted suppliers. So far, Ofgem’s logic in increasing the energy price cap has been to prevent energy suppliers making losses and eventually going bankrupt, which in turn would force consumers to absorb additional costs. (Martin Lewis has argued that “at every turn, in these desperate times where lives are at risk, [Ofgem] has ignored all asks for consumers and instead kowtowed to the industry”.) Bulb was bailed out by the taxpayer when it collapsed last winter, but campaigners such as We Own It want to see it nationalised on a more permanent basis.

• Prioritising protecting households over shareholders. Even energy companies have suggested freezing the level of the energy price cap, but their proposal still involves funds flowing to the shareholders of energy companies as the government might provide loans (up to £50bn to cover 22 million households) repaid over 10 to 15 years, “either by suppliers adding a small surcharge to customers’ bills, or through adding the cost to general taxation.” While Gordon Brown proposed temporary renationalisation of failed energy suppliers in his intervention, Starmer steered clear of committing to nationalisation of energy companies, arguing that all funds should go to compensating households rather than shareholders. (This article explores how much compensation a future Labour government might have to pay foreign energy investors if their 2019 manifesto proposals to nationalise energy were implemented.) However, Common Wealth argues that “unless the energy market is transformed, substantial parts of the £29bn package risks flowing to shareholders. A simpler, practical approach is public ownership: removing rent extraction and to deliver value for money.” 
• Nationalisation is affordable, popular and can reduce bills. The TUC calculates that energy retail company bailouts have so far cost £2.7bn, and taking the Big Five energy retail firms into public ownership would cost just £2.85bn, reduce bills, speed up energy efficiency improvements to homes and cut carbon emissions faster. New polling from We Own It found that 66% of voters support energy being in the public sector. Evidence from 15 Western European countries over the last 30 years has shown that energy prices are 20-30% lower in systems that have publicly owned energy suppliers. ‍
• Paradigm shift towards public ownership? PEF’s James Meadway argues that the “crucial point with the price cap freeze” is that “it has now been tacitly accepted that government *can* interfere in the price mechanism to help deal with inflation. [This is a] major breach in the neoliberal theology that inflation is something *only* the central bank and interest rates can deal with.” Tom Collinge, Progressive Britain’s Head of Policy and Comms, suggested that energy security “clearly cannot be left to the market” and that while not providing a short term solution to price rises, nationalisation “is a long term, structural, solution to long term, structural problems.” The Mail on Sunday’s Dan Hodges argued that “if the major private utilities are unable to provide basic services to their customers at a price that is affordable they should be brought under public control. Not handed subsidies… If the market fails, the state should step in and replace it.”

Prime Minister Liz Truss? Liz Truss has maintained and extended her lead over fellow Conservative leadership contender Rishi Sunak, despite several U-turns, most notably on regional public sector pay. According to Politico’s Poll of Polls, Liz Truss leads with the backing of 56% of Conservative members compared to Rishi Sunak’s 32% and 11% who don’t know. Neither candidate is currently performing as well among the wider electorate, however, with a YouGov poll finding that Liz Truss would not increase the Conservatives’ support.

• Who’s who. Politico has produced a handy guide to Conservative MP support for each candidate, including analysis of the political breakdown of Truss and Sunak supporters. 80% of those publicly backing Truss, for example, either supported Brexit during the referendum or have publicly stated their conversion to Brexit, while just over 40% of Sunak supporters are pro-Brexit. More than twice as many ‘red wall’ Conservative MPs back Truss (12) over Sunak (5), while Sunak has nearly double the number of ‘Traditional Tory’ supporters than Truss. 
• But, what about the members? Analysing the political divides behind Conservative member support for Truss and Sunak is a whole different story. The New Statesman’s Charlotte Ivers explains why demographic data on “the most powerful people you have never heard of'' is notoriously sparse and outlines the effect this has on polling.
• Appealing to the right. What we do know about Conservative members is that they like right wing policies and that appealing to this majority faction may be the key to Truss’ success, argues polling expert John Curtice. 54% back Liz Truss’ tax cut pledge while only 37% agree with Rishi Sunak’s argument that tax cuts could fuel inflation.
• Truss’ cabinet. As Truss remains the hopeful to be the next Prime Minister, speculation is well underway over who may be in her cabinet. Close ally and current Secretary of State for Business Kwasi Kwarteng is widely tipped to be chosen as Truss’ Chancellor. Kwarteng famously co-authored Britannia Unchained with the leadership frontrunner along with Priti Patel, Dominic Raab and Chris Skidmore. Others tipped for cabinet positions include Ian Duncan Smith, Suella Braverman, Simon Clarke and Kemi Badenoch. ‍
• Jumping ship. The Mail on Sunday reports that several members of the current Sunak camp have been in talks with Team Truss about joining her campaign as her lead widens. 

Economic policy. Throughout the leadership contest, economic policy - particularly taxation - has been at the heart of deep divides between the two candidates. Tax cuts are central to Truss’ campaign, where proposals include reversing national insurance increases, cancelling the planned corporation tax rise and temporarily removing green energy levies on electricity bills. While her opponent argues that tax cuts could fuel inflation, Truss has maintained that her plan could actually avoid recession. (Read Politico's piece on how Trussonomics differs from the 'sound money' principles of previous Conservative governments.)

• Tax. Though originally pledging to reverse the recent rise in National Insurance in April next year, Liz Truss now plans to rush through tax cuts in a September emergency budget. Writing for the Telegraph, the frontrunner confirmed her plans to cut taxes immediately, which could see cuts come into effect as soon as November. Truss appears to have surrounded herself with fellow low-tax Conservatives. Kwasi Kwarteng, tipped to become her Chancellor if elected, is a low-tax, free-marketeer who repeatedly clashed with Rishi Sunak in government over windfall taxes and net zero.
• Tax cut pushback. The reversal of tax rises would boost inflation and fail to boost growth, argues Conservative Home’s William Atkinson. What’s more, the public do not want tax cuts if it means spending cuts, according to a poll by Opinium. About a third (34%) of those surveyed said taxes and spending on public services should remain at current levels, while 26% think there should be an increase in tax to increase funding. Just over a fifth said that taxes should be reduced and less spent on public services. For more on the debate around tax cuts and inflation, see our Digest. 
• Growth. Truss has described the UK’s lack of economic growth as “the number one problem in this country” and has used this to justify her proposals for tax cuts. She links this to her commitment to government reform, stating that “happiness is a faster-growing private sector than public sector” in an interview with Conservative Home. 
• Handouts. Faced with a growing cost of living crisis, Truss has made the case against ‘handouts’, arguing that lowering the tax burden is the “Conservative way” to ease cost pressures. As the energy price cap is due to rise, many have interpreted this as Truss rejecting support packages in the Autumn. However, her team insists that she has not in fact ruled out cost of living support, with opponents accusing her of making yet another U-turn. 
• Bank of England. As the Bank of England warns that the UK will fall into recession this year, Truss’ camp has adopted a hostile tone towards the central bank. Supporter Kwasi Kwarteng argued that “clearly something has gone wrong” in the Bank’s handling of inflation and suggested that base rates could have been raised “slightly sooner”. In the Spectator, Matthew Lynn goes as far as to suggest that the Bank of England’s recent move to raise interest rates by half a percentage point was influenced by Liz Truss’ repeated argument that the bank has been too relaxed about inflation. Truss has said that she would review the Bank’s mandate if elected. The FT's George Parker also reports that Truss intends to give ministers powers to override financial regulators seen to be limiting post-Brexit reforms in the new Financial Services Bill.
• Treasury shake-up. Truss is planning a ‘Thatcherite shake-up’ of the Treasury, according to the Telegraph, which would give Number 10 more control over the economy. Truss clearly has a longstanding commitment to the shaking up of Whitehall, arguing in 2018 that to “unleash the UK’s potential, we need to fight the blob”. 
• Public sector pay. There are clearly limits to Liz Truss’ resolve to reform the Civil Service however, evidenced by her U-turn on public sector pay last week. Having originally suggested that she would introduce regional pay boards to effectively cut civil servant pay in poorer areas, Truss was forced to withdraw the proposal after heavy criticism of both the implications of the policy and the accuracy of the costings. The FT’s George Parker labelled the move a “case study of the danger in photocopying a Taxpayers' Alliance press release - adding a few billion - and presenting it as a programme for government”.  
• Climate. Reflecting on both candidates’ climate policies, Conservative Environment Network’s Sam Hall has said Truss will need to strengthen green policies if she is to meet the net zero target that she has confirmed she supports. Green Alliance’s Shaun Spiers warns that while both candidates may “pay lip service” to climate policies, they are likely to “dodge the difficult decisions”. 
• Good for women? Representation is not enough for Liz Truss to be beneficial to women, argues the Women’s Budget Group’s Mary-Ann Stephenson. Refinery 29’s Vicky Spratt argues that Truss’ “Destiny's Child” approach to feminism fails to recognise that women are disproportionately affected by the cost of living crisis.
• Farewell ‘levelling up’? Whitehall officials warn that the outgoing Prime Minister’s ‘levelling up’ agenda is being “quietly ditched” and will not survive a new leader. Though not a policy priority, however, Liz Truss is “advocating low-tax zones to encourage investment in deprived areas”, notes Politico’s Esther Webber. 

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Politics. If successful, Liz Truss would be the first Conservative leader since Churchill to have been a member of another political party. Hailing from a family that she describes as “left of the Labour Party”, Truss went on to become president of the Oxford University Liberal Democrats which she has labelled a “youthful error”. Upon entering Parliament in 2010 and first joined the government in 2012 as a Parliamentary Under-Secretary for Education. 

• An outsider? Despite having now been a Conservative party member for 25 years, Truss still “sees the Conservatives with an outsider’s eye”, argues Conservative Home’s Paul Goodman. In contrast to Sunak’s comfort with “conventional wisdom”, Truss is more of a libertarian, he argues, but at the same time is “remarkably flexible” in her views.
• Vibes? The reason why Liz Truss is positioned so clearly as the right wing candidate has little to do with her policies and more to do with ‘vibes’, argues the FT’s Janan Ganesh. Despite vocally supporting remain during the referendum, Truss consistently polls better with Brexit supporting Conservative members than Sunak. This contradiction, Ganesh argues, checks out in a world where “people’s ideological commitments are extraordinarily soft” and instead are motivated by “tribal signifiers”. 
• Trusting Truss. After several U-turns (or, as Team Truss would describe, instances in which her policies have been ‘misinterpreted’) even her backers are beginning to ask whether she can be trusted. Truss’ many U-turns are rooted in the clash between her classical liberalism philosophy and the ‘Red Wall of reality’, argues the Institute of Economic Affairs’ Emily Carver. 
• Approach to experts. Former cabinet minister David Gauke argues that the thread running through Liz Truss’ politics is her skepticism of experts. The Spectator’s Fraser Nelson that the two candidates’ approach to experts and economic forecasts in particular is one of their “biggest differences”. As the Bank of England warns of recession, Truss is right to say that “forecasts are not destiny”, argues Nelson. 
• The new Thatcher? Comparisons between Truss (and indeed any aspirational Conservative politician who is a woman) and Thatcher are predictable, argues Martha Gill. However, it is actually the current Prime Minister, rather than Margaret Thatcher, that Truss is channeling, argues the New Statesman’s Rachel Cunliffe.  
• Rick Perlstein. Liz Truss is allegedly inspired by historian and “man of the left” Rick Perlstein. Nick Cohen outlines some of the lessons Liz Truss may be learning from her favourite historian’s analysis, such as how to ‘Mobilise resentment’ and ‘Never accept defeat’. 

Prime Minister Rishi Sunak? Rishi Sunak himself acknowledges that he is an ‘underdog’ in the campaign, referring to his unfavourable odds of winning against Liz Truss (although one poll does suggest the result may be closer than generally assumed). However, after leading the pack during the initial phase of the contest and attracting the support of more Conservative MPs than any other candidate, Sunak should not be written off. Whatever the result, his positions and economic philosophy is likely to remain important within the party during the next Cabinet and beyond. 

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Political history. Rishi Sunak had a rapid rise to the top of British politics. He was elected to Richmond in 2015 and became a Junior minister in DHCLG under Theresa May’s government in 2018. He was then promoted to Chief Secretary to the Treasury by Boris Johnson - a move that was widely regarded as a reward for publicly backing the Leave campaign during the 2015 Brexit referendum and for publicly supporting Boris Johnson’s leadership campaign to replace Theresa May in the Times alongside two other MPs; “This was widely seen in Westminster as a decisive turning point: the one where Johnson won over ‘the sensibles’ and pivoted the backbenchers.” Sunak was promoted to Chancellor when Sajid Javid resigned in February 2020. His economic record is summarised below: 

• Pragmatically fiscally expansive (when pressured)... The Chancellor delivered his first Budget that oversaw unprecedented levels of fiscal support and deficit spending during his first month in office and throughout the Covid-19 pandemic (as well as providing £37bn in support for the energy price crisis so far). However, he consistently refused to provide adequate funding for a variety of Boris Johnson’s policy agendas and much of the emergency packages of support given throughout the cost of living crisis have arguably been a result of sustained political pressure from campaigns that forced a U-turn whilst the government was weak; e.g. the Windfall tax on oil and gas producers or ‘Energy Profits Levy’. 
• …but the dead hand of the Treasury often prevailed. Economist Michael Jacobs explains that he “sabotaged Boris Johnson’s policies” through his choice of fiscal rules that arbitrarily limit public investment to 3% of GDP, meaning he underfunded almost every policy agenda ranging from the Integrated Rail Plan, the Leveling Up White Paper, the Net Zero Strategy, the plan to fund Health and Social Care, and more recently, the Energy Security Strategy (click through to read our analysis and summaries of each at the time.)
• Inflation hawk and ‘tax cutting Chancellor’? Sunak has since reinforced this position of ‘sound money’ and ‘fiscal responsibility’ against competitor Liz Truss’s expansionary campaign of tax cuts, which he refers to as “peddling the fantasy economics of unfunded promises” and warns about their inflationary effects. He often referred to himself as wanting to be a ‘tax cutting’ Chancellor despite Conservative critics pointing out that he presided over a steady expansion of the tax take to x% of GDP. This prompted the IFS’s Paul Johnson to call Sunak a “fiscal illusionist” in their analysis of the 2022 Spring Statement. If elected Prime Minister, Sunak has pledged to slowly reduce income tax in 2024 from 20 per cent to 19 per cent (1p cut), followed by further cuts to eventually reach 16 per cent by 2029 (a further 3p cut) as he believes we “need to get a grip of inflation first”. Sunak oversaw “one of the largest single-year tax giveaways ever enacted by a government” - the Super Deduction tax break for capital investment (see our analysis)  - which had limited effects on productivity and growth and has since hinted about wanting to “cut the taxes on business that actually make a difference to growth and productivity” more if he becomes PM. He also clarified he will retain his plan to increase corporation tax from 19% to 25% in April 2023.
• Ambiguous approach towards public ownership. The Treasury under Sunak also began developing new approaches towards public ownership, ranging from taking equity stakes in struggling businesses (such as Bulb energy) and becoming one of the largest venture capital funds in Europe. See our previous digest for analysis of State intervention after Johnsonomics for more.

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Which policy agendas will survive if Rishi becomes PM? Sunak has stated that “a screeching U-turn on lots of policies that were in the 2019 manifesto” would “be tricky to implement”, so which of Boris Johnson’s flagship policy agendas might survive under Sunak’s rule? Public First has updated their Conservative Leadership Election Policy Tracker, key parts of which have been summarised and elaborated on below: (accurate at the time of publication)

• Leveling up. Sunak pledged his support for Tees Valley Mayor Ben Houchen’s five-point plan for levelling up, which includes: a commitment to keep the Department for Levelling up with a Cabinet level Secretary of State, reform the Treasury Green Book evaluation process so public spending prioritises towns, rural areas and the North of England more, give mayors greater powers to control tax through devolution and fully construct Northern Powerhouse Rail. He has also committed to Northern Research Group’s pledge card to create a Minister for the North, two new vocational institutions in the North of England (“the national vocational equivalents of Oxford and Cambridge”), and commit to greater devolution and rebalancing of government spending formulas. Sunak was a supporter of creating freeports - low tax zones - as part of the Levelling Up agenda and invested £4.8bn through the Levelling Up Fund to redevelop in ‘left behind’ communities in the UK (see our analysis and critique here). 
• Net zero (and energy security). Sunak has committed to retaining the Net Zero 2050 target and the Conservative Environment Network’s pledge card, which includes a “baseline commitment to maintain recent progress” in areas such as designing post-Brexit nature-friendly farming subsidies and switching to renewable energy, rolling out home insulation (perhaps based on Northern Ireland’s energy efficiency strategy) and electric vehicle charge points, implementing the Environment Act and “turbocharging clean growth through backing the technologies of the future”. On energy, Sunak has pledged to keep the ban on building any new onshore windfarms but start a massive expansion in offshore wind, introduce a legal target to make Britain energy self sufficient by 2045 and re-establish a separate Department of Energy and create a new Energy Security Committee tasked with reforming the market to cut future bills. CEN’s Sam Hall also notes that Sunak is “open to lifting the fracking moratorium if there is local support”.
• Cost of living. Whilst Sunak has spent over £37bn in measures to ease the cost of living crisis as Chancellor so far, it may be too early to tell whether this will continue if he wins the Leadership race. During his campaign he has only pledged to scrap VAT on energy bills for a year from October as a temporary measure and announced longer term plans to tackle supply-side inflationary pressures that increase prices of UK imports, such as increasing trade with Dutch and Danish ports. 
• Welfare and public services. Sunak’s only pledge on welfare so far has been to double the number of hours someone on welfare has to work a week in order to avoid having to look for a full time job from 9 to 18. He has various proposals for reducing NHS waiting lists in “an emergency package to force down NHS waiting lists through tougher targets led by a ‘backlogs taskforce’.” He has been silent on both child care and social care so far.

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The Cabinet under Sunak? Speculation about who might be picked to be in Sunak’s Cabinet is still contested. The Guardian’s Jessica Elgot and Aubrey Allegretty think that Sunak might pick Steve Barclay as Chancellor but the Telegraph’s Gordon Rayner suggests that Michael Gove might be picked instead. 

• Campaign team. Sunak’s campaign is being run by former Chief of Staff in the Treasury, Liam Booth-Smith, a former chief executive of think tank Localis; LGC’s briefing states that “under his tenure Localis played an important role in the development of the government’s industrial strategy” implemented by Theresa May (Liam has also written multiple articles on the need for places to develop their own local strategies with Bright Blue’s Ryan Shorthouse). His communications are being ran by Narissa Chesterfield (formerly comms manager at the IEA and worked for Vote Leave) and Cass Horowitz (former special advisor to Sunak and former journalist who has worked with Allegra Stratton on Peston). ‍
• Policy team. Public First’s Director of Strategy Nick Park is helping Sunak’s campaign with policy research, who has a long track record of energy policy and political advisory roles, alongside Eleanor Shawcross, a “highly respected former senior aide to [George] Osborne when he was chancellor”, “a key adviser in the months leading up to the June 2016 European Union Referendum” and who “could be closely involved in drawing up the Conservatives’ manifesto for the next general election”.

Mansion House speech. Last week, Nadhim Zahawi stressed the “critical role of financial services” in his first Mansion House speech as Chancellor. Along with controlling inflation and creating “the conditions for a private sector recovery”, Zahawi identified financial services as one of his three priorities. Speaking the day before the publication of the Financial Services and Markets Bill, the new Chancellor set out how the Government will replace “hundreds of pieces of retained EU law” with a new vision for financial services. 

• A green speech? Zahawi’s address to the financial and professional services sector took a surprisingly green turn, according to Green Alliance’s Zoë Toone and James Fotherby, but stopped short of fully linking his three key priorities with net zero ambitions. While demand management and green infrastructure can tackle inflation and private sector recovery, they argue, alignment between the financial sector and net zero targets could create opportunities that would “revitalise the London Stock Exchange”. 

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Financial Services and Markets Bill. Following the Mansion House speech, the Government published its Financial Services and Markets Bill in response to its findings from the Future Regulatory Framework (FRF) review which concluded in February this year. Before publication, the Bill was tipped to be a “regulation bonfire” with outgoing Chancellor and Conservative leadership hopeful Rishi Sunak hoping that post-Brexit changes to regulation would result in a “Big Bang 2.0”. The bill is due to have its second reading in Parliament on 7th September this year.

• The competitiveness agenda. At the heart of the proposed reforms is a focus on making ‘competitiveness’ a formal objective for regulators. There was previously such a competitiveness duty placed on regulators, but this was removed as part of the 2012 Financial Services Act. Writing for OpenDemocracy, Chaminda Jayanetti highlights that a Treasury consultation document published at the time partly blamed the competitiveness agenda for the financial crash, stating that there is “a strong argument that one of the reasons for regulatory failure leading up to the crisis was excessive concern for competitiveness”. 
• Mistakes of the past. The competitiveness agenda “risks sleepwalking into the mistakes of the past”, argues the FT’s Helen Thomas. “A regulatory race to the bottom harms everyone except those who have something to keep from public scrutiny”, argues Professor Sir John Kay. In May, over 50 leading economists wrote to the Chancellor warning of the risks of a new regulatory goal of competitiveness. For more on the competitiveness agenda, see our Digest. 
• “Cheerleaders for the City”. “Regulators don’t want to be undermined by being tasked with becoming cheerleaders for the City”, argues Positive Money’s Fran Boait. Bank of England governor Andrew Bailey has warned of the proposed “call-in power” in the new bill that would allow the Treasury to override decisions made by regulators. 
• What’s driving the “deregulation agenda”? The Government’s commitment to deregulation can be attributed to the “enormous power” of the financial sector, argues Boait. Over the past two years, financial institutions and individuals closely involved in the sector donated more than £15m to political parties and around a third of Treasury minister meetings are with financial institutions and their lobbyists.
• Treasury committee pushback. The Treasury select committee has warned the Government of the risks of too much deregulation and of making competitiveness an objective for regulators. The committee argued that “pursuing international competitiveness in the short term is unlikely to lead to economic growth or international competitiveness in the long term if it is achieved by weakening the UK’s strong regulatory standards”. 
• The alternative? Positive Money’s Fran Boait suggests that we must confront the “financialisation of all our public assets” and that the Treasury and Bank of England must instead work together to drive credit away from “property and speculative assets” towards a green transition. Central to this proposal is an “ecosystem of cooperatively or publicly owned banks” which would invest in the interests of communities rather than shareholders. 

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Finance for our Future. A group of civil society organisations under the name of ‘Finance for our Future’ is calling on the Government to use the Financial Services and Markets Bill as an opportunity to “address the biggest challenges we face as a country today” including climate change, economic stability and accountability and transparency in financial sector lobbying. It has already made several media interventions and provided a briefing for MPs. The coalition, which includes the Finance Innovation Lab, Positive Money and the New Economics Foundation, has proposed six key recommendations, outlined below. 

• 1.5 degrees. Finance for our Future urges the Government to oblige regulators to commit to “align the financial system and its regulation with the 1.5 degrees temperature goals of the Paris Agreement”. Finance Innovation Lab’s Jesse Griffiths raised concerns that the climate crisis is overlooked in the Government’s bill. 
• Financial inclusion. Financial products and services, such as insurance, are often inaccessible to a large number of people. The coalition suggests mandating regulators to ensure that the financial system is inclusive. 
• No statutory objective for competitiveness. Strongly opposing proposals for competitiveness objectives, the coalition argues that while there are plenty of organisations already promoting financial services, regulators should be there to act in the public interest and maintain independence. 
• Parliamentary scrutiny. The joint statement warns that the current proposals risk giving too much unchecked power to the executive (the Treasury) via “opaque secondary legislation”. It therefore proposes establishing a new parliamentary committee, representing “all facets of public interest in the financial sector”. 
• Checks on lobbyists. Current proposals “could facilitate untransparent lobbying that steers policy away from the public interest”, argues the group of organisations. It suggests that there should be a register of lobbyists and monthly reports by lobbyists on their communications with government, including written communications.
• Stakeholder engagement. Finally, the coalition calls for a requirement of the Financial Conduct Authority and Prudential Regulation Authority’s statutory panels to consist of a maximum of 50% industry representatives and at least 50% public interest representatives. Currently, only one of the FCA’s panels is for consumers, while the PRA has no public interest panel at all. 

Johnsonomics, state intervention and political expediency. New forms of state intervention in the economy have been quietly normalised throughout Boris Johnson’s premiership, partly in order to maintain the Conservatives 2019 electoral coalition and partly as a reaction to political events such as the Covid pandemic. As the Conservative Leadership Race continues, ConservativeHome’s Mark Wallace explains “what the Conservative Party wants from its next leader…fulfilling the 2019 promise to those first-time blue voters, to help people survive painful economic conditions”.  

• The 2019 electoral coalition required an activist state... Concerns with regional inequality, lower productivity and wages in more deprived parts of the country culminated in the levelling up agenda, which was in many ways a repudiation of the economic model introduced under the last period of sustained Conservaitve government under Thatcher and Major. This agenda required a more activist state than previous Conservative governments would have been prepared to accept; for example the more interventionist approach to regional economic development adopted by Tees Valley Mayor Ben Houchen. Christine Berry and Laurie Macfarlane explains how Johnsonomics evolved into ‘state rentier capitalism’, where the Conservatives are “catering to their new voters in the so-called ‘Red Wall’ with promises of a more activist state, whilst also seeking to reassure and protect their core constituency – rentier capital.” Christine explained this “mode of governing that may well outlast his premiership” in a recent interview with Politics Theory Other. (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”.)
• …but this is also part of an emerging global consensus. Other countries have also been moving away from a free market approach to managing the economy. Such new forms of intervention reflect an emerging global consensus about industrial strategy, such as through the US approach to reshoring supply chains to ‘Revitalize American Manufacturing’, or the EU’s relaxation of state-aid rules. In 2018 UNCTAD found that 84 countries (accounting for 90% of global GDP) had adopted formal industrial policies in the previous five years. 

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Public ownership under Johnsonomics. Various forms of public ownership that have been employed under Boris Johnson’s premiership range from nationalisation of ‘defence-critical assets’, public equity stakes as a last resort for struggling businesses and mission-oriented innovation strategies.

• The National Security and Investment Act. Earlier this year the government passed the National Security and Investment Act; a law allowing UK regulators to block foreign takeovers of UK companies and strengthen the government's powers to investigate and intervene in 17 “sensitive sectors'' of the economy on public interest grounds. The Act outlines the government’s approach to bringing ‘defence-critical assets’ into public ownership, such as the Ministry of Defence’s acquisition of Sheffield Forgemasters to protect high skilled jobs and invest in green infrastructure.
• British Business Bank’s “Future Fund”. In 2021, Bloomberg calculated the Government had taken public equity stakes (£30.4 million) in 37 start-up companies through the British Business Bank’s Future Fund program, after the startups couldn’t repay their loans. The Future Fund became the largest venture capital fund in Europe last year, making £1.2bn of convertible loans to businesses. The FT reported that the fund was originally launched in April 2020 in “an attempt to stop a slew of start-up and early-stage businesses going under as other sources of funding dried up” and that now “the government seems to have a taste for the VC life”. (UCL IIPP’s policy brief on public wealth funds explains how taking public equity stakes in threatened, strategically important firms can support economic recovery.)
• Advanced Research and Invention Agency (ARIA). Originally the brainchild of former Johnson aide Dominic Cummings, ARIA is an agile organisation with £800m in initial R&D funding to develop ‘transformational science’ projects. It is inspired by the successful US-based Advanced Research Projects Agency (ARPA), which was instrumental in creating transformational technologies such as the internet and GPS. Activate’s Ilan Gur was announced as the new CEO this week. ARIA’s Statement of Policy Intent states the organisation can “take equity stakes in companies, for instance, start-up ventures for developing and exploiting scientific research.”

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Ambiguity towards the role of the state. Despite developing these significant policies and bills, the government adopted an ambiguous approach to public ownership, for instance Boris Johnson’s celebration of ‘greed’ and ‘capitalism’ in the development of the Covid-19 vaccine (despite the Industrial Strategy Council concluding “government played a key role in expediting every stage of the OX/AZ vaccine development process” in their paper outlining six lessons for future industrial policy in the UK), or perhaps best exemplified by the Cabinet  split on the issue of protecting a UK semiconductor manufacturer (Newport Wafer Fab) from a Chinese takeover.

• Businesses want certainty. “In a report which will make essential reading for the new Chancellor”, the cross-party Treasury Committee of MPs warned about the government’s “chop and change” approach and “lack of long-term thinking in economic strategy, following the abolition of the Industrial Strategy [originally implemented by Theresa May’s government] and its replacement with the Plan for Growth.” The CBI also published an open letter to Conservative leadership candidates last week, urging them to develop "serious, credible and bold plans for growth...that dominates policymaking across every government department, not only the treasury." The CBI’s former Director General Carolyn Fairbairn spoke about the importance of a social partnership approach between unions, the business community and government at the Resolution Foundation’s conference last week.

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Will the next cabinet adopt a more consistent approach? Commenting on the Conservative Leadership race and the state of the UK economy, Andrew Marr describes the outgoing PM as an “undeclared big stater”. Following Johnson’s departure Marr argues that  “we need a full economic programme for recovery, going far further than a tax-cut auction – itself based on an outdated notion of Thatcherism." But will the next leader rediscover the value of industrial strategy in addressing some of the country's most pressing economic issues, such as the rising cost of living? 

• Temporary public ownership as a last resort isn’t working. Martin Lewis and E3G have separately warned that the next Conservative leader needs to act over the ‘financial time bomb’ of rising energy costs and develop a “long-term plan to wrestle bills under control from day one”, respectively. As energy suppliers are going bust, many have been taken under public ownership by being placed into ‘special administration’ through Ofgem’s Supplier of Last Resort regime. One of them, Bulb, was propped up with the biggest taxpayer bailout since RBS in 2008. The CEO and founder has been under criticism from MPs for “continuing to receive a taxpayer-funded salary of £250,000”. Common Wealth argues Bulb “should have been taken into full and democratic public ownership…our energy system needs to be remade in the public interest, tackling insecure supply, runaway CEO pay & unaffordable bills.” Common Wealth also found that a ‘fragmented system of private monopolies that delivers outsized returns for investors’ in electricity and gas distribution networks are partly to blame for rising energy bills, and argues that ‘in the long run these monopolies should be in public ownership. 
• Longer-term strategy: active forms of management and ownership. IIPP’s Laurie Macfarlane argues that deeper reform of the energy sector is required to protect consumers and accelerate decarbonisation. He proposes use of the British Business Bank’s Future Fund to purchase equity in the ‘Big 6’ energy firms. We Own It has launched a campaign calling for energy companies to be brought into public ownership to combat rising bills. Their demands of the government include a ‘permanent windfall tax’ and the introduction of a new state-owned renewable energy company. (Their latest polling shows that ‘Red Wall’ voters “overwhelmingly back nationalised energy”, as well as other utilities.) 

Conservative leadership race dominated by tax cuts. Candidates in the Conservative Party’s leadership contest are beginning to outline their economic platforms and there is only one topic on the agenda: tax cuts. The FT’s Sebastian Payne and Chris Giles note: “A dividing line is already emerging between Tory leadership hopefuls focused on maintaining the Johnson government’s approach of investing in public services and those who wish to pursue supply-side reform.” In the former camp is Rishi Sunak, the bookies’ favourite, who is broadly defensive of his economic record and has gone on the attack about ‘fairytale economics’. However the vast majority of the other candidates have argued for a change of economic direction, attempting to woo Conservative MPs and party members with promises that slashing taxes will revive the UK’s economic fortunes, an argument which is fast becoming orthodoxy within the governing party. (A reminder that Conservative MPs are significantly more right wing in their economic values than conservative voters, and the wider public.)

• Right wing manifesto for tax cuts. Conservative Way Forward, a new pressure group chaired by Steve Baker, put this case most succinctly in a manifesto calling for “a dash for growth” via tax cuts, “supply side reforms and a return to sound money”. A Charter for Tax Cuts provides costing for a range of tax cutting options totalling over £40bn: 1p off the basic rate of income tax (£5.3bn), £1,000 increase in personal allowances (£6.1bn), suspending the 1.25% Health and Social Care Levy (£17.1bn), 1pp off standard rate of VAT (£7.5bn) and 10p off fuel duties on petrol and diesel (£5.4bn).
• Positioning. The policy paper’s author Julian Jessop (associate of the Thatcherite think tank, the Institute of Economic Affairs) argues this package “does not have to be inflationary and could actually help to reduce the upward pressures on costs and prices” and that “concerns about the debt interest bill and the overall level of debt are exaggerated”. 
• Who is backing it? Playbook notes that leadership candidates Nadhim Zahawi and Suella Braverman have already endorsed Conservative Way Forward’s proposals (and gave speeches at the manifesto’s launch yesterday). Sajid Javid and Jeremy Hunt have also already pledged £49.4bn and £39bn in tax cuts, respectively and Liz Truss has pledged to cut taxes ‘from day one’. Agency Public First have put together a tracker of policy pledges by the different candidates.

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How will this be funded? The IFS’s Paul Johnson has warned tax cuts might require “dramatic” cuts to the welfare state and other areas of public spending and that it is “nonsense” to expect them to pay for themselves, e.g. through more tax receipts through economic growth. Nadhim Zahawi has already said he plans to cut funding for staff by 20% in every government department in order to pay for his proposed tax cuts. (Polling commissioned by Tax Justice UK shows that Conservative voters are “far from supportive of tax cuts, particularly if that means cuts to public services”.)

• Unfunded tax cuts via growth? The OBR’s Andy King argued that reducing the tax burden on either businesses or households to stimulate growth wouldn’t outweigh the costs to the Treasury: “While a tax cut will typically boost growth in some way, they, in our analysis, don’t do so sufficiently to pay for themselves. Tax cuts do not improve the long-term finances”. 
• Avoiding recession. The OBR’s Fiscal Risks and Sustainability report last week provided more impetus for stimulating the economy, calculating that a recession would cost the Treasury between £30-40bn and if energy prices remained high for the next five years, another £10-20bn would be added to the government’s debt repayments. The FT’s Chris Giles also explained why “cutting taxes will not magically improve the UK’s economic performance”; “it is productivity improvements that are necessary for sustainable economic growth”.

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Inflationary risks and the cost of living. Some economists, two former Conservative chancellors and the former head of the Treasury have warned that a “Dutch auction of tax cuts” may be inflationary due to increasing demand. The OBR’s annual assessment of risks to the public finances last week also warned that cancelling Rishi Sunak’s planned rise in corporation tax to 25% (as Nadhim Zahawi promised today) could stoke inflation higher: “If [tax cuts] are financed by greater borrowing, it puts more pressure on and arguably comes with additional risks in an economy that is running with high inflation”. (Polling by Tax Justice UK also found that 74% of 2019 Conservative voters support an increase in corporation tax.)

• Inflation driven by supply shocks. However, there are good reasons to think that excess aggregate demand isn't driving inflation, given the UK is at risk of recession. The Bank of England’s Andrew Bailey admitted recently at a select committee that around 80% of the inflation overshoot was driven by external shocks with only 20% caused by the reaction of firms and wages. (For a good breakdown of these external drivers read economist Michael Spence’s piece for Project Syndicate, The Supply-Side Fight Against Inflation.)
• “Fiscal policy also has an important role to play in managing inflation fairly”. IPPR’s Carys Roberts proposed the government should levy excess profit taxes to other sectors of the economy which have made windfall profits (beyond oil and gas) and use the receipts to support households and build more resilient supply chains to tackle external causes of inflation (e.g. for critical commodities). This could reduce inflationary pressure by discouraging profiteering, as recent research by IPPR and Commonwealth observed. Tax Justice UK’s Paul Hebden argued that if the planned corporation tax rise is reversed after increasing taxes on working people, then “the government will be showing its true priorities…Tax is about political choices yet ordinary people continue to bear the costs of the pandemic while the wealthy and big business are protected.” Polling commissioned by Common Wealth found ¾ of voters in ‘Red Wall’ seats would support a windfall tax on all large companies which have made excess profits to help families with the cost of living.

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Tax cuts are poorly targeted. Economist Jonathan Portes explains why “broad-based, badly targeted tax cuts…will do little to help those who need it most”. Resolution Foundation’s Torsten Bell points out “only a fifth of the benefit of an income tax cut would go to the entire poorest half of the population.” (Also read our analysis of why business tax breaks such as the ‘Super deduction’ are a poor response to the cost of living crisis.)

• Tax cuts on the rich don’t create jobs or growth. Trickle down economics has been thoroughly debunked, perhaps most comprehensively by analysis published by the LSE which found that tax cuts for the rich have not had a significant impact on unemployment or growth, but they have increased income inequality. BBC Newsnight’s Ben Chu explained that “there is no compelling evidence that overall tax burdens determine economic outcomes” and that “there really isn’t a large constituency for the argument that sweeping tax cuts, as a share of the total economy, will do very much to boost the UK’s overall growth prospects” in this video explainer. (Watch economist Jeevun Sandher explain why tax cuts won’t solve the UK economy’s long term growth problems in an interview with Julia Hartley-Brewer.)

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Long-term solutions to UK stagflation. Leader of the Opposition Keir Starmer has dismissed the Conservative leadership election as an “arms race of fantasy economics.” The FT’s Martin Wolf also doubts that the Conservative leadership candidates will provide any solutions to the UK’s stagnant economy: “The answer will not be tax cuts: taxes are already lower than in our European peers. Nor will it be deregulation: the UK economy is relatively deregulated, except in the use of land. It will depend on higher investment and bringing lagging firms and regions to the frontier. It will depend on improvements in corporate governance and capital markets, which encourage investment and innovation. It will depend on exploiting the energy revolution, to accelerate growth and lower emissions.“

• Bearing down on energy prices. The FT’s Stephen Bush notes that the election of the new PM is likely to coincide with Ofgem’s announcement of the Winter Energy Price Cap rise, which analysts predict could push average annual household energy bills to £3,244.54. As former Conservative Business Secretary Chris Skidmore explains, “At a time of high inflation and a global cost of living crisis, a clear policy priority for any future prime minister must be to deliver better living standards and lower costs. Global energy prices have skyrocketed recently, entwining the debate between living costs and energy provision.”
• Across the aisle. Keir Starmer has reiterated Labour’s pledge of £30bn of green investment a year, which includes plans to decarbonise energy supply and use £6bn per year to insulate 2 million homes this year and the other 19 million that need it this decade. They calculated that this could cut energy bills by up to £400, gas imports by 15% and reduce fuel poverty. Rachel Reeves recently quoted US Treasury Secretary Janet Yellen’s approach of “modern supply side economics”, which gives a stronger role for the government in stewarding economic growth and tackling structural challenges.

Watchdog warns UK climate plans “will not deliver net-zero”. The Climate Change Committee (CCC), the UK government’s statutory advisory body set up by the Climate Change Act 2008, released its 2022 Progress Report to Parliament last week. The report comes with a new monitoring framework which outlines the indicators used to track the UK’s progress in transitioning to a zero-carbon economy by 2050.

• “The government is failing in much of its implementation”. Whilst the UK’s domestic 2030 climate targets are compatible with the Paris Agreement’s goal of limiting global warming to 1.5C above pre-industrial levels, the CCC has warned that 61% of these commitments are not backed by credible plans to reduce emissions. The CCC praised “warm words” in the Net Zero Strategy but noted “little concrete progress made” as only 8 of 50 key indicators are on track. Carbon Brief’s Simon Evans provided a summary of the progress made so far in a Twitter thread and pulled out this key graph illustrating the gap between the government’s current “credible” policies and the delivery pathway for net-zero.
• Risk of relying on technological salvation. NEF’s Chaitanya Kumar blamed the government's “over-reliance on technological solutions with high risk & no plan Bs” in sectors such as aviation, carbon capture and storage and nuclear energy generation. Read this article from a group of respected climate scientists who warned that net zero policy “helps perpetuate a belief in technological salvation and diminishes the urgency surrounding the need to curb emissions now”.

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Decarbonisation of heat and buildings remain a huge gap. The CCC identified the decarbonisation of heat and buildings as one of the most important policy gaps, as buildings are the UK’s second largest source of emissions (20% in 2021), where energy efficiency in non-fuel poor homes was “the most significant policy gap in the buildings sector”. The report states that “current policy is insufficient” to upgrade as many homes as possible to EPC rating C by 2035 and the “Government’s responses to rapidly rising energy bills have so far missed the opportunity” to address this. 

• Energy efficiency and the cost of living crisis. Many figures from the CCC highlighted that the cost of living crisis increases the importance of improving energy efficiency. CCC outgoing chair Lord Deben explained that bringing forward energy efficiency plans due to be completed by 2030 could reduce household bills by £125 a year and argued that high fossil fuel prices “should have given added impetus to improving energy efficiency, yet the necessary programmes are not in place.” The report criticised the Energy Security Strategy for “failing to offer any solutions” for reducing energy demand, and advocated for “increasing funding and accelerating plans for energy efficiency policies” (Pg.157) 
• The risk of relying on market-based approaches. The government’s current approach to increasing the supply of low-cabon heating systems relies on a market-based mechanism for rolling out heat pumps and driving delivery in heat networks. The CCC noted “This is an untested approach, and if market participants don't respond to incentives as expected low-carbon heat roll-out will not take off, with significant impact on planned emissions reductions.” As the cost of living crisis continues to erode household incomes, demand for low carbon heat systems may suffer, therefore the CCC recommended intervening with additional measures, such as public funding and more regulation to mitigate risks of low take-up (Pg. 204).
• Rationing as a last resort to avoid blackouts. Campaigners have hoped that the government would bring forward energy efficiency measures to insulate enough homes to reduce demand in time for a particularly acute energy crisis this winter. Instead, the Times’ Emily Gosden reports that the National Grid is “working urgently to establish a scheme to pay consumers with smart meters to ration their usage voluntarily…to reduce the risk of blackouts”.

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Action prevented by Chancellor’s fiscal rules. Business Secretary Kwasi Kwarteng suggested in a Select Committee meeting that any new funding for energy efficiency has to be taken from other existing pots of money as no new money has been committed since the Chancellor’s Spending Review (11:52:20). 

• “Robbing Peter to pay Paul”. When asked about rumours that any funding for a future home insulation scheme would be taken from Boiler Replacement Voucher Scheme and the Public Sector Decarbonisation Scheme (PSDS), Kwarteng said: “I think some of the money has to be reallocated...I've made those decisions...If we’re going to have a high speed ambitious energy efficiency rollout, we can't simply print more money...I can't simply go beyond my CSR envelope... There has to be some degree of reallocation of existing money.” Given the CCC identifies a shortfall in funding for public building decarbonisation as another gap in the government plans, Chris Stark says this is “just the wrong approach”, despite “the value for money case of energy efficiency has never been stronger”.‍
• Overcoming ‘Treasury Brain’.  Economist Sir Nicholas Stern argued that net zero cannot be achieved with an austerity mindset and has written a paper criticising the use of high ‘discount rates’ in the Treasury's policy making processes, which “grossly undervalue” the lives of future generations and present children. Commenting on the Stern Review of the Economics of Climate Change, James Meadway explains why “shocks that produce permanent losses in growth increase the value of taking action today”. The Social Market Foundation has published a report on the intergenerational issues that arise from paying for the net zero transition. They also argue that the UK should reduce the ‘discount rate’ and spend much more on emission reductions now to avert future costs to the Treasury. ICYMI, read our analysis of the OBR’s report explaining how the costs of net zero are greater without “decisive action” and “early steps” to mitigate climate change‍
• Economic case for urgency. The CCC emphasised that high fossil fuel prices following Russia’s invasion of Ukraine “reinforce the case for a rapid transition away from fossil fuels” which could save the economy 0.5% of GDP. Carbon Brief’s analysis noted that previous reports estimated the transition to a net zero carbon would cost less than 1% of GDP (“not including health benefits, the benefits of avoided climate impacts or the potential economic benefits of investment in infrastructure for net-zero”).

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Policies for improving energy efficiency. Given that the CCC’s Director of Analysis, Mike Thompson argued “This is the time for a government to be bold and to help people do what a lot of people want to do anyway. There’s no shortage at all of good ideas out there”, we have collated some proposals for decarbonising heat and buildings below:

• Improving energy efficiency in your constituency. NEF’s campaign for a Great Homes Upgrade has produced a campaign toolkit to lobby local MPs to demand action on energy efficiency. CLES have co-produced an Energy Futures Toolkit to help community-led energy planning, an approach which: allows local people to engage in energy transition planning and action, generates valuable neighbourhood-level data to inform the approach to and delivery of the local energy transition, and enables the activation of community-led and owned initiatives which can build community wealth as part of the energy transition. 
• Low carbon heat installation and skills shortages. A new report from the TUC and Electrify Heat Coalition outlined the role of heat pumps in building a high-wage, high-skill economy. The report is particularly timely as the CCC outlined skilled worker shortages as a ‘major risk’ in the government’s plans to decarbonise heat and buildings. 
• Ban on gas boilers. Chairman of the National Infrastructure Commission, Sir John Armitt, has called on the government to ban gas boilers, replicating the ban on new petrol and diesel cars by 2030. In the University of Birmingham’s Energy Institute report ‘Pathways for Local Heat Delivery’, Sir John argues that “unless we replace 24 million gas boilers, we will never reach net zero”. 
• Funding to permanently lower household bills. The Director General of the CBI, Tony Danker, has called for “all-out” action on energy efficiency measures to combat the cost of living crisis. Danker advocated for a “new normal of energy efficiency” instead of a “new normal of billion-pound bailouts every quarter”. He argued that £5.2 billion was needed annually to insulate homes (with £1 billion dedicated to retrofitting) which he compared to the £22 billion worth of cost of living support announced in Spring by the Chancellor and further £15 billion in May. 
• Labour’s ‘energy efficiency revolution’. Shadow Climate and Net Zero Secretary Ed Miliband outlined 5 recommendations for the upcoming Energy Bill, advocating Labour’s £6bn per year plan to insulate 2 million homes this year and the other 19m that need it this decade. They calculated that this could cut bills by up to £400, gas imports by 15% and reduce fuel poverty.

Summer of glory? Yesterday, criminal barristers in England and Wales began a strike over legal aid fees, following three days of industrial action by the RMT union last week. Other public sector groups such as NHS staff, teachers and care workers could also go on strike, leading some to predict a ‘summer of unrest’. Progressive Economy Forum’s James Meadway puts a positive spin on the planned industrial action, dubbing this the ‘labour movement’s summer of glory’. 

• A break with a failing past. Meadway refutes comparisons of today’s situation with the 1970s, arguing that there is no wage-price spiral and that trade union membership is "far below" what it was during the winter of discontent. However, he also says that "one way in which the 1970s comparison can work’ is that public sector industrial action could lead to a change in the economic paradigm. In the same way that the disputes of the 1970s led to the ‘consolidation of neoliberalism’, today’s disputes could usher in a different economic settlement and a ‘break with a failing past". 

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Further restrictions on union freedoms. Transport Secretary Grant Shapps has said that agency workers could be brought in to break what he calls ‘Marxist’ strikes and says that the measure will be introduced during the current RMT dispute if it is not resolved. Plans to ‘bus in’ agency workers to cross picket lines is "just the latest attempt to curb the right to strike", says the TUC’s Tim Sharp. Sharp argues that the use of agency staff to replace striking workers could put the public ‘at risk’ due to lack of training and would "most likely breach international law". The UK has already been criticised in this area, with the ILO Committee of Experts already concluding that British law does not do enough to protect strikers from being replaced by agency workers. Even the Spectator’s Brendan O’Neill has criticised the government’s proposal, saying that "the right to withdraw labour (is one)of the most important freedoms people enjoy."

• Rights for agency workers. Agency workers have very little power to avoid breaking strikes if the government’s plans go through as they will often not be told before turning up to a shift that they will be breaking a strike. Furthermore, they are not protected from ‘suffering a detriment’ if they refuse shifts on the basis that they are replacing striking workers. 
• History of anti-trade union legislation. Barrister and author David Renton gives a backdrop to the current situation and provides a history of the UK’s anti-trade union laws and explains why Britain has "the most restrictive anti-union laws in Europe". Renton outlines how the promotion of tribunals as an alternative to strikes - by both Conservative and Labour governments - has played a key part in weakening trade union power and how the RMT’s recent action has bucked this trend. 
• The Trade Union Act 2016. Many barriers to industrial action today were introduced as part of the Trade Union Act 2016 (TUA). The TUA brought in new restrictions on how trade unions and their members could take industrial action, fund political parties, and conduct their duties. The bill brought in a higher threshold for ballot turnouts and doubled the amount of notice trade unions must give to employers before going on strike. The Institute of Employment Rights (IER) has published a handy guide to the Act. 
• Electronic strike ballots scrapped. As the government escalates its ‘war with unions’, the Business Secretary, Kwasi Kwarteng, is rowing back on plans to allow unions to introduce electronic strike ballots. The move, which was first introduced by David Cameron in 2016, would have made it easier for unions to organise strikes. TUC General Secretary Frances O’Grady called Kwarteng’s decision an "absurd", "hypocritical" and "a feeble attempt to look tough by a government that wants to stoke a culture war against unions". 

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Trade union membership today. The general trend of trade union membership over the past few decades has been one of steady decline. While over half of workers were unionised at the peak of trade union membership in the 1970s, the figure today stands at just over 23 percent. What’s more, only 13.7 percent of private sector workers now have their pay set by bargaining between unions and employers, claims Sarah O’Connor in the Financial Times. However, membership has started to rise very slightly in recent years. In 2020, 23.7% of workers were unionised compared to the low of 23.3% in 2017.

• Different demographics. According to government statistics, this rise has been largely due to the rise in female trade union membership. From a low of 25.6% in 2017, the percentage of female workers now unionised stands at 27.2%. 
• ‘Good news and bad news’. The TUC unpacks the data behind the steady increase in trade union membership over the past four years, claiming that while membership has increased in the public sector, union membership in the private sector has fallen by more than 100,000. 

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The case for collective bargaining. The government’s new offensive against trade unions is against the tide internationally, where unions and collective bargaining are coming back into vogue among governments and policy-makers.The OECD has said that collective bargaining is the best way to deliver better work. Though it has previously promoted breaking up sectoral bargaining institutions, it now argues that collective bargaining can tackle inequality, boost productivity, manage industrial change, keeps people in jobs and is good for employment. The TUC’s Kate Bell outlines the OECD evidence that trade unions can benefit from. 

• Collective bargaining key to post-pandemic recovery. The International Labour Organisation (ILO) has said that collective bargaining is crucial to global recovery post-pandemic. ‘The higher the percentage of employees covered by collective agreements, the lower the wage inequality’, argued the ILO’s Director-General Guy Ryder. 
• Collective bargaining across the world. At the end of last year, Spain passed legislation restoring sectoral collective bargaining in law. Similarly, the New Zealand government has announced its intention to move forward with sectoral ‘Fair Play Agreements’. 
• Collective bargaining prevents inequality in Europe. In a comparative analysis of trade unionism in Europe, a study by UNI Europa finds that weakening collective bargaining is a "key driver behind increasing income inequality in Europe". Declining collective bargaining has been associated with a rise in income of the top 10% in both Germany and the UK while countries which maintained high levels of collective bargaining (such as Austria and Belgium) have ‘kept inequality at bay’. 
• Collective bargaining and industrial strategy. Unite the Union has proposed a "new industrial strategy for post-Brexit trade" based on collective bargaining. The union calls for a new approach to support coordination between reps across industries to take account of the fact that industries are now organised so that all workplaces exist within supply chains rather than in isolation.

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‍Labour’s position on collective bargaining. The Labour Party has been criticised by unions for not backing recent and proposed strike action. However, at its conference last year, the party launched its Green Paper on Employment Rights which included a commitment to Fair Pay Agreements. It said it would "empower workers to act collectively through Fair Pay Agreements’ which would be negotiated ‘through sectoral collective bargaining – starting in the adult social care sector". The agreements would see government bring together worker and employer representatives from sectors to negotiate pay and conditions.

Fanning the flames of inflation? As RMT members press ahead with strike action this week, Boris Johnson has warned of a ‘wage-price spiral’ should workers demand higher pay. In a speech delivered in Blackpool earlier this month, the Prime Minister said that wage increases could ‘fan the flames’ of inflation and argued that the ‘one cure’ to such a spiral would be ‘to slam the brakes on rising prices with higher interest rates’. The sentiment echoed Andrew Bailey’s instruction to workers not to ask for a pay rise and Treasury minister Simon Clarke’s warning that employers should be ‘very careful’ in setting pay rises. 

• Are wages rising? Warnings of a wage-price spiral come as real pay in the UK falls at the fastest rate in at least 20 years. Figures for April this year saw a drop in pay of 3.4%, the highest monthly fall in pay in two decades, according to ONS figures which date back to 2001. The Resolution Foundation’s Torsten Bell notes that average pay fell, in real terms, across the months of March and April and said that anyone seeing signs of a wage-price spiral must have had ‘something strong in their coffee’. 
• The response. Following the PM’s Blackpool speech, 67 leading economists and economic policy experts wrote to the Prime Minister saying that his warnings of a wage-price spiral were misplaced. The letter argued that inflation comes from ‘huge external factors’, and ‘is not a product of domestic wage demands’. Economists urged the government to take further action to combat the cost of living crisis with ‘substantial increases in the minimum wage, public sector pay, and social security payments.’ The TUC held a ‘Demand Better’ rally on Saturday 18th June (livestream recording here). 

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A myth? Grace Blakeley argues that the current ‘wage-price spiral’ debate is based on a myth and that any current union action is focused on demanding wage increases in line with inflation, not above it. With workers ‘simply not in a position to demand higher wages’, external factors such as the war in Ukraine and supply chain issues clearly have a much stronger impact on inflation than wage demands, she argues. 

• It’s not the 1970s. Meanwhile, a wage-price spiral is unlikely due to weak unions and a fragmented labour market, argues Sarah O’Connor. Comparing the current situation to the 1970s makes little sense when only 23 percent of workers are unionised compared to over half of employees during the peak of union membership, she explains. What’s more, only 13.7 percent of private sector workers now have their pay set by bargaining between unions and employers and much higher percentages of self employed workers mean that the relationship between wage setting and inflation looks very different in 2022. Likewise, Sam Ashworth-Hayes argues in the Spectator that wages will only rise due to a labour market running hot, not because of successful union bargaining. 
• Overshoot: Even the Bank of England have admitted that it is not wage claims that are driving this inflation crisis, arguing recently at a select committee that around 80% of the inflation overshoot was driven by external shocks with only 20% caused by the reaction of firms and wages.

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Public sector pay. There is little evidence of a wage-price spiral taking hold, argues Richard Partington. While headline pay has risen by 8% in the private sector, public sector workers are seeing pay growth of only 1.5%, making this ‘the worst decade for real-terms pay growth since the Napoleonic war’. In real terms, nurses and paramedics are £2,000 a year worse off, while pay growth in the education sector is at just 0.3%. On Monday, Simon Clarke, the Chief Secretary to the Treasury, confirmed that public sector workers should not expect a pay rise in line with inflation and therefore should expect a real terms cut. 

• Skewed by bonuses. Even relatively high wage inflation in the private sector may be skewed by bonuses for top earners, according to ONS data. While growth in average total pay including bonuses was 6.8% from February to April this year, the growth in regular pay excluding bonuses was only 4.2%. The TUC has found that bonuses for high-paid City workers in the finance and insurance sectors are rising six times faster than average wages.

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Profits-price spiral. Inflation is being driven by run-away profits, not wages, according to new research by the IPPR and Common Wealth. The analysis finds that the profits of the largest non-financial companies were up 34 percent at the end of 2021 compared to pre-pandemic levels. However, these profits are highly concentrated, with only 25 firms making up 90 percent of increases in profits. Furthermore, these companies are mainly located in a small number of industries - particularly in energy. With such considerable market power, these companies are able to drive up prices and have a disproportionate impact on the cost of living, the report argues. Common Wealth has summarised the key findings of the report in this thread and the IPPR’s Carsten Jung has more detail here. 

• ‘Using inflation as an excuse’. Servaas Storm argues that by using ‘algorithmic pricing and AI’, large corporations are using inflation as an ‘excuse’ to drive up prices and increase profit margins, which they are able to do thanks to their large market share. 
• Across the Atlantic. Hal Singer, managing director of Econ One, argues that the answer to the cost of living crisis in the US is not to curb wages or to raise interest rates but to tackle monopolies and to pursue ‘anticompetitive conduct’. ‘Biden needs to communicate to the public that he supports efforts to tamp down inflation outside of the traditional interest-rate-hike paradigm’, he argues. (For more on New competition policy emerging in the US, see our previous digest.)
• Competition policy in the UK. Andrea Coscelli, CEO of the UK’s Competition and Markets Authority warned that uncompetitive markets are driving up the cost of living in the UK: "The level to which markets are dominated by a limited number of companies is higher than before the 2008...If competition is weak, firms do not face the same pressures to keep prices down”. Michelle Meagher, John Christensen and Nicholas Shaxson have launched the Balanced Economy Project to tackle monopolies and excessive concentrations of market power around the world. 

Right to Buy extended. Last week the Prime Minister gave a speech announcing plans to help 1.5m housing association tenants buy their social housing through an extension of Right to Buy (RtB). Tenants will be given a 35%-70% discount on their mortgage deposits depending on how long they have lived in the property and the £6,000 savings limit (where Universal Credit payments begin to taper) altered to encourage claimants to save without it impacting their benefit entitlement. The PM also announced a mortgage review (due to report back in the Autumn) which could see the return of 100% or 98% mortgages, according to the Spectator.  

• History of Right to Buy. RtB was a pillar of Margaret Thatcher’s policy platform in the 1980s. It is estimated the sale of 2m social homes at discount rates through the Right to Buy scheme has led to the loss of £75 billion to the public finances since 1980. This has not been accompanied by sufficient investment to replace homes lost (Shelter calculates an average annual net loss of 29,000 social homes since 1991).
• Risks further reducing availability of housing. Consequently, Johnson’s proposal includes a 1 for 1 commitment to replace any social housing lost through the scheme. The Sunday Times’ Tim Shipman reported the policy caused division in the Cabinet between the PM and Michael Gove: “Officials had not even undertaken an impact assessment on how it will affect social housing stock, or how many new homes will be needed to replace those sold off…The Treasury is also refusing to provide extra funds, leaving Gove with a further headache about how to pay for it.” Gove explained the importance of building more social housing at the same time to prevent further loss of social homes and has previously been a critic of the RtB policy for this reason.

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Will it work? The success of the proposal relies on the ability of Universal Credit claimants to save enough to take up the mortgages, and on the ability of government to deliver increased supply of social housing. However, housing associations are not directly controlled by governments and demand-side stimulus alone will further fuel house price inflation, making home ownership even more unaffordable for those not yet on the housing ladder.

• Take-up. The proposal is based on a pilot from 2018 which showed that if it was rolled out nationally, only 17% of eligible tenants would be able to afford to participate. Lindsay Judge, the research director at the Resolution Foundation, said the changes to mortgages for those on benefits was likely to have limited impact. “More than four in five families on means-tested benefits have no savings at all and high cost of living pressures means a second change that allows benefit recipients to save into certain savings accounts without seeing their benefits cut is unlikely to lead to a surge in savings.”
• Building more social housing. There are over 1m households currently on waiting lists for social housing. Jonathan Rolande, from the National Association of Property Buyers, said: “Housing Associations are usually private entities who will need to be compensated for the enforced discount, so it appears that there will be a net loss for the taxpayer, rather than the ‘gain’ of the council house sales”. Kate Henderson, Chief Executive of the National Housing Federation, said: “Pilots have shown that there is not enough money from sales to build new social homes to replace those sold, meaning a net loss of social housing.” NEF’s Simon Hill argues that “Why would councils pay to build homes, only to sell them at a discount, lose income from future rental payments and not receive the full sale receipt?...Extending the policy to housing associations will only extend this disincentive to more providers of social housing, slowing social housebuilding when it needs to be sped up.” 

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Political maneuvering. The proposal has been widely interpreted as a piece of desperate political maneuvering from the Prime Minister after winning his vote of no confidence last week. The move to stimulate demand for home-ownership (and further increase house prices) could be seen as an emergent electoral strategy from the government; read Christine Berry and Laurie MacFarlane’s recent piece on the economic and electoral strategy of ‘Johnsonism’: ‘catering to their new voters in the so-called ‘Red Wall’ with promises of a more activist state, whilst also seeking to reassure and protect their core constituency – rentier capital.’ 

• Home-ownership and voting patterns. This chart from the House of Commons Library shows the electoral benefit the Conservatives receive from getting more people on the housing ladder. Author and academic Keir Milburn featured in a short video explaining how the political generation gap is rooted in the diverging material interests of the young and old, and mediated by property ownership: “The material interests of older cohorts might be leading some of them to look away from the pressing crises of the present.”
• Housing benefits and state-subsidy of landlords. The proposal aims to reduce the government’s housing benefits bill. £30bn of government investment goes to private landlords through housing benefits, referred to as the ‘state-subsidisation model’: “with the state paying landlords to house people, rather than building houses – and therefore owning assets – with which to house the population”. The OBR has warned that without action, the government could be paying £50bn per year in housing benefit to private landlords by 2050. Over 40% of council housing sold off through the original RtB scheme are now rented privately, known as ‘right-to-buy-to-let’. A new report from the CPS argued that the benefit system is fundamentally biased towards keeping people as tenants rather than owners, finding that just 2.3p is spent on incentivising ownership among low and middle earners for every pound that subsidises renting.
• Rentierism. The lack of housebuilding in recent years reflects the broader transformation of housing and the land it sits on into a financial asset and a public policy preference for private home ownership. 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. Joe Bilsborough explains how “For decades, Britain's governments have designed public policy to benefit property owners and landlords to the detriment of everyone else” as the UK’s political economy becomes increasingly defined by “rentierisation; and the successful creation of a class of asset-owners whose wealth appears inextricably linked with the maintenance of Conservative control at Westminster.” The FT’s Stephen Bush counted the proposal as the 7th demand-side measure the Conservatives have introduced since 2010, all of which have pushed up house prices: “there was the revitalisation of Right to Buy in 2011, the two incarnations of the ‘Help to Buy’ scheme, the Help to Buy ISA, various measures to encourage shared ownership, changes to required deposit ratios, and the stamp duty cut.” (NEF explored the historic 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.)

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Proposals for a better housing system. Housing charity Shelter proposes that 3.1 million homes should be built 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. 

• Stimulating housebuilding. 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. 
• New powers NEF are today launching Homes for Us, a new campaign which argues for a programme aiming to build 2 million affordable and desirable social homes by 2040 and proposes ending Right to Buy and granting new powers to councils to compulsory purchase poor quality rental homes. The Tony Blair Institute for Global Change calls for a Sovereign Property Fund – a national endowment to support local councils to build new housing. The Fund would centralise oversight of all the land in public ownership. ‍
• Community Land Trusts. In 'The Policies of Belonging', centre-right think tank Onward recommends giving communities the right to establish Community Land Trusts (CLTs) to develop community-led housing. 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.

World’s largest 4 day week trial begins in the UK. Over 3,300 workers from 70 UK companies from a wide range of sectors began participating in the world’s largest trial of working time reduction this week. 

• Context. The 4 Day Week Global is organising the pilot in partnership with Autonomy, the 4 Day Week UK Campaign and researcher Juliet Shor along with other academics from Cambridge, Oxford and Boston universities. Researchers will measure the trial’s impact on productivity of the business, wellbeing of workers and the impact upon the environment and gender equality for six months. (The 4 Day Week Campaign’s Joe Ryle summarised the trials on Good Morning Britain.) 
• No loss in pay. Participants will be working 80% of the time for 100% of their pay, in exchange for a commitment to maintain at least 100% productivity. 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. 
• Public support. A poll by Survation showed that two thirds of the British public would support the government piloting a four day week with no reduced pay, with only 13% opposing. Surveys have shown “consistently” growing support for a four-day week since the beginning of the pandemic.  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 survey by productivity charity Be the Business found one in five small British firms are at least actively considering a four day week.

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Background. 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. 

• Future of work and automation. A previous report from Autonomy and the 4 Day Week campaign situated 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. The UK Labour Party’s Alternative Models of Ownership policy paper proposed a gradual implementation of a shorter working week to fairly share the productivity gains from increased automation with workers.
• Improving working conditions. More recently, firms have been increasingly using the four day week to attract and retain more staff whilst the labour market remains tight. This poses an alternative to competing on pay during an inflationary period.
• The relevance of shorter working time schemes after the pandemic. A widely cited template for a shorter working week is the German Kurzarbeit (short-work) scheme (summarised here by the New Economics Foundation), which was resurrected in the light of Covid to help support workers through its employment impacts. The TUC called for a permanent short-time working scheme to continue to support incomes and limit job losses in times of economic crisis as a replacement to the Coronavirus Job Retention Scheme and Self Employed Income Support Scheme. The TUC’s Kate Bell collated evidence showing the “undoubted success” of the schemes in protecting jobs and incomes over the course of the pandemic, but called for them to be built upon to protect workers from future economic change (such as the green transition), with an emphasis on training furloughed workers.

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Criticism. Critics of working time reductions argue that they would be expensive - even when productivity is rising in some sectors, it is not in all. Frederick Harry Pitts published a critical take on the issues that may arise in trying to implement a four-day working week, concluding that “the four-day week may seem impractical in the short term. But with talk of ‘building back better’ and ‘levelling up’ backed up by a more interventionist industrial policy across the political spectrum, the medium-to-long term picture offers proponents some measure of hope”. 

• Various methods of implementation. However, the four day week doesn’t have to be implemented through legislation. A poll of 500 C-suite business leaders found that 65 per cent of UK businesses were already implementing a four-day week for some or all of their employees. The TUC’s annual Congress last year passed a virtual motion calling for a three-day weekend with no reductions in wages, with a working group of trade union representatives discussing how to implement the policy in each sector. 

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Evidence so far. This trial follows many previous experiments with shortening the length of the working week. (Follow the European Network for the Fair Sharing of Working Time’s newsletter for developments in working time reduction across Europe.)

• Productivity. 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. 4 Day Week Global has produced a White Paper which outlines guidelines for organisations to implement an outcome-based trial of a four day week and how to measure productivity changes.  
• Wellbeing. Autonomy has sought to estimate the net cost of the UK public sector moving to a four day week. The think tank's report on Iceland’s trials to shorten the working week for public sector workers with no reduction in pay concluded that productivity and service provision remained the same or improved across a majority of trial workplaces, worker wellbeing improved dramatically and the trials remained revenue neutral for the government and city council. 
• Environment. A study from the Four Day Week campaign found that a four day week with no loss in pay could cut UK emissions by 21%.‍
• Gender equality. Women’s Budget Group released a policy paper from the Feminist Green New Deal project which found that “a shorter working week, as part of a wider set of policy changes, can promote gender-equal distributions in paid work, unpaid work, and income, while facilitating a green transition. Paper authors Özlem Onaran and Robert Calvert Jump used time-use data from the pandemic and international case studies in order to understand the benefits of a shorter working week. The Japanese government’s annual economic policy guidelines include a recommendation that companies permit their staff to opt for a four day week to improve work-life balance, increase staff retention for those with caring commitments and encourage adult education.

The ‘Energy Profits Levy’. The government acquiesced to cross-party calls for a windfall tax last week, announcing a 25% “Energy Profits Levy” to partly fund a £15bn package of support for households struggling with rising energy bills. Paired with the Energy Bill Rebate, all households will now receive financial support ranging from £550 to £1200 depending on means-testing. (Read Carbon Brief’s summary of the package and surrounding media coverage, and read the Resolution Foundation’s analysis of the ‘broadly progressive’ distributional impacts.)

• Not a one-off, but time-limited, windfall tax. The levy takes the combined rate of tax on profits on oil and gas firms from 40% to 65%, raising ~£5bn. The government plans to use legislation to phase out the 25% tax rise “if oil and gas prices return to historically more normal levels” or by 2025 at the latest. 
• ‘Investment allowance’ for oil and gas extraction. The levy includes ‘a ‘super-deduction’ style Investment Allowance’. This gives fossil fuel firms a tax break (up to 91%) for immediate investments in fossil fuel extraction. There is no similar tax break for investing in renewables. E3G argues that this tax break of up to £5.7bn in “lost revenue could have instead supercharged an energy efficiency drive, insulating two million British homes over the same period, with an average bill saving of £342 per household every year.”‍
• Support for fossil fuels in the UK tax system. A previous report by NEF outlines how the UK government continues to subsidise fossil fuels by ~£12bn on average per year, despite pledging to phase out “inefficient fossil fuel subsidies” at COP26. The Treasury is arguing that tax breaks are not fossil fuel subsidies. Uplift’s response argues that UK taxpayers will be footing the bill with no obvious public benefit (as most new fields are oil, likely to be exported): “Every new field means money that should be going to households to keep warm this winter, is going to oil and gas companies.”

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Is the stimulus enough to prevent recession? Media coverage highlighted the generous size of the package, but the stimulus will not fully offset the effects of the Energy Price Cap’s rise in the Autumn on household incomes - described as ‘catastrophic’ by National Energy Action’s Adam Scorer. (NEF’s Chaitanya Kumar explains that the poorest households are still ~£700 poorer on average, despite two packages of support so far this year.)

• Will it be inflationary? Many economists are debating whether the Bank of England may respond to the ~£10bn fiscal expansion with more monetary tightening to attempt to bring inflation back under control. Economist Richard Murphy argues that the package is not inherently inflationary as it only reduces household debt and is primarily recaptured by energy firms as more households will be able to pay higher energy bills (not ‘an excess of funds to then be spent on other goods’), but the IFS’s Paul Johnson argued the package could herald higher inflation if it signals that government  are likely to spend more, including bowing to demands for higher public sector pay. (The Guardian’s Phillip Inman explains why the Bank of England is ‘duty bound’ to raise interest rates and trigger recessions.) 
• The need for better macroeconomic coordination. In February, the International Monetary Fund recommended the UK government raise ‘windfall or wealth taxes’ to reduce inflationary pressure, and suggested this would be preferable to the sole use of higher interest rates to tackle inflation. Read a previous paper from NEF’s Frank van Lerven and IIPP’s Josh Ryan-Collins illustrating examples of fiscal-monetary coordination that “proved useful in stimulating economic growth, supporting industrial policy objectives and managing public debt without excessive inflation.”

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Political fallout: free marketers vs pragmatists? Politico detailed the ideologies at play in the various responses given by different Conservative figures. Richard Drax accused the Chancellor of throwing ‘red meat to socialists’ in the Commons, but the package largely went down well with ‘Conservative MPs who are most worried about the cost of living crisis’, such as ‘Compassionate Conservatism’ advocate Robert Halfon who told Playbook: ‘I’m not interested in ideology. I’m interested in doing the right thing for millions of people in our country who are struggling.’ One unnamed Conservative MP told the Sun’s Kate Ferguson that colleagues criticising the package are “ideological nut jobs living in a fantasy world. They should spend less time at the Adam Smith Institute and more time down at Lidl.’ 

• Embedding the paradigm shift. The New Statesman’s Freddie Hayward argues that Labour has ‘set the economic agenda and further entrenched a paradigm shift towards a larger, more interventionist state’. The Times’ James Forsyth explains that Conservatives feared the windfall tax proposal as it ‘risks suggesting a sea-change in favour of Labour and left-wing ideas’. The Institute for Economic Affairs’ Kate Andrews warned that the windfall tax makes it easier for the government (or a future Labour government) to levy excess profit taxes on other sectors.

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Beyond the windfall tax? The cost of living crisis is far from over and political pressure for the government to provide future packages of support will remain high. The IFS has warned that “if oil and gas prices remain high” - and analysts say they will -  “then the government will doubtless come under pressure to continue the additional household support for at least a further year”. Similarly, the Times’ James Forsyth warns that ‘these sums will really only keep the wolf from the door. This living-standards crisis will go on long enough that it won’t be the final intervention that ministers will have to make.” So what form could future interventions take?

• A higher windfall tax. Tax Justice UK modelled how a 95% tax on excess profits could raise £12.9bn instead of the £5bn in the government's package. (NB The tax rate on oil and gas was 75% in 2015 and 80% in 2014, and the global average is 70%.) Tax Justice UK suggests that there will be “plenty of opportunities to push for a higher rate on energy giants as the windfall tax is debated in Westminster” as it “has to be voted through Parliament, probably in the Autumn.”
• Struggling businesses remain unsupported. Economist Duncan Weldon highlighted that the package ignored any financial assistance for smaller firms also struggling from higher energy prices. The FSB’s Craig Beaumont also noted in Politico’s London Playbook that the energy price cap doesn’t protect businesses from rising costs and the FSB has since called for more support as 500,000 small businesses are ‘at risk of going bust within weeks’.
• Energy efficiency. Reducing businesses’ and households’ exposure to volatile energy prices throughout the green transition will be key. The International Energy Agency’s Fatih Birol has explained the importance of government investment in energy efficiency to help economies weather the turbulence in energy prices. The Tony Blair Institute for Global Change has released a report calling for ‘Home Energy Plans’ to provide households with advice, blended loans and grants coupled with supply side drivers to reduce bills and decarbonize over time. NEF’s Great Homes Upgrade is campaigning for a £11.7bn investment to fund a 'national retrofit taskforce' to upgrade all homes to EPC rating of C by 2030. 
• Fixing the energy market. Global Action Plan’s Andrew Pendleton explains why the package locks consumers into high energy bills and doesn’t solve underling problems in the energy market, as the government is taxing energy producers to fund households to be able to repay the high prices set by energy suppliers. The Tony Blair Institute for Global Change’s Tim Lord outlines the problems with the energy retail market that enables Ofgem to protect suppliers interests at the expense of consumers. (Twitter thread summary here). 
• Contesting the price cap and the role of public ownership. Economist James Meadway argues for keeping Energy Price Cap at its current level and nationalising any energy suppliers that fail as a result, following the experience of Bulb in 2021. Common Wealth makes the case for taking the energy sector back into public ownership and We Own It calculated that bringing ‘the privatised monopolies of energy transmission and distribution’ into public ownership could save £3.7bn a year and other research has shown that energy prices are 20-30% lower in systems that have publicly owned energy suppliers. 

Easing the cost of living crisis through business tax cuts? Chancellor Rishi Sunak addressed business leaders at the CBI’s annual dinner last week, giving a speech that affirmed the role of businesses in the government's plan to ease the cost of living crisis. (Transcript here and video here.) A central part of the governments’ strategy is to use tax cuts to stimulate business investment: “higher productivity is the only way to raise living standards”, the Chancellor proclaimed.

• Philosophy: ‘New culture of enterprise’. The Chancellor outlined his vision to stimulate a ‘new culture of enterprise’ in his Mais lecture, which rejected a role for the state in boosting or guiding investment. Instead tax cuts hope to stimulate business investment, innovation and productivity, eventually feeding through into higher living standards through wage growth. (The PM also stressed ‘work’ as the fix for the cost of living crisis on Monday, despite the TUC’s latest forecasts predicting a 17 year pay squeeze with wages remaining lower than their 2008 levels until 2026.) 
• Conservative support for tax cuts. Tax cuts are supported by large swathes of the Conservative party and have growing support in the Cabinet. Conservative grandee David Davis called them a ‘fundamental tenet of Conservativism’ in his piece expressing opposition to the windfall tax proposal. Similarly, No.10 advisors David Canzini, Guto Harri, Steve Barclay and Andrew Griffith have resisted calls for a windfall tax on grounds of it being ‘unconservative’. Backbench MPs such as the Chair of the Northern Research Group Jake Berry, have been lobbying for tax cuts on business to ease cost pressures in Red Wall constituencies.
• How did business respond? Politico’s analysis details the “muted reception” from business leaders, with some calling the address “very bland and uninspiring” and “lacking anything new” despite growing pressure on the Chancellor to introduce an immediate package of support. 

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The 'Super-Deduction' tax break. The Sun’s Harry Cole reports that the Chancellor may increase R&D tax allowances and extend tax breaks for investments in the Autumn Budget. The 130% ‘Super-Deduction’ on corporation tax, introduced in the 2021 Spring Budget, was pitched as a way of incentivising businesses to invest in more capital machinery, boosting innovation and productivity - branded “the biggest business tax cut in British history” by its supporters and the ‘Amazon tax cut’ by its critics.

• What does the evidence say? The Treasury’s own analysis found that the government pays far more in R&D tax reliefs than businesses spend on investment, and that the UK continues to have one of the lowest investment levels in the OECD, despite the generous relief structure. A survey by Deloitte found that only 26% of CFOs expected the super-deduction to have a positive effect on their investment plans over the next year. The CBI’s survey found that, of the 56% of businesses planning to claim for the tax cut, only 19% said this brought forward existing investment plans. Tax Watch’s George Turner explains how the super-deduction benefits companies who have already made large windfalls during the pandemic and “who were planning to make capital expenditure regardless of the incentives available” anyway, such as Amazon and energy firms.
• Broad spectrum of criticism. Ex-PM Theresa May called increasing capital allowances “Treasury orthodoxy” in her critique of the super-deduction and instead called for “increasing investment and support investment in areas which encourage growth and innovation, and that means R&D”. IPPR’s George Dibb noted that the eligibility for the super-deduction was expanded to include landlords “to prop up the UK’s rentier economy”, despite being framed as a policy to increase investment and create a high-wage, high innovation economy. Industrialist Juergen Maier notes that business investment is 35% below pre-Brexit trend and called for businesses to “speak up” and call for “a more pragmatic version of Brexit”.

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Alternative industrial strategies to ease the cost of living crisis. Given that business investment actually fell by 0.5% in the first quarter of this year, there are growing calls from both Left and Right for alternative economic strategies to be considered both to address the immediate crisis and to put the economy on a path to higher wages and productivity.

• Short term packages of support. Martin McTague, the new national chairman of the Federation of Small Businesses, says the Chancellor should ignore calls to extend the super-deduction and provide more help for small firms with rising energy costs. The British Chambers of Commerce have called for a variety of measures to ease the costs of doing business and prevent firms passing on further price rises, including a temporary energy price cap for small businesses and widening eligibility for the Energy Bill Rebate to include small firms. NEF’s Alfie Stirling noted that the ~£13bn forecast to be spent on the super deduction this year is only ~£2bn shy of the cost of protecting Universal Credit claimants from their benefits being eroded by inflation. ‍
• Longer term industrial strategy. Theresa May’s former adviser Nick Timothy recently called for a “radical change to this economic model” which is overly dependent on consumption despite too many low-income people being trapped in “low-productivity, low-skill, low-paid jobs”. Sunak’s speech differs starkly from the one CBI Director-General Tony Danker gave last year, dubbed as a “damning critique of free-market capitalism”. This exemplified the new consensus (though not in the Government) around the importance of state intervention and industrial strategy to boost investment, productivity and pay. Danker noted that “we’ve had five decades where the free market has palpably failed” and called for a “partnership with government.” For a wealth of resources on industrial strategy, visit our resource bank page, Reshaping the Economy, and read chapters from The Political Economy of Industrial Strategy in the UK, edited by academics Craig Berry, Julie Froud and Tom Barker.

GMB and Deliveroo deal. The GMB union and Deliveroo have signed an ‘historic’ Voluntary Partnership Agreement. The GMB says that the deal will give the union ‘rights to collective bargaining on pay and consultation rights on benefits and other issues, including riders’ health, safety and wellbeing’. The deal does not change Deliveroo riders’ status as self-employed, a status which has been reaffirmed by a series of court judgements. According to GMB this represents an ‘innovative’ solution to organising gig economy workers. 

• PR stunt? The Guardian reports that the deal does not secure the minimum wage for Deliveroo couriers because they are not paid while they are checked into the app and waiting for an order. The Independent Workers’ union of Great Britain (IWGB) has dubbed the deal a ‘cynical PR move’ and says that it presents ‘no threat to [Deliveroo’s] exploitative business practices’. The IWGB has been organising Deliveroo riders since 2016 was due to bring an appeal to the Supreme Court over their collective bargaining case. Professor of Labour Law, Alan Bogg, explains the deal’s implications for IWGB’s legal case. 
• The gig is up. The Deliveroo case follows a judgement last year that was set to ‘reshape the gig economy’ which defined Uber drivers as workers rather than self-employed. The Institute for Employment Rights (IER) has more detail here. Similarly, Just Eat announced last year that it would move towards employing its riders as workers with hourly wages, sick pay and pension contributions.
• Barriers to collective bargaining. The International Labour Organisation (ILO) has analysed common barriers facing gig economy workers in their attempts to achieve collective bargaining. These include ‘1) promoting common interests – and overcoming competition – among workers; 2) determining a site (or multiple sites) of agglomeration – virtual, or preferably real – so as to overcome isolation; 3) identifying the bargaining counterpart, and 4) targeting a source of power to make a collective claim’.‍
• Not just food. Over recent years, there has been a rapid increase in the use of platforms to advertise care work. Helen Hester explores the ‘platform care economy’ and argues that ‘purely technical solutions’ are not enough to reckon with the conditions of care work itself. 

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Platform cooperatives. The same ILO study explores the rise of gig economy worker cooperatives and how they have generally taken on two different forms: platform cooperatives which operate in competition with standard gig platforms and cooperatives where workers can pool resources for improved services. Examples of the former camp include Wings, who pay workers the London Living Wage and various cooperatives across Europe. Kristin Toussaint explores how gig economy cooperatives flourished during the pandemic. Autonomy presents food delivery cooperatives as an alternative to the current system, and has produced a ‘how to’ guide for setting up a food delivery cooperative. Autonomy's James Muldoon argues that developing ‘digital economy’ cooperatives should be seen as just one aspect ‘of a broader shift of wealth and power towards workers’.

• Barriers to platform cooperatives. Edward Qualtrough explores why platform cooperatives have ‘yet to challenge Big Tech’, suggesting that cooperatives would be more successful with more government support. 
• ‘Disruption’ by workers? Rida Qadri argues that ‘disruption’ is a two-way street and that it is not just tech companies that can benefit from innovation. Examples include ‘drivers who reverse-engineer a popular mobility platform’s matching algorithm to make their work life better’ (more coverage in Vice). 

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Employment Bill. Conservative MP Damian Collins argued earlier this year that an employment bill would be a chance for the government to protect gig economy workers. However, the government has yet again shelved the bill despite promising to introduce it 20 times, with TUC accusing the government of “turning its back” on working people. The Employment Bill was expected to ensure that tips go to workers in full and also create a new single enforcement body offering greater protections for workers. The TUC says that such a bill is urgently needed to stop another P&O-type scandal from happening. (See our previous Digest for more on the P&O scandal and ‘fire and rehire’ policies.)

• The cost of insecure work. The TUC has said that insecure work costs the Treasury £10 billion per year in lost revenue due to chronic low pay in the gig economy and self-employed sectors. 

Deregulating childcare to ease family budgets. The government has hinted at plans to deregulate the childcare sector by raising the cap on the maximum number of children a childminder can look after, in an attempt to lower the cost of childcare and ease the cost of living for working families. 

• Fiscal rules continue to narrow the government’s policy options. The move comes after Cabinet ministers were tasked with coming up with ‘non-fiscal’ solutions as the Chancellor continues to limit departmental spending budgets outlined in the Autumn Spending Review.

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It’s important to address the high costs of childcare… Childcare is an under analysed driver of the cost of living crisis. A couple with median incomes and two young children pay more than 50% of the mother’s net income in childcare costs, more than double OECD average and worse than any other OECD country. In a survey of mothers by the campaign group Pregnant then Screwed, almost half of respondents had considered quitting their jobs because of childcare issues and a quarter of respondents skip meals or heating to pay for it. (Read the Women’s Budget Group’s recent briefing on the costs of childcare and the impact of the pandemic.)

• …but this proposal will reduce care quality and working conditions. Regulatory limits on ratios between childminders and children exist to preserve the quality of provision and working standards of carers. Pregnant then Screwed polled the government’s proposal and showed that only 15% of parents would be in favour of increasing ratios in childcare settings even if it would lower prices. June O’Sullivan MBE, CEO of London Early Years Foundation, wrote an open letter to the Prime Minister (with over 1000 signatures) explaining why relaxing staff:children ratios would be “catastrophic for children, parents and the sector” as it would reduce the quality of provision and reduce working conditions for staff. The sector is already facing an ‘exodus of low-paid staff’ due to poor working conditions. (Listen to writer Christine Berry, Associate Professor Kate Hardy and Pregnant then Screwed Founder Joeli Brearly discuss the ‘perfect storm’ hitting working conditions in the childcare sector on Ed Miliband’s Reasons to be Cheerful podcast.)

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Why does childcare cost so much in the UK? Despite government subsidy worth billions of pounds to provide a certain amount of ‘free’ care, the cost of childcare in the UK still remains among the least affordable in the world. Government-subsidised ‘free’ childcare only applies to children of certain ages, and does not cover the full amount of time necessary, leading to costly gaps to be filled by parents. The cost of plugging these gaps is then exacerbated due to the inadequate funding from the government for the 30 ‘free’ hours which drives up prices elsewhere in the system. In fact, leaked documents show that government ministers knew that this scheme would result in higher prices for parents. Underlying these issues, private sector childcare providers often extract large sums for debt repayment and paying shareholders, rather than being invested back into the frontline service. 

• Extractive ownership models. Commenting on the government’s proposals in the Guardian, writer Christine Berry explains how the private-sector model underpinning much of the childcare sector (“often backed by private equity investors and laden with debt”) is the source of high prices, low pay and working standards for childminders and poor quality provision. A UCL Social Research Institute paper explores how private-for-profit and charity (not-for-profit) sectors differed in their use of public money to subsidise childcare provision. (Check out parent-led cooperative childcare company Friendly Families for an example of best practice).

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Free, publicly-provided universal childcare provision.  The Women’s Budget Group is calling for the government to invest in a universal and free system, delivered as a public infrastructure service on an equal footing with school education. (Watch The Social Guarantee’s Maeve Cohen explain “why the decade long attack on public services is driving the cost of living crisis” and that it can only be addressed by properly funding public services, such as free childcare.)

• The case for public investment. Advocates argue that investment in such a system will largely pay for itself due to the big returns on maternal employment. The Women’s Budget Group estimates that 1.7 million women are prevented from taking on more hours of paid work due to childcare issues. Economists Jerome De-Henau and Susan Himmelweit calculated that 30 hours of free childcare for all children aged between 6 months and 4.5 years, with a pay rise for carers, would cost £10.4bn. This investment would create 310,000 new full time jobs and 70% of the spending could be recouped from increased tax receipts as more people are enabled to take on more work. (Jerome has costed various options for investing in a universal system of high-quality childcare, explained the employment multiplier effects, and outlined how to fund the system over time in this peer reviewed paper.)

Better Business Act. Last week a coalition of businesses and campaigners organised a lobby of Parliament for a Better Business Act. The corporate governance reform campaign is calling for an amendment to Section 172 of the 2006 Companies Act, which enshrines the principle that companies must be run in the interests of their shareholders. 

• The proposed reform. The proposed Better Business Act (full text here) would reform the ‘fiduciary duty’ of company directors so that they were obliged to ‘promote the purpose of the company’, and to ‘operate the company in a manner that benefits the members, wider society, and the environment.’ Shareholders would become one among several beneficiaries of the company, alongside employees, suppliers and customers, and directors would have to consider ‘the likely consequences of any decision in the long term’.
• Widespread backing. The Better Business Act campaign was set up by B Lab UK, which coordinates ‘B Corps’ businesses (see below). It is now backed by over 1000 companies, including well-known names such as Iceland, Anglian Water and Innocent, and its spokespeople include government retail adviser Mary Portas. It has the support of the Institute of Directors, which argues that the ‘change in law will not materially affect [directors’] behaviours or the actions of their companies’, but that it will ‘ensure that no business can use short-term profit maximising to justify behaviour that’s harmful to society or the environment.’ Labour MP Margaret Hodge and Conservative MP Jonathan Djanogly have jointly written in The Times in support of the proposal, arguing that the position of ‘shareholder primacy’ in the 2006 Companies Act ‘was a fudge that needs urgent re-examination’. 

Models of corporate governance. In UK law (unlike other European countries), shareholders are given primacy in the legal duty of company directors. The 2006 Companies Act obliges directors to ‘act in the way he [sic] considers, in good faith, would be most likely to promote the success of the company for the benefit of its members [the shareholders] as a whole’. In a report for the IPPR Commission on Economic Justice, Mat Lawrence explains that shareholders are not the legal owners of firms, and that the shareholder primacy model of corporate governance contributes to the UK’s economic problems, including low and excessively short-termist investment, and inequality. 

• Stakeholder capitalism. The Better Business Act proposal emerges out of the wider movement for ‘stakeholder capitalism’. This argues that companies should serve all their ‘stakeholders’, including employees, customers, the environment and the communities in which they are based. Most European corporate governance systems embody some version of this principle, in which shareholders are regarded as just one of the beneficiaries of the firm. The World Economic Forum has developed many of the ideas around stakeholder capitalism. 
• Democratising the firm. Common Wealth has proposed an agenda for reforming corporate governance which goes beyond the Better Business Act and the stakeholder model. Its Commoning the Company report proposes that 45% of company boards should be elected by the workforce, 45% by the shareholder body, and 10% representing social and environmental interests. There should be mandatory profit-sharing for workers and a new duty to require company directors to align business activity with a ‘1.5 degree pathway’. 

Purposeful companies. The emphasis in the Better Business Act proposal on the ‘purpose’ of the company emerges from the idea that companies should focus on their core purpose rather than simply on (often short-term) profit making. The British Academy’s Principles for Purposeful Business argues that a stated purpose should be the primary ‘reason for a corporation’s existence and its starting point’, with profit coming second as a ‘product of a corporation’s purpose.’ It 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’. The Purposeful Company is a not-for-profit organisation dedicated to promoting business purpose, set up follow a 2017 report on the value of emphasising business purpose by the Big Innovation Centre’s Purposeful Company Task Force.

• B Corporations. ‘B Corporations’ (or B Corps) are businesses that meet certified standards of social and environmental performance, public transparency, and legal accountability to balance profit and purpose. Companies awarded the B Corp standard seek to use profits and growth as a means to achieve positive impact for their employees, communities, and the environment. Since launching in 2006, only 4,500 businesses have been awarded B Corp status out of over 150,000 who have applied, due to the scheme’s strict requirements. B Corps are certified and promoted by the B Lab, based in the US. UB Lab UK is the UK offshoot, committed to ‘lead[ing] economic systems change to support our collective vision of an inclusive, equitable and regenerative economy.’ To mark last week’s Earth Day, the Independent provided an A-Z guide of B Corps in a range of sectors. 
• Measuring better business. 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. 
• Profits vs. purpose. The Financial Times’s ‘Profit and Purpose’ series examines the ‘difficult trade offs; businesses must make to balance shareholder interests with social responsibility. The series includes business case studies from Levi Strauss to Hitachi, and even a trade-off game where players have to choose between profit and purpose. 
• Is purpose enough? Anna Fielding of Cohere Partners argues that making ‘purpose’ explicit is not enough to make businesses sustainable; firms need to adopt an ‘impact strategy’ to define how they can contribute to positive change in the world.

Worker representation in corporate governance. The TUC has consistently called for workers to be elected to company boards. Its 2016 report All Aboard set out the case, showing that worker representation on boards is common in many European countries (including Germany). It argued that workers generally have a stronger commitment to a business’s success than its shareholders, who may only hold shares for a short period and can always sell. The House of Commons BEIS Select Committee concluded its investigation in 2017 by saying that worker directors should ‘become the norm’ among larger companies The TUC’s Frances O’Grady went head to head on the issue with the Adam Smith Institute’s Sam Bowman in the Guardian. 

• Participation and productivity. Mat Lawrence’s IPPR report on corporate governance looked at the relationship between worker participation on company boards and productivity, R&D investment and inequality. It used the European Participation Index (EPI) which measures the extent of workers’ rights and participation across EU countries, using four indicators: board and workplace representation, collective bargaining and trade union membership (the UK was ranked sixth from the bottom out of the EU28). It finds that high worker participation rates are positively correlated with R&D expenditure and productivity and negatively correlated with the Gini coefficient measure of income inequality.

Energy policy after the Ukraine war. Last week the Government released its plan to generate ‘secure, clean and affordable British energy for the long term’ following the rise in oil and gas prices and Russia’s invasion of Ukraine. The strategy included ambitious targets for offshore wind, the expansion of nuclear power and new North Sea oil and gas projects, but was widely criticised for doing too little to bring down energy bills or rapidly reduce reliance on Russian fossil fuels. Carbon Brief analysed the implications for climate change, while EDIE rounded up the reactions. BusinessGreen’s James Murray argued that ‘it is hard to discern anything here that moves beyond filling in some of the policy gaps that should really have been plugged in the Net Zero Strategy last year.’

• Wrong priorities. University of Sheffield economist (and NEB Managing Editor) Michael Jacobs argued that the energy strategy’s priorities are the opposite of the rational policy mix which would fulfil the government's objectives. To reduce fossil fuel dependence, cut emissions, save money and ‘level up’, it would have been best to prioritise energy saving measures in homes and buildings and more onshore wind and solar, followed by offshore wind, energy storage, R&D investment in tidal and wave power and green hydrogen, with nuclear power and new North Sea oil and gas exploration last. The strategy almost literally reverses this order. It is ‘a textbook case of short-term intra-party political interests, lobbying and ideology outweighing the state policy objectives of the government.’
• No plan for implementation. IPPR’s George Dibb pointed out that the strategy included little on how it could be rapidly implemented. Drawing on the lessons of the Covid-19 vaccine (from a paper written by the government’s now axed Industrial Strategy Council), he set out how an industrial policy approach based on ‘missions’ would enable converted delivery. 
• Inquiry. The Environmental Audit Committee is inviting written submissions to address issues with the energy security strategy, deadline 6th May.

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Nuclear ambitions. The energy security strategy aims for nuclear power to generate 25% of the UK’s projected electricity demand by 2050 (up from around 16% now), proposing that up to eight new nuclear reactors should be built by 2030. 

• Nuclear history. Since the Labour Government committed in 2007 to a new generation of nuclear power plants to replace those coming to the ends of their lives, only one, Hinckley Point C in Somerset, has started construction. Originally scheduled to come onstream in 2017, it now looks likely to be completed in 2026. It will receive a guaranteed price for its power of £92 / Mwh, subsidised by consumers, significantly higher than that received by offshore wind (now typically under £40/Mwh). Holly Watt tells the story. 
• Nationalised company to accelerate deployment. The government is setting up a new publicly-owned company, Great British Nuclear, to bring forward new projects, alongside a £120m Future Nuclear Enabling Fund. But it will require the private sector to finance and build them. Citizens Advice’s Richard Hall warned that the ‘regulated asset base’ model the government wishes to use to de-risk new nuclear developments for the private sector will increase energy bills during the long construction phase.
• Cost reductions? The public sector innovation body the Energy Systems Catapult published a report in 2020 on how the costs of nuclear power could be brought down in future, demonstrating ‘a credible path for nuclear energy to become a competitive net zero solution alongside renewables.’ 
• Small modular reactors. The Government hopes that the new nuclear technologies of small and advanced modular reactors will be quicker and cheaper to build than traditional large-scale power plants. Energy group Terra Praxis argues that, around the world, such reactors offer the potential to replace hundreds of existing coal plants, becoming a crucial resource for decarbonising the world’s power supply.
• Nuclear waste. The energy strategy seeks to accelerate the process of finding long-term underground solutions for the storage of highly radioactive nuclear waste, which is currently stored at surface level near the Sellafield nuclear plant in Cumbria. Greenpeace’s 2019 report on the global problem of nuclear waste found that no government has yet resolved how to safely manage it. 
• Uranium mining. Uranium mining to supply nuclear fuel is carried out in a number of countries in Africa where human rights, labour and environmental conditions can be poor. Campaign group WISE has collated information on current projects. The French Institute for International Relations recently reported on conditions in uranium mines in Namibia. See Greenpeace’s video on the health and environmental impact of uranium mining in Niger. 

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North Sea oil and gas and fracking. The energy security strategy seeks to expand production of oil and gas in the North Sea, with the newly-renamed ‘North Sea Transition Authority’ launching another licensing round in the autumn and new ‘Gas and Oil New Project Regulatory Accelerators’ being set up to facilitate the rapid development of projects. An ‘impartial technical review’ on fracking for shale gas will be conducted by the British Geological Society.

• Misguided choices. Uplift’s Tessa Khan explains why new North Sea oil and gas production won’t help UK energy security, while a UCL paper concludes that the development of new oil and gas fields and licences in the UK is incompatible with the Paris Agreement. 
• Fracking. In its 2019 report on the prospects for fracking, the National Audit Office concluded that shale gas production would not be expected to lead to lower energy prices. Desmog’s Adam Barnett pointed out that recent polling showing alleged public support for fracking was paid for by climate sceptics. Government public opinion research shows that support for fracking is at around 17%, with 45% opposed.
• Energy security without fossil fuels. Energy think tank Ember has published a UK Clean Power Plan mapping three possible scenarios for phasing out unabated gas in the power sector by 2035. Green Alliance’s policy briefing explains why a decarbonised power system by 2035 is affordable and feasible. A study by Imperial College London shows that a predominantly renewables powered system could be 19% cheaper than today's system and the Climate Change Committee concurs that a low carbon power system could deliver system savings of £10bn by 2050 compared to a high carbon system. 

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Wind power. The energy security strategy announced a target of 50 gigawatts of offshore wind power generation by 2030, up from a previous goal of 40GW, and about 14 GW at present. The government aims to cut the consent approval process from four years to one. This was widely welcomed. But on onshore wind, the cheapest form of power and the fastest to deploy, it left in place the restrictive rules introduced in 2015 which make it extremely hard to obtain planning permission for onshore wind turbines.  The strategy only promises to ‘consult on developing local partnerships for a limited number of supportive communities in England who wish to host new onshore wind infrastructure in return for guaranteed lower energy bills.’ 

• Public support. Greenpeace’s Mal Chadwick rounds up the evidence showing 80% of people in the UK support onshore wind, and only 4% oppose. 

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Energy efficiency: the missing piece. The absence of significant new measures to support home insulation and other energy efficiency and demand reduction measures - the cheapest method of reducing energy bills and emissions - drew the strongest criticism of the strategy. UCL energy economist Michael Grubb argued that the government has ‘kicked the only possible short-term supply option into the long grass’. 

• The Government’s Heat and Buildings Strategy. The Government defended the lack of new measures by pointing to its previously published (2021) strategy. The Climate Change Committee offered its assessment last month: more money would be needed, especially as fuel poverty rises, and many policy questions have been left unanswered. 
• A national retrofitting programme. The New Economics Foundation reiterated its call for a ‘Great Homes Upgrade’ to insulate 19 million badly insulated homes by 2030. The Dutch Insulation programme announced earlier this month aims to insulate 2.5m (~30% of all) homes by 2030 through a £4bn funding programme, with additional funds to support take-up for those who can’t self-finance.
• Jobs. A study by the UK Energy Research Centre has shown that five times more jobs are created per pound spent on energy efficiency than on fossil fuels. (Twitter summary here.) 

Public opinion. ECIU polling shows that the public backs energy efficiency measures as the most important method of reducing reliance on Russian Gas (84%), higher than more renewable energy (69%) and far higher than increasing domestic gas production (41%).

The IPCC Working Group III report. The latest instalment of the Sixth Assessment Report (AR6) of the Intergovernmental Panel on Climate Change (IPCC) was released on 4th April, focused on climate mitigation. A Summary for Policymakers was also published, as well as a Technical Summary. The report concludes with a “now or never” call to action: that greenhouse gas (GHG) emissions must peak by 2025 if there is to be any hope of capping warming at 1.5 degrees above pre-industrial levels. UN Secretary-General António Guterres said: “It is time to stop burning our planet and start investing in the abundant renewable energy all around us”. 

• The IPCC. The IPCC brings together almost all the world’s climate scientists, and its reports are approved by 195 national governments, giving it a unique global political authority. IPCC Working Group I focuses on the physical effects of climate change (see our Digest ‘Code Red for Humanity’ for analysis). Working Group II detailed the social, political and economic factors that determine who will be exposed to the effects of climate change (see our Digest ‘An Atlas of Human Suffering’ for analysis). 

Key findings. The report’s key findings (‘headline statements’) include: 

• GHG emissions have continued to rise. From 2010 to 2019 they were higher than in any previous decade, but the rate of growth has slowed. 
• Emissions have risen since 2010 across all major sectors globally, and an increasing share of emissions can be attributed to urban areas. Reductions in emissions from industrial processes have been outweighed by increases in emissions in other areas. 
• There are huge regional and wealth disparities in emissions. At least 18 countries have sustained reductions in emissions for longer than 10 years.
• Low-emissions technologies have become cheaper and therefore in many cases easier to adopt. However, the adoption of such technologies has been slower in developing countries. 
• There has been a consistent expansion of mitigation policies but this is uneven across sectors.
• Progress on the alignment of financial flows towards the goals of the Paris Agreement remains slow and tracked climate finance flows are distributed unevenly across regions and sectors. 
• Global warming is likely to exceed 1.5 degrees during the 21st century, and limiting warming to below 2 degrees requires ‘rapid acceleration of mitigation efforts’. 

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The scale of the action needed. IPCC Working Group III has modelled over one thousand different potential global climate scenarios, divided into eight broad categories from C1 (below 1.5 C of warming) to C8 (warming of more than 4 degrees), outlining possible 21st century global warming outcomes. Carbon Brief’s Zeke Hausfather explains how each category of scenarios requires peak CO2 emissions and net-zero CO2 to occur by a certain year. C1, for example, requires peak CO2 emissions to occur between 2020 and 2025 and net-zero carbon CO2 to be achieved between 2050 and 2055. 

• “Rapid and deep” cuts. Carbon Brief’s Simon Evans highlights how achieving C1 scenarios (1.5C with no or limited overshoot) will require "rapid and deep and in most cases immediate" cuts in "all sectors". He notes that: “For the first time, the IPCC has a chapter on demand-side mitigation including shifting diets, transport patterns and material efficiency”. 
• Solutions by sector. Lead IPCC author Sarah Burch gives a sector-by-sector analysis of emissions and how to cut them. Transport, for example, is responsible for 14% of global GHG emissions and can be mitigated by a shift to “compact, complete communities” in which “active transport” (for example by foot, wheelchair or bike) is accessible. Agriculture, forestry and land use, which account for 22% of emissions, can be made less carbon intensive by a move to more plant-based diets, Burch argues. 

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Disparities in emissions by region. Lead IPCC author Sarah Burch notes that this is “the first time we’re seeing evidence of real, sustained decreases in greenhouse gas emissions” in places with the caveat that this is only “from some countries”. About 40% of the last decade’s emissions can be attributed to Europe and North America and only about 12% are produced by East Asia (including China). 

• Disparities in emissions by wealth. 30-45% of emissions can be attributed to the world’s wealthiest 10% of households. The World Inequality Lab’s latest report argued that we should stop thinking of emission disparities by country, and instead between the richest and poorest within countries. Among the more shocking facts in the report is that Jeff Bezos’ 11-minute flight to space was ‘responsible for more carbon per passenger than the lifetime emissions of any one of the world’s poorest billion people’.  
• Colonialism. The previous IPCC report by Working Group II was the first to mention the word ‘colonialism’. Atmos’ Yessenia Funes explores the growing conversation around climate change and colonialism. 

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Room for hope? Business Green’s Michael Holder highlights the IPCC report’s claim that “The world already has the technologies, expertise, and financial capabilities across every sector of the economy to halve global greenhouse gas emissions by the end of the decade.” Likewise, The FT’s editorial called the report “both stark and compelling” and said that “the good news is that a lot of what is needed is under way.” 

• Is politics the barrier? However, the FT’s editorial also highlighted that despite the world already possessing the necessary tools, “the larger problem is politics”. With 195 countries needing to approve the report, agreement has been slowed by countries who benefit from fossil fuel production or who lack the resources to make green adaptations. Vox’s Rebecca Leber and Umair Irfan report that the publication of the paper was delayed due to disputes over how seriously its warnings should be worded. ‍
• Industry lobbying. Climate reporter Ajit Niranjan highlights how the IPCC report does not cite industry lobbying as a problem in its summary for policy makers and yet makes several references to it in the full report. The full report notes, for example, that climate policy has often been curtailed by industry influence over government action and how lobbyists who are against climate action have been particularly “broad-based, highly organised” and “extensive”.

Reaction to the Spring Statement. The reaction to Chancellor Rishi Sunak’s Spring Statement last week has seen an unusual breadth of criticism. Normally Conservative-supporting newspapers, poverty-focused NGOs, most of the right of centre think tanks and a number of Conservative MPs attacked the Chancellor for doing too little for lower income households in the face of the cost of living crisis. 

• Analysis. The Resolution Foundation has produced a comprehensive analysis of the impact of the Spring Statement on living standards, complete with helpful charts. Read the full document here, and Director Torsten Bell’s twitter thread here. (Bell notes that ‘it’s not pretty’.) 
• Sunak’s defence. Appearing before the Treasury Select Committee on Monday, Sunak defended the choices he had made in the Statement. He said that providing greater help to low income households would have required more borrowing, which would not have been responsible. His priority in the future would be further tax cuts, not public spending. 
• More to come? The Times reported that the Chancellor is already considering another council tax rebate in the autumn following the criticism that he had misjudged the public mood and scale of the crisis.

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Inflation and living standards. Published alongside the Spring Statement, the Office for Budget Responsibility’s Economic and Fiscal Outlook 2022 forecasts that inflation will rise to 8.7% by the end of the year. It has downgraded its GDP growth forecast for 2022-23 from 6% to 3.8%. (The Outlook’s Executive Summary is here, and brief Overview here.) 

• Living standards. Even after the tax cuts announced by the Chancellor, this will lead to an average 2.2% fall in real household disposable incomes this year: the largest fall in living standards in any single year since records began 66 years ago. 
• Earnings. The OBR forecasts that real average earnings will not now return to 2008 levels even by 2027 (the end of the OBR’s forecasting period). 
• A return to the 1970s? While the Governor of the Bank of England noted that this year’s current energy price increase was greater than in any year in the 1970s, IPPR’s George Dibb pointed out that in the 1970s, trade union membership was 50% of the employed population, while today trade union membership is only around a quarter of all employees. So workers will not be able to bargain for wage increases matching the rising cost of living. As inflation hits perhaps 10%, ‘we are heading for a true crisis - if not a catastrophe.’ 

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The uprating of benefits and pensions. Much of the analysis of the Spring Statement focused on an announcement the Chancellor did not mention. By uprating benefits and pensions from April by only 3.1%, the rate of inflation last September, rather than the 7-9% rate which inflation will actually be over the next year, Sunak has made around 19 million people in the lowest income households - those dependent on benefits and the state pension - on average around £450 poorer. Coupled with the removal of the £20 a week uplift to Universal Credit in November, this is a hit of nearly £1500 a year, or more than 10% of total income, to many of the poorest households. By early 2023, benefits will in real terms be 9% lower than they were before the pandemic. 

• The impact on poverty. Analysing the combined impact of the benefits uprating and National Insurance changes (the rate of NI has been increased, while the earnings threshold at which it starts to be paid has been raised), the Joseph Rowntree Foundation calculated that 600,000 people will be pushed below the poverty line this year, a quarter of them children. The Resolution Foundation’s calculation is that in total 1.3 million people are set to fall into absolute poverty next year, including 500,000 children – the first time Britain has seen such a rise outside of recessions.
• Living income. NEF calculated that the Spring Statement would leave more than a third of the UK population, 23.5 million people, below the ‘minimum income standard’, based on needs, which is used to calculate the ‘real living wage’. This includes nearly half (48%) of all children. 
• The cost of uprating. The Resolution Foundation noted that increasing benefits and pensions by 8.1% this year would have cost the Chancellor £9bn. He spent £8.4bn instead on the 5p per litre cut in fuel duty (£2.4bn) and the 1p cut in the basic rate of income tax in 2024 (£6bn). He provided an additional £0.5bn to local authorities to support vulnerable households. 
• Pensioners. Paul Johnson, Director of the Institute for Fiscal Studies, examined the severe impact of inflation on poorer pensioners. ‘As in the 1970s, pensioners could see a lifetime of careful saving wiped out.’

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Tax changes. The Chancellor’s decision to raise National Insurance contributions (the ‘health and social care levy’) by 1.25% while promising a 1p cut income tax in 2024 was heavily criticised. While Sunak’s political intent was widely noted, the Resolution Foundation’s Adam Corlett pointed out that the combined effect of the income tax and NI changes represented ‘a transfer from poor to rich, leaving most people worse off.’

• Rentier bias.  The IFS’s Paul Johnson noted that cutting income tax whilst raising NI contributions ‘drives a further wedge between taxation of unearned income and earned income. Yet again [this] benefits pensioners and those living off rents at expense of workers.’ Former Treasury Permanent Secretary Nick Macpherson posted a short thread on the history of taxes on earned and unearned income in Britain since 1906 to provide a timeline of policy decisions that have privileged rentiers and capital owners over workers.‍
• The distributional impact. The Resolution Foundation has created some example case studies to show how the combined package of measures introduced by the Chancellor affects low-earning households differently. ‍
• An income tax cut? By freezing the basic and higher rate income tax and NI thresholds at a time of inflation, the Chancellor is bringing more earners into these taxes, and they will pay more on their income. The effect, as the Resolution Foundation pointed out, is that in 2024-25, when the income tax cut comes into effect, seven out of eight workers will pay more income tax and NI than today. ‍
• The total tax share. The OBR forecast that the share of taxes in national income will rise to 36% of GDP in 2026-27, an increase of 3.3% since 2019-20. This is the highest tax share since the late 1940s. It is still considerably less, however, than the European average of around 41%. 

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Borrowing and debt. The OBR’s Economic and Fiscal Outlook calculates that public borrowing is set to fall by 60% from last year, when it was £322bn (15% of GDP), to £128bn (5.4% of GDP) this year. The OBR forecasts that public borrowing will continue to fall over the next few years, reaching a little over 1% of GDP (£31.6 billion) in 2026-27. This would be the smallest budget deficit for 25 years. Public sector net debt (including the Bank of England) is forecast to fall from this year to 83.1% of GDP by 2026-27, as required by the Chancellor’s fiscal rules.

• Public spending. Public spending is due to decline over the next five years as a share of GDP, to 41.1% in 2026-27. This is however 2.1% of GDP higher than in 2019-20 and the highest sustained level since the late 1970s. Most of its upward revision reflects inflation-driven revisions to welfare spending and debt interest spending.
• Debt interest payments. Debt interest payments as a percentage of tax revenue show a sharp spike (to 7.6%) this year as a result of the revaluation of index-linked debt, but fall back to a historically low average of 3.4% over the following three years (not briefed and not reported).‍
• £10bn left under the current fiscal rules. With this level of borrowing and strong forecast tax receipts, along with a change to the student loan system, the OBR calculates that Sunak has left himself with £20bn of 'fiscal headroom' in 2024-25. He has used half of that (£10bn) in the tax cuts announced in the Spring Statement. So he has £10bn of fiscal headroom left for further tax reductions.

P&O Ferries. Ferry company P&O has come under fire for sacking 800 members of staff by video. Staff were told that they would be made redundant with immediate effect after the company had lost £100 million a year for the past two years. The workers will be replaced, with some of the new staff reportedly being paid £1.80 per hour. This makes this a controversial ‘fire and rehire’ case in which workers are made redundant and then either given worse contracts to do the same job, or replaced by cheaper alternative labour.

• Legality. York St John University’s Ernestine Gheyoh Ndzi explains how P&O may have ‘ignored the legal procedure of redundancy’ by failing to consult with staff and the relevant trade union prior to making the decision. The FT further explores the legality of the mass sacking, highlighting that, as well as engaging in consultations, companies sacking more than 100 people must notify the government at least 45 days before dismissals begin. (According to a leaked memo, Department for Transport civil servants were told about the plans only a day before the announcement.) Though some have questioned whether the workers were protected by UK law, the international maritime trade union Nautilus insisted that they were, since it was the jurisdiction specified in their contracts. 
• Grayling loophole? P&O Ferries may have stayed within the law thanks to an amendment made by former minister Chris Grayling. In 2018, he signed off a change in legislation meaning that companies do not have to notify the government of redundancies on ships registered overseas. 
• RMT response. The RMT, which represents P&O workers, has been organising protests, with General Secretary Mick Lynch labelling the move ‘an example of gangster capitalism’. The union has called on the Prime Minister to meet with a delegation of sacked workers and has advised its members not to sign severance packages while it considers legal action. 
• DP World. P&O Ferries was bought by DP World 16 years ago; the parent company is owned by the royal family of the United Arab Emirates. The company has apparently rejected an invitation to meet with a delegation of union leaders. 
• Pensions. Following calls from Labour Party politicians in January, the Pensions Regulator is investigating claims that P&O Ferries has not paid a £146 million debt it owes to the Merchant Navy Ratings Pension Fund. In the same month, it was reported that owners spent £147 million on a golf contest prize.

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Government response. The Government gave P&O Ferries a deadline (22nd March) to respond to ten questions about the redundancies and has said it will review its links with the firm. Maritime Minister Robert Courts called the redundancies ‘unacceptable’. 

• Criticism. Labour’s Louise Haigh criticised the Government for failing to ‘lift a finger’ when it was notified of the sackings the day before staff were informed, accusing the Chancellor of being ‘too cosy’ with the company. She noted that, despite P&O Ferries making over 1,000 staff redundant two years ago, Rishi Sunak gave his approval to DP World’s investment in two of the UK’s largest shipping terminals, Thames Gateway and Southampton. 
• Freeports. Thames Gateway and Southampton have both been awarded ‘freeport’ status by the Chancellor, making them exempt from the usual taxes and economic regulations. General Secretary of the TUC Frances O’Grady urged the Government to halt any plans to award freeport status to any DP World ports. 
• Commons vote. In a Commons debate called by Labour, MPs voted in favour of a motion condemning P&O Ferries and calling for ‘fire and rehire’ practices to be outlawed. No MPs voted against, but government ministers and many Conservative MPs abstained.  

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Fire and rehire elsewhere. Though P&O’s strategy has been to fire employees in order to hire foreign workers on much cheaper wages, the Covid-19 pandemic has seen a rise in companies firing staff only to rehire them on worse contracts. This has become widespread in recent years, according to research conducted by the TUC, with nearly 1 in 10 workers having been told to re-apply for their jobs on worse terms and conditions or face the sack.  The House of Commons Library has provided a useful explainer on the practice and its status in employment law. 

• British Gas. The most publicised case last year was in British Gas, which fired 300-400 of its staff and then offered them worse contract terms to be re-employed. The GMB called a 12-day strike after winning 89% support in a ballot of workers. 
• Other companies. Other major companies using fire and rehire tactics in recent years have included the Go Ahead Group and Compass. The Observer found last year that nearly 70 per cent of the companies using ‘fire and rehire’ were making a profit, and half were using government support throughout the pandemic. 
• Government defence. When asked in Parliament in 2020 about ‘fire and rehire’, (sometimes known as ‘dismiss and re-engage’), BEIS minister Paul Scully appeared to defend the practice, stating that companies need ‘flexibility to offer new terms and conditions’.
• Public opinion. A survey by the GMB union in May 2021 found that three-quarters of the UK public backed the banning of ‘fire and rehire’ including 71% of Conservative voters. 

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Employment rights. The TUC has called on the government to introduce an Employment Bill which would: end fire and rehire style practices and stop companies firing at will; increase penalties on companies that break employment law; and ban other forms of exploitative practices, including zero-hours contracts and bogus self- employment under so-called ‘umbrella companies’. 

• The Government’s Employment Bill. Calls for an Employment Bill come after the Government’s continuing failure to bring forward a bill first announced in the 2019 Queen’s Speech. The bill was intended to include the right for workers to request more predictable contracts and more rights for unpaid carers and pregnant employees. People Management’s Sarah Ozanne outlines where the bill has got to so far. 
• The Employment and Trade Union Rights (Dismissal and Re-engagement) Bill. Labour MP Barry Gardiner introduced a Private Member’s Bill last year specifically outlawing fire and rehire practices. Gardiner’s bill (which the MP explains here) would require companies to properly consult with employees before any major restructure. However, the bill was voted down, with minister Paul Scully saying that he did not believe that primary legislation was needed. The Institute for Employment Rights offered their analysis here. ‍
• The impact of Brexit. While the practice of fire and rehire is not illegal under EU law (though it is banned in some EU countries, including Ireland and Spain), the issue has reopened the question of the impact of Brexit on employment rights. The Trade and Cooperation Agreement (TCA) signed by the EU and UK in December 2020 includes the key ‘level playing field’ principle that neither the UK or EU countries can lower standards on workers’ rights, with an enforcement mechanism if either side should seek to do so. The TUC has examined the implications.

The deepening cost of living crisis. Chancellor Rishi Sunak is facing growing pressure to help low-income households as the war in Ukraine pushes energy and food prices even higher. Food campaigner Jack Monroe and NGO experts described what the cost of living crisis means in practice to a House of Commons Select Committee last week: read journalist Nadine Batchelor-Hunt’s summary here.  

• Inflation and living standards. The Resolution Foundation’s Living Standards Outlook forecasts inflation rising to 8% or higher, with the price cap on annual energy bills likely to rise by another £900 in October. Its preview of the Chancellor’s Spring Statement next week forecasts a £1000 fall in average real household disposable incomes over the next financial year - ‘the sharpest squeeze since the 1970s’. NEF analysis finds that over 23 million people (34% of the population and 48% of children) will be living below an acceptable ‘Minimum Income Standard’ by April. (Twitter thread summaries here, here and here, respectively). 
• Reasons to act. The Institute for Fiscal Studies estimates that the rise in energy prices which has occurred since the beginning of the war in Ukraine will reduce real household incomes by around £43bn in total, meaning that the Chancellor’s £9bn support package announced last month will only offset around 20% of the rise in household energy bills. Money Saving Expert’s Martin Lewis warned that the cost of living crisis is not simply due to the war in Ukraine and urged the Chancellor to prevent ‘millions of people’ falling into poverty. Former Treasury Economist Jeevun Sandher noted that the Chancellor had already made the cost of living crisis more severe by failing to extend the £20 uplift to Universal Credit and underinvesting in energy efficiency policies which could reduce household bills. 

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Benefits uprating. Social security benefits are uprated annually in April in line with the prevailing inflation rate the previous October. This means that social security payments (including pensions) will rise by only 3.1% next month despite inflation now likely to reach 7% or more. The Joseph Rowntree Foundation (JRF) calculates that this will pull another 400,000 people into poverty. Around 9 million people on means-tested benefits and the state pensions will experience a £500 real cut in their annual income, with some families seeing a cut of £720. JRF is calling on the Chancellor to uprate benefits and pensions by at least 7%.  

• Consensus? Calls for the Chancellor to increase benefits and pensions by more than the planned 3.1% have been made across the political spectrum. Writing in Conservative Home, former minister David Gauke proposed larger increases in Universal Credit, the state pension and public sector pay than previously planned. The IFS’s Paul Johnson also advocated increasing benefits in The Times.

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Stagnating incomes. The IFS noted that higher inflation will wipe out ‘at least a quarter’ of the real terms increases to public service spending announced in the autumn Budget and Spending Review. It calculated that, if this is not reflected in higher public sector pay awards, the average public sector worker would see their gross salary reduced by around £1,750 in real terms, coming on top of over a decade of stagnating pay.

• Sectoral collective bargaining to boost pay. The TUC’s Statement ahead of the Spring Statement argues that public sector pay and the national minimum wage should be increased in line with current inflation. It argues that the Government must also ‘recognise that collective bargaining is the most sustainable way to boost pay, and use the long-promised employment bill to give trade unions new powers to negotiate fair pay agreements across sectors.’ 

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Reforming the welfare system. In a new working paper Oxford University’s Fran Bennett and Jane Millar look at the problems created by the design of Universal Credit. They argue that the integration and automation of UC ‘has created a juggernaut of mass means testing’, which is difficult to reform. (Blog post explainer here.)

• Guaranteed Decent Income. The Commission on Social Security (whose Commissioners are all ‘experts by experience’ with lived experience of the benefits system) proposes the replacement of Universal Credit with a Guaranteed Decent Income paid to anyone whose earnings drop below £163.50 a week (half the minimum wage). The proposal was developed in collaboration with benefit recipients including carers, the unemployed and people living with disability. 
• A living income for all. NEF’s Social Security for All programme takes what it argues are the best elements of a minimum income guarantee (targeted) and universal basic income (simplicity) to propose a Weekly National Allowance. This would replace the income tax personal allowance with a weekly payment of £47.30 to all citizens except the highest earners. ‘This would effectively reinvest billions spent on a regressive system of personal tax allowances into a redistributive approach to ensuring that everyone has a basic level of income’. NEF also proposes an auto-enrolment system for reformed Universal Credit so people can receive top-ups to their income whenever it drops below a minimum level, to avoid issues with eligibility, take-up and administration costs.

The IPCC Working Group II report. The latest instalment of the Sixth Assessment Report (AR6) of the Intergovernmental Panel on Climate Change (IPCC) was released on February 28, focused on climate impacts, risks and adaptation. A Summary for Policymakers was also published, along with the slides presented at the launch and some FAQs. The report’s conclusion is stark: ‘Any further delay in global action will miss a brief and rapidly closing window of opportunity to secure a liveable and sustainable future for all’. UN Secretary-General António Guterres described the report as ‘an atlas of human suffering and a damning indictment of failed climate leadership’. 

• The IPCC. The IPCC brings together almost all the world’s climate scientists, and its reports are approved by 195 national governments, giving it a unique global political authority. IPCC Working Group I focuses on the physical effects of climate change (its latest report was released last year: see our Digest ‘Code Red for Humanity’ for analysis). Working Group II (this report) details the social, political and economic factors that determine who will be exposed to its effects (impacts, adaptation and vulnerability). Working Group III (the latest report of which will be released later this year) details climate mitigation measures. 
• The Working Group II report. More than 3000 pages long, the report includes 7 chapters on the principal types of climate impact (such as oceans, food, cities and health), 7 chapters on the likely impacts in each of the world’s continents, 7 dealing with different kinds of habitat and landscape areas (such as deserts, polar regions and ‘biodiversity hotspots’) and 3 synthesis chapters on the integration of adaptation and mitigation measures. Read Carbon Brief’s in depth Q&A on the report and its contents. See here for a useful summary thread by climate writer Leo Barasi. 

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Key findings. The report’s key findings (‘headline statements’) include: 

• Climate change has already caused ‘substantial damages and increasingly irreversible losses, in terrestrial, freshwater and coastal and open ocean marine ecosystems’.
• Approximately 3.3 to 3.6 billion people already ‘live in contexts that are highly vulnerable to climate change’.
• Approximately 50-75% of the global population could be exposed to periods of ‘life-threatening climatic conditions’ due to extreme heat and humidity by 2100.
• Where climate change impacts intersect with areas of high vulnerability, it is ‘contributing to humanitarian crises’ and ‘increasingly driving displacement in all regions, with small island states disproportionately affected’.
• Increasing weather and climate extreme events ‘have exposed millions of people to acute food insecurity and reduced water security’, with the most significant impacts seen in parts of Africa, Asia, Central and South America, small islands and the Arctic.
• Climate change ‘will increasingly put pressure on food production and access, especially in vulnerable regions, undermining food security and nutrition’.
• Climate change and extreme weather events ‘will significantly increase ill health and premature deaths from the near- to long-term’.
• It is likely that the proportion of all terrestrial and freshwater species ‘at very high risk of extinction’ will reach 9% (maximum 14%) at a global average temperature rise of 1.5C. This rises to 10% (18%) at 2C and 12% (29%) at 3C.

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Climate justice. Chapter 8 of the report deals with the societal consequences of climate change, assessing impacts through the lens of poverty, livelihoods and vulnerability. Vulnerability is defined by the report as ‘the propensity or predisposition to be adversely affected’, and encompasses a variety of concepts and elements, including ‘sensitivity or susceptibility to harm and lack of capacity to cope and adapt’ to climate-related hazards. As Politico noted in its coverage, there is a much stronger focus on climate justice in the report than in previous ones. It emphasises the unequal impact of climate change, with those on low incomes, both in the world as a whole, and in individual countries, being much more vulnerable than others. Environmentalist Ayisha Siddiqa noted that this is the first time that the IPCC has acknowledged ‘historical and ongoing patterns of inequity such as colonialism’ in the vulnerability of people in the global South. 

• Food supply. The WGII report notes that the climate crisis poses an acute threat to global food supply, with severe consequences for global hunger and security. Climate campaigner Ben See analyses the report’s evidence. 

• Climate resilient development. The report emphasises the need for ‘climate resilient development’, which it defines as a ‘solutions framework’ that ‘combines strategies to adapt to climate change with actions to reduce greenhouse gas emissions to support sustainable development for everyone’. The International Institute for Environment and Development explains the concept further. 

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Climate politics. The WGII report highlights the need both for stronger and faster action to reduce emissions and for greater resources and effort to be put into adaptation, particularly in the most vulnerable countries. Damian Carrington analysed the political implications of the report in the Guardian: ‘This climate crisis report asks: what is at stake? In short, everything.’

• Loss and damage. The US reportedly pushed to water down the report’s Summary for Policymakers during February’s meeting for national delegates to approve the report. Critics argued that this was an attempt to avoid pressure to set up a ‘Loss and Damage Finance Facility’ at COP27 later this year to provide greater international finance for poorer countries. 

• Climate misinformation. Desmog noted that the WGII report for the first time addresses the tactics of climate delayers and misinformation campaigns to polarise public support for climate action. In the Guardian climate journalist Amy Westervelt points to fossil fuel companies’ involvement in the IPCC as a reason why the report fails to make the link between ‘maladaptation’ and misinformation.

• UK adaptation. A lead author of the IPCC report says that the UK is particularly ill-prepared for climate change. The report confirms the Climate Change Committee’s report last year on the UK’s vulnerability and inadequate adaptation efforts.

• Lifestyle changes. An academic research study has found that if people in wealthy countries made six key changes to their consumption patterns, emissions could be dramatically reduced. The research was published alongside a new campaign, ‘The Jump’, which asks people to sign up to six lifestyle pledges that it claims are ‘clear, constructive, impactful, doable’. They include flying no more than once every three years and buying no more than three new items of clothing per year. 

The Russian invasion of Ukraine and energy prices. European natural gas prices increased by almost 70% following the Russian invasion of Ukraine last week. Some industry analysts have forecast that average household energy bills could exceed £3000 a year when OfGem’s energy price cap is reviewed again in October. The average prices of petrol and diesel are already now above £1.50 a litre, compared with around £1.10 two years ago. 

• Context. Following the dramatic rise in global gas prices over recent months, on 3 February OfGem increased the energy price cap, allowing firms to pass higher wholesale costs onto consumers. Average household bills are set to increase from £1277 to £1971 in April. The government simultaneously announced an ‘Energy Bills Rebate scheme’ to partially offset higher bills. The government may come under pressure to increase the scale of its support measures if wholesale energy costs remain higher than previously forecast as a result of current events. For more analysis read our previous Digest. 
• Analysis. Carbon Brief has collated a comprehensive Q&A on the implications of the invasion of Ukraine for energy and climate change, while the Oxford Institute of Energy Studies analyses the likely impacts on the UK. 

UK energy security and oil and gas. The invasion of Ukraine has prompted renewed debate about the UK’s energy security. Climate sceptic lobby group Net Zero Watch issued a press release calling for further exploration in the North Sea and removing the ban on fracking to “substitute for Britain’s rapidly rising imports which are increasingly dependent on Russia’s European gas flows”. 29 Conservative MPs and former Brexit minister Lord Frost had earlier signed a letter calling for the return of fracking in the UK. 

• Government response. Business and Energy Secretary Kwasi Kwarteng responded in a Twitter thread. Noting that the UK imports very little Russian gas (it makes up only around 4% of UK gas supplies) he noted that gas prices are set by the global market, so an increase in domestic production, whether from the North Sea or fracking, would not reduce UK energy bills. Renewables are cheaper than gas, he pointed out, and ‘the best way to keep energy bills down is through energy efficiency upgrades’ to reduce the demand for gas. 
• Domestic production won’t help UK energy security. ECIU’s Richard Black explained why, with around 80% of North Sea output exported, greater UK production of oil and gas would not reduce prices or increase domestic supply. Tessa Khan of climate campaign group Uplift explained why new North Sea licences do not add to UK energy security. In its report on the prospects for fracking, the National Audit Office concluded that shale gas production would not be expected to lead to lower energy prices.‍
• New North Sea oil and gas licences. The government has proposed that new licences for the production of oil and gas in the North Sea should be allowed so long as they pass a “climate compatibility checkpoint” in line with the UK’s goal of reaching net zero emissions by 2050. The Climate Change Committee responded that it would ’support a tighter limit on production, with stringent tests and a presumption against exploration’. Carbon Brief pointed out that 46 oil and gas projects have already obtained licences so would not be subject to the checkpoint under its proposed design. (Map here.) ‍
• The case against new North Sea licences. Green Alliance has published a new report explaining why it is not economic to extract more oil and gas from the North Sea ‘given the need to act on climate change and the unstoppable rise of clean technologies’. The report shows how tax relief for UK oil and gas exploration is skewing the market in favour of opening new fields for extraction, presenting a risk of stranded assets and a high cost burden for taxpayers and investors. Watch this report by Channel 4 News on how North Sea companies, including BP and Shell, have been net recipients of taxpayers’ money over the last five years. ‍
• 1.5C and new fossil fuels. Last year in a landmark report the International Energy Agency noted that if global heating was to be limited to the Paris Agreement’s goal of no more than 1.5C, no new investments in extracting fossil fuels could be allowed. The entire carbon budget for 1.5C was already embodied in currently exploited global sources. 

Integrating climate, energy and national security. For many commentators the invasion of Ukraine has reinforced the case for a clean energy transition. Drawing the connections between energy, climate and national security, BusinessGreen’s James Murray explained why ‘petrostates’ such as Russia feel squeezed by global climate agreements, and ‘the threat clean technologies pose to the revenue streams that keep them in power’. In a New Statesman essay last year economic historian Adam Tooze made the wider case. 

• Weaning Europe off Russian gas. With 40% of the EU’s gas supplies coming from Russia, there have been renewed calls to accelerate the deployment of renewable energy sources and reduce demand through energy efficiency measures. The Institute for Energy Economics and Financial Analysis argued that ‘the EU needs to redefine energy security not as diversity of gas infrastructure, but as a true diversity of energy sources that are immune to political influence and can lessen the risk of future energy crises.’ Michaela Holl and Jan Rosenow explain in brief. 
• Germany’s energy security. The decision of the German government to halt certification of the Nord Stream 2 pipeline linking the Russian Baltic coast to Germany marked a significant shift in Germany’s energy relationship with Russia. The pipeline, already completed, was designed to reduce German dependence on the existing pipeline running through Ukraine and Poland. At the same time Germany was reported to be accelerating its commitment to generate 100% of its electricity from renewable sources to 2035. 
• Green energy security in the UK. E3G have calculated that a national retrofit drive to improve household energy efficiency could reduce UK gas imports by 26% and save households £500 per year. The Energy Efficiency Infrastructure Group (EEIG) estimates that 7 million homes need to be renovated by 2025, requiring an energy efficiency subsidy of £3.6bn is needed in 2022-25 to get on track for net zero. For more resources on housing energy efficiency retrofits see ECIU’s briefing on home insulation and gas prices and NEF’s campaign for a Great Homes Upgrade.‍
• The onshore wind moratorium. Former BEIS civil servant Tim Lord took the opportunity to calculate that the extra gas the UK uses each year as a result of the ban on new onshore wind since 2015 is more than it imports from Russia.

Economic sanctions against Russia. As Western nations unveil economic sanctions against Russia following its military incursions into Ukraine, attention has focused on the extent of Russian assets in the UK and the scale of ‘economic crime’ occurring through the UK financial system. The UK government will use legislation tabled earlier this month targeting potential sanctions at anyone ‘being involved in the support of the Russian government’, including businesses of economic or strategic significance to Russia.

• ‘Russian gold’. There has long been disquiet about the extent to which business people with ties to the Kremlin (often described as ‘oligarchs’) have used the UK economy and UK-based institutions as a safe haven for their assets. In 2018 the Foreign Affairs Select Committee report Moscow’s Gold: Russian Corruption in the UK criticised the Government for its ‘disjointed approach’ to the issue, arguing that ‘President Putin’s allies have been able to exploit gaps in the sanctions and anti-money laundering regimes that allow them to hide and launder assets in London.’ Disturbed at the lack of government action, the Committee decided last month to reopen its enquiry. 
• ‘The UK’s kleptocracy problem’. In December Chatham House published detailed research on ‘the laundering of money and reputations’ by elites from Russia and the post-Soviet successor states. Noting that much of the wealth leaving Russia had effectively been stolen from the Russian people after the collapse of the Soviet Union in 1990 and the privatisation of industry which followed, the report argues that ‘failures of enforcement and implementation of the law – plus the exploitation of loopholes by professional enablers – have meant that little has been done in practice to prevent kleptocratic wealth and political agendas from entering Britain.’ Watch this Chatham House webinar on the problem and what can be done about it. 

Russian property in the UK. Last week Transparency International published new research showing that UK property worth £1.5 billion has been bought since 2016 by Russians accused of corruption or links to the Kremlin. Nearly half of these properties are in the City of Westminster and Kensington and Chelsea. Explaining the UK’s role as a ‘laundromat’ for suspicious Russian wealth, the report notes that over half of the property assets by value is held by companies registered in Britain’s Overseas Territories and Crown Dependencies, where secrecy rules enable ownership to be hidden. (See BBC Newsnight’s report.) 

• ‘Golden visas’. The Home Secretary, Priti Patel, last week abolished the ‘Tier 1 investment visa’ which allowed wealthy foreign investors to ‘buy’ UK residency in return for investment in the UK economy. The scheme had been widely criticised for giving residency to around 700 Russian millionaires among others. NGO Spotlight on Corruption explained how the system worked. 

The UK economy and ‘dirty money’. Russian assets in the UK are part of a wider issue of global ‘dirty money’ flowing through the UK. In its major report At Your Service, leading anti-corruption NGO Transparency International has detailed how UK businesses and institutions ‘help corrupt individuals and regimes launder their money and reputations.’ The report is based on data collected from over 400 cases of corruption and money laundering in which UK service providers were involved. These cases involved at least £325 billion worth of funds diverted by rigged procurement, bribery, embezzlement and the unlawful acquisition of state assets in 116 countries across the world. 

• The role of the City of London. Author Nicholas Shaxson explains how the City of London has become the ‘money laundering capital of the world’. 
• Inadequate enforcement. Citing the National Crime Agency’s estimate that corruption, bribery, money laundering and fraud cost the UK economy around £290bn a year (equivalent to 14.5% of GDP), Spotlight on Corruption has called the UK’s law enforcement efforts in this field ‘under-resourced, over-stretched, and out-gunned’. Its report sets out a range of proposals to tackle economic crime effectively. 

The Economic Crime Bill.  The Government has pledged an Economic Crime Bill to tackle money laundering, fraud and corruption in the UK economy. After appearing to drop plans for the Bill the Government has confirmed that it will be brought forward soon. (Twitter thread explainer from the Centre for Public Data here.) Lawyers BCLP explain the Bill’s expected measures. 

• The Economic Crime Plan. The basis for the proposed Bill will be the government’s 2019 Economic Crime Plan, which set out a range of goals and programmes to tackle the problem. The House of Commons Library explains the extent of the issue and the Government’s proposals. The Royal United Services Institute publishes an online tracker to monitor progress on implementing the plan. 
• Making property and company ownership transparent. Key demands of reformers include the creation of a register of overseas entities that own UK property, and reform of Companies House to ensure it can monitor, verify, and investigate suspicious companies. 
• Labour’s proposals. These measures are both included in the Labour Party’s four-point package of measures to tackle economic crime, announced last year and reiterated by Keir Starmer this week. 
• Scotland Limited Partnerships. A particular target for campaigners is the use of legal partnerships registered in Scottish as vehicles for money laundering. Ben Cowdock of Transparency International explains. 

Political donations. Last month, a number of MPs tabled amendments to the Elections Bill to outlaw political donations made from secret offshore locations. The Conservative Party has been accused of accepting major donations from Russian sources in recent years. 

Not just the UK. A Guardian investigation this week reveals details of a leak from one of the world’s largest private banks, Credit Suisse, exposing ‘the hidden wealth of clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes'. The leak raises questions about Swiss banking secrecy laws which prevent the disclosure of client banking information to foreign authorities. 

• Offshore secrecy. The Guardian’s disclosure of the ‘Pandora Papers’ last year reported the biggest ever leak of offshore data, revealing the secret deals and assets of more than 100 billionaires, 30 world leaders and 300 public officials. 

Financial Services Future Regulatory Framework Review. HM Treasury has closed its consultation on the post-Brexit Future Regulatory Framework for the UK financial sector. The outcomes of the review will inform a Financial Services Bill expected later this year.

• #FinanceForOurFuture. Last week, 37 civil society organisations published a joint statement expressing their concerns about the Treasury’s proposals. They made six recommendations aimed at strengthening financial regulation in the fields of climate change, social inclusion, competitiveness, oversight and the registration of lobbyists. The Finance Innovation Lab’s Marloes Nicholls summarised their response to the government’s proposals in a video interview with Sky News.

The ‘competitiveness’ agenda. At the heart of the Government’s proposed new regulatory framework is a statutory objective for regulators to promote the ‘international competitiveness’ of the UK finance industry. Chaminda Jayanetti sets out the issue for OpenDemocracy. 

• Weakening standards. The civil society coalition statement argues that requiring regulators to promote the growth and international competitiveness of the UK financial sector would undermine their ability to act in the public interest, putting them in a dangerous competition with regulators in other countries to weaken standards. As FIL’s Marloes Nicholls explains, this requirement was explicitly removed from the regulatory framework in 2012 after it was recognised that it had contributed to the financial crisis of 2008. Helen Thomas in the FT concurs. 
• Regulators’ dissent. Both Andrew Bailey, Governor of the Bank of England, and Nikhil Rathi, head of the Financial Conduct Authority, have publicly opposed a competitiveness objective for regulators. As Bailey said, recalling the financial crisis: when this was last required “it didn’t end well, for anyone”.

A statutory net zero goal? The Government’s proposals seek to strengthen the regulatory oversight of the financial sector’s climate impacts. But environmental NGOs and others argue that this does not go far enough, urging new statutory objectives obliging regulators to steer the financial system towards the goals of the Paris Climate Agreement.

• City of London finances fossil fuels. Research by Greenpeace UK and WWF UK found that the emissions caused by the fossil fuel investments of UK banks, asset managers and other financial institutions are nearly double the annual carbon emissions of the UK. 
• Climate risks still not being reported. Auditors at major companies are supposed to integrate climate risks into their financial statements. But in a study of company reports and shareholder votes, Greenpeace finds that companies and their shareholders claiming to be committed to net zero are producing and waving through  reports which fail to disclose their climate risks. 
• Green central banking. The international Green Central Banking network provides a range of resources on efforts to align central banks with environmental principles. 

Financialisation and the ‘finance curse’. The wider background to the Government’s financial reform proposals is the increasing size and impact of the financial sector since its deregulation in the 1980s. The concept of ‘financialisation’ has been used to describe the increasing size of the financial sector relative to the rest of the economy and the increasing use of financial metrics in companies and in society The Transnational Institute explains the concept and history of financialisation and explores its impacts. 

• The ‘finance curse’. In a report for the IPPR Commission on Economic Justice, Grace Blakeley showed how financialisation has damaged UK manufacturing and exporting sectors by pushing up the value of sterling, fuelling inequality and contributing to a model of economic growth overly dependent on both capital inflows and house price inflation. In a report for SPERI, political economist Andrew Baker and colleagues sought to explain this ‘finance curse’ and to measure its extent. Arguing that the financial sector competes with the rest of the economy for resources and that credit booms damage research and development-intensive firms, a paper by the Bank of International Settlements shows how financial sector growth ‘crowds out’ growth in the rest of the economy. 

Innovative thinking about financial regulation. FIL’s ‘Transforming Finance’ project produces a range of resources on how to repurpose the financial system to meet social and environmental as well as economic goals.

12 missions by 2030. The government unveiled its Levelling Up White Paper last week, promising ‘to transform the UK by spreading opportunity and prosperity to all parts of it’.  The paper is centred around 12 quantified ‘missions': ‘cross-government, cross-society efforts’ to be achieved by 2030. Ambitions include raising pay and productivity in every region, narrowing the gap in Healthy Life Expectancy (HLE) between areas, and bringing the standard of local public transport connectivity across the country ‘significantly closer’ to that of London. (The full list of missions is here.) 

• On missions. The IPPR’s George Dibb wrote a useful thread on the value of missions in policy-making. Though some have criticised 2030 targets which the present government will not be around to see, he argues that it is ‘vital’ that targets outlive ministers. UCL’s Institute for Innovation and Public Purpose (IIPP) summarises the case in ‘Missions: A Beginner’s Guide’. It has been particularly influential, on this government and others, in developing the idea of mission-oriented approach to investment and innovation. 
• New Labour influence? The Resolution Foundation’s Torsten Bell notes that the White Paper’s quantified goals and metrics are similar to those adopted by the Blair Government to achieve greater accountability for spending and policy.
• Conservative criticism. Writing for Conservative Home, co-author of the 2019 Conservative manifesto Rachel Wolf argued that few governments departments have committed to new policies, and the overall strategy is ‘far from uniform’. 
• An alternative approach. In advance of the White Paper the New Economics Foundation called for five major shifts in economic policy to achieve the government’s stated levelling up goals: a shift from central direction to local control; a shift from growth to living standards; a shift in focus on the every day economy; a shift to backing SMEs and a ‘shift to green’. (Full report here.)
• The market-led model. Analysing the White Paper in the Guardian, Christine Berry noted its focus on attracting inward investment by private capital in a ‘virtuous circle of agglomeration’. Although the White Paper acknowledges the failures of the market-led growth model, it ‘fails to pursue this reasoning to its logical conclusion, and is thus left trying to solve these problems using the same thinking that created them in the first place.’

Funding. A principal criticism of the White Paper has been the inadequate level of funding attached to its ambitious goals, and in particular the relatively small amounts of new funding announced. The New Statesman’s Anoosh Chakelian breaks down the sources of funds that Secretary of State Michael Gove has ‘begged, borrowed and stolen’ from other schemes. 

• Austerity context. Drawing on Institute for Government and IPPR North analysis, the FT’s Jim Pickard pointed out that funding to towns has been cut by £15 billion in the last decade. While the “levelling-up fund” will provide £32/head for people in northern England. the fall in annual local council service spending since 2010 in northern England is £413/head. 
• Far from enough. Former Director of the Royal Society of Arts Matthew Taylor noted the similarity between the Levelling Up White Paper and last year’s report of the government’s Industrial Strategy Council (a body which it then abolished). He pointed out that the scale of funding announced falls far short of that which has been provided to disadvantaged areas in France and Germany.
• How much would be enough? A number of commentators have compared the scale of funding allocated with the investment in ’levelling up’ post-unification Germany (nearly £2 trillion). Even this has not been enough, however, as Katja Hoyer observed in the Spectator: ‘despite all the spending, East Germans still feel left behind’. 

Devolution. The White Paper promised ‘the largest devolution of power from Whitehall to local leaders across England in modern times’, including new powers for metropolitan mayors, and new county devolution deals across England. It sets out a ‘menu of options’ through which local authorities can effectively opt for one of three types of devolution. Jack Shaw of Cambridge University’s Bennett Institute explains.

• Not far enough. IPPR North’s Arianna Giovannini welcomed the White Paper’s commitment to further devolution to city mayors, but criticised the continuing use of competitive bidding to access funds, and argued the government must truly let go of power to reduce inequalities. NEF’s Miatta Fahnbulleh warns that levelling up ‘simply won’t happen’ if devolution is ad hoc. She argues that we need a radical transfer of power to all parts of the UK, not centrally-controlled schemes. 
• Government must work with local organisations. Power to Change welcomed the devolution plans but warned that the government needed to ‘work with organisations with experience of delivering at a local level’ to meet their targets. 
• Fiscal devolution. Level 3 of the White Paper’s devolution framework would enable local authorities (subject to a ballot) to ‘introduce a supplement on business rates’. The Data City’s Tom Forth notes that a similar supplement in London (introduced by former mayor Boris Johnson) raises around £300m per year. The Mayor of Tees Valley, Ben Houchen, called business rate devolution ‘low hanging fruit’ and said that, given the power, he would ‘slash business rates across the board’ in the hope of stimulating ‘massive private sector investment’. 

Community covenants. On the same day as publishing the white paper, the Government responded to Danny Kruger MP’s report on the role of civil society. It committed to the idea of ‘community covenants’: pilot schemes in which councils, local groups and public bodies will enter into agreements in order ‘to harness the energy, know-how and assets of local communities’. 

• ‘Community power’. The White Paper adopts the language of ‘community power’, a term growing in popularity in conservative circles. Writing for the ‘We’re Right Here’ community power campaign, Locality’s Ed Wallis calls for a Community Power Act with three central elements: decisions to be made at the ‘most local level possible’; a designated range of ‘power partners’ for organisations such as neighbourhood forums, and the creation of a Community Power Commissioner.
• Criticism. CLES have warned that the ‘community power’ approach risks becoming a route to cuts and says that the community should never be a replacement for the local or national state. Meanwhile the High Pay Centre’s Luke Hildyard noted that levelling up is ‘about not just productivity, but participation and power’. Writing in the Yorkshire Post, he argues that elected mayors must focus on delivering ​​’higher wages, trade union rights and recognition and worker representation on company boards’. 

People, not places? The Equality Trust argued that the Levelling Up White Paper fails ‘to put people at the centre’. By focusing so heavily on places, the paper does not address inequalities within regions, such as the high levels of child poverty and inequality in London. 

• Inequality within regions. NEF noted that levelling up should be as much about inequality within regions as between them: ‘the challenge of levelling up is as real in Barking & Dagenham or Hackney as it is in Barrow, Darlington, or Barnsley’. Likewise, Inside Housing’s Peter Apps wrote in the Spectator that ‘London suffers from some of the most pressing housing need in the country’ and argued for more ‘tangible reforms’, such as a target for reducing the number of children in temporary accommodation. 
• Good jobs. Janet Williamson of the TUC summarises the levelling up paper as a bid to expand the private sector in the hope of creating more jobs. However, she argues that the paper falls short of ensuring that those jobs are well paid and secure. The TUC’s recommendations include raising the minimum wage, tackling zero hour contracts and embedding ‘decent jobs’ with high employment standards within government procurement rules. 
• Social infrastructure. The Women’s Budget Group argued that the White Paper is too geared towards physical rather than social infrastructure. By failing to sufficiently acknowledge the role of adult and child care, it does not provide adequate explanation for how women in particular can access job opportunities. 

Housing. The Levelling Up White Paper included some new announcements on renters’ rights, such as bringing forward a ban on section 21 ‘no fault’ evictions and exploring the possibility of a National Landlord Register. Shelter called this a ‘crucial step forward’ but said that the Government needs to set out a plan for ‘significant investment in social housebuilding’. 

• Stability and affordability. The IPPR’s Luke Murphy highlights the need for further private rented sector (PRS) reform in order to provide tenants with more agency and control over their own home, such as limited rent increases and mandatory open-ended tenancies. 
• Brownfield development. The Campaign to Protect Rural England’s Paul Miner welcomed the commitment to brownfield development in the white paper, but warned that a lot of pressure will still be needed to make change happen, as ‘there are lots of people who are making quite a lot of money out of the current policies’. 

Net zero. The White Paper has been widely criticised for giving insufficient attention to the Government’s net zero ambitions. But the Conservative Environment Network’s Sam Hall argued that it demonstrates that levelling up and Net Zero are compatible, and that clean industries are critical for growth in industrial heartlands. 

New Government campaign to fill job vacancies. The Department for Work and Pensions’ ‘Way to Work’ campaign aims to get 500,000 more people to fill mounting job vacancies by the end of June by encouraging Universal Credit claimants to search for work in new ‘booming sectors’, such as social care and construction. DWP secretary Thérèse Coffey said: “As we emerge from Covid, we are going to tackle supply challenges and support the continued economic recovery by getting people into work. Our new approach will help claimants get back into the world of work quickly, while helping ensure that employers get the people they and the economy need.”

Sanctions-led approach. The mechanism by which unemployed people are encouraged to seek work is through the benefit sanctions system. Claimants will now only have 4 weeks (down from 3 months) to find a job within their preferred sector. If claimants fail to make “reasonable efforts” or turn down job offers from any sector, they risk reductions in their benefit payment. 

• Will this help recovery? A 2016 report from the National Audit Office found no evidence that benefit sanctions are an effective way of helping claimants find a job, while “the overall impact of sanctions on wider public spending is unknown.” A peer reviewed article from economist David Webster concludes that more attention needs to be paid to the flaws in the economic case for benefit conditionality in the UK welfare system. Associate Professor Jo Ingold examined employers’ perspectives on benefit conditionality in the UK and Denmark and concluded that businesses held negative views on conditionality as it led to them “receiving large numbers of unsuitable and unfiltered job applications, with associated negative resource impacts…which undermines their chances of securing employment”. 
• Threatening benefit cuts during a cost of living crisis. Critics have pointed to the punitive nature of the proposal to cut people’s benefits during a cost of living crisis. Food poverty campaigner Jack Monroe spoke to Times Radio to explain the new changes' impacts on benefit claimants during, pointing out that the 4 week limit is longer than it takes to receive the first benefit payment (5 weeks).
• Poverty in the UK. NEF’s Living Income campaign has shown that 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’ this year. Joseph Rowntree Foundation’s #UKPoverty2022 report outlines the latest data on the nature and scale of poverty in the UK. The report of the United Nations’ Special Rapporteur on extreme poverty and human rights (2019) examined the extent of poverty and destitution in the UK and condemned the “great misery… inflicted unnecessarily” on marginalised groups through Universal Credit and cuts to public services.

The UK labour market. Analysing the Government’s proposals, the FT’s Sarah O’Connor noted that “The reason the UK has a shortage of workers is not because jobseekers are too picky. It is because an army of people have left the labour market altogether.” The Way to Work programme targets those who are able to work but are either unemployed or on low wages. But the Institute for Employment Studies’ Tony Wilson points out that there are not large numbers of people who are short term unemployed: only about 130,000 jobseekers claim for less than three months. The much larger problem is a 600,000 increase in people who have dropped out of the labour market altogether, are no longer looking for work and therefore do not receive any support.

Low pay and in-work poverty. Critics of the Way to Work policy have pointed out that it does not address the numbers of those in low paid jobs who have to rely on the benefit system to top up their incomes. The IPPR’s No Longer Managing report on the rise of working poverty found the chance of two parents in work (one part time and one full time) being in poverty have doubled over the past two decades. The authors argue that social security reform must come alongside a wider plan to tackle the root causes of low pay, such as unaffordable rents, expensive childcare and insecure jobs (See ITV’s coverage). 

• Childcare. The Women’s Budget Group’s Hanna Abid explains why childcare investment should be a key element of social security reform (the ‘Social Guarantee’) as it enables caregivers to rejoin the workforce, amongst other benefits. (Peer reviewed evidence here.)
• Real wages. The wider context for low pay is that real earnings have been stagnant since 2008, are projected to remain so until 2026 and, with high inflation, are now falling. 
• Minimum wage. The TUC is calling for increases in the national minimum wage. An IFS report finds that raising the National Living Wage can have significant spillover impacts on workers earning above the minimum, raising their wages without significant reductions in employment. 
• Enforcement. Over 200 firms guilty of paying some workers below the minimum wage have recently been named and shamed, with the list including House of Fraser and Waterstones. 

Proposals for welfare reform. 

• Comprehensive income guarantees. NEF’s Social Security for All takes the best elements of a minimum income guarantee (targeted) and universal basic income (simplicity) and proposes a Weekly National Allowance to replace the personal allowance of income tax with a weekly payment of £47.30 to all but the highest earners: “This would effectively reinvest billions spent on a regressive system of personal tax allowances into a redistributive approach to ensuring that everyone has a basic level of income”. It also proposes an auto-enrollment system for everyone onto a reformed model of UC so people can receive top ups to their income whenever it drops below a minimum level, to avoid issues with eligibility, take-up and administration costs. See NEF’s Living Income Campaign for more proposals on social security reform. 
• User-led proposals for reform. The Commission on Social Security proposes replacing Universal Credit with a Guaranteed Decent Income paid to anyone whose earnings drop below £163.50 a week (half the minimum wage). The proposal was developed by people with lived experience of the current welfare system: carers, the unemployed and people living with disability. (Mirror coverage and video explainer)
• More resources. For more options for structural reform of social security see our previous digest on Welfare Innovation. Visit New Economy Brief’s Resource Bank section Improving Work and Welfare for more on What Covid-19 has revealed about our labour market and social security, The future of Universal Credit, and more.

Central bank digital currencies. The Bank of England and HM Treasury will launch a consultation this year into the possibility of introducing a central bank digital currency (CBDC) in the UK. A CBDC would allow households and firms to hold digital money directly with the Bank of England. The primary motivation behind the consultation is the risk that unregulated digital currencies pose to the financial system - particularly so-called “crypto-assets” such as Bitcoin, but also planned ‘stablecoins’ such as the Facebook-backed Diem (formerly called Libra). UCL’s Josh Ryan-Collins explains how a CBDC would work, and the benefits and risks. 

• Arguments for. Simon Youel of Positive Money has called for a UK CBDC, arguing that it would provide “universal access to a secure, digital form of public money”. Central bank reserves already exist digitally, but are only accessible to commercial banks, meaning that individuals are reliant on these banks to make digital payments. In a recent report on the issue Positive Money notes that a CBDC would address the decline of physical cash and increase financial inclusion. 
• Arguments against. The House of Lords Economic Affairs Committee has also examined the subject, concluding that there is “no convincing case for why the UK needs a central bank digital currency (CBDC)”. In a survey of the various types of digital currency, including CBDCs, US economist Barry Eichengreen argues that it is not clear what problems they would solve that “can’t also be solved by suitably regulated private sector entities.” 
• Digital payments and economic justice. Rachel Statham, Lesley Rankin and Douglas Sloan evaluated digital payment systems and their effect upon the balance of economic power in a report for IPPR. They argue that the introduction of a CBDC “may offer a solution that gives consumers greater choice and control”. 
• Crypto-UBI? A CBDC could be the key to unlocking Universal Basic Income, argues Frances Coppola, the author of ‘The Case for People’s Quantitative Easing’. As the CBDC would be a ‘stablecoin’ pegged to the country’s official currency, it could be used to pay a UBI paid directly into citizens’ ‘digital wallets’, she argues. It could then be transferred to a personal bank account or used to pay for goods and services directly. Coppola suggests that UBI payments from the central bank could be varied to manage inflation. 
• Across the world. China is ramping up efforts to roll out a ‘digital yuan’ nationwide following trials in several major cities. Meanwhile, the US Federal Reserve launched a consultation into a possible US CBDC last week. The Atlantic Council has produced a map tracking the development of CBDCs across the world. 

Cryptocurrencies’ carbon footprint. Private cryptocurrencies, such as Bitcoin, have been widely criticised for their climate impact. The creation or ‘mining’ of new Bitcoins requires complex computer calculations, making it a very energy-intensive process. Bitcoin’s energy consumption is tracked by both the Bitcoin Energy Consumption Index and the Cambridge Bitcoin Electricity Consumption Index; the former estimates that its carbon footprint is now as large as Norway’s. Visual Capitalist has created several infographics comparing the carbon footprint of Bitcoin compared to gold - Bitcoin is 15 times more carbon intensive. ForexSuggest.com calculates that offsetting the carbon emissions of the top ten cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash and Litecoin, would require the planting of around 385 million trees per year. 

• Could cryptocurrencies be greened? Jeremy Hildreth in the Spectator argues that, by using renewable electricity sources, Bitcoin “could in fact prove to be an environmental solution.” A new Crypto Climate Accord aimed at improving their carbon footprint has been established by the World Economic Forum and others, but as Gillian Tett argues in the FT, greening the new currencies is not straightforward. 
• Up for debate. A New York Times podcast discusses whether ‘crypto can go green’ with datascientist and founder of the Bitcoin Energy Consumption Index Alex de Vries, co-founder of the Tezos blockchain network Kathleen Breitman, and Paul Prager, founder of the ‘green’ Bitcoin mining company Terawulf. ‍
• Kazakhstan. Kazakhstan is the second largest centre for cryptocurrency mining in the world; the recent unrest and internet blackout there led to the value of Bitcoin falling by 8%. Many ‘crypto miners’ have relocated to Kazakhstan en masse following the banning of cryptocurrency mining in China.

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Stablecoins. ‘Stablecoins’ are second generation cryptocurrencies, aimed at maintaining a stable value against official currencies; examples are Diem and Tether. Economist Barry Eichengreen explains how they work. 

• Geopolitics. Economists Luca Fantacci and Lucio Gobbi look at the potential geopolitical implications of stablecoins, arguing that such currencies could be used to circumvent economic sanctions and provide a challenge to the dominance of the US dollar in the international monetary system. For Coindesk, Tanvia Ratna argues that stablecoins could either ‘become a shadow of the existing system or a battleground of intense geopolitical currency wars’.‍

Inflation and house prices. In the quarter of a century since 1996, UK house prices have risen 161%: from around 4.5 times average household income then to around 8 times now. Despite being a major factor affecting real incomes and standards of living, house prices are not included in the Consumer Price Index, the standard indicator to measure inflation.

• House price inflation and inequality. Economist Gary Stevenson has produced an explainer video on house price inflation, its impact on the cost of living, and the wider economic implications if only certain sections of the population can afford to own their homes: “As ordinary families lose their properties and kids from richer families are able to buy them, inequality gets even worse, driving house prices up further still. This creates a worsening spiral which makes housing increasingly unaffordable to ordinary people”.
• Housing data. The Resolution Foundation publishes a dashboard of data about housing and living standards, updated quarterly alongside its Housing Outlook. 
  

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Home ownership and ‘generation rent’. House price inflation is linked to a sharp fall in home ownership, especially among young people and families with children. The Resolution Foundation’s report Hope to Buy analyses trends in home ownership among those aged under 35. Nationally, home ownership in this group fell from 51 per cent in 1989 to 28 per cent in 2019. In some regions the fall has been greater. 

• Locked out. The National Housing Federation’s assessment of housing in England finds that rising house prices and rents and an overall shortage of homes have left than 3.6m people living in overcrowded homes, 2.5m who can’t afford their rent or mortgage, and 2.5m adults living with parents, an ex-partner, or friends because they can’t afford a place of their own. 
• Intergenerational inequality. Nearly half of all housing wealth is now owned by those aged over 65, the FT reports. Political economist Keir Milburn explains in this short video the “political generation gap” between young and old, mediated by property ownership: “The material interests of older cohorts might be leading some of them to look away from the pressing crises of the present.” 
• Rent and class. Autonomy’s study on occupation, rent and class features interactive charts which unpack the relationship between occupation and housing status, particularly renting.
• Race inequality in housing. An article for Bloomberg illustrated the “ugly truth about the road to prosperity in the UK”, citing ONS data showing that the median black household has accumulated zero wealth through home ownership over the last decade, compared to £115,000 for the average white household. 

Stoking house price inflation? Over the last decade, and further since the onset of the pandemic, the Government has sought to incentivise home ownership by subsidising borrowing. At the same time, the Bank of England’s ‘quantitative easing’ programme (in which it buys government and corporate bonds to increase the flow of lending) has caused house prices, alongside other assets, to inflate. Positive Money’s Danisha Kazi explains why the “government-engineered housing boom will hold back the recovery” and increase inequality. The former Bank of England chief economist Andy Haldane described the UK housing market in 2021 as being “on fire”. 

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Meeting housing demand. To meet unmet 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. The UK Collaborative Centre for Housing Evidence has examined the relationship between housing supply and prices, and what the impact on prices would be if more homes were built.

• The developer-led model. It is widely argued that a core reason why more homes are not built is the UK's ‘developer-led’ model of housebuilding. Private developers purchase land and use it only when it is most profitable and for homes largely aimed at better-off buyers. Manchester Business School’s Karel Williams explains how this has worked in Manchester. (Longer paper here.) 
• Affordable homes. A report from NEF finds that social and affordable housing is at risk of being squeezed out of new developments by developers worried about profit margins. 
• Sustainable housing. The Women’s Budget Group has published Rethinking Housing Supply and Design, a policy paper calling for green housing plans that reverse gender inequalities and enshrine sustainable housing as a right rather than a financial asset. Recommendations include returning land to local councils and community land trusts, including women in planning decisions, and ensuring housing design is responsive to the needs of carers and diverse households. 
• Public buy-outs? Researcher Joe Bilsborough proposes a public sector ‘buy out’ of properties in the private rented sector to rent them out as council homes.
  

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Controlling house prices and rents. Many economists argue that building homes, though important, will not control house prices or rents. The primary problem is on the demand side, where policy support for home ownership, along with the increasing use of housing as an asset (including the now major rent-to-buy market), have forced prices upwards. In their book Rethinking the Economics of Land and Housing, Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane explore the relationship between the financial system, housing and land: their argument is summarised in this review for the LSE Review of Books.

• House price inflation targeting by central banks. One policy solution, proposed by IPPR, would be for the Bank of England to have a house price inflation target (p27 of the report) in the same way that it has a general inflation target. This would require it to dampen house price demand when prices were rising, and to give guidance to the Government on how they could avoid stoking higher house prices. IPPR has set out the argument in terms of a wider analysis of the UK’s “broken land market”. The European Central Bank (ECB) last year announced a change to its core mandate of price stability to include climate change and housing costs.
• ‍Rent controls. Rent controls are a form of price control which are used in many cities across the world to prevent housing becoming unaffordable. Economist J W Mason explains how and when they work (for a wider survey of the evidence see this by the Economics Observatory). The Guardian reports on the use of rent controls in Berlin, and their recent defeat in a constitutional court. 
  

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‘Rentier capitalism’? Consistent house price inflation is one of the phenomena which have led the western economic model (particularly in the UK and US) to be described as ‘rentier capitalism’. By this is meant, economies dominated by a concentrated distribution of property ownership, where individuals and businesses with market power are able to extract ‘rents’, or unearned income. Recent books by Brett Christophers and Guy Standing, reviewed here and here, have set out the evidence and arguments. (Here is a short video explainer of the concept.) For a more detailed analysis, read Christine Berry’s series for Autonomy on the ‘landlord economy’: “an economic system built on rising asset prices (especially in housing), and a political system structurally favouring their owners”.

• Housing and financialisation. 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.
• Government policy. Researcher Joe Bilsborough explains in Tribune how “For decades, Britain's governments have designed public policy to benefit property owners and landlords to the detriment of everyone else.” 
• Covid policy. IPPR analysed the government’s emergency policies during the early stages of the pandemic and explained how they aligned with rentier interests. 

More resources. For more resources on housing market reform and the wider economics of land and housing, visit our Resource Bank page.

Living standards squeezed. The Resolution Foundation has dubbed 2022 as the “year of the squeeze”. It calculates that persistent inflation, including the predicted increase in the household energy price cap by over 50% and alongside the rise in National Insurance Contributions (NICs) - both of which come into effect in April - will reduce annual disposable incomes this year by an average of £1,200 per household.

• Cost of living pressures. NEF calculates that in the two years since the last election, the poorest half of UK households have become £110 per year worse off on average, whilst the richest 5% have gained £3,300 per year. The number of people living in relative poverty has risen by 300,000. Economist Jonathan Portes points out that real wages are now falling as inflation exceeds earnings growth. The IFS forecasts that real wages are expected to remain stagnant until 2026, a near 20 year stagnation of incomes since 2008. 
• Political consequences. The Guardian’s Aditya Chakrabortty argues that “the cost of living crisis is going to upend British politics in 2022”, calling it a “recipe for widespread deprivation and massive political turbulence. It also blows apart the electoral coalition that handed Johnson his landslide”. Aware that the energy price cap and NICs rise will arrive just before the local elections on 5th May, Conservative MPs are reported to be increasingly anxious. Leader of the House Jacob Rees-Mogg has urged the Chancellor to scrap the planned increase in NICs, while the Net Zero Scrutiny Group (NZSG) of Tory MPs and peers has called for the green levies funding renewable energy and energy efficiency and the 5% VAT on energy bills to be scrapped. (For more information on the Net Zero Scrutiny Group, see this analysis by the Grantham Research Institute’s Bob Ward.)  

Inflation driven by rising cost of energy. Age UK estimates that 150,000 older households are likely to fall into fuel poverty this winter because of soaring energy prices. National Energy Action have warned that fuel poverty could rise by 1.5 million to 6 million households, which would be the highest level since records began in 1996. They are campaigning to expand the Warm Home Discount scheme and Winter Fuel payments (and other proposals) to address fuel poverty.

• Monopoly power and the ‘Big 6’. The FT’s Chris Giles called for “another shake up” of the energy industry and its regulator Ofgem, explaining that “the chronic problem in UK retail energy markets is that bills are likely to remain high for some time after a failure of regulation to foster competition in the public interest.” The government has recently opened a policy consultation on the future of the energy retail market (call for evidence deadline January 16th). 
• Protecting the most vulnerable. National Energy Action’s Peter Smith calls for an expanded role for Ofgem to better identify financial vulnerability and provide deeper price protection for the most vulnerable through a mandatory “social tariff”. 
• Energy efficiency. The Conservative Environment Network (CEN) is urging ministers to reduce bills and emissions in the long term by ensuring the UK's homes are better insulated. The call is endorsed by the Energy Efficiency Infrastructure Group, an alliance of businesses and charities, in a letter to the Prime Minister. NEF’s Great Homes Upgrade campaign brings together a range of resources on household energy efficiency. 

Labour’s proposals. The Labour Party has proposed a windfall tax on the profits of North Sea oil and gas producers to fund measures to reduce household energy bills. Its measures would include removing VAT on energy for a year and spending an extra £3.5bn on the Warm Homes Discount, increasing it from £140 to £400 a year, while doubling the number of vulnerable households eligible to 9.3 million. It would also remove from bills the cost of transferring consumers of failed companies. Labour calculates that its plan would save most households about £200, while targeted support to low earners, pensioners and the “squeezed middle” would save them £600. Ed Miliband's op-Ed for the Guardian outlined Labour's proposals and criticised the government for failing to regulate the energy market over the last decade.

Can price controls tackle inflation? Political economist Isabella Weber argues that strategic price controls are an option for tackling inflation when it is being driven by increase in the price of specific goods such as energy. Price controls would avoid the risk of causing a recession, unlike conventional inflation control policies such as raising interest rates and fiscal constraint. “Price controls would buy time to deal with bottlenecks that will continue as long as the pandemic prevails. Strategic price controls could also contribute to the monetary stability needed to mobilize public investments towards economic resilience, climate change mitigation and carbon-neutrality.” Weber’s article sparked a sharp response on Twitter (since deleted) from the Keynesian Nobel prize winner Paul Krugman, which in turn provoked a strong defence by fellow economists Stephanie Kelton and James Galbraith. Noah Smith outlined the argument against price controls to fight inflation on his blog.

• Price controls in US history. The Roosevelt Institute’s J.W. Mason and Lauren Melodia identify price controls as a useful tool for controlling inflation in periods of economic recovery. The Harvard Law Review has published a useful note on the legal history and economic theory of price controls, arguing that “price controls, whatever their merits as policy, represent an unusually direct challenge to neoliberalism’s central economic and political premises”.  
• UK price controls. Positive Money’s Simon Youel explored the value of price controls to ease the drivers of UK inflation in specific goods: “Dealing with inflation isn’t a costless exercise, but price controls put the burden on corporate profiteers rather than ordinary workers and households.” 
• The energy price cap. Ofgem’s energy price cap is a form of price control. It limits the unit rate which suppliers can charge consumers for their energy bills in their ‘default’ or basic tariffs. It is revised annually to take account of wholesale energy costs. Ofgem sets out how it works. 

Scottish budget. The Scottish government published its 2022-23 budget last week: the first SNP-Green budget since the coalition was formed in August. Deputy First Minister John Swinney MSP called the budget a ‘bold package to tackle child poverty, address climate change and support economic recovery’. However, despite having the biggest pot of money available for a Scottish budget in 20 years, Nicola Sturgeon admitted that some announcements were ‘tough choices’, given the likely pressures on Scottish finances over the next few years.

• Key announcements. Scottish Child Payment was doubled to £20 per week, an additional £18 billion was provided for health and social care (including £1.2 billion for mental health) and the council tax freeze was scrapped.
• Green influence? The top line on climate was that the budget contained £2 billion in low-carbon spending. Environmental measures included £53 million to ‘protect and restore’ nature, including the 1 in 9 species in Scotland that are threatened with extinction, and £150 million for ‘walking, wheeling and cycling infrastructure’. The New Statesman’s Chris Deerin argued that the influence of the Scottish Greens was ‘visible’, but not particularly radical.
• Social care minimum wage. The Scottish government raised the minimum wage for social care workers to £10.50, having implemented a £10.02 wage floor for workers in October (the national minimum wage in the UK will rise to £9.50 in April). Labour and the Liberal Democrats said the 48p rise in pay for social care workers was insufficient. 
• Tax rises? Scottish income tax remains unchanged, with starter and basic rates increasing in line with inflation and higher rates frozen at current levels meaning that more people will enter the higher tax band. Councils will also be given complete autonomy to set council tax rates from next year, drawing criticism from opposition parties who fear this will ‘hit people in the pocket’.
• Women. The Scottish Women's Budget Group have provided an in-depth analysis of the budget. They welcome measures such as the increase in Scottish Child Benefit but argue that investment in social care needs to go further.

Community wealth building. Scotland is the first national government to adopt an explicit community wealth building approach in the UK. Its states this  central to its plans for a ‘wellbeing economy’. CLES has more detail here. The ‘Higgins report’, which analysed Scotland’s economic prospects in the context of the Covid-19 pandemic, also highlighted the need for community wealth building. 

• Wales. The Welsh Government centres community wealth building in its procurement strategy. This involves ensuring that opportunities for local suppliers are embedded in tenders put out by public service boards and key local institutions. 
• North Ayrshire. In 2020, North Ayrshire became the first council in Scotland formally to adopt a strategy of community wealth building. Rethinking Poverty has explored the North Ayrshire model here.
• Community right to buy. CLES advocates a ‘community right to buy’ for local assets, not merely a ‘community right to bid’ for services model, citing Scotland as an example of good practice. As part of this, communities in Scotland can apply to register an interest in land and have an opportunity to buy it when it comes up for sale.
  
  

Just transition. The Scottish budget mentioned a ‘just transition’ 20 times, including a reminder of Scotland’s £500 million Just Transition Fund primarily aimed at supporting oil and gas workers in the north east and Moray region. In 2018, the Scottish Government set up a Just Transition Commission. However, environmentalists and trade unionists have said that the commission’s recommendations are too often ignored. 

• Renewables manufacturing. The New Economics Foundation have published a paper suggesting ways in which the Scottish Government can deliver its bold ambitions through investment in renewables manufacturing.
• Wales. The Welsh TUC have set out a five-point plan for a just transition to net zero. The Wales Centre for Public Policy also explores ways to achieve a just transition in Wales.

Universal Basic Income. A proposed trial for Universal Basic Income (UBI) in Wales has been described as ‘one of the most eye-catching Welsh government proposals of recent times’.  Welsh Future Generations Commissioner, Sophie Howe, said that UBI would cut poverty in half. Autonomy finds that UBI could cut child poverty by 64% and pensioner poverty by 61%.

• Care leavers. Welsh first Minister Mark Drakeford has suggested that a trial could focus on young people leaving care. However Stephen Crabb, Conservative MP for Preseli Prembrokeshire, said that proposals to trial UBI on care leavers miss the point of universality. Contributor of the IWA's publication, The Welsh Agenda, Dr John Ball also says that UBI trials will fail if they are not truly universal.
• Public backing. 69% of the public support trialing UBI in Wales and 67% support the Welsh Government increasing taxes on the very rich, according to a poll conducted by Autonomy.
• Northern Ireland. Belfast City Council have approved funding for a study looking into the practicalities of a local UBI trial. The DUP has voiced opposition to UBI and the study will not be funded by Stormont.

Deregulation after Brexit. The idea that the UK could flourish outside the EU as a low-tax, low-regulation, high-growth state is one which drove many Eurosceptics in the decades preceding the Brexit referendum, and has characterised the debates on the right that have taken place since about the extent of regulatory alignment the UK should have with the EU. Proponents of this view, including Lord Frost, Boris Johnson’s chief negotiator, were determined that the UK’s negotiations with the EU should avoid commitments that would limit the ability of the UK to compete on regulatory standards or on tax levels. They argued that the EU’s bargaining position was driven by fear of being out-competed by a newly unshackled UK. 

• New push. A new paper from the Adam Smith Institute attempts to give definition to this argument, calling 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. The author Bryan Cheang does acknowledge that there are significant political and cultural differences between the two countries.
• Scunthorpe? Writing in the Telegraph, City economist Roger Bootle welcomes the new push from the ASI, heralding it as an antidote to the current trajectory of tax rises and state expenditure, which he says puts the UK more on a trajectory of Scunthorpe than Singapore.
• ‍Divergence tracker. UK in a Changing Europe publishes an updated ‘UK-EU regulatory divergence tracker’ to identify how Brexit is being implemented in this field. 

Impossible and undesirable? While the goal of transforming the UK into a deregulated haven off the coast of Europe has animated some, there are plenty who have argued that this is neither possible nor desirable. Writing at the height of the Brexit debates, former FT journalist Jeevan Vasagar argued that the vision of Singapore held up by UK free-marketeers did not represent the reality of the city state. 

• Delusion. The Financial Times’ chief economic commentator Martin Wolf concluded that it is unrealistic to expect that the UK could ever approximate the Singapore economic model. Wolf highlights the extraordinary level of personal savings enabled by Singapore’s Central Provident Fund, which compels employers and workers to contribute 37% of their income for social insurance, health and pensions. This is the key to understanding the country’s apparently low level of public spending.
• Race to the bottom. Labour economist Charles Woolfson argues that Singapore-style regulation is often code for a ‘race to the bottom’, particularly in relation to labour standards and the welfare system.
• Business view. Businesses do not necessarily welcome an attempt to out-compete the EU on low taxes and deregulation. UK business leaders warned during the Brexit process that they opposed regulatory divergence, even if it also brought lower tax rates. They warned that regulatory divergence would adds to costs, introduce frictions in labour markets and supply chains and raises prices. The Tony Blair Institute has explored a middle ground.
• Singapore: an entrepreneurial state? The Institute of Government’s Jill Rutter argues that the wrong model is being learned from Singapore. It is the city-state’s belief in state-supported business innovation which marks it out: more Mariana Mazzucato than Adam Smith.‍

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The Government’s deregulatory agenda. It is not clear how far the Singapore-on-Thames model seriously informs government thinking about the UK’s economic future, particularly given the impact of the Covid pandemic, which has delayed and derailed many of its policy objectives. However there are some areas where a deregulatory agenda is being pursued. 

• Freeports. The government is committed to opening 8 new freeports across the UK, giving businesses locating in them gain tax and planning benefits. However the policy has been delayed amid rumours that the Treasury are sceptical about the economics. This is a point that has long been made by tax justice campaigners, who argue that these zones simply relocate economic activity and allow the wealthy to avoid taxes.
• Financial sector competitiveness. The Chancellor has announced his commitment to improve the ‘competitiveness’ of the financial sector through deregulation. But this agenda carries significant risks, including risky de-regulation and the possibility of regulatory capture, according to Marloes Nicholls from the Finance Innovation Lab. The Lab’s ‘Transforming Finance’ project produces a range of resources both on the Government’s proposals and the alternatives. 

New variant. The World Health Organisation (WHO) has classified the new Omicron Covid-19 variant as a ‘variant of concern’ due in part to its ‘unprecedented’ number of spike mutations, which gives it the potential to escape protection against immunity induced by vaccines and previous infections.  

• South Africa and travel bans. South Africa has invested heavily in genomic sequencing, which is why scientists in the country were able to spot the new Omicron variant so swiftly. This also means that it should be easier to create updated vaccines if needed. However, the reaction of many countries (including the UK) has been to introduce travel bans from South Africa and neighbouring countries. South African President Cyril Ramaphosa criticised this, saying it would impose heavy costs on the country and would discourage those who find such mutations from sharing their findings with the rest of the world. 

Global vaccination. Gordon Brown has renewed his criticism of rich countries for hoarding vaccine supplies when vaccination rates in the global South remain low. “The failure to put vaccines into the arms of people in the developing world is now coming back to haunt us.”  With enough vaccines (2 billion a month) now being manufactured to vaccinate the whole world, the problem is one of distribution. In June, the G7 countries promised to donate their surplus vaccines to the global South. Brown set out “the arithmetic of failure”: the US has so far delivered only 25% of the vaccines it promised, the European Union 19%, the UK just 11%. The UK threw away 600,000 vaccines in the summer which had passed their expiry date. 

• Vaccination rates. In the lowest income countries, double-vaccination rates are as low as 3%. The New York Times publishes an updated vaccination tracker. 
• Pandemic treaty. The WHO is meeting this week to discuss the proposals for a ‘pandemic treaty’ to ensure stronger coordination of national responses and greater and more urgent support to countries in need. Despite previously pushing back on calls for such a treaty to be legally binding, the US and several other countries seem to have entered the new discussions with a more open mind. ‍
• Intellectual property. The new variant has prompted renewed calls to waive intellectual property (IP) protections on Covid-19 vaccines, to enable them to be cheaply mass produced throughout the world. With the World Trade Organisation meeting next week, President Biden has renewed his call for vaccine IP protections to be waived. Global Justice Now has published a useful policy brief on the issue.  

Vaccine sell-off. The UK’s Advanced Vaccines Manufacturing and Innovation Centre has been instrumental in ramping up vaccine production. Last month science minister George Freeman MP boasted about the £215 million investment in it provided by the UK Government. This week - just as details of the new variant were emerging - the Financial Times revealed that the Government is now going to sell it to the private sector. The decision attracted much criticism on Twitter. 

The new normal? With vaccines not yet widely available globally and as new variants continue to develop, the Progressive Economy Forum’s James Meadway explored how the economy may adapt to a more permanent presence of Covid-19.  Capitalism’s command of labour is changing, as pandemic diseases and public health measures change the location and patterns of work. On the other side of the political spectrum, Kate Andrews in the Spectator agreed. 

• Short-time working. The TUC argues that the Government should introduce a permanent short-time work scheme for future periods of economic turbulence, drawing on the success of the Coronavirus Job Retention Scheme. 23 countries in the OECD had similar schemes in place before the pandemic. 

Sick pay and income support. With cases of the new variant set to grow in number over the coming weeks, questions have already been raised over whether those who cannot work due to self-isolation will be properly supported. 

• Living sick pay? Pandemic restrictions over the last two years have drawn attention to the issue of statutory sick pay (SSP) reform. The Fabian Society suggested several potential reforms earlier this year. The TUC, which commissioned the research, call for SSP to match the Real Living Wage.
• Equalities. Calls for sick pay to match the Real Living Wage were also backed by a report on the impacts of Covid-19 on paid and unpaid work, by the Women’s Budget Group, the University of Nottingham and the University of Warwick. The report found that the largest economic burden of the pandemic has been experienced by working class women. 
  

North of England rail investment plans. The Government released its Integrated Rail Plan for the North and Midlands last week, a proposal for £96bn in rail spending covering HS2, Northern Powerhouse Rail and Midlands Rail Hub. However previously announced plans for the first two were significantly cut (Guardian summary here), with the eastern leg of HS2, formerly due to go to Leeds and Sheffield, now to terminate in the East Midlands; and the Leeds-Manchester high speed line (via Bradford) abandoned altogether. The Government justified the cuts by saying that the new plans would enable more local services to be upgraded, with the benefits arriving sooner. 

• Criticism. The plan was criticised by Northern mayors in an open letter to the Prime Minister, describing it as “contrary to your ambition to ‘level-up’ the North” and running the risk of “holding back our regional economies and compromising our plans to cut carbon emissions.” Tony Danker, director of the CBI, said that Northern businesses were “upset” and “bruised” by the decision. 
• Political pressure. Jake Berry MP, chair of the Conservative Party’s Northern Research Group, reminded the Prime Minister of his 2019 Manifesto Commitment to deliver Northern Powerhouse Rail in last week’s PMQs. At the same time a campaign led by newspapers and media organisations based in the North of England called for greater investment in inter-city lines to and across the North, including a demand to deliver Northern Powerhouse Rail in full. 

The missing money. The Northern Powerhouse Partnership calculates that the overall saving from downgrading the pledges on HS2 and NPR is £14 billion. Watch ITV’s Anushka Asthana explain the Northern Powerhouse Partnership’s analysis of the cuts.

• The North-South investment gap. IPPR North’s Marcus Johns and Arianna Giovannini calculate that between 2009-10 and 2019-20 the North received £349 per person in transport spending, compared to £864 per person in London, the equivalent of £86bn of lost investment. This would be enough to fund Transport for the North’s 30-year £70bn transport investment plan, which it is estimated could create 850,000 jobs. Onward’s dataset showing how many jobs are reachable by car and public transport reveals “a shocking transport gap between North and South”. 
• The wider context. CLES’s Tom Lloyd Goodwin examines the problems of the rail franchise system and why alternative ownership models can strengthen local economies. Common Wealth explains in a briefing why reshaping the ownership and an operation of bus networks would help build more vibrant local economies and thriving high streets. For more on levelling up and regional inequality see our previous Digest. 

Sunak’s investment cap. The New Statesman’s Stephen Bush blamed “Rishi Sunak’s self-imposed straitjacket on infrastructure spending” for the cuts, with the Chancellor in his Budget capping investment spending at 3% of GDP. The Independent reported that the Integrated Rail Plan “became a battleground to control spending by Rishi Sunak’s Treasury”. But Tim Pitt, former advisor to two Conservative Chancellors, argued that “Treasury hawkishness” was not to blame. He emphasised other constraints on investment spending, such as supply constraints and value for money. 

• A bad fiscal rule? James Meadway argues that the 3% investment cap should be scrapped to prevent future economic damage to the North and to the government’s net zero strategy. Oxford economist Simon Wren-Lewis agreed that the rule unnecessarily constrains good public investment projects.
• Reforming fiscal rules. NEF argues that the government’s fiscal rules should be replaced by a new framework. They propose a Fiscal Policy Committee (FPC) housed at the Office for Budget Responsibility or other third-party institution, appointed by government and parliament and guided by a set of ‘fiscal principles’. The FPC’s mandate would be based on resource constraints, full capacity utilisation, the private sector balance sheet position, and public sector net worth. NEF’s Frank van Lerven summarised the report in a Twitter thread. For a broader look at how fiscal rules have developed over time and how they might be reformed, the National Institute of Economic and Social Research has published an e-book on Designing a New Fiscal Framework, written with former ministers, central bankers and civil servants.  

The Glasgow Climate Pact. COP26 closed late on Saturday with the adoption of the ‘Glasgow Climate Pact’ by the 197 parties (196 countries and the EU) to the UN Framework Convention on Climate Change (UNFCCC). The full text of the main Pact is here. 

• Main elements. Carbon Brief have written a comprehensive analysis of the Glasgow Pact and other COP26 decisions and announcements. New Economy Brief Managing Editor Michael Jacobs summarised the main elements of the Pact in a Twitter thread. 
• Reaction. UN Secretary-General Antonio Guterres issued a sober welcome for the agreement. “Our fragile planet is hanging by a thread. We are still knocking on the door of climate catastrophe. It is time to go into emergency mode — or our chance of reaching net zero will itself be zero.” Edie collated reactions from civil society organisations including Greenpeace, WWF, the Corporate Leaders Group and C40. ECIU’s Sepi Golzari-Munro tweeted a short evaluation of the deal and European Climate Foundation head Laurence Tubiana set out priorities for COP27, which will take place in Egypt in November 2022.

Mitigation and returning in 2022. On emissions reduction (‘mitigation’), the agreement acknowledges that current national commitments are insufficient to put the world on a pathway to limiting global heating to 1.5C above pre-industrial levels. It instructs countries to come back in 2022 with strengthened commitments for 2030, in line with the “well below 2C” and ideally 1.5C goals set out in the 2015 Paris Climate Agreement. The planet is already 1.2C warmer: NASA’s Earth Observatory explains what rising average global temperature means. 

• Commitments and projected temperature rises. Almost all major countries had already announced their commitments ('nationally determined contributions' or NDCs) before COP26, so they were not going to revise them at the conference. In that sense requiring countries to come back with stronger commitments next year is the most COP26 could realistically have done. Climate Action Tracker’s analysis shows that the 2030 commitments will lead to around 2.4C of warming. If longer-range ‘net zero’ targets were met, warming could be limited to 1.8C, but these pledges are not backed by credible policy. Climate Resource’s NDC factsheets tell you more than you need to know about all 192 NDCs so far submitted, and the temperature increases to which they might lead. (Twitter thread explainer here)
• What happens next? There is no guarantee that countries will come back in 2022 with sufficiently strong commitments to meet the 1.5C limit. In practice this will depend on domestic political pressures in every major emitting country - both for and against greater ambition. BusinessGreen’s James Murray argues that the agreement “creates a moment every year when governments will face intense public and geopolitical pressure to strengthen their decarbonisation plans”. In the UK, NEON’s recent polling shows that the UK public supports strong domestic climate action.  
• Do international agreements make any difference? Climate writer David Voltz explains what a global climate treaty can and can’t do: “COP agreements can't make anyone do anything or punish anyone for failure...The action is in domestic national politics.” In an analysis of the Glasgow outcome, Michael Jacobs explains how climate agreements since Copenhagen in 2009 have forced countries to act simultaneously, contributing to the creation of global markets in green technologies which have resulted in much lower costs, enabling stronger action.
• Sectoral agreements. COP26 saw a number of sectoral agreements signed between groups of countries and the private sector, notably on deforestation, methane, transport, coal, green technology and finance. Carbon Brief explains. If fully implemented, Climate Action Tracker estimates that they could close the emissions gap to a 1.5C path by 9%. (See last week’s digest for more analysis of these.)

Fossil fuels. The Glasgow Climate Pact calls for “accelerating efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies.” No dates for this are given, but Greenpeace and others hailed the first ever mention of reducing fossil fuels in a COP document as a signal that “the era of coal is ending.” International lawyer Harro van Asselt explains why the text is significant even if it is weaker than hoped. 

• Coal. Coal-fired power stations remain the bedrock of electricity production in many countries, particularly those with their own coal reserves. In many countries new power generation comes mostly or exclusively from renewables (wind and solar), and old coal-fired power is being phased out. But as the Centre for Research on Energy and Clean Air explains, the expansion of largely new (and more efficient) coal in China offsets declines elsewhere. The reference to “unabated” coal in the text means that coal plants fitted with carbon capture and storage (CCS) technology are exempt from the phase down. CCS can reduce emissions by around 80%, but is costly and still rarely used.  
• Fossil fuel subsidies. The reference to “inefficient” fossil fuel subsidies mirrors the language adopted in recent G20 communiques, which has provided a get-out clause for almost all countries. Some countries (such as India) defend consumer subsidies, since they make energy cheaper for the poor (though also for the rich). The IMF calculates that, globally, fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of global GDP. Around 8% of this reflects explicit subsidies (undercharging for supply costs); 92% reflects estimates for the undercharging of environmental costs, tax breaks and foregone consumption taxes like VAT (implicit subsidies). The Guardian explains. The Overseas Development Institute has a complete run-down of fossil fuel subsidies in G20 countries and progress towards phasing out. 
• Just transition. The Glasgow Pact recognises “the need for support towards a just transition”. The concept of a just transition - invented by the trade union movement - expresses the importance of supporting workers and communities adversely affected by green policies (such as those in fossil fuel and high carbon sectors). The International Trade Union Confederation’s Just Transition Centre provides a wealth of resources on the idea. Read IPPR’s plan for a managed transition for oil and gas in Scotland and the UK. 
• Oil and gas. The Glasgow Pact makes no mention of oil and gas, defended in the negotiations by the major producers including the US, Saudi Arabia and Russia. Nevertheless, taking the sectoral agreements into account as well, Oil Change International welcomed the historical significance of progress on phasing out fossil fuels. Global Justice Now’s response criticised the failure to look at how the global trade system reinforces the fossil fuel economy in arrangements such as the Energy Charter Treaty. The Treaty allows fossil fuel companies to be compensated for low-carbon policies introduced by governments: the IEA estimates it could cost the global economy as much as $100tn for lost revenue and stranded assets. (Watch Common Wealth’s explainer on how Investor-State Dispute Mechanisms enable fossil fuel companies to sue governments for climate action.)
• India and ‘watering down’. Much attention has focused on India’s role in watering down the final text from “phasing out” coal to “phasing down”. In fact it was India and China who both sought the change. ActionAid’s Brandon Wu argues that it is unfair to blame India: the problem is lack of global equity in phasing out fossil fuels in general. Wu references the Civil Society Review on a globally just fossil fuel phaseout which shows what fair shares of climate action would be, and how and why countries should phase out fossil fuels on different timelines. 
• Global fair shares. Global Justice Now’s Dorothy Guerrero explains why the choice to ‘phase down’ coal rather than oil and gas allows richer countries to escape their historical obligations. For Common Wealth, Harpreet Kaur Paul has analysed the responsibilities role of the global North due to its historic and present role in the climate crisis. Referencing Oxfam’s briefing note on per capita consumption emissions, economic anthropologist Jason Hickel explains that the emissions of the richest 10% of the global population will use up the remaining carbon budget for 1.5C, “totally irrespective of what the rest of the world does”.

Climate finance. ‘Climate finance’ refers to money provided in different forms from advanced economies to countries in the global South. (The FT explains here.) Developed countries pledged in Copenhagen in 2009 and again in the Paris Agreement that they would mobilise public and private funding of $100bn a year by 2020. They failed to hit this target (providing $80bn in 2019) but say they expect to hit it in 2023. As the Jubilee Debt Campaign noted, over 70% of this finance has been in the form of loans, not grants, which add to the debt burdens of lower income countries. 

• Total finance flows. In Glasgow developed countries resisted the demand that they make up the shortfall since 2020 by providing more in 2024 and 2025. The text sticks at $100bn a year, and sets up a new process to define how much they should pay after 2025. ‍
• Finance for adaptation. For many years poorer countries have expressed anger that around 75% of climate finance has gone to mitigation efforts, such as renewable energy, rather than on adaptation to help them cope with the climate change they are already experiencing. The recent UN Environment Programme report on financing for adaptation estimates that the costs for vulnerable countries to adapt to global warming are up to ten times higher than available funding. In the Glasgow Pact the vulnerable countries achieved their demand that developed countries should “at least double” funds for adaptation. ‍
• The overall finance package. The Glasgow Pact calls on the World Bank and other multilateral development banks to improve access to climate finance for climate-vulnerable countries, which can be penalised by their (in some cases) higher GDP per capita and perceived high-risk investment conditions. Senior COP26 adviser Amal-Lee Amin argues that COP26 has made progress. Citing the new financing and reform agreement between South Africa and several developed economies to help South Africa transition away from coal, COP26 “provides a solid foundation for a comprehensive new climate finance framework post-2025”.
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Loss and damage. In UN climate negotiations 'loss and damage' is the term used to describe the principle that rich countries should compensate poor ones for the climate costs their historical emissions have caused. For many countries in the global South this is central to climate justice. Developed countries have always resisted it; they fear it is the slippery slope to being held liable in international courts for trillions of dollars in damages. In Glasgow the vulnerable countries wanted a new financing facility to be set up for loss and damage. This was not agreed: there is to be merely a ‘dialogue' to discuss 'arrangements'. Power Shift Africa’s Mohamed Adow expressed the widespread anger at this: “The needs of the world's vulnerable people have been sacrificed on the altar of the rich world's selfishness.” Developing countries vowed to return to this at COP27 next year. 

Carbon markets. 'Carbon markets' in climate change agreements allow rich countries to buy 'offsets' (such as tree planting) to avoid the cost of reducing emissions themselves. Such markets have been controversial since first being allowed under the 1997 Kyoto Protocol. Article 6 of the Paris Climate Agreement defined them further and COP26 was meant to finalise the rules. The Glasgow Pact closes some loopholes over double-counting, and sets somewhat stronger standards for environmental integrity and protection for indigenous peoples. But there is only partial cancellation of credits left over from the old Kyoto Protocol (which many people think should simply be retired), and only a partial cap on new ones. A 5% levy to go to adaptation will cover only some trades. With two different trading systems created it is feared the weaker one will predominate. Clean Energy Wire explains what has been agreed. Carbon Markets Watch criticises it.  

And the rest. Beyond the issues mentioned above, COP26 completed the ‘Paris Rulebook’ of detailed rules to implement the Paris Agreement, such as on the transparency of national actions and measurement. This will allow for full implementation of the treaty. Some other notable developments were on:

• Special Drawing Rights. One of the most interesting developments at COP26 arose from the powerful speech (watch it here) made by the Barbados Prime Minister Mia Mottley in the Leaders’ Summit. She called for the IMF to issue annual tranches of SDRs, the global reserve currency, to finance climate-compatible development in the most vulnerable countries. Some of the SDRs issued this year in the light of the Covid pandemic are already meant to be reallocated for development (but have not yet been). Mottley’s adviser Avinash Persaud explains the new proposal.‍
• Countering greenwash. There was widespread concern in the run-up to COP26, and at it, that various companies are claiming to be committed to achieving net zero emissions but are in fact using dubious measurement and large-scale use of offsetting. (The Guardian’s Damian Carrington explains.) At COP26 the UN Secretary General announced that he was setting up an Expert Group “to propose clear standards to measure and analyse net zero commitments from non-state actors.” This was widely welcomed.

Side agreements. The first week at COP26 was dominated by a series of ‘side agreements’ choreographed by the UK Presidency. These are not formally part of the talks, but attempts to drive forward ambition in the real economy. Some observers have been pleasantly surprised by the number of countries involved in some of these and the funding committed to them. Others have warned however that many are weaker than the government has claimed. There has been a lot of criticism in particular of some of the business and financial ‘net zero’ announcements.

The ‘end of coal in sight’? Last Wednesday the UK’s Department for Business, Energy and Industrial Strategy issued a press release stating that “190 countries and organisations” had pledged to phase out coal. With countries pledging to end the use of coal-fired power stations, and both countries and banks promising to end their financing of new coal projects, the release said that “the end of coal is in sight.” 

• Missing signatories. But the statement was not all it seemed. The AFP’s Patrick Galey dug into the story to investigate who had signed up and to what (Twitter thread here.) It turned out that the new pledge had only 77 (not 190) signatories; of the 46 countries, most had already committed to phasing out coal. Of the 23 countries that made new commitments, only 13 actually use coal.  The 13 do account for 13% of coal output globally, with major users such as South Korea and Vietnam now signed up; this is definitely progress. But most of the world’s largest coal users (including China) did not. Fiona Harvey of the Guardian unpacks the Government’s spin. 

Ending deforestation by 2030? Presented as COP26’s first major deal on Monday, the UK announced an “unprecedented” plan to end (and then reverse) deforestation and land degradation by 2030. Signed by 110 countries (covering around 85% of global forests, and including Brazil, Indonesia, China, Russia and the Democratic Republic of Congo), the agreement included almost £14bn of public and private funds to restore damaged land, tackle wildfires and support indigenous communities.

• You didn’t hear it here first. Observers pointed to a remarkably similar pledge, the New York Declaration on Forests, made in 2014, which had 187 signatories and also committed to end deforestation by 2030. There has been little news of or accountability for what has happened since. To ensure the new pledge is more successful, the World Resources Institute's Rod Taylor said that “governments must implement a step-change in transparency to include full disclosure of forest and land permits and the origins of commodities”. There needs to be more support for smaller farmers to adopt more sustainable practices, and deforestation-free agriculture needs to be embedded in trade agreements.
• Decarbonising food supply chains. 28 countries and a number of companies also committed to remove deforestation from agricultural supply chains of palm oil, cocoa and soya. Consumer demand in the UK for these high-carbon commodities has been estimated to require an area 88% of the size of the UK to produce. IPPR’s previous report on building a sustainable food system proposed policies to eliminate imported deforestation from UK food supply chains.

Methane methods. US President Joe Biden and EU President Ursua von der Leyen announced that 90 countries had agreed to cut methane emissions by 30% by 2030. Methane, produced especially from agriculture, landfill and oil and gas, is a more potent greenhouse gas than CO2, so if implemented this would be significant. Climate physicist Piers Forster analysed the likely impact. 

Fixing farming? 45 countries (or possibly 28) have committed to changing their agricultural policies to become more sustainable and less polluting, and to invest in the science needed for sustainable agriculture and the protection of food supplies against climate change. 95 major companies from a range of sectors committed at the same time to being ‘Nature Positive’, working towards halting and reversing the decline of nature by 2030. In their analysis of farming and climate change, Republic of Buzz argued that agriculture represented the “cow in the room” at COP26.   

Green technology ‘breakthrough’? 40 countries, accounting for more than 70% of the global economy, have signed up to coordinate the global introduction of clean technologies, starting with zero-carbon electricity, electric vehicles, green steel, hydrogen and sustainable farming. Governments agreed to align their standards and coordinate investments to scale and speed up production. The aim of the ‘Glasgow Breakthroughs’ is to accelerate the ‘tipping point’ when greener technologies become more affordable and accessible than fossil-fueled alternatives. 

Glasgow Financial Alliance for Net Zero. Former Governor of the Bank of England Mark Carney announced that financial institutions with $130tn of assets would align their portfolios with the Paris Agreement’s goal to limit global warming to 1.5°C. The Glasgow Financial Alliance for Net Zero (GFANZ) includes more than 450 banks, pension funds, insurers and asset managers across 45 countries and covers 40% of global financial assets.

• Inflated figures. Carney’s announcement came under rapid criticism. The FT explained the many ways in which the $130tn figure is inflated. Only a small proportion of the $130 trillion is actually being directed towards green investment. Many of the company signatories will continue to invest in fossil fuels. 
• Fossil fuel investments will continue. Analysts at Reclaim Finance said that by failing to mandate a halt to investments in fossil fuel expansion, GFANZ could not say it was contributing to the 1.5C goal. The International Energy Agency (IEA) has shown that new fossil fuel investment must halt now if global heating is to be kept under 1.5°C. (Read Reclaim Finance’s full report on net zero and the finance sector.) 
• Greenwashing. For the finance sector to say it is committed to net zero depends on the credibility of the net zero claims made by the companies whose shares it owns. Greenpeace protested at the GFANZ launch on the ‘greenwashing’ involved in using carbon ‘offsets’ to ‘achieve’ net zero. Earth.org presents a handy guide to greenwashing.
• Oily. Global Witness noted that the fossil fuel industry has more lobbyists at COP26 than any country has delegates.  

Is 1.5°C still within reach? Prior to COP26, the UN warned that the ‘nationally determined contributions’ (NDCs) which countries had made for 2030 added up to a global emissions total which would likely put global temperatures on a trajectory to a 2.7°C rise. Much attention was taken in the first week when Fatih Birol, Director of the IEA, tweeted that the side agreements announced could limit heating to 1.8°C. But this was quickly criticised. 

• Don’t confuse pledges with policies. Breaking down the “temperature estimates bonanza”, UNclimatesummit.org found that the 1.8°C figure came with a huge caveat: it would only be true if all pledges were implemented in full and on time. This was largely missing from celebratory media commentary in the UK. ECIU’s Richard Black argues that “pledges don’t cut emissions - policies do. And on the basis of announced policies, we’re still heading for something like the 2.7°C”. 
• Serious analysis. The first serious analysis of the COP26 pledges has come with the release of a new report by the respected scientific NGO Climate Action Tracker. It notes that the absence of policy detail in the COP26 side agreements and in many countries’ NDCs make the 1.8C claim implausible. COP26 has a “massive credibility, action and commitment gap,” the report says. With all target pledges, including those made in Glasgow, global greenhouse gas emissions in 2030 will still be around twice as high as necessary for the 1.5°C limit, with 2.4C the most likely temperature rise by 2100. Climate Action Tracker's Bill Hare and Niklas Höhne explain their findings.
• Closing the emissions gap. With current pledges inadequate to closing the emissions gap to a 1.5°C pathway, two proposals have been put forward. The group of 55 of the most climate-affected countries, the Climate Vulnerable Forum (CVF), has suggested a voluntary annual platform at COPs at which countries - and potentially the side agreements - could add to the ambition of their NDCs. Former UN chief Christiana Figueres has proposed that, rather than countries presenting new NDCs in 2025, as required by the Paris Agreement, COP26 should bring this forward to 2023. The two proposals are not mutually exclusive. Michael Jacobs, New Economy Brief Managing Editor, explains the two proposals to 'keep 1.5°C alive' in the final days of the summit.

Closing the finance gap. On climate finance, the CVF are also demanding that (a) the rich countries provide $500bn over the five years 2020-2024; (b) 50% of this is for adaptation; (c) there is an annual accountability mechanism to see exactly where the money has gone. The $100bn financing goal for 2020 agreed in Paris is not expected to be met till 2023, so the $500bn would entail more than this in 2024 and 2025.

• Importance. A new report from Christian Aid outlines why the most vulnerable countries need more money, particularly for adaptation. UNCTAD’s Trade and Development Report 2021 found that adaptation costs have doubled in the last decade and the costs may reach $300bn a year by 2030. ‍
• Financial realities. Power Shift Africa’s Mohamed Adow explains what the climate finance debate is really about, which isn’t the PR-focused, private-sector-led announcements being made at COP26.

A tax and spend budget? Last week Chancellor Rishi Sunak announced £70bn of additional spending over the next three years, taking real term spending per head back up to 2009/10 levels by 2024. Full Budget and SR documents here.

• Austerity repudiated. In its analysis, the IFS suggested that “fiscally speaking this year will go down as a once in a decade event...when public spending was increased across the board” - by 2024-25, an 8.3% real terms increase on 2009-10. A Keynesian-style spending budget when debt is still high and the recovery not yet consolidated could be seen as a tacit acknowledgement that austerity in 2010-13 was a mistake: the opposite choice was made by George Osborne then.
• The tax share. Sunak’s Budget speech did not mention what was in fact its most significant measure, the rise in National Insurance contributions (subsequently to be turned into a new ‘Health and Social Care Levy’) he had already announced. As the Resolution Foundation noted in its analysis, along with the rise in corporation tax and freeze in income tax thresholds announced in the spring, this will take the share of tax in GDP (sometimes called the ‘tax burden’) from 34% to 36.2% in 2026-27. The tax share will then be at its highest level since 1950.
• Post-neoliberalism and the free-market right. The Adam Smith Institute’s response criticised “this high-tax, big-spending budget...largely bankrupt of inspired policy”. Similarly, the TaxPayers’ Alliance took aim at the “highest tax burden in 53 years”, while the Institute for Economic Affairs was disappointed that “there is no plan to run a budget surplus in the coming years”. 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”.

“Austerity is over, but not undone”. The IFS’s Ben Zaranko suggested that spending increases mean “austerity is over, but not undone”. Though departmental spending is set to rise across the board until 2024-25, only the Department of Health and Social Care (42.4%) and Education (2.4%) will see their Budgets higher than 2009-10 levels. In its response to the Budget, the Women’s Budget Group argues that “the increase in spending will not take most departments back to pre-2010 funding levels… nor will it repair the damage done to the public sector after a decade of successive cuts.”

Universal Credit. Another Budget measure which the Chancellor did not mention in his speech was the removal of the £20 a week Universal Credit (UC) uplift. Instead, Sunak announced that he was changing the Universal Credit ‘taper rate’, under which UC is reduced as claimants work more hours. The taper rate (which effectively operates like a marginal tax rate on income from work) would fall from from 63% to 55%. Analysts noted that this would compensate for the uplift cut for only about 25% of UC claimants. NEF pointed out that the poorest 20% of people will be receiving £380 per year less from Universal Credit than if the £20 uplift had stayed in place, pushing 300,000 more people into poverty this winter. JRF’s Katie Schmuecker said “Lowering the taper is a good thing to do, but it’s no substitute for the basic level of protection we all need social security to provide”. In his speech Sunak described the UC taper rate change as a “tax cut”. Several observers noted that, if the Chancellor concedes that the taper rate is a tax on work, it was hard to justify it being even 55%, well above the top rate of income tax. 

Distributional impacts. Economist Jonathan Portes argued that the overall impact of the Budget’s welfare, tax and spending decisions on different income deciles was “broadly progressive”, as ‘benefits in-kind’ from public services largely accrue to those on lower incomes. However, NEF’s Alfie Stirling points out that once you take into account the cutting of the £20 uplift to Universal Credit, all of the net gains in the bottom end of the income distribution are reversed. 

Rise in minimum wage. The Chancellor announced a 6.6% rise in the National Living Wage, from £8.91 per hour to £9.50 per hour, following recommendations made by the Low Pay Commission.

• Responses. In its response statement, Graham Griffiths, director of the Living Wage Foundation, drew attention to the “substantial gap” between the real Living Wage and the government-mandated minimum wage, which employers can still give. Autonomy argued that a national minimum wage of £10.50 per hour is “eminently achievable” by “shaving the incomes off the top 1.23% of the workforce” and could give a pay rise to 4 million people. 
• A ‘high-wage economy’? The TUC’s chief economist Geoff Tily pointed out argued showed that a rise in the minimum wage isn’t enough to secure decent pay across the economy. The IFS calculated that, given higher inflation, the average household is set to be £13,000 worse off by the middle of the decade, an “unprecedented two-decade hit to earnings [that] would leave average household disposable income 42% lower than it would have been had wages grown at pre-2008 financial crisis rates”. The IFS’s forecast for stagnant real wage growth put into question Sunak’s optimism about a transition to a new, high-wage economy. Commenting on the forecasts, James Meadway argued that tight labour markets and growing union membership offer a route to “inflation-beating pay rises across the economy”.

Local government will continue to struggle. Local governments received an additional £4.8bn of new core funding until 2025, but the IFS warned that councils are likely to struggle without additional funding from central government, since additional revenue will be wiped out by rising inflation and higher wage costs from lifting the public sector pay freeze. 

• Levelling up funds. Sunak also announced an extra £2.6 billion for the UK Shared Prosperity Fund over the Spending Review, and allocated the first £1.25bn of the Levelling Up Fund. The Byline Times’s Sam Bright explains that the English local authorities given money have lost vastly more, £25.5bn, in spending power between 2010 and 2018. To compete for the new funds, councils must pitch economic development plans aligned with the government’s preferred economics of inward investment and agglomeration. Former CLES Director Neil McInroy explained why addressing regional inequality requires real devolution of power over economic strategy and spending decisions from Whitehall.
• Tests for the levelling up agenda. Centre-right think tank Onward’s response called on the Treasury to “publish a regional distributional analysis” to understand how tax changes affect different regions and “ensure that the levelling up agenda is not held back by the tax system.” A group of progressive economists and think tanks recently called for Equality Impact Assessments that cover all of the Treasury’s tax and spending decisions and evaluate their impact upon different regions, races, genders, and other protected groups.

Social infrastructure. The government announced that it would fund 75 ‘family hubs’ in a £500m package to provide essential services to young families. Observers noted the resemblance to the Sure Start centres set up by the Labour Government from 1997 to 2010. Government spending cuts had forced 1,300 Sure Start centres to close over the last decade. The Women’s Budget Group argued that the Government should recognise childcare as vital infrastructure, where costs can be recouped by job creation and savings on social security; an estimated 1.7 million people were prevented from taking on more paid work because of difficulty accessing childcare.

A ‘climate-void’ budget. The Chancellor announced £30bn in green investment over four years (breakdown here.). This figure is far below than the £30bn of investment every year called for by progressive think tanks and economists in their Open Letter to the Chancellor published before the Budget. NEF’s Miatta Fahnbulleh and IPPR’s Carys Roberts both referred to this in the Guardian’s panel response. With the Chancellor cutting air passenger duty on domestic flights and freezing fuel duty again (and not mentioning the word ‘climate’ at all), IPPR referred to the event as a ‘climate-void’ budget. 

Delivering the net zero transition? Last week the government published its long-awaited Net Zero Strategy, along with a variety of other plans detailing how the UK government proposes to deliver the transition to a net zero emission economy. The three main documents are the overall Net Zero Strategy: Build Back Greener, the Heat and Buildings Strategy and the Treasury’s Net Zero Review Final Report. For a short summary of policies outlined in these three documents, read this overview by the Financial Times.  

• Other net zero documents. Bringing together 19 climate-related reports published by the UK government last week, Carbon Brief’s Simon Evans collated a database of documents with links to each publication.

The Net Zero Strategy. The Net Zero Strategy outlines how the UK government plans to deliver its emissions targets of Net Zero by 2050 and a 78% reduction from 1990 to 2035. It estimates that additional capital investment must grow to “an average of £50-60bn per year through the late 2020s and 2030s”, with the private sector filling the majority of this. The Climate Change Committee’s (CCC) independent assessment concludes that it “sets an ambitious, credible path for UK decarbonisation, consistent with tough territorial emissions targets in the near and long-term that we (and others) assess to be in line with the demands of the Paris Agreement Implementation and delivery is what matters now”.

• “A very market-led strategy.” Chris Stark, the CCC’s chief executive, summarised the document as a “very market-led strategy” with “a striking use of mandates - obligations on business to deliver the change”. These include, for example, requiring car manufacturers to produce electric vehicles with a “zero-emission vehicle mandate” and mandates for boiler manufacturers to produce heat pumps. (See this box for a useful summary of the market-led policies for decarbonising each sector.) He continues: “it’s noticeable how frequently government puts the onus on business to invest and bring down the cost to the consumer. Many have criticised low public spending in some areas, but the government seem to be taking a different route. We shall see how that market-led approach fares.” 
• Public spending and delivery. ECF’s UK Director, Joss Garman, noted the continued shortfall in the overall envelope for public spending for carbon-cutting delivery, relative to what the OBR and CCC have said is needed. “The sum announced for home insulation today is billions short of Boris Johnson's promise in his own manifesto. Overall, the figures don't come close to the scale of funding Labour say they would put forward, which tees up a familiar debate on the size of the state relative to the role of the private sector, particularly in relation to insulating buildings and skilling-up the workforce.” James Meadway makes a similar argument for Novara Media. "Unless the Treasury’s attitude towards borrowing changes, the rest of the government’s decarbonisation strategy is futile. If it doesn’t have money to carry out its plans, no plans will be carried out.” 
• Briefing webinar. Join NEF’s special New Economics Briefing (Thursday 28th October 19:00-20:15) to hear what a public-sector-led decarbonisation strategy would look like and how it can be paid for. Speakers include NEF’s Frank van Lerven, UCL IIPP’s Katie Kedward, and economists Grace Blakeley and Laurie Macfarlane.

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Gaps: food, agriculture and behaviour change. Many have criticised the lack of delivery mechanisms in the Net Zero Strategy for decarbonising agriculture and land use, and the lack of emphasis on the issue of behaviour change (such as changing diets and demand for flights). 

• Decarbonising food. The Soil Association’s Rob Percival argued that the Net Zero strategy “falls short” in delivering the ambition for “an urgent transition to a nature-friendly, agro-ecological farming and sustainable diets”, as outlined in the National Food Strategy published in the Summer, which argued the UK should reduce meat consumption by a third. The UK’s demand for high-carbon commodities such as soy, palm oil, timber and beef, has been estimated to require an area of 88% of the size of the UK to produce. IPPR’s previous report on building a sustainable food system proposed policies to eliminate imported products which contribute to deforestation from UK food supply chains‍
• Behaviour change. NEF’s Alex Chapman noted how the government document Net Zero: principles for successful behaviour change initiatives has since been taken offline (but you can find it here) and previously included acknowledgement for the need for “behavioural interventions” to reduce demand for aviation. The waste advisory body WRAP has explored the possibility of consumer behaviour change and the Local Government Association and Global Good Awards have highlighted various practical projects to encourage it.

BEIS’s Heat and Buildings Strategy. The Heat and Buildings Strategy includes a target (not legally mandated) to end the sale of fossil fueled heating systems by 2035, and a £450m three year grant programme giving £5,000 to households to shift to low carbon heating systems (mainly air and ground source heat pumps). Read this commentary from Business Green.

• Not enough money. Business Green’s James Murray pointed to “serious concerns amongst policy wonks that the whole thing is badly underfunded”, particularly in support for reducing demand through higher energy efficiency. Friends of the Earth’s Mike Child’s noted that the money allocated would only pay for 90,000 heat pump installations over three years, which falls way short of the Prime Minister’s target of 600,000 a year by 2028. 
• Warmer homes for a cooler planet. IPPR’s Luke Murphy argued that a successful plan would include grants of £7,500 as well as covering the full costs for those suffering from fuel poverty, a legal commitment to phase out new boilers, a nationwide information campaign and a focus on local delivery and skills for a “retrofit army”. IPPR has provided a comprehensive plan to decarbonise the UK’s homes, setting out a blueprint for delivering a successful and fair national housing retrofit drive. Follow NEF’s campaign for a Great Homes Upgrade for more resources on decarbonising homes. ‍NEF has explained how a ‘Future Skills Scheme’ could help address the skills shortage, which it describes as a “binding constraint on decarbonisation initiatives, such as building retrofit”.

HMT’s Net Zero Review. It was widely predicted that the final report of the Treasury’s review of the costs and benefits of meeting the net zero target would focus mainly on the costs, as part of an apparent desire by Rishi Sunak to slow down the net zero momentum. But most commentators acknowledged that in the end it was a mostly reasonable assessment, suggesting that in the run up to COP26 Boris Johnson had won an internal fight with the Chancellor. 

• Public borrowing for the green transition. One interesting argument made in the review is that borrowing to finance public investment for decarbonisation would not be appropriate: “Seeking to pass the costs on to future taxpayers through borrowing would not be consistent with intergenerational fairness nor fiscal sustainability. This could also push up the economic cost of the transition.” Positive Money criticised this approach and drew attention to the need to see public spending as a “prudent investment that will pay for itself and deliver huge dividends for the whole of society”. E3G’s Heather McKay called the Review “half-baked”, overly focused on the costs over the benefits of the transition to net zero: “A Net Zero Review which considers only the upfront capital investment costs and doesn’t look at significant value that the investment will return, risks derailing the growing support for net zero investment by business and the public”. 
• Discounting the future. More generally, economist Nick Stern argues in a forthcoming academic article that conventional economic analysis, of the kind exhibited in the Treasury review, systematically undervalues the lives of young people and future generations who will experience severe climate change. 
• Loss of tax revenue. The Treasury report expresses concern that the shift away from fossil fuels will lead to a reduction in tax revenue from taxes such as fuel duty. In a response, NEF’s Lukasz Krebel argues that reduced tax revenue can be “balanced by increasing the progressivity of the tax system, such as taxing wealth, especially excessive/unearned wealth, at fairer rates”, pointing to principles for green tax reform developed by Tax Justice UK and others. The Institute for Government’s Net zero and the tax system called for a “net zero tax audit” to ensure all taxes support the green transition, rather than just the few which the Treasury define as “environmental taxes”.
• Johnson v Sunak? Commenting on recent rows between the Treasury and No.10 over increasing public investment in decarbonisation, James Meadway argued that “the left should celebrate Boris Johnson’s clash with the Treasury… Johnson will be performing a great service to any future progressive administration” if his government can reduce the institutional power of the Treasury over other departments.  IPPR’s George Dibb gave evidence to the House of Commons Treasury Committee, arguing that the “Treasury’s pound-pinching and short-termism holds back industrial policy in this country” and highlights the need for an empowered counterweight to set long-term strategic economic direction.
  

BoE signals tightening of monetary policy to combat inflation. Andrew Bailey, the governor of the Bank of England, has said that the Bank “will have to act” to curb inflationary pressure in the medium term. Financial markets have already ‘priced in’ an interest rate rise before the end of the year. 

• Inflation caused by rising energy prices and supply/labour shortages. Bailey said he continued to believe that the recent increase in inflation was temporary, but the major increase in energy prices, along with supply chain and labour shortages, would continue for some time, and there was a danger of inflationary expectations beginning to take hold. Such expectations could fuel wage demands and thereby an inflationary spiral. 

Who loses out from inflation? The Economic Policy Institute’s Josh Bivens explains why the debate about inflation and the appropriate policy response must take into account the sources of inflationary pressure. Inflation driven by commodity price rises or other transitory causes should not be met with contractionary macroeconomic policy responses. Bivens explains that the distributional impacts of inflation are not always bad, as “unexpected inflation tends to transfer wealth from lenders to debtors”.

• Effect on owners of wealth. Economist Mark Blyth explained why inflation “worries the right so much”, because it “threatens to either reduce their expected investment returns, or impact their leveraged financial strategies, as interest rates rise”. The Resolution Foundation explains that, when inflation reduces the value of loans and assets held in nominal amounts, this “effectively redistributes net wealth from savers towards borrowers”.  
• Consumption of specific baskets of goods. Economist J.W. Mason explains that rising inflation may not necessarily lead to general reduced purchasing power (or falling real wages) because people from different income groups consume different things. He notes that “the stuff that has increased in price most over the past year is disproportionately consumed by higher-income families”. 
• Alternative measures of inflation. NEF’s Real Britain Index was an attempt to provide an alternative measure to the CPI to calculate inflation for those specifically on lower incomes. The ONS has since taken up this idea to provide different measures of inflation for different income deciles. 
• Wage-price spirals. As this executive summary of a book on wage-led growth from the ILO explains, inflation driven by wage increases may lead to improvements in productivity and thereby improve GDP growth, reducing inflationary pressure as the productive capacity of the economy is increased (full book here). This has led some economists, such as James Meadway, to argue that “wage rises and mild inflation, after decades of stagnant real pay and deflationary pressure, would be no bad thing.” 

Cost of living crisis. In a Twitter thread, the New Statesman’s George Eaton notes that, even if wages are rising in some specific sectors, millions of people are facing cuts to Universal Credit, all workers will have to pay more in National Insurance contributions and 2.6 million public sector workers have had their pay frozen, meaning a cut in real terms.

• Energy prices. J W Mason (above) notes that energy price rises hurt poorer households the most, since energy makes up a larger share of consumption for lower-income families. The Resolution Foundation’s new briefing explains “how rising energy costs will impact more than others and what the Government can do about it” reinstating the £20 per week Universal Credit Uplift, increasing energy related benefits (like the Warm Homes Discount, Cold Weather Payments and Winter Fuel Payment schemes) and reducing demand by improving the energy efficiency of homes.
• Food prices. Bloomberg notes that global food prices are at their highest level in 60 years and explores possible policy responses.
• Inflation policy alternatives. For more on balanced policy responses to rising inflation, see our previous Digest.

Facebook under scrutiny. The practices of the world’s sixth largest company, Facebook,  dominated the US media last week following the revelations of a whistleblower, Frances Haugen, a former Facebook employee. Giving evidence to Congress, Haugen accused Facebook (which owns both Instagram and WhatsApp) of knowingly harming children’s mental health and fomenting violence and extremism around the world. The company puts its “astronomical profits before people”, she said. Haugen posted the video and text of her opening statement. 

• Facebook’s business model. Over the last month Haugen has leaked hundreds of internal documents to the Wall Street Journal detailing Facebook’s awareness of the damage it causes. Haugen said Facebook could act on these but does not, because “the business model of Facebook is designed to maximise attention at any cost”. She compared Facebook to the big tobacco companies who for decades concealed the evidence they had on the link between smoking and cancer. She called for Facebook’s “unaccountable” algorithms and safety practices to be regulated. 
• Reaction. Both Democrat and Republican Senators condemned Facebook’s behaviour but even relatively weak privacy legislation is currently stalled in Congress and observers do not expect serious regulation to be agreed. Facebook CEO (and 55% shareholder) Mark Zuckerberg reacted to the accusations - and to the six-hour outage which the company also experienced last week - in a blogpost. 
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Further evidence. Haugen’s evidence is the latest in a series of revelations about Facebook’s behaviour and business model, as the Washington Post and Carole Cadwalldr (the Observer journalist who broke the Cambridge Analytica story in 2018) explained.

• Quarterly harms report. A US-based NGO, the Real Facebook Oversight Board, publishes quarterly reports on Facebook’s “impact on democracy, privacy, and human life“. 
• The January 6th Capitol riots. Vice reported that Facebook had “contributed to the January 6 insurrection” by shutting down an internal team monitoring groups spreading disinformation and manipulating elections a few weeks before. The team was disbanded on the grounds that it would diminish the amount of time spent on the platform, and thereby hurt Facebook’s advertising revenue.

Big tech and monopoly power.  In October 2020, a House of Representatives antitrust subcommittee published a landmark report investigating Amazon, Apple, Google and Facebook. It argued that all four platforms abuse their monopoly or near-monopoly power to enhance their profits at the expense of competitor companies. 

• Platform capitalism. Nick Srnicek’s book Platform Capitalism offers an analysis of how the ‘platform’ business model enables digital companies to accumulate monopoly power through the ownership and sale of users’ data. He summarised his argument for IPPR. 
• Surveillance capitalism. Harvard academic Shoshana Zuboff’s book The Age of Surveillance Capitalism (summary here) details how digital platforms have created a “fundamentally anti-democratic new economic logic”. (Read this interview with the author and watch this video documentary for more.)
• Advertising models. The Open Markets Institute, the leading US campaign organisation against monopolies, summarised in a Twitter thread the way in which Facebook’s and Google’s “surveillance advertising” model invades privacy, promotes discrimination and supercharges incendiary content. 

Alternatives. Mariana Mazzucato, Rainer Kattel and colleagues at UCL explain how the state can redress the problems of the major tech companies’ monopoly power. Maximising the public and social gains of technological innovation whilst minimising their harms requires a combination of legal changes, stronger antitrust/competition regulation and changes to the ownership of data and companies. Yale University organised a timely event last week on possible legal and regulatory reforms with Facebook whistleblower Frances Hagan, Tristan Harris, subject of the Netflix documentary The Social Dilemma, Shoshana Zuboff, author of Surveillance Capitalism and other experts; you can watch it here. 

• European regulation. The European Commission has set out its plans for two Digital Services and Markets Acts to protect the rights of users and improve competition. (BBC summary here.) It has been criticised for being too weak. Signed by 69 civil society organisations representing around 29m citizens across the EU, The People’s Declaration is a letter to the EU parliament calling for “an end to Big Tech’s destructive business model which has turned our own data into weapons against us.” Reporters without Borders calls for strengthened protections for democracy and journalism. ‍
• Digital platforms as utilities. In a report written for the IPPR Commission on Economic Justice, Mat Lawrence and Laurie Laybourn-Langton argue that the major digital platforms should be regulated as utilities, with licenses to operate mandating key behaviours and an independent regulator (‘Ofdig’).  ‍
• Ownership. IPPR argues that much of the data collected by digital companies should be publicly owned, so that it can be used for general benefit. James Meadway expands on the idea of a digital commons and offers recommendations for policymakers to use industrial policy to support sustainable and commonly-owned data infrastructures. Common Wealth proposes the creation of a “democratic digital infrastructure”, while Autonomy_Digital argue that platform cooperatives offer a fairer alternative to current private business models. The City of Barcelona has been developing the idea of a digital commons in practice.
• Competition policy. The Counterbalance newsletter brings together analysis and proposals on corporate power and monopoly, and how it can be regulated through stronger competition and other policy. For more on this, see our previous Digest on competition policy.

Four principles structuring the Chancellor’s speech. Chancellor Rishi Sunak gave his first speech to the Conservative Party Conference this week (video here), structured around four overarching principles: a “pragmatic” approach to economic policy, a commitment to fiscal responsibility, a focus on jobs as a poverty alleviation strategy, and an “unshakable optimism” about the economic opportunities provided by technological progress. 

Fiscal responsibility. Sunak argued that “there can be no prosperous future unless it is built on the foundation of strong public finances”, counterposing Labour’s proposals as fiscally irresponsible.

• Debt as % of GDP. The Chancellor warned that public debt was approaching 100% of GDP. A decade ago many macroeconomists believed such a level to be damaging to economic growth. But at today’s ultra-low interest rates the cost of servicing that debt is at historic lows (Twitter thread explainer by UWE economist Jo Michell here.) So the idea that a debt level of 100% of GDP is unsustainable is now widely regarded as arbitrary and outdated. The IMF argues that fiscal rules limiting debt to GDP ratios are inappropriate in today’s conditions and should be abandoned. 
• Public investment is fiscally responsible. Cambridge economist Dimitri Zenghelis and the LSE’s Nicholas Stern explain why public investment in economic growth is key to debt sustainability: “G7 countries should increase post-pandemic public investment...recognise the potential economic and social returns to increasing public debt for the purpose of investment…[and wait] to pay off the public debt until the economy is undergoing robust growth.”
• International comparisons. Sunak boasted that the UK has “one of the fastest recoveries of any major economy in the world”. But as noted by BBC Newsnight’s economics editor Ben Chu, this is largely because UK GDP fell much more than other G7 countries during the pandemic. In terms of GDP levels, the UK has reached a level relative to its pre-crisis peak roughly equal with Italy, France and Germany. Responding to the Biden administration’s larger stimulus package, the US has now surpassed that level. (For an analysis of the US economy’s recovery, see this article from the Brookings Institution.)

Plan for Jobs. With the furlough scheme having ended on 30 September, the Chancellor said the Government would be judged on how many good jobs it creates. He pledged more than £500 million in new funding to extend the Kickstart Scheme for young people until March 2022, as well as to support workers leaving the furlough scheme and unemployed over-50s back into work. A £3,000 incentive to businesses to take on apprentices has also been extended until February 2022. Sunak promised to create 2,000 “elite ArtificiaI Intelligence scholarships” for disadvantaged young people and to double the number of  Turing AI World-Leading Research Fellows “to ensure that the most exciting industries and opportunities are open to all parts of our society’.

• Alternative support schemes. NEF estimates that the end of the furlough scheme puts over 700,000 jobs at risk of redundancy, loss of hours or loss of pay. In her response to the speech, NEF’s CEO Miatta Fahnbulleh called for a “part-work, part-train scheme” to help people in declining sectors acquire new skills for sectors that are creating jobs. The TUC has proposed a permanent short-time work scheme to limit job losses in future periods of economic turbulence, such as climate change or global financial instabilities.

Job creation and UC. Sunak defended his much-criticised refusal to keep the £20 per week uplift to Universal Credit (UC), arguing that dependency on benefits was the wrong approach to reducing poverty. He emphasised instead the government’s commitment to providing jobs. 

• In-work poverty. The Resolution Foundation’s Torsten Bell explained why cutting Universal Credit will not boost job creation or incentivise those 2.3 million claimants already looking for work. NEF’s Living Income campaign found that 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’ by 2022 if the government doesn’t change its policy. (See their recent blog on options for reforming UC). The IPPR documented the “continued rise in working poverty since the beginning of this century”, and argued that “the promise of social mobility through ‘hard work’ as a route out of poverty alone is failing to deliver”.
• Industrial strategy to boost wages. IPPR’s George Dibb explains why addressing stagnant pay and insecurity will require public investment in green job creation to increase demand in the economy and “a return to sectoral bargaining delivered through Plan for Growth sector deals and unions”, referencing their recent report Prosperity and justice after the pandemic.

The “transition to a new economy”. The Chancellor argued that beyond the measures it has taken (such as issuing temporary visas for HGV drivers) it is not the government’s responsibility to sort out labour shortages; this should be left to the market. Boris Johnson and other ministers have been arguing that today’s labour shortages are the growing pains of an economy which is transitioning, after Brexit, to a high-wage, high-productivity state no longer reliant on immigrant labour. 

• Supply chain issues. Sunak claimed the problems in UK supply chains are being experienced “right around the world”. A global survey by the Guardian confirmed that supply chain problems are occurring in most major economies as economies expand rapidly after the pandemic. But the specific impact of Brexit in the UK is widely noted in the European and US media. Larry Elliott puts much of the blame on the UK’s “just-in-time” economic model. The Institute of Government has offered an analysis of the multiple causes of the UK’s current shortages. ‍
• Labour shortages. Oxford economist Simon-Wren Lewis explains why creating “labour shortages among workers deemed to be unskilled by this government are damaging to the majority of workers in the UK”, as well as damaging to those overseas who are prevented from filling the shortages by immigration rules. Economist and former adviser to Theresa May Giles Wilkes suggests that “running the economy hot by raising demand” is a better way to raise wages than cutting labour supply.

A new approach. Rachel Reeves outlined Labour’s new approach to economic policy in her speech to the Labour Party Conference this week. (Video here.) The Shadow Chancellor focused on rebuilding the ‘everyday economy’ as a solution to the deep pre-pandemic problems of the UK economy, which she identified as falling growth rates, flatlining productivity, a plummeting trade balance, widening regional and other inequalities, and stalling pay growth. 

• Diagnosis of the problem. Analysis of these five economic problems lay at the heart of the report of the IPPR Commission on Economic Justice, Prosperity and Justice. IPPR last week published its follow-up report analysing the UK economy after the pandemic, calling for a radical shift in four fields of economic power. (Twitter thread summary here)
• The everyday economy. First used by IPPR in arguing for a new approach to industrial strategy in 2017, the concept of the everyday economy was elaborated by Reeves in a pamphlet in 2018. It focuses on those core but often overlooked sectors which provide the foundation for all other economic activity and which employ large numbers of people in every part of the country - sectors such as retail, transport, energy, water, health, education and care. Noting that these sectors “employ a lot of people but too often pay low wages, employ workers in precarious situations, and suffer from low levels of productivity,” Reeves argued that these should be a primary focus of industrial strategy. 
• Origins and critique. The ‘everyday economy’ idea draws heavily on the concept of the ‘foundational economy’ originally developed by Karel Williams and colleagues at the University of Manchester’s Centre for Research on Socio-Cultural Change (CRESC), who have published many reports and articles on the topic. Former head of CLES Neil McInroy analysed the political economy of the everyday economy approach in an article in The Political Quarterly. Reeves replied to McInroy’s critique here.
• Industrial strategy. The everyday / foundational economy idea is also linked to the concept of ‘social infrastructure’ developed by Jérôme De Henau, Sue Himmelweit and the Women’s Budget Group. Himmelweit explained this in a chapter in Craig Berry’s e-book What We Really Mean When We Talk About Industrial Strategy and discussed it on Ed Miliband’s ‘Reasons to be Cheerful’ podcast earlier this year. Isaac Stanley has outlined “an industrial strategy for the foundational economy” in a report for Nesta, focused on government investment in undervalued sectors to increase pay and reduce gender, racial and regional inequalities, while Common Wealth have set out an industrial strategy for adult social care to restructure the sector from one “dominated by for-profit provision to one that puts the needs of people first”.

“The first green chancellor”. Reeves announced a decade-long investment programme of £28bn per year in the “green transition”. This would “invest in good jobs in the green industries of the future: giga-factories to build batteries for electric vehicles; a thriving hydrogen industry; offshore wind with turbines made in Britain; planting trees and building flood defences; keeping homes warm and getting energy bills down; good new jobs in communities throughout Britain.“ She didn’t, however, refer to this as a “Green New Deal”, despite the resolution in favour of a Green New Deal passed by the conference and Ed Miliband’s committed support in his conference speech (“this is the cause I came back to fight for.”) 

• Analysis. IPPR’s Carsten Jung argues that the additional annual green investment over the next decade is “close to what we think is needed to deliver the climate transition”. NEF’s Frank van Lerven pointed to previous NEF analysis that ~£28bn climate investment would create 400,000 full time jobs.
• More. For more analysis and resources on decarbonisation and industrial strategy, see our recent Digest. 

Taxation and fiscal policy. Reeves made a series of announcements on taxation. She pledged to end the tax benefits of charitable status enjoyed by private schools, with the £1.7bn a year saved going to state schools. She promised to abolish business rates, replacing them with a new - but as yet unspecified - system putting online businesses on the same tax footing as high street retailers. (She singled out Amazon as a key target: “If you can afford to fly to the moon you can pay your taxes here on earth.”) She said Labour would review all tax reliefs and abolish those that do not “deliver for the economy or the taxpayer.” And she almost-but-not-quite committed to equalising the tax rates on income from wealth - particularly dividends and capital gains - and income from work, a longstanding reform proposal. (Might this be filled out in Keir Starmer’s speech on Wednesday?) 

• Analysis. Tax Justice UK’s Robert Palmer analyses Reeves’s proposals in this twitter thread. TJUK’s recent report, Pandemic Profits: who’s cashing in during Covid”, identifies six companies making £16bn in excess profits over the pandemic. Tax Watch’s George Turner pointed to previous research pointing to companies not paying any corporation tax. 
• Alternatives to business rates. Both IPPR (also here, and, to be fair, here) and NEF have called for business rates to be replaced by a land value tax, levied on the value of land in its undeveloped state. This would be fairer, and it would enable the community to capture the increase in land values which occurs when planning permission is given, a longstanding reform proposal. 
• Taxing wealth. For more analysis and resources on this, see our recent Digest. 
• Tax reliefs. The tax system includes a very large number of tax reliefs, particularly for businesses. Reformers have long wanted to reduce the number but Chancellors have always found it difficult, since almost all have some kind of purpose and a constituency which will complain loudly. The Office for Tax Simplification conducted a review in 2011 which explained the issues. IPPR has argued that tax reliefs for research and development are particularly inefficient (largely subsidising R&D which would have occurred anyway) and should be phased out. 
• New fiscal rules. Reeves also said that Labour would adopt new fiscal rules “that will bind the next Labour government to ensure we always spend wisely and keep debt under control”. Though she did not spell out the details in the speech, she elaborated in her pre-conference interview with the Financial Times, setting out a series of rules including, in the “medium term”, balancing the current budget and putting debt “on a downward trajectory”. Labour’s rules, Reeves said, would sanction borrowing to invest in infrastructure, introduce a permanent mechanism for suspending the rules if the economy was hit by an “exceptional shock”, and would look at public sector assets as well as liabilities. 

Insourcing. In her speech Reeves targeted the Government’s over-reliance on outsourcing (citing companies like Serco) in its response to the pandemic. She promised that a Labour Government would institute “the biggest wave of insourcing in a generation” to reduce wasteful public spending and bring public contracts and services back into the public sector. The Institute for Government shows how insourcing of public services “can improve quality, increase reliability, and save money” and lays out guidelines for when and how public services should be brought back into government hands. 

• Social licensing. Arguing that the present approach to outsourcing has failed, CLES (the Centre for Local Economic Strategies) calls for a combination of insourcing and a system of “social licensing”- criteria that non-government providers of public services must meet - to improve provision. 
• More. For more resources on how to improve public service provision, see our previous Digest on Outsourcing, procurement and transparency.

Progressive procurement. Reeves emphasised Labour’s previously announced plan to “make, buy and sell more in Britain”, through which it aims to award more public contracts to British businesses and support the ‘onshoring’ of manufacturing capacity.

• Community wealth building. This approach to public spending has been championed by local and regional authorities across the country with the help of CLES, originating with Manchester City Council and then being developed by Preston Council and others. See CLES’s Community Wealth Building Centre for Excellence for examples and principles of best practice in progressive procurement.  
• Office for Value for Money. Reeves also announced that Labour would create a new Office of Value for Money to keep a “watchful eye on how public money is spent”. This proposal came from a recent Fabian Society report. Interpreted too narrowly, the concept of ‘value for money’ may be in tension with the commitment of progressive procurement to maximising social value rather than focusing on a narrower definition of public service costs.   

Employment rights and collective bargaining. Earlier in the Conference, Deputy Leader Angela Rayner and then shadow minister Andy McDonald published a Green Paper on Employment Rights, setting out more detail on their ‘New Deal for Working People’. The centrepiece is a commitment to ‘fair pay agreements’ in key sectors. These would set out national pay rates and working conditions and would be achieved through sectoral collective bargaining. Among the other key elements of the Green Paper are: 

• an immediate increase to the minimum wage to at least £10 per hour for all workers
• the creation of a single status of ‘worker’ for all but the genuinely self-employed giving all workers the same rights and protections, including rights to sick pay, holiday pay, parental leave and protection against unfair dismissal from day one 
• the right to flexible working for all workers as a default from day one, alongside the ‘right to switch off’ outside of working hours
• a ban on zero-hours contracts and an end to ‘one-sided flexibility’, with all workers having the right to a regular contract and predictable hours
• an increase in Statutory Sick Pay (SSP) and making it available to all workers, including the self-employed and those on low wages currently excluded by the lower earnings limit for eligibility 
• ending fire and rehire 
• extending statutory parental leave, introducing the right to bereavement leave and strengthening protections for pregnant women 
• updating trade union legislation to strengthen employment rights and power to organise collectively
• overhauling the enforcement of rights and protections by establishing a single enforcement body to enforce workers’ rights, inspect workplaces and bring prosecutions and civil proceedings against bad employers 
• introducing mandatory ethnicity pay gap reporting to mirror gender pay gap reporting, and a new requirement on employers to report and eliminate pay gaps

Department for Levelling Up. Following the Cabinet reshuffle last week, Michael Gove’s new ministry has been rebranded as the Department for Levelling Up, Housing and Communities (it used to be the Ministry of Housing, Communities and Local Government). The Government claimed the move reflected its “ambitious plans” to reduce regional inequality. The Government’s ‘levelling up’ agenda has been widely accused of lacking in substance, with the Prime Minister’s speech on the subject in July particularly criticised. 

• Regional inequality. The UK is more geographically unequal than any other comparable advanced economy. Regional inequality is manifested across multiple indicators, including output, income, productivity, employment and political power. 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.
• After austerity. IPPR North has examined the regional impact of the decade of austerity after 2010. Its annual State of the North report identifies key tests for the government's 'levelling up' agenda. 
• What happened to local government? The loss of ‘local government’ from the new department’s name has predictably gone down less than well in local government circles. 
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Andy Haldane to head the Levelling Up Taskforce. Andy Haldane, former chief economist at the Bank of England, has been seconded to the Cabinet Office as head of a new ‘Levelling Up Taskforce’, despite being critical of the agenda in his previous role as chair of the Industrial Strategy Council (ISC) before it was axed by the Government in March.

• Hints at approach. The ISC’s final paper warned that the Levelling Up agenda “appears over-reliant on infrastructure spending and the continued use of centrally controlled funding pots thinly spread across a range of initiatives”. The research looked at four best practice cases from abroad and argued that “sustained local growth needs to be rooted in local strategies, covering not only infrastructure but skills, sectors, education and culture”, where “sustained and large-scale public investment” can spread economic growth to all regions of the UK. See Haldane’s speech to Policy Exchange in June, “Making a Success of Levelling up”, for potential indications of his approach. 
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Decentralisation of power. A common thread among those who work on geographic inequality is that the highly centralised structure of government in England plays a big role in perpetuating inequality, and localities and regions need more power if ‘levelling up’ is to be more than a slogan. 

• Constitutional change. The Centre for Local Economic Strategies (CLES) proposes three principles to reshape local economic development: ”devolve, redirect, democratise”. Outlining a history of regional inequality and English devolution, the authors argue that 'levelling up' will require constitutional change, not "top-down tinkering". The innovation agency Nesta argues for a much greater role for Metro Mayors in leading local strategies. The Centre for Cities calls for more mayoral combined authorities at city-region level. 
• Tory decentralisation. Ben Houchen, Conservative Mayor of Tees Valley, is attempting an interventionist approach to regional economic development. The New Statesman explains the “Houchenist Manifesto”. 
• Decentralising regeneration. Centre-right think tank Onward argues that “the Government’s efforts to level up deprived communities are unlikely to be successful without devolution of power to local neighbourhoods.” It calls for the establishment of ‘Community Deals’ to help communities take ownership of assets to regenerate local areas. Director Will Tanner discussed the research on Newsnight here. 
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Levelling up requires government spending. Many commentators are pointing out that the true test of the government’s commitment to levelling up will come in October’s Spending Review. With the Centre for Cities estimating the cost of closing the North-South divide at €2 trillion, comparable to the reunification of Germany), there are questions as to whether Chancellor Rishi Sunak will provide sufficient funding. 

• Revising the fiscal rules? The Financial Times has reported that Sunak is planning to revise the Treasury’s fiscal rules, with a new target of ceasing to borrow for current spending within three years and a falling level of debt to national income by the end of the parliament. The FT’s Editorial Board has explained why this would be unnecessary and damaging. The Government’s current rules, which place a 3% of GDP limit on public investment, allow for very little additional investment over and above current commitments. 
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Preventing a living standards crisis. Pressure to limit public spending is driving the cut to the £20 per week uplift to Universal Credit, a move that will exacerbate regional inequality, as poorer areas include larger numbers of poorer people. NEF’s Sarah Arnold explained why living standards are facing a “perfect storm” of the UC cut, national insurance increases and rising energy bills and food prices. See NEF’s Campaign for a Living Income for more.

Jobs at risk from inaction. As it meets for its annual conference, the TUC has published analysis that up to 667,000 manufacturing and supply chain jobs in the UK could be at risk if the government does not strengthen its industrial strategy policies. While ‘carbon leakage’ is generally used to mean the loss of jobs abroad because of tougher climate policies, the reverse can also occur: jobs can be offshored when industrial support policies are weaker than in other countries. Sectors particularly at risk include steel, cement, chemicals, rubber and plastic and glass manufacture. (Twitter thread.) 

• Green recovery spending. In a separate report, the TUC has compared the UK’s climate spending with other leading countries. It finds that while the UK government is investing about £180 per person on green jobs and recovery, the USA is planning to allocate over £2,960 per person, Italy £1,389 and Germany £595. 
• The Government’s Ten Point Plan. The UK government published its strategy for a ‘green industrial revolution’ in November 2020, aiming to mobilise £12 billion of government investment, and up to 3 times as much from the private sector, to create and support up to 250,000 green jobs.
• Recommendations. The TUC is calling for an £85bn green recovery package to create 1.24 million green jobs. Its report also recommends the use of ‘local content’ requirements for energy projects and procurement; the establishment of a ‘Just Transition Commission’; and the introduction of a permanent short-term working scheme to protect workers facing industrial change.
• Green skills. The Government’s Green Jobs Taskforce published its report on the skills needed for green jobs in July, setting out a range of measures needed to be taken by government, industry and the education sector to maximise the potential for high quality green jobs. 
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Support for renewables. The Dept for Business, Energy and Industrial Strategy has announced its latest renewable electricity support scheme, the so-called ‘Contracts for Difference’ auction. With no cap on offshore wind, generous allowances for onshore wind and solar, and a £55m pot for innovative technologies including tidal and floating wind, it has been generally welcomed. Twitter explainer here. 

• Wind turbine factory. The BEIS announcement came as planning approval was granted for a new wind turbine blade manufacturing plant in Teesside. The GE Renewables ‘mega-factory’ will open in 2023 and is expected to create over 2000 jobs in its construction and then to support over 2000 in direct employment and the associated supply chain. 
• Renewable heat and home energy efficiency. Elsewhere progress is slower. IPPR has examined the gap between the number of home energy efficiency and heat pump upgrades currently being installed, and the number that will be needed annually by 2028 for a net zero strategy, as set out by the Climate Change Committee. The UK is installing fewer than 6% of the heat pumps needed, and less than 10% of the cavity wall, loft and solid wall insulation. (Greenpeace revealed that the UK comes joint last among European countries for heat pump sales.) IPPR advocates a new ‘GreenGo’ scheme to accelerate uptake. The National Audit Office recently criticised the Government’s Green Homes voucher scheme. 
• Electric vehicles. The Government has announced that in England from next year all new homes will have to be built with electric car charging points. But the automotive industry has warned that this will do little to accelerate the uptake of electric vehicles (EVs) now. It has called on the government to provide incentives for new electric battery factories in the UK, with at least 2.3m charging points nationwide before the end of the decade. Full industry report here. 
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High-carbon industry. Much of the discussion of green industrial strategy has been on supporting ‘green jobs’ in low-carbon sectors. An even bigger challenge is to decarbonise heavy industries which have high emissions and use fossil fuels in the production process - and also support large numbers of well-paid and often unionised jobs. In its report Mission Possible: Reaching net-zero carbon emissions from harder-to-abate sectors by mid-century the business-led Energy Transitions Commission outlines possible routes to decarbonise the cement, steel, plastics, trucking, shipping and aviation sectors, which together represent 30% of current energy emissions. Ana Musat of the Aldersgate Group outlines the opportunities that decarbonisation presents for heavy industry in a piece for BusinessGreen.

• Chemicals. The investor pressure group Share Action released a report last week on the chemicals sector, arguing that it is both technically and economically feasible to fully decarbonise the production of chemicals by 2050. Drawing attention to the paucity of credible transition plans in the sector, it calls on financial institutions to push chemical companies towards net zero. 
• Industrial clusters. The business-led Aldersgate Group has set out policy recommendations for accelerating industrial decarbonisation and supporting the competitiveness of manufacturers in industrial clusters and dispersed sites in the UK.
• Green steel. The Swedish company Hybrit last month shipped its first batch of ‘green steel’ produced with hydrogen. Truck-maker Volvo AB has said it will start production of prototype vehicles and components from the green steel this year. Common Wealth has looked at the potential for producing low carbon ‘green steel’ in the UK and proposed a five-point plan for the steel industry. 
• Oil and gas. In a significant policy shift, Keir Starmer has said that UK oil and gas exploration needs a “hard-edged” end date and that Labour opposes the opening of the new Cambo oilfield in the North Sea, the object of fierce criticism by environmental campaigners. As part of its Environmental Justice Commission IPPR last year published a strategy for a ‘managed transition’ to net zero for the North Sea oil and gas sector. Carbon Tracker has outlined the risks of further investment in exploration. 
• Just transition. The ideal of a process of decarbonisation which supports workers and communities adversely affected to find new livelihoods in other sectors is known as a ‘just transition’. The International Trade Union Confederation’s Just Transition Centre gathers together policy recommendations and experience from around the world. 
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Green finance. The New Economics Foundation has looked at the role that the UK’s public finance institutions should play in the net zero transition. These include the UK Infrastructure Bank (UKIB) and the British Business Bank (BBB), which operate domestically, and UK Export Finance (UKEF) and CDC Group, which operate internationally. It recommends that the mission and supporting objectives of each is updated to align with a just transition to net zero and sets out specific reforms for reforming each institution’s mandate.

• Financing the just transition. About 40 financial and academic institutions have set up ‘Financing a Just Transition Alliance’ to push for stronger government and private sector mechanisms to incentivise green investment. The Alliance is supported by the Grantham Research Institute at the LSE, which runs a Financing the Just Transition programme.

Paying for social care. The Government’s plan to raise National Insurance contributions (NICs) to finance social care reform in England has been widely criticised because it would place most of the burden on younger workers, with asset owners and workers over the pension age exempt (unless this is changed). We explained the debate in the Digest in July. 

• Raising capital gains tax? The TUC has proposed an alternative funding mechanism: equalising the rates of capital gains tax (CGT) with those of income tax. It estimates that this could raise £17bn a year. General Secretary Frances O’Grady set out the case in the Guardian. 
• Reforming CGT. Whereas income tax is charged at rates of 20%, 40% and 45% (with NICs on top), CGT is charged at between 10% and 28%, and a range of reliefs can reduce liability. Individuals have a £12,300 annual exemption, and couples £24,600. In its comprehensive review of capital gains tax for the Treasury, the Government’s Office for Tax Simplification recommends (like the TUC) that CGT rates be aligned with those of income tax, the annual exemption be reduced, and Investors’ Relief from CGT abolished. 
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‍Taxing income from wealth. CGT is an example of the way income derived from wealth is taxed at a lower rate than income from work. The same is true of share dividends. Lower rates of tax on income from wealth benefit people who own assets over the majority who only earn income from work. It also gives the wealthy an incentive to convert their income into capital (such as share options), effectively a form of tax avoidance. IPPR has proposed a simple but comprehensive reform, in which all income would be gathered together and taxed under the same progressive tax schedule. They estimate this could raise over £20bn annually. The Institute of Fiscal Studies (IFS) makes a similar proposal. 

• A fairer tax system. Tax Justice UK has published a Manifesto for Tax Equality setting out a range of reforms to make the tax system fairer, including the greater taxation of wealth. 
• Some of the wealthy want to pay more tax. In the US, Patriotic Millionaires is an advocacy group made up of wealthy individuals who want to pay more tax in a fairer tax system. 
• Some history. A Conservative Chancellor, Nigel Lawson, equalised tax rates on income from work and wealth in the 1980s before they were later separated again. Former Treasury mandarin Nick Macpherson relates a history of tax reform. 
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Taxing land and property. One of the major forms of wealth is land and property. This is generally under-taxed relative to income. In the UK, council tax is still based on 1991 property values, making homes in London and the South East (where property values have risen the fastest since then) more lightly taxed than those in the rest of the country. The highest band is for homes worth more than £320,000, which means that a £320,000 home is taxed the same as one worth £1 million or more (of which there are many, especially in London). The IFS explains the problems of the system, while IPPR highlights the particular inequities of council tax in London. 

• A proportional property tax. The leading cross-party proposal for council tax reform is to replace it with a proportional tax on property values. The campaign group Fairer Share proposes a tax rate of 0.48% levied annually on current property values. Combined with the abolition of stamp duty this would yield the same amount of revenue as the current council tax, but with the wealthy paying much more than now. It calculates that 19 million households would pay less than today. 
• Land value tax. For nearly 150 years the ideal of taxing land rather than work has animated tax reformers. Land is fixed, so tax evasion is almost impossible, and unlike work or capital, taxing land does not change its behaviour. Taxing the value of land would enable the public to gain a share of the uplift in value when planning permission is given, which today goes, unearned, to property owners. Land reformer Andy Wightman has explained the principle of land value taxation and its potential application in Scotland, England and Northern Ireland. The New Economics Foundation has made a specific proposal to replace business rates with a land value tax. 
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Taxing inheritance. One of the principal ways in which wealth is accumulated is inheritance. In the UK inheritances above £320,000 are taxed at 40%. But as Tax Justice UK explains, a series of rules and exemptions allow many of the wealthiest estates to escape tax. The Financial Times has surveyed the range of inheritance tax systems across the world. It notes that only three countries, including the UK, levy taxes on donors; the rest tax recipients (donees). 

• Inheritance tax reform. The major proposal for reform in the UK is to abolish the various exemptions to inheritance tax, and levy tax not on those bequeathing wealth but on those receiving it, for whom it is unearned income. IPPR proposes a lifetime donee-based gifts tax, in which both inheritances and other gifts would be included. 
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A wealth tax. Another way of taxing wealth is to levy a unified tax on the value of all the forms of wealth owned by an individual whose wealth exceeds a certain high threshold. Such a wealth tax could be levied annually, as is done in Switzerland. Or it could be levied as a one-off exceptional measure, for example as a way of paying for some of the costs of the Covid pandemic, as recently proposed by the Wealth Tax Commission. The OECD has surveyed the different forms of wealth tax levied in different countries. Stuart Adam and Helen Miller of the IFS review the economics of a wealth tax.

• A UK wealth tax. The Wealth Tax Commission, a project of the LSE and the University of Warwick, has examined both a one-off and an annual wealth tax, discussing their rationales, principles and design in a comprehensive report. (See also these FAQs.) They favour a one-off tax, which levied at 1% a year for five years could raise £260 billion. 
• A wealth tax in the US. Economists Emmanuel Saez and Gabriel Zucman have analysed the potential for a wealth tax in the US. Their proposals provided the basis for Senator Elizabeth Warren’s proposals for an ‘Ultra-Millionaires Tax’ during the Democratic presidential candidate race. 
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Public opinion. In collaboration with the Sheffield Political Economy Research Institute, Tax Justice UK has conducted extensive research on public attitudes towards the taxation of wealth, using both opinion polling and focus groups. It finds that the way in which the issues of wealth and taxation are talked about makes a big difference to the level of public support (or otherwise) for higher taxation. They have published two reports detailing their findings. 

The wealth of thinking. Economist (and NewEconomyBrief.net editor) Michael Jacobs explains in the Guardian the wealth of new economic thinking which can help tackle the challenges of the post-Covid era. The multiple crises we currently face “are not bugs in the economic system but inevitable outcomes of the way it is now organised,” meaning that deep economic reform is needed. The new economics, he notes, challenges much of the orthodoxy of the last 40 years.

• Economics at a turning point? The discipline of economics has seen major challenges to the neoclassical assumptions that have long dominated policymaking. Berlin-based economist Dennis Snower explains these assumptions and why economics is close to its “Copernican moment” when the old orthodoxy is overturned. In a more academic vein J K Galbraith Economics Prize winner Mario Seccareccia called for “a paradigm shift in establishment macroeconomics” in his acceptance lecture.
• Economics after neoliberalism. How far economics needs to, and can, overturn neoclassical assumptions has been debated between a group of economists led by Harvard’s Dani Rodrik, and critics including Alice Evans, Deborah Satz and others.
• Unexpected voices. The President of Ireland, Michel Higgins, gave a powerful critique of economic orthodoxy in a recent speech, citing Mariana Mazzucato and Kate Raworth among others and arguing that “a paradigm shift, not reform, is urgently required”. Mark Carney, former Governor of the Bank of England, recently gave a webcast lecture at the OECD on new economic thinking, entitled Value(s): Building a Better World for All.

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New economic thinking in the US? The Biden Administration has surprised many with the radicalism of its economic plans, with huge stimulus spending focused on climate change and social infrastructure, higher taxes on the rich, a “high pressure” labour market to raise wages and improve working conditions, and measures to curb the monopoly power of big corporations. In her speech “A Better Deal for Americans” US Treasury Secretary Janet Yellen has set out the Administration’s new economic approach.

• Commentary. Analysing the Biden programme, Time Magazine concluded that a paradigm shift is underway in US economic policymaking: “We are witnessing the most profound realignment in American political economy in nearly forty years.“ Economist Noah Smith (Noahpinion) argues that Biden’s policy reforms are comparable to the New Deal or Reaganomics in scale, and offers an analysis of their “unifying philosophy”.

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New economic theory and policy. For the last decade the Institute for New Economic Thinking (INET) has been developing and publicising non-neoclassical academic and policy research. The independent website Evonomics publishes accessible summaries of and commentaries on new economic thinking.

• … in the OECD. The OECD’s New Approaches to Economic Challenges initiative has brought some of the new economics into one of the world’s most influential economic institutions. Its report Beyond Growth provides a short summary of heterodox economics, including post-Keynesian, ecological, feminist, evolutionary and complexity economics.
• … not just in the English-speaking world. The Berlin-based Forum for a New Economy is also exploring the idea of an economic “paradigm shift” (with papers published in English).
• Pluralist economics. Rethinking Economics is the global student movement (plus academics and others) seeking to get more plural economics curricula into universities. Its book Rethinking Economics is an excellent introduction to the different schools of non-neoclassical economic thought.

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NewEconomyBrief.net. Visit our new website Resource Bank page, Changing the Paradigm, for more resources on new economic thought, and the institutions pioneering new economic policy ideas.

Reforming Universal Credit. Following last month's pledge to strengthen employment rights for self-employed workers, the Labour Party has proposed reform of the marginal withdrawal rate of Universal Credit in order to alleviate in-work poverty. Shadow Secretary of State for Work and Pensions Jonathan Reynolds argued that increasing the level of earnings Universal Credit claimants can retain when they increase their working hours would give people a financial incentive to work more and make that work pay. Reynolds explained the rationale behind the policy change in a BBC interview.

• Explainer. NEF have helpfully explained how the withdrawal rate works. See also this video by their CEO, Miatta Fahnbulleh.
• Background: a living standards crisis. Research by NEF’s Living Income Campaign found that without a change in government policy, by 2022 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’. This figure includes 45% (7 million) of children, 70% of single parents, 50% of all renters and more than one third of all families in the North East, West Midlands and London.
  

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Deep rooted issues with Universal Credit. 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. They argue it has “undermined the security and wellbeing of the poorest in our society” and outline a suite of recommendations to improve the system.

• Widening inequalities. The Cumulative Impact of Tax and Welfare Reforms, published by the Equality and Human Rights Commission, finds that changes to policy between 2010 and 2017 disproportionately affected women, ethnic minorities, low-income households and disabled people.
• The effect of Covid. Research from the Fawcett Society and other equality organisations such as the Women’s Budget Group has found that young women on low incomes were amongst the groups worst affected by the pandemic.
  

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£20 per week cut. Jonathan Reynolds vowed that Labour would use “every tool” to prevent the imminent £20 per week cut to Universal Credit. The Government’s move adds up to a cut of £1,050 a year to the incomes of many of the least well off people in the country. Described by the Joseph Rowntree Foundation as “the biggest cut to social security payments since the second world war”, it is the focus of a major campaign by a wide coalition of civil society organisations.

• Cross-party defence. Last month, six former Conservative Work and Pension secretaries wrote to the Chancellor calling for the £20 uplift in Universal Credit to be made permanent. The group includes Ian Duncan Smith, Stephen Crabb, Damian Green, David Gauke, Esther McVey and Amber Rudd.
• Public support. The Fabian Society’s year-long study of public attitudes to welfare used surveys and a citizen’s jury to identify “consensus support for £10bn of extra payments on top of the £7bn cost of retaining the £20-a-week universal credit boost”.
• Bad economics. The Resolution Foundation highlights that ending the uplift as planned would see the basic level of benefits cut to levels last seen in the 1990s, right as unemployment is set to peak, which they argue would be both "disastrous for family incomes" and "bad macroeconomics” (pp. 23-24).
  

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Options for structural reform? Reynolds also signalled an intention to “replace Universal Credit” so that “low-paid people can work the hours they need and keep more of the money they earn”. We’ve collated various options available to the government for strengthening the social safety net in ways that will create a fair, sustainable and resilient economy in a previous Digest.

• Momentum for change. Conservative-aligned think tank Bright Blue’s cross-party commission has brought together Conservative and Labour MPs and peers, food campaigner Jack Monroe and other academic and civil society figures to advise on reforms to the social security system. The TUC (represented on Bright Blue's commission) has called for a suite of reforms, including raising the basic level of UC and legacy benefits to 80% of the national living wage; removing the five-week wait for first payment, conditionality requirements, and 'No Recourse to Public Funds' restrictions on migrants' access to support; and reform of Statutory Sick Pay so that it is paid at the real living wage rate and is accessible to low-income workers.
• Tackling the root causes. The IPPR’s No Longer Managing report on the rise of working poverty argued that social security reform must come alongside a wider plan to tackle the root causes of low pay, such as unaffordable rents, expensive childcare and insecure jobs (See ITV’s coverage).
• The gender impact. The Women’s Budget Group’s briefing of the Spring Budget 2021 covers the gendered issues within the social security system that require reform to create a more gender-equal economy.
• More resources. Visit our Resource Bank page Improving work and welfare for more on What Covid-19 has revealed about our labour market and social security, The future of Universal Credit, Social security for children, and more.
  

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Innovations in the devolved nations. Russell Gunson, Chair of IPPR Scotland, is chairing a steering group for the Scottish Government to develop a Minimum Income Guarantee; an income floor beyond which no one in Scotland can fall below. NEF’s Sarah Arnold explained why “England, Wales and Northern Ireland needs one too” in a short Twitter thread.

• A basic income? Basic Income Network Scotland’s review of the Scottish Government’s two-year Basic Income Feasibility Study explains the economic implications of introducing a Citizens Basic Income across Scotland, comparing it with means-tested welfare alternatives. Mark Drakeford, First Minister of Wales, has also confirmed a pilot of Basic Income in Wales for up to 5,000 people based on the Scottish experiments.

• Biden’s new approach. The Biden Administration has signalled a new approach to competition policy in the US, potentially ending 40 years of neoliberal orthodoxy. Biden’s recent executive order taking 72 separate measures against anti-competitive practices by big businesses is being seen as the opening salvo in a larger plan to curb the power of monopolies in the US economy.
• ~~The appointment of Lina Kahn to head the FTC. The first sign of this new approach was the appointment of anti-trust lawyer Lina Khan to head the Federal Trade Commission (FTC), the US’s competition regulator. Khan became famous for writing (while still a student) an influential article on Amazon’s anti-competitive business practices and why the neoliberal approach to competition law (in the US called “anti-trust”) made the government powerless to curb them. The article called for a new approach, and since her appointment Khan has set about reforming the FTC accordingly.
• ~~The decline of neoliberalism? Since 1979 competition policy in the US - and the UK - has been based on the theory espoused by the free market Chicago School. This argued that the only test for competition should be consumer welfare, which in turn should be judged solely by the impact on consumer prices. Under this philosophy, significant anti-competitive practices have been ruled legal, and monopolies allowed to flourish. Khan and other scholars argue that market structure is critical, and the law should test its impact not just on consumers but on workers, producers, entrepreneurs and citizens. Economics blogger Noahpinion has summarised the new approach and explained recent academic scholarship analysing the various economic harms arising from corporate concentration.
  

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• Stronger competition policy in the UK? Former Conservative MP Andrew Tyrie, who resigned last year as chair of the Competition and Markets Authority (CMA), has criticised the UK’s light touch approach to regulation in a report published by the centre-right Centre for Policy Studies. He called for new regulatory powers to enable the CMA to tackle the growing monopoly power of the tech giants. Conservative MP John Penrose authored an independent report for the government arguing similarly for stronger competition policy earlier this year.
• ~~The CMA and Big Tech. In February the CMA announced that it was setting up a specialised Digital Markets Unit to investigate the anti-competitive practices of big tech companies. It is currently looking at Amazon and Google over fake reviews on their websites, and it was reported last week that it may force Facebook to sell the gif creator Giphy which it acquired to consolidate the monopoly power of Instagram.
• ~~Tech firms and the high street. Competition lawyer Michelle Meagher, author of the influential book Competition is Killing Us, documents the growing power of tech platforms in grocery and food delivery sectors and explains how a CMA focused on market structure could benefit UK high streets.  
• ~~Not just tech firms. Darren Jones MP, chair of the Business, Energy and Industrial Strategy Committee, wrote to the CMA last month asking whether it requires new powers to intervene in corporate acquisitions after the recent debt-based purchase of Asda.
  

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• Regulating Big Tech. IPPR has been leading work on how the monopoly power of the giant digital companies could be reined in. In a report written for the IPPR Commission on Economic Justice, Mat Lawrence and Laurie Laybourn-Langton explain the aggressive expansionary business model of digital platforms and argue that the largest ones should be regulated as utilities, with an independent regulator (‘Ofdig’) and a ‘licence to operate’ controlling their activities.
• ~~Digital commonwealth. IPPR argues that much of the data collected by digital companies should be publicly owned, so that it can be used for general benefit. James Meadway expands on the idea of a digital commons. The city of Barcelona has been developing the idea of a digital commons in practice.
  

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• Tackling corporate power. Michelle Meagher, John Christensen and Nicholas Shaxson have launched the Balanced Economy Project to tackle monopolies and excessive concentrations of market power around the world. Recent issues of their Counterbalance newsletter have explained how the anti-competitive practices of digital platforms impact on small businesses, and where monopoly power intersects with tax havens.
• ~~Options for reform. Michelle Meagher explains her analysis of competition policy and how it should be reformed in an interview with the Washington-based Center for Equitable Growth. In the US the Open Markets Institute has led the analysis of the growth of monopoly power and how competition policy should be reformed.

• The latest climate science. The Intergovernmental Panel on Climate Change (IPCC) has released the first part of its 6th comprehensive assessment of climate science, collating and summarising evidence from more than 14,000 scientific papers. In the IPCC’s unique process, its Summary for Policymakers is approved by governments, giving it a rare global political authority.
• ~~Scope. This report covers the “physical science basis” of climate understanding - how the climate has changed and may change in the future. The following two parts will be released in 2022, covering impacts and adaptation and mitigation policy. Carbon Brief has published a comprehensive explanation of this report.
• ~~Regional impacts. For the first time the IPCC has detailed possible and likely climate impacts by geographic region through an interactive map. In the worst scenarios some low-lying islands could disappear completely under sea level rise by the end of the century.
• ~~Reaction. Antonio Guterres, UN Secretary-General, described the report as “code red for humanity”. Carbon Brief gathered together the media response.
  

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• 1.5C likely to be reached by 2040... At the heart of the report are five indicative scenarios for global greenhouse gas emissions up to 2100, reflecting five possible “Shared Socio-economic Pathways” (SSPs). With the world having already warmed by 1.2C since pre-industrial times, the report says that in all scenarios, from very low emissions to very high, the average global temperature is “more likely than not” to reach 1.5C, the limit aimed for by the Paris Climate Agreement, by 2040.
• ~~...but could be limited to that if drastic action is taken now.However, the report notes that if “immediate, rapid and large-scale reductions” in emissions occur this decade, the temperature rise could yet be held to around 1.5C for the rest of the century. This will not prevent continued extreme weather events, which are now inevitable with rising frequency, but the worst projected impacts could be avoided. Climate scientists have been at pains to point out that 1.5C is not a threshold: every 0.1 degree of heating increases the risks of catastrophic impacts.
  

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• The economic implications. The FT’s Henry Mance compared the radical and unprecedented action governments across the world took to mitigate the impact of Covid-19 to the foot dragging and delays adopted by governments on climate change. George Monbiot argued that the crisis “means a complete retooling and redirection of economic life, away from growth, consumerism and accumulation, towards restraint and restoration.”
• ~~Economic transformation is required. A synthesis report on the simultaneous crises of climate change, pollution and biodiversity by the UN Environment Programme earlier this year argued that “only a fundamental, system-wide transformation across technological, economic and social factors, including paradigms, goals and values can reverse the current trends that threaten the well-being of present and future generations and the survival of other species.”
• ~~Policymakers are not ready. Analysing how current political and economic systems are not built to handle the speed of decarbonisation required by the climate crisis, the IPPR’s final report on the politics of environmental breakdown proposed a set of alternative policies and institutional arrangements.
• ~~Are there any grounds for optimism? Surveying the debate on the possibility of rapid change, environmental journalist David Roberts argues that “conditional optimism” is still possible.

• Acute labour shortages prompt government response. This month has seen the emergence of acute labour shortages across the UK economy, with transport, hospitality and construction sectors amongst the worst affected. An estimated 100,000 shortage of drivers of Heavy Goods Vehicles (HGVs) has prompted the government to announce a package of measures to increase the supply of labour in the industry and prevent food shortages in supermarkets.
• ~~Harming economic recovery. A report from the Recruitment and Employment Confederation (REC) and accountancy firm KPMG earlier this month found the number of available workers reduced at the fastest rate since 1997, and warned this could harm economic recovery.
  

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• What’s causing the shortages? Commentators point to a variety of issues causing the ‘perfect storm’ of shortages: the rise in self-isolation due to the more infectious delta Covid variant, hiring difficulties from the post-Brexit immigration regime, and long-term deficiencies in the skills of the UK workforce.
• ~~Covid and immigration. The increased prevalence of the Delta variant has led to more staff self-isolating, but also many foreign workers have returned to their home countries since the onset of the pandemic. The end of free movement when the UK left the EU’s single market has also meant that staff such as care workers and HGV drivers are no longer eligible for ‘skilled work visas’, exacerbating the shortages. Professor Jonathan Portes explored whether loss of EU migrants and the introduction of the post-Brexit migration system might have long term supply shocks in the labour market in an article for UK in a Changing Europe.
• ~~Skills gap. In an open letter to the road haulage sector, the government explains its belief that “market mechanisms will be the predominant way in which this shortage is resolved”. It has committed to “focus on investing in our domestic workforce, rather than relying on labour from abroad”, through a package of measures to support recruitment and retention within the industry. These include reducing the requirements for HGV driving licences, encouraging job seekers to train to become HGV drivers, relaxing maximum limits on driving hours and increasing funding for apprenticeships within the logistics sector.
  

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• Using the furlough scheme to reskill workers. Claire Warnes, head of education, skills and productivity at KPMG, has called on the government to reskill furloughed workers to fill the skills gap and accelerate economic recovery. NEF warned that continuing to phase out the furlough scheme in September could push hundreds of thousands of workers still relying on the support into unemployment, and instead, recommends retooling the Job Retention Scheme to “allow furloughed workers to use their subsidised non-working hours on training, with a priority for industries that may never recovery to pre-pandemic levels of output”. The TUC has also called for similar tweaks to the Job Retention Scheme to facilitate training and mobility.
  

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• The effect on pay. Surveys have found that labour shortages have led to improved recruitment benefits for new employees in sectors traditionally associated with low pay and working conditions, such as “welcome bonuses” of up to £10,000 for care workers and pay rises for HGV drivers. The Chairman of one of the UK's biggest recruitment sites noted that pay rates for jobs in hospitality and catering had gone up “18% on the jobs advertised on their sites, and 14% for all jobs paying £25,000 or less.”
• ~~Towards a high pressure economy? These impacts could signal the emergence of a high pressure economy, where an increased demand for labour will force employers to increase pay and working conditions to fill shortages in supply. In a blog post for the OECD, Minouche Shafik, Director of the LSE, notes that, in the past, labour supply shocks have led to permanent structural shifts in political economy.
• ~~But “a tightening labour market is not the same thing as a tight one.” The Resolution Foundation sounds a note of caution, reminding readers to “avoid drawing general conclusions about the labour market from specific sectors”. Though that average weekly earnings in the past 3 months to April have been the “fastest increase this millenium”, total hours worked in the UK remains 5% lower than pre-crisis levels.

• Raising National Insurance to fund social care? Reports last week suggested that the Government plans to raise the rate of National Insurance contributions (NICs) by 1% to fund a $10bn a year increase in social care spending. However publication of the full social care plan has been delayed again till the autumn.
• ~~The funding problem(s). Adult social care is both under-funded relative to the growing needs of an ageing population, and paid for through a complex and hard-to-understand system of private user payments and means-tested support, with services varying widely between different local authorities. The Kings Fund provides a clear analysis.
• ~~The deeper crisis. The funding problem is part of a wider set of problems in the English social care system, including the marketisation and private sector ownership of care homes and poor pay and working conditions for care workers. The recent National Audit Office (NAO) report on social care in England was damning, concluding that “short-term funding and the lack of a long-term vision has hampered planning, innovation and investment.”
  

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• Raising NICs would be a regressive way of funding social care. Explaining the structure of employees’ National Insurance contributions, which are levied at 12% on earnings between £9,568 and £50,270 but at just 2% on earnings above that, with those over 66 not paying at all however much they earn, the Resolution Foundation showed how a NICs rise would hit young low earners harder than the elderly wealthy. This would be “100% wrong”, they argued.
• ~~Intergenerational inequality. In the New Statesman Rachel Cunliffe unpicked the intergenerational impact of the Government’s proposal and suggested more progressive funding methods.
  

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• Progressive alternatives. Various alternatives have been proposed to fill the funding gap for social care more equitably.  
• ~~Reforming NICs. Responding to the Government’s plan, the Women’s Budget Group argued that reforms to the structure of NICs would make an increase in its level more acceptable. NEF have proposed abolishing the Upper Earnings Limit on NICs, thereby making the top 15% of earners pay a larger share. This could raise £11bn a year by 2023/24.
• ~~A health and social care levy. The Resolution Foundation has proposed the introduction of a Health and Social Care Levy of 4% on all incomes above £12,500 (essentially an increase in income tax), coupled with an equalising of NICs on employees and the self-employed.
• ~~Charging social care costs after death. On the Guardian’s podcast, centre-right think tank Bright Blue’s Chief Executive, Ryan Shorthouse, called for the estates of social care users to be charged, up to a maximum amount, after their death. Labour’s Andy Burnham has called for the same reform. (This proposal has a long history.)
• ~~Taxing wealth. A growing number of voices, led by Tax Justice UK, IPPR, the Resolution Foundation and others, have called for wealth to be taxed more highly to pay for public services. This would include equalising tax rates on income from wealth and labour, reform of inheritance tax and reform of property taxes. The LSE Wealth Tax Commission proposed a 1% wealth tax on millionaires, which it estimated could raise £260bn over 5 years.
• ~~Public opinion supports progressive taxation. IPPR has presented its survey findings.  

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• Re-owning social care. Looking beyond the funding issue, CLES’s Tom Lloyd Goodwin argues for the de-marketisation of social care provision, explaining the various options for ownership reform to “re-animate the demand of decency for service users over dividends for shareholders and to return to a system where the default position is state delivery of services in conjunction with alternative models of ownership, such as community businesses, social enterprises, co-operatives and the like.”

• Net zero transition must be fair if it is to gain public support. IPPR’s cross-party Environmental Justice Commission published its final report after a 2 year enquiry on how to bring about a just green transition. Based on the recommendations of a series of citizens’ juries organised in different parts of the UK, the report emphasises the positive effects of ambitious action through job creation, lower energy bills and improved public health.
• ~~Public involvement is critical. IPPR’s Luke Murphy argued that local communities must be able to decide how the net zero transition is designed in their areas in an interview with Sky News. This is the only way to ensure that the transition has public support, the Commission concludes.  
• ~~Fairness is multi-faceted. Similar to the findings of the UK Climate Assembly, the Commission highlighted the importance of getting the balance right between the distribution of costs for individuals, businesses and the public purse, fairness between different regions of the UK, between different genders, races, abilities and generations and between different countries.
• ~~A just transition for high carbon sectors. One of the citizens’ juries was in Aberdeenshire, the centre of the UK’s oil and gas sector, which will be hard hit by net zero. Following extensive local consultation with businesses, unions and the community, an IPPR report for the Commission showed how a ‘managed transition’ for the oil and gas sector could be designed.
  

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• A new social contract. Laura Sandys, former Tory MP and one of the co-chairs of the commission, outlined its six principles to embed fairness in the net zero transition in a piece for Conservative Home: a ‘people’s dividend’, a ‘fairness lock’, a ‘people-first approach’, national leadership with local delivery, a ‘whole-economy, all-society’ approach, and ‘valuing what matters’.
• ~~Policy recommendations. These principles inform a varied policy agenda, including free public transport, a universal dividend payment paid for through carbon pricing, giving people a stake in decarbonisation through community owned energy and natural assets, ‘a right to retrain’ for workers from high-carbon industries, local participatory budgeting and the devolution of powers and resources to local and regional government, reworking tax incentives and small business loans to harness the power of small and medium-sized businesses, and a Wellbeing of Future Generations Act.
  

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• The National Food Strategy. Also published last week was the government-commissioned but independent National Food Strategy, authored by Leon restaurant chain founder Henry Dimbleby. The Strategy is a comprehensive plan to tackle the adverse effects that current consumption and production patterns of food have on the environment and public health. The report argues that the UK should replace 30% of all meat consumption.
• ~~Context. WWF estimated that food production is responsible for almost 60% of global diversity loss. Last week, the Amazon rainforest passed a key threshold in which it is now emitting more emissions than it absorbs. Deforestation is driven by demand for land to produce agriculture products such as soy, palm oil, timber and beef.
• ~~UK contribution. Our demand for these high-carbon commodities has been estimated to require an area of 88% of the size of the UK to produce. IPPR’s previous report on building a sustainable food system proposed policies to eliminate imported deforestation from UK food supply chains. Surveys commissioned by WWF have shown that decarbonising food imports is politically popular in the UK.
  

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• Supporting lower income families transition. The National Food Strategy proposes a tax on salt and sugar in processed foods, with a proportion of the revenue gained being used to help lower income families afford fruit and vegetables. The report points to evidence that increasing the income of the lowest paid is correlated with consumption of healthier foods.
• ~~Low income and food poverty. The food bank charity the Trussell Trust outlines the scale, profile, drivers and experience of hunger in the UK, where 95% of people referred to food banks within their network were unable to afford to eat or stay warm and dry.
• ~~Reception. Ian Byrne, Labour MP and co-founder of the Right to Food campaign, welcomed some of the National Food Strategy’ proposals - including the plan to increase the number of children eligible for free school meals - but argued that it lacked the ambition of ending widespread hunger in the UK.
  

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• Global Alliance for a Green New Deal. A global network of politicians was launched last week to share learning on how to deliver just transitions. The Alliance includes Green MP Caroline Lucas, Labour MP Clive Lewis and US Democrat Congresswoman Ilhan Omar. They are encouraging lawmakers and citizens to sign an international declaration which defines a Green New Deal in terms of reform of the financial and taxation systems as well as environmental investment and a reduction in inequality within and between nations.

• Overview. The Office for Budget Responsibility published its Fiscal Risks Report 2021 last week. It's a landmark report that focuses on “three large, and potentially catastrophic, sources of fiscal risks'' to the UK’s public finances: the Covid-19 pandemic, unmitigated climate change and public sector debt. (Watch the OBR’s short video summary here)
• ~~Findings. The OBR notes that the costs of achieving net zero emissions are “significant”, but would be greater without “decisive action” and “early steps” to mitigate climate change. It envisages a 1.4% hit to GDP to achieve net zero, adding 21% of GDP to UK public debt by 2050. Unchecked climate change could take public debt to 289% of GDP by the end of the century.
• ~~Total costs of net zero. Carbon Brief’s Simon Evans explains that the Climate Change Committee’s estimations of the costs of reaching net zero are £1.4tn, offset by savings of £1.1tn, with an overall net cost of £321bn over 30 years (“Anyone pointing to the costs, but not the savings, is being disingenuous”).  
• ~~Reception. Carbon Brief’s round-up of the UK media response gives a good overview of the report’s reception.
  

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• Fiscal multipliers and co-benefits. The OBR report identifies that the permanent fiscal costs of the pandemic depend on the degree of economic scarring (long-term damage). One solution is to ensure that public spending on net zero has high co-benefits and fiscal multipliers, for instance through investment in retrofitting homes which creates jobs in the poorest areas.  
• ~~Investment with co-benefits to reduce scarring. The Conservative Environment Network’s Sam Hall explained how to target net zero investments to ease post-Covid unemployment and realise the co-benefits of public investment.
• ~~A green recovery is politically popular. New analysis from the ECIU finds majority public support for a green recovery, particularly on issues like installing low carbon technology in housing.  
  

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• Green taxes. The OBR notes that the main hit to public revenues from decarbonisation will come from the loss of fuel duty. But this could be offset by higher carbon taxes, which could cover public spending of around 0.4% of GDP per year on net zero investments.
• ~~Funding the transition to net zero. A coalition of progressive organisations published a letter outlining a set of principles to ensure the tax system supports a green and fair transition to net zero, as well as the different financing mechanisms the government has available, such as borrowing. The Grantham Institute at Imperial College London has designed a framework for fiscal reform for climate action, including tax reform. It argues that the public may be more prepared to pay higher taxes if it is earmarked for specific green investment.

• Plans to reform state-aid rules. This week the government will set out its plans for a post-Brexit system of state subsidies to support selected industries, the FT reports. These will mark a significant shift away from the EU’s state-aid rules that previously limited government intervention.  
• ~~What did EU rules allow? Under the terms of the single market, EU governments require state-aid approval for measures designed to support or privilege domestic businesses. The Institute for Government explains the EU system.
• ~~What does Brexit allow? The Democracy Collaborative’s Joe Guinan and Thomas Hanna have argued that EU state-aid rules limited the UK’s recovery after the financial crisis by preventing the government from supporting UK businesses. Examining the different elements of this argument, the LSE’s Kitty Stewart notes that a future UK-EU trade deal would almost certainly require the UK to adopt EU-like rules to ensure a level playing field for EU companies.
• ~~A free rein for subsidies? In the Brexit negotiations, the EU demanded that the UK create a statutory regulator with powers to prevent government support causing distortions to competition. Instead, the BBC reports, the UK will create a “subsidy advice unit” within the Competition and Markets Authority with “no powers to prohibit the granting of support.”
  

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• An emerging global consensus. The government has said it will use industrial subsidies to help achieve goals such as “levelling up” and decarbonisation. Business secretary Kwasi Kwarteng insisted that this would not be a “return to the failed 1970s approach” of attempting to “pick winners” or bail out unsustainable companies. But there is in fact an emerging global consensus about industrial strategy.
• ~~US moving towards more intervention. Brian Deese, Director of the White House’s National Economic Council, has set out the Biden administration’s plan to provide more aggressive incentives to key manufacturing industries. Deese warned that the pandemic had exposed “unique economic vulnerabilities” in domestic production and an over-reliance on imported goods.
• ~~EU loosening its free-market approach. The EU is also planning a further relaxation of its rules on state aid, though these are the subject of political debate about solidarity between the Northern and Southern member states.
• ~~Global consensus. A 2018 report from UNCTAD found that 84 countries (accounting for 90% of global GDP) had adopted formal industrial policies in the previous five years. UNCTAD is running a series of webinars on “the new consensus among economists and policy makers on the relevance, desirability, and practicability of industrial policy”.  
  

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• Devolution and industrial strategy. The Westminster government’s new approach will be seen by devolved administrations as a “post-Brexit Westminster power grab over subsidies”, warns the FT. The Business, Energy and Industrial Strategy Select Committee argues that “the government should make a commitment to co-producing industrial policy with devolved administrations in Edinburgh, Cardiff and Belfast as well as regional and local leaders”.
  

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• Labour’s proposals. In her first major policy announcement last week, Shadow Chancellor Rachel Reeves also focused on industrial strategy, declaring that a Labour Government would ask all public bodies to give more contracts to British firms, using procurement contracts to raise social, environmental and labour standards.
• ~~Progressive procurement. Labour’s proposals echo those of a 2017 CLES paper which outlined the opportunities for public procurement post-Brexit and called for locally-defined social outcomes frameworks to enable public spending to address local economic issues.
  

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• Industrial strategy and the green transition. The leading modern proponent of industrial strategy is Professor Mariana Mazzucato, whose UCL Institute for Innovation and Public Purpose has been advising the UK, Scottish and other governments on a “mission-oriented” approach aimed at meeting society’s key challenges, such as decarbonisation and healthcare.  
• ~~Competitive advantage. Commenting on the US government’s new approach, economics blogger Noahpinion highlighted the “first mover advantage” of green industrial strategy, enabling the US not just to reduce its emissions but to gain competitive advantage in new technologies, particularly with respect to China.
• ~~Demand and supply. The IPPR Commission on Economic Justice’s paper on industrial strategy explained how strong environmental policy created demand for environmental technologies and services, which a green, mission-focused industrial strategy could then help ensure were produced at home. For more on this, watch the IPPR’s recent webinar on Kickstarting the Plan for Growth with Lord Jim O’Neill, Prof Diane Coyle and former Siemens boss Juergen Maier.

• Pope Francis says “organising in unions is a right.” In a speech to the International Labour Organization this month, Pope Francis called for “deep reform” of the economic system in response to the pandemic. Drawing attention to increasing levels of inequality in society, and poor working conditions for migrants, women and gig workers, the Pope declared that “the protection of workers and the most vulnerable must be ensured through the respect of their fundamental rights”. This must include the right to organise in trade unions.
  

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• Social partnership. Recognition of the role trade unions have played during the pandemic (e.g. in negotiating the furlough scheme) has led many to call for a revival of more collaborative relationships between unions, business and government.
• ~~A national plan. New CBI Chief Tony Danker has called for a “1945-style reboot” of the economy in response to Covid-19, with the “government, businesses and trade unions working together on a fightback plan”. Similarly, the TUC’s Plan for Jobs called for the establishment of a “National Recovery Council” with unions, government and employers drawing up recovery plans together to address the challenges of inequality and net zero.
• ~~Collaboration at the local level. The RSA has argued the Government should replace Job Centres with Job Security Centres, bringing together unions, employers and others as part of a new “Blueprint for Good Work”.

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• Trade unions and inequality. Since the 1970s, the UK has seen a declining share of national income go into wages and salaries and a rising proportion returned to the owners of capital and assets. A 2018 report for the IPPR’s Commission on Economic Justice found that rising inequality was correlated with the fall in trade union membership. Arguing that stronger trade unions can boost productivity, and for the fruits of automation to be more fairly shared, IPPR argued for easier statutory recognition to enable firm-level collective bargaining, accompanied by sectoral collective bargaining in low-paid sectors.
• ~~The role of collective bargaining. The TUC has called for a series of reforms to make it easier for workers to negotiate collectively with their employer, and to broaden the scope of collective bargaining rights to include all pay and conditions, including working time and holidays and equality issues.
• ~~The economic case. The New Economics Foundation and the University of Greenwich have set out the economic case for trade unions, demonstrating the relationship between wage levels and union membership.  

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• Two economies? In its landmark report Work in 2021: A Tale of Two Economies the Centre for Labour and Social Studies (CLASS) argues that the pandemic has reminded workers “of the purpose and power of trade unions”. It brings together analysis of ONS data, interviews with trade union representatives and a survey to paint a picture of workers’ differentiated experiences of the pandemic and how they are organising in response.

• Warnings about the “beast of inflation”. Earlier this month, the Bank of England’s Chief Economist Andy Haldane (widely seen as a progressive figure) called for pre-emptive measures to prevent overheating of the UK economy leading to a resurgence of inflation. Referencing rising commodity prices - such as oil, lumber, silicone chips, iron, corn and soybeans - labour shortages and forecasts of a rapid rise in consumption, Haldane warned of the “most dangerous moment for monetary policy since inflation-targeting was first introduced into the UK in 1992”.
• ~~And elsewhere… Former German finance minister Wolfgang Schauble (a conservative) and former US Treasury Secretary Larry Summers (a Democrat) have also warned of inflationary pressures, in the EU and US respectively.  

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• The case for pre-emptive action. Haldane emphasised the adverse effects of inflation on businesses, consumers, financial markets and indebted governments, recommending preemptive action to stave off inflationary pressures: “Waiting too long risks interest rate rises that are larger and faster than anyone would expect or want. It runs the risk of the brakes needing to be slammed on to an overheating economic engine...acting early as inflation risks grow is the best way of heading off future threat”.

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• The case for caution. NEF’s Dominic Caddick explains the case against premature monetary tightening. He argues that the threat of rising prices is real, but it does not warrant a pre-emptive response now. This is because the inflation we are currently experiencing is:
• ~~Temporary...  Oxford economist Simon Wren-Lewis argued that “the end of the pandemic will see an increase in pent-up consumption, but that is a very temporary affair.” Similarly ECB’s Chief Economist Philip Lane explained why the current inflation should be regarded as temporary, driven by supply side issues not from any overheating of demand.
• ~~...still on target... The UK inflation rate jumped to 2.1% in May, just 0.1% above the 2% target which has been consistently missed for years. Further, without any tightening of monetary policy, the Bank of England’s own projections do not forecast spiralling inflation, with the average rate of inflation (the Federal Reserve’s new target) since 2020 remaining below the 2% target until 2024.
• ~~...and desirable. In these circumstances, mild inflation above target can be a healthy sign of growing demand and economic recovery, particularly if wage rises outstrip inflation. Economist Claudia Sahm explains this point in a video interview with Yahoo Finance to defuse fears about rising inflation in the US.
  

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• Contractionary policy could harm recovery. Overblown fears of inflation could provoke an attempt to reduce public spending and, consequently, harm economic recovery. 142 leading economists signed a letter to debunk the similar argument for contractionary measures in the Eurozone by Wolfgang Schauble.
• ~~Self-defeating effects on public debt. Developing these ideas in a Twitter thread, NEF’s Frank van Lerven emphasised the self-defeating effect of fiscal consolidation on debt-to-GDP ratios, citing evidence from Europe in the 2010s.
  

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• Policy tools for a balanced approach. When the inflationary pressures are driven by supply-side constraints (eg labour shortages and construction under-capacity), price stability can be achieved through non-contractionary policies that don’t harm recovery.
• ~~Active industrial policy. Governments can spend on active industrial strategies to invest in long-run output and reduce bottlenecks in supply. Industrial strategies of this kind are being introduced by governments across the world to increase the resilience of supply chains for products essential to the low carbon transition.
• ~~Rising productivity. Wage rises for those on lower incomes can increase productivity and thereby improve GDP growth, reducing inflationary pressure as the productive capacity of the economy is increased. This has led some economists, such as James Meadway, to argue that “wage rises and mild inflation, after decades of stagnant real pay and deflationary pressure, would be no bad thing.”

• Nice pictures, not enough action. Despite a 25-page communique, the G7 Summit in Cornwall at the weekend came up with only small commitments on the most urgent issues facing the world. Gordon Brown’s damning judgement (“an unforgivable moral failure”) echoed the verdict of almost all development and environment NGOs.
  

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• Global Covid vaccinations. G7 leaders agreed to donate 1bn vaccine doses as a contribution towards the goal of “vaccinating the world” by the end of 2021. The UK committed to donate 100 million doses, the US 500 million.
• ~~11bn doses needed. But campaigners called the commitments a “drop in the ocean” when compared to the WHO estimate that 11bn doses are necessary to vaccinate 70% of the global population. Critics pointed out that in fact just 613 million doses were new commitments, the rest having been previously announced. Norway and South Africa had tabled a plan for the G7 to pay two-thirds of the $66bn cost of the comprehensive delivery plan to distribute vaccines through the international Covax initiative. This was not mentioned.
• ~~Intellectual Property (IP) protected. Before the Summit, the US had signalled its support for patents on Covid vaccines to be temporarily waived in order to facilitate their production in the Global South. But Germany, the EU and the UK resisted this. Instead, vaccines will be bought from pharmaceutical firms using public money and then donated to lower income countries.
• ~~Broader solutions. In the IMF’s proposal to end the COVID-19 pandemic, vaccine donations constitute only one part of a three-part package along with investment in vaccine manufacturing supply-chain capacity and testing/therapeutics. Gavi’s Dr Seth Berkley explains the importance of global manufacturing capacity to end the crisis more quickly and prevent future pandemics.
  

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• Climate finance. With the G7 Summit taking place just five months before the UN climate conference COP26 in Glasgow in November, a key demand of climate-vulnerable nations was for the G7 to finally achieve the $100bn per annum in financial support for low-income countries originally promised in 2009 and reiterated in the Paris Climate Agreement. The most recent OECD estimate is that in 2018 financial flows were around $80bn. But while reiterating their ambition to reach the $100bn figure over the next four years, the G7 announced no new climate finance commitments.
• ~~International reaction. Climate journalist Ed King collated a number of disappointed responses to the climate finance pledges from key figures in the Global South.
• ~~A “Green Marshall Plan”? Prior to the Summit, Boris Johnson had proposed a climate "Marshall Plan” to help the Global South decarbonise, named after the postwar US lending scheme for European reconstruction. By the second day of the Summit this had mysteriously become President Biden’s “Build Back Better World (B3W) Partnership”, framed as a strategic Western initiative to counter China’s huge Belt and Road investment programme in the Global South. The White House press release was reproduced in the Summit communique.  
• ~~The overall climate package. With G7 Environment Ministers having last month agreed to phase out international investment support for coal-fired power stations, the Summit saw additional funding announced to help developing countries move away from coal. The BBC’s Roger Harrabin analysed the overall package.
  

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• Economic recovery and debt relief. The G7 committed to “build back better” from the Covid pandemic, promising recovery plans “that create jobs, invest in infrastructure, drive innovation, support people, and level up so that no place or person, irrespective of age, ethnicity or gender is left behind.” But on debt relief for low-income countries and the reallocation of an expected $650bn issuance of ‘Special Drawing Rights’ (new money) by the IMF, the Summit made no new commitments, merely reiterating existing policy. These issues will be revisited at the Annual Meetings of the IMF and World Bank in October.
• ~~The current debt package. The Jubilee Debt Campaign (JDC) summarised the key problems with the current debt package: too many nations are excluded from the Common Framework for solving unsustainable debt burdens and the Framework fails to include private creditors.
• ~~The importance of debt relief. The JDC calculates that African countries spend three times more on debt repayments to banks and speculators than it would cost to vaccinate the entire continent against Covid-19, with private creditors alone receiving $23.4bn in debt repayments this year.
  

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• A new economic era? The Summit communique noted that a recovery focused on the above objectives “has not been the case with past global crises, and we are determined that this time it will be different”. This followed Boris Johnson’s pre-Summit urging that world leaders should not “repeat the mistake” of the 2008 financial crisis, when austerity response measures had exacerbated inequality. The G7 committed to maintain current fiscal support for their economies, with the long-term sustainability of public finances to be considered only “once the recovery is firmly established.” This was a clear repudiation of the previous policy orthodoxy adopted by all the G7 countries after 2008.  
• ~~International tax cooperation. The Summit also emphasised the importance of the path-breaking agreement on corporate tax cooperation achieved at the G7 Finance Ministers meetings a week before. For more on this, see last week’s Digest.

• UK-EEA free trade deal. The UK signed a trade deal with Norway, Iceland and Liechtenstein, cutting export tariffs on UK farm products such as cheese and meat and reducing costs for UK fish processing. Director of the UK Trade Policy Project explained that the UK-EEA free trade agreement offers better terms than WTO terms but with more barriers than the previous relationship under single market rules.
  

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• UK-AUS free trade deal. The UK is hoping to sign a trade deal with Australia after the G7 meetings close. The FT reports that this is the first big post-Brexit trade deal that isn’t simply a continuation of existing agreements the UK had as a member of the EU.
• ~~Farmers’ reaction. The head of the National Farmers’ Union warned of “irreversible” damage to UK farming from zero-tariff trade in meat (Guardian).
• ~~Stepping stone to CPTPP. UK international trade secretary Liz Truss is also looking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an 11-nation bloc including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
• ~~Analysis. Minako Morita-Jaeger concluded that the UK joining CPTPP is “more about achieving the UK’s Indo-Pacific tilt for foreign policy rather than an economic project”, (UK Trade Policy Observatory) and pointed to ISDS provisions (below bullet) as a controversial area which could threaten UK’s public policy objectives.

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• ISDS threatens UK climate policy. One live issue in the negotiations regards provisions for Investor-State Dispute Settlements (ISDS), which give international firms the right to sue governments for policy changes that could harm the value of their investment, including public interest laws such as public health and climate policies. (NB the investor behind the controversial planned coal mine in Cumbria is Australian).
• ~~ISDS background. See the International Institute for Environment and Development’s report on how ISDS could increase the public cost of climate action.

• Landmark report on energy. Last week, the International Energy Agency (IEA) called for an immediate end to new fossil fuel developments in its report Net Zero by 2050: A Roadmap for the Global Energy Sector. The report marks the first time the world’s most influential voice on energy has modelled a pathway consistent with the Paris Agreement goal of 1.5C of warming, and underlines the benefits of clean energy in terms of jobs, energy costs and energy access for poorer households. (Climate Home News coverage)
  

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• Why is this a big deal? For years, governments and companies have justified expanding fossil fuel production on the basis of IEA scenarios asserting this would be consistent with net zero commitments. Now, they can no longer do so. As Politico’s Karl Mathiesen puts it: “The consequences… are profound. The most august energy organisation has said any new $ spent on gas, oil or coal supply is incompatible with 1.5C. That could underpin court cases, state aid challenges and makes the stranded asset argument very simple.” (See summary thread from energy economist Greg Muttitt.)
• ~~Gas is not a transition fuel. Notably, the idea of expanding gas production – which has lower emissions than coal – as part of the transition to net zero was killed off by the IEA’s report, with major industrial and geopolitical consequences (Energy Monitor).
  

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• Critique. While the report has been widely welcomed by environment experts, a number have criticised the assumptions­ underlying the IEA’s modelling. Oil Change International’s excellent analysis of the report welcomes the step-change in the IEA’s messaging but highlights flaws in the modelling – underestimating wind and solar power, a dangerous gamble on bioenergy and carbon capture, and relying on oil from existing sites far more than e.g. the United Nations Environment Programme 1.5C-consistent pathways.
• ~~Degrowth. Its assumption of continued GDP growth in rich countries also implies an unprecedented rate of GDP/energy ‘decoupling’ – where GDP growth is achieved without corresponding growth in energy consumption. (Thread by Jason Hickel) Last week we covered new research on ‘degrowth’ pathways to emissions reductions (Beyond Covid). See also UCL Professor of Geophysical and Climate Hazards Bill McGuire’s article covering the research this week (Prospect).
  

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• Early impact. Said to have been “heavily influenced” by the IEA’s report, G7 environment ministers have agreed to deliver climate targets in line with a 1.5C of warming target, and have pledged to stop direct funding of coal power stations – though not gas (see above) - in poorer countries by the end of this year. (BBC)
• ~~Fossil fuel companies. Oil giants will also find it harder to justify fossil fuel expansion. Shell, for instance, asked shareholders to approve its ‘net zero’ strategy – which included expansion of oil production - on the day the report was published.
  

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• Next steps. The IEA will publish its massively influential World Energy Outlook (WEO) later this year. The question remains as to whether its new 1.5C pathway will be presented as the central scenario of the report. This matters, as the central scenario is used by governments and investors as their default in energy decision making (Kelly Trout, Oil Change International).
• ~~Government responses. The question remains as to whether governments will act on the findings – Reuters has a good summary of the mixed reception the report received from fossil producer governments.
• ~~City of London. While G7 governments’ commitments to stop funding coal are welcomed, steps must be taken to tackle private finance of fossil fuel expansion too. UK banks provided $56bn financing for firms involved in the coal industry between 2018 and 2020 (CityAM).
• ~~International green financing. Rich countries must go beyond tackling domestic emissions and financially support poorer countries in their transition to clean energy. See our previous Digest on climate targets for more analysis on industrialised countries’ “fair share” of emissions reductions and international climate justice.

• Social care can kicked down the road. In July 2019, the Prime Minister promised his Government would “fix the crisis in social care once and for all with a clear plan we have prepared”. But a plan for social care was missing from last week’s Queen’s Speech, which set out the Government’s legislative agenda for this year.
• ~~Response. Care organisations have been left “extremely disappointed” by the lack of announcements on social care last week. NHS Confederation Chief Executive Danny Mortimer says: “The NHS and social care are sister services – if one suffers so does the other – and the Covid-19 pandemic has shown how fragile and in dire need of reform England’s social care system has become… reform must no longer be delayed”.
  

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• State of care. Analysis from the King’s Fund this month reveals the “widespread decline” in adult social care prior to the pandemic following a “decade of neglect”. The Health Foundation’s submission to the Health and Social Care Select Committee’s inquiry on social care details the fragility of the social care sector - in summary, “increasing numbers of people are unable to access social care, there are systemic and significant workforce issues, and many care providers are at risk of collapse”.
• ~~Marketisation and financialisation. The Women’s Budget Group has also brought together evidence on the need for reform, highlighting in more detail the problems of deregulation and privatisation in the care sector and the effects on gender inequality through e.g. increasing strain on unpaid carers, who are predominantly women. The IPPR’s Grace Blakeley and Harry Quilter-Pinner also examined financialisation and outsourcing within care, arguing that continued private provision could lead to lower quality of service and financial instability.
  

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• What’s the delay? Politico reports that the hold-up is due to disagreement over how a new social care regime would be paid for (a question not covered by February’s White Paper setting out proposals for a Health and Care Bill either).
• Spending cuts and rising demand. Between 2010 and 2019, spending per person on adult social care fell by 12%,while demand has increased due to an ageing population and the rising prevalence of disability – and more recently due to the Covid-19 pandemic.
  

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• Debunking Treasury opposition. The Prime Minister’s favoured plan for funding reform is a cap on care costs to ensure those who need extensive adult social care do not face sky-high fees, as recommended in 2011 by the Dilnot Commission. Senior Health Foundation researchers explain this proposal and counter reported Treasury objections that the cap would not be affordable.
• ~~(The authors note that a cap alone would not be sufficient to ‘fix’ social care – see bullets below for resources on wider reform proposals.)
  

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• Childcare. The Government also failed to address the growing crisis in childcare, in the same week the Department for Education published data showing over 2000 childcare providers had closed over the course of the pandemic.
• ~~State of childcare. The Women’s Budget Group brings together evidence on the underfunding, unaffordability and lack of supply in the childcare sector, with implications for both children (especially in poorer areas) and parents (especially mothers).
  

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• Care spending as investment. The Women’s Budget Group (WBG) argues that chronic underspending on care reflects a gender bias in economic policy-making, and calls for such spending to be seen as investment in social infrastructure to counter this.
• ~~Biden’s shift on social infrastructure. In line this approach, President Biden treated care as infrastructure spending in his American Jobs Plan, allocating $400bn to investment in care and health systems (see our summary and analysis here).
• ~~Care as stimulus. Previous analysis from the Women’s Budget Group estimated that investing in care as part of an economic stimulus package would provide almost three times as many jobs than the equivalent investment in construction.
  

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• Care workers. Central to the problem is the undervaluing of care work. On a Health Foundation podcast on why care is undervalued, commoditised and ignored, Professor of Nursing Policy Anne Marie Rafferty argued “every part of the care labour force is desperately underpaid, chronically underpaid, because of this fundamental cultural distortion in which we don't recognise a form of emotional labour that can be enormously demanding”. (Episode with transcript here)
• ~~Falling wages, low recruitment. In the decade before the pandemic, local government residential care workers’ wages fell by £1900/year in real terms, contributing to recruitment and retention challenges in health and social care and a combined shortage of over 222,000 full-time equivalent staff across NHS England and adult social care pre-Covid. In the childcare system, one in eight early years professionals are paid under £5/hour.
  

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• Blueprint for reform. The Women’s Budget Group Commission on a Gender-Equal Economy has laid out the roadmap for a creation of a “Caring Economy", including recommendations both for particular public services (e.g. including a Universal Care Service) and for how public services are treated within the UK’s broader economic policy framework, ending the chronic undervaluing of care.
• ~~Health and care. The King’s Fund has published “five priorities for health and care” as part of the “road to renewal” for the health and care system considering together.
• ~~An industrial strategy for care. CLES's Isaac Stanley and Common Wealth's Adrienne Buller and Mathew Lawrence released a report outlining a people-centred industrial strategy for a care-led recovery in England. The report is backed by UNISON and the TUC calls for councils ending the use of private care providers, a living wage for care workers and properly funding care through progressive taxation. (Independent coverage here)
• ~~Childcare. The New Economics Foundation has made the case for a Childcare Infrastructure Fund to sustain the childcare sector in the face of both Covid-related and longer-term pressures.

• What should the winners do? Following last week’s elections, the Centre for Local Economic Strategies (CLES) has outlined eight priorities for local, regional and devolved governments with accompanying resources. Proposals include targeting wellbeing, not GDP; community banking and mutual credit networks; using procurement to promote public values; reform of land use and ownership (see Liverpool’s groundbreaking Land Commission with CLES) and rethinking retail centres.
  

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• Class. Many analyses of the results have focussed on Labour losing ‘working class’ seats, as glossed by e.g. percentage of workers in routine manual employment or percentage of graduates. In counterpoint to this narrative, Novara’s Ash Sarkar critiques the often invoked dichotomy between the working class and urban liberals; the Times’s Hugo Rifkind argues the idea of Labour as the party of the more comfortable is untrue, pointing to the 50% graduate rate among under-35s; while The Economist’s Duncan Weldon argued last month the support for Conservatives in Northern towns lies not in “post-industrial misery” but in “comfortable suburbs”.

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• Policy and vision. Guardian North of England editor Helen Pidd argues that the areas where Labour bucked the national trend and did well are where local candidates “led with conviction, promoting a positive vision for their local area”, e.g. through community wealth building approaches. The Guardian also reports that last week saw a slew of UBI-supporters elected, including almost half of Wales’ Senedd.
  

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• New Conservatives and Labour’s challenge. Exemplifying the new direction of the Conservative Party, Ben Houchen (Conservative Metro Mayor of Tees Valley) has written for ConservativeHome calling for the PM to “double down on levelling up” and invest in a Green Industrial Revolution to drive job creation in the North. (See also: ConHome’s Rachel Wolf on “tests for the delivery of levelling up”.) James Meadway writes for the New Statesman on this new brand of ‘red-green Toryism’ and how Labour could respond.

• Local elections, local action. It’s local election day tomorrow in England (and parliamentary elections in Scotland and Wales), so today’s Digest looks at what’s happening at a local level to build a fairer, more sustainable and more resilient economy.
• ~~Local elections, devolution and the North. IPPR North set out the importance of this year’s local elections, particularly for cities, towns and rural districts in the North of England, and argue that the Government’s forthcoming devolution and local recovery white paper offers an opportunity for a clearer, more transparent framework for allocating and distributing devolved powers.
• ~~Mapping local action. The New Economics Foundation’s ‘Change the Rules’ gathers together lots of resources on the policies needed at local level, and maps a wide range of local enterprises and projects including cooperatives, mutuals and community businesses.
  

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• Community wealth building. One of the most interesting ideas to emerge from local government in recent years has been that of ‘community wealth building’. Pioneered in the US city of Cleveland, and in Preston here in the UK, community wealth building is the idea that, as far as possible, local spending in a city or locality should remain in that city or locality, so that it can create jobs and wealth locally rather than elsewhere. Under a ‘CWB’ strategy, local councils and other ‘anchor institutions’, such as hospitals and utilities, commit to sourcing as much as possible of their services from local businesses, enabling jobs to be created and retained locally. Some cities, including Preston, have been particularly focused on supporting cooperatives and other community enterprises to meet local demand, ensuring that local wealth is even more equally spread.
• ~~Community Wealth Building after Covid-19. In their October 2020 report, think tank Common Wealth offered a vision for democratising the economy after Covid-19, with recommendations including the reform of procurement practices and the creation of a Community Wealth Building Act.
  

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• Local government and the response to Covid-19. CLES sets out a practical framework for local authorities to respond to the economic crisis and rebuild fair, inclusive and secure local economies.
• ~~The ‘Preston model’. The Byline Times describes how Preston’s approach to community wealth building offers a model for other austerity-hit and Covid-damaged local authorities.
• ~~Social value and procurement. Under the 2013 Social Value Act, local authorities are able to apply non-financial criteria to procurement contracts, thereby enabling them to support local businesses and insist on good working conditions. David Burch of CLES describes how Manchester City Council has been doing this (with CLES’s support).
• ~~A new model for local economic development. The Centre for Local Economic Strategies and the US-based Democracy Collaborative suggest that the economic shock of Covid should be an inflection point for a new approach to local economic development. With the pandemic having reminded many people of the importance of the community, they describe community wealth building as the ‘new common sense’ .
• ~~Insourcing. A key element of community wealth building is procurement of goods and service. Over recent decades many public services have been ‘outsourced’ to private providers, with mixed success at best, and some scandals of profit-taking and incompetence at worst. Tom Lloyd-Goodwin and Neil McInroy argue in the Guardian that outsourcing as a strategy has failed, and that ‘insourcing’ - taking services back in house - along with ‘social licensing’ of ethical businesses fit to provide public services - should increasingly replace it.
  

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• Climate action at local level. In the last few years a growing number of local councils have ‘declared a climate emergency’ and committed themselves to action on climate change, including the ultimate goal of ‘net zero’ emissions..Local authorities’ powers are limited, however, and most have few resources for non-statutory work. So in their place there is a great deal of imagination and innovation going into local authority action in this field - as well as a demand that central government gives local councils more powers and resources.
• ~~Local powers to act on climate. UK100, the network for local elected leaders (including city mayors) taking action on climate change, has published a comprehensive examination of the powers local authorities have, and need, to deliver on climate.
• ~~Net zero. UK100’s ‘Net Zero Local Leadership Club’ brings together those councils now committed to achieving ‘net zero’ emissions, as soon as possible and by 2045 at the latest. The UK100 ‘knowledge hub’ provides a series of case studies of how different local authorities are acting to reduce their own and local emissions and to adapt to the climate changes we are already experiencing.
• ~~Climate Emergency. A new organisation, Climate Emergency UK, is seeking to map and coordinate local declarations and activities. They have produced a list of councils which have declared climate emergencies, and their website allows members of the public to search for their local council and what (if anything) it is doing about climate change.
• ~~Global local action. C40 Cities is the collaborative network of city mayors from the world’s largest cities committed to action on climate change and a sustainable future. Led by the mayors of Los Angeles and Milan, these cities last year committed to investing in a ‘green and just recovery’, and showcased what they are doing to deliver it.
• ~~Green recovery. Jonty Leibowitz, then at CLES but now adviser to Labour Shadow business and climate minister Ed Miliband, has set out how local authorities can build secure green recoveries at local level.
  

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• Local and regional banking. In pursuit of more locally and regionally governed economic development, there has been increasing interest over recent years in a more localised and regional banking system. Unlike many countries the UK’s banking system is more or less entirely national (and international), and the argument is made that this inevitably skews financing for business investment towards London and the South East of England. In other countries, notably Germany, local and regional ‘stakeholder’ banks, largely or wholly publicly-owned, have played a critical role in ensuring that investment and job creation are well distributed geographically, and that small and medium sized businesses which might be ignored by large private banks are provided with patient (long-term) finance.
• ~~Regional banking in Germany. Daniel Ticsher explores the benefits that regional banks bring to diversity and resilience, finding that Germany's more diverse banking sector weathered the global financial crisis better than the UK’s highly concentrated private banking system.
• ~~A more diverse banking sector. The New Economics Foundation establishes the economic case for a more diverse banking sector, arguing that this ecosystem would be more resilient, socially focused and give better returns to customers than commercial banks. Elsewhere NEF proposes that the UK government retains its majority stake in the Royal Bank of Scotland and transforms it into a public banking network.
• ~~Regional banks in the UK. Responding to the closure of local branches by retail banks in many communities, All In, the Royal Society of Arts and others make the case for a community savings bank for the North East, In the South West, South West Mutual is aiming to be a regional high street bank exclusively focused on the south west of England.  
• ~~Stakeholder banks. In OpenDemocracy’s e-book New Thinking for the British Economy, Christine Berry proposes a UK ecosystem of stakeholder banks.
• ~~A Post Bank network. The Communication Workers Union and the Democracy Collaborative propose the creation of a publicly owned Post Bank network supported by regional development banks.
• ~~Local banking in Scotland. Common Weal presents the case for a local, mutually-owned 'public-good banking network' in Scotland to restore bank branches to communities which have lost them.
• ~~Cooperative local banking. The New Economics Foundation explores the benefits of cooperative banking. It cites international evidence showing that mutually-owned banks are more focused on supporting high streets, are better at lending to SMEs, and are likely to be better managed and more stable in a crisis. It has published a guide for people and community organisations interested in establishing a new regional community bank.
  

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• Devolution. A decade of cuts to local authorities, sharp regional inequality and the continued effects of centralisation of power in Westminster (e.g. the Covid-19 response) has led many to argue for greater devolution of money and power to local authorities.
• ~~City-regions. Former banker and Tory minister Jim O’Neill argues that city-region mayors must be given greater powers if the Government’s ‘levelling up’ agenda is to work.
• ~~Devolution in Cornwall. Cornwall is the only non-metropolitan area in England to have a devolution deal. IPPR North analyse what has been achieved and what new powers are needed.
• ~~Regional inequality. Anton Jaeger in New Left Review explores the new regional politics of England.

• New developments. The past week saw both the announcement of the UK’s new emissions target - an increase in ambition from the target announced just four months ago in December - and Biden’s Leaders’ Summit on Climate, “a starting pistol for the six-month countdown to COP26”.
  

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• New UK target. The UK announced a new goal of cutting emissions by 78% by 2035 compared to 1990 levels, a more ambitious target than the previous 68% target announced in 2020. For the first time, the target includes emissions from international aviation and shipping, as has been campaigned for by green activists and civil society.

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• “Magic decarbonisation tree”. The 78% target is in line with the Committee for Climate Change’s (CCC) advice (Carbon Brief summary). But the Government has not followed the CCC’s policy recommendations, particularly around politically difficult topics such as reducing meat consumption and other behavioural changes, instead emphasising “new green technologies”. BusinessGreen’s James Murray argues that the Government cannot rely on such “techno-optimism” to meet its targets, and must instead show political leadership and policy development on trickier areas of the transition to net zero.
• ~~Target versus delivery. While the new target has been welcomed, many have highlighted that there is a gap between a target and delivery. In his analysis of this gap, GreenAlliance’s James Fortherby highlights we were not on track to meet the previous target and that emissions are set to be 40% higher in 2030 than needed on the basis of current policies.
• ~~Enforcement of legal targets. Former Director of E3G and GreenAlliance Tom Burke has written on the need for stronger enforcement and institutional frameworks surrounding legal environmental targets. The CCC’s recommendations for 2035 (above) arise from the legal obligations placed on it and the Government under the 2008 Climate Change Act (explainer here).
  

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• Critique of net zero targets. The UK’s and other countries’ climate targets are based on the idea of “net zero”. Climate justice organisations including ActionAid and the Third World Network have argued net zero targets drive a form of “carbon colonialism” and delay meaningful action on climate change - by e.g. relying on unproven or harmful carbon offset technologies (see above). These sentiments were echoed in last month’s Nature editorial on net zero pledges.
• ~~New proposal for better targets. A new, peer-reviewed paper in the Frontiers in Climate journal examines the issues with treating emissions reductions and offsets as equivalent in climate goals, and suggests different and differentiated targets to encourage ambitious and just climate action.
  

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• Biden’s summit. A number of countries (re)announced stricter emissions targets at the US Leaders’ Summit on Climate last week. Achieving these would close just ~13% of the “emissions gap” (the gap between forecast emissions and the level of emissions in 2030 consistent with 1.5C of warming), leaving a gulf between present commitments and ambitions to limit warming and avoid some of the worst effects of climate change.
• ~~New US target. As the single largest emitter, Biden’s announced target of halving emissions by 2030 relative to 2005 levels accounts for the majority of this closure. While this is the biggest commitment to emissions reduction from the US thus far, it falls short of the 57-63% domestic emissions reduction needed to get on track for the US’s 2050 net zero target.
• ~~Critique of Biden’s plans. In his in-depth analysis of Biden’s climate plans, Adam Tooze concludes that “for all the high-flown rhetoric… Biden’s climate programme appears hobbled by constraints, lacking in focus and inadequate in ambition”.  

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• Fair shares. How much should each country spend on mitigating climate change? There are differing analyses of each country’s “fair share” based on interpretations of two principles built into the Paris agreement (see Civil Society Review pp. 14-16)
• ~~Responsibility for climate change: based on accumulated historical emissions, with some interpretations e.g. excluding or underweighting emissions arising from fulfilling basic needs.
• ~~Capacity to help: countries’ financial capacity, which may factor in within-country inequality by weighting wealthy citizens’ income more strongly.

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• ‍International justice and climate finance. For major emitters and wealthy countries like the US and the UK, “fair shares” analyses often amount to over 100% of domestic emissions, necessitating international action to support poorer and less responsible countries. E.g. ActionAid USA and other civil society groups have called for a US “fair share” emissions reduction of 195%, with 70% coming from domestic reductions and 125% from supporting poorer countries through “climate finance”, while War on Want has argued for a 200% emissions reduction in the UK by 2030.
• ~~Biden’s climate finance plans. Many campaigners have expressed their disappointment at the US pledge to contribute $1.2bn to the UN’s Green Climate Fund, which does not even cover the shortfall between money promised under Obama that was then not delivered under Trump. Alex Lenferna of 350 Africa told Climate Home News the sum was an “insult to the Global South”. (See also The Third Pole’s Joydeep Gupta’s assessment of the state of play: “Biden’s pledge inadequate for climate justice”).
• ~~American foreign policy. Kate Aronoff argues that “the U.S. needs to rethink its foreign policy if it has any chance of meeting its climate commitments” in the New York Times. ‍
• ~~Private finance. The Guardian editorial on Biden’s climate plans cites Professor Daniela Gabor’s research, criticising the US approach for leaving poorer countries dependent on private finance and calling for rich world concessions on sovereign debt and climate finance at the G7 and COP26. ‍
• ~~UK climate reparations. Lawyer and organiser Harpreet Kaur Paul made the case for “reparative climate justice” in her report for Common Wealth based on a “fair share" analysis. Recommended reparative mechanisms cover climate financing, debt cancellation, trade and company reform, and needs assessments.‍

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• Road ahead. As we approach COP26 in Glasgow later this year, the issues above - international climate justice and finance, ambition and feasibility of emissions targets - will continue to climb the agenda. E3G gives an overview of the climate-diplomatic run-up to November.

• Covid-19 and the public-private sector relationship. Over the course of the pandemic, a string of procurement gaffes, outsourcing failures, and allegations of cronyistic relationships between public officials and private contractors - most recently surrounding Greensill - has led to increased scrutiny of the relationship between the government and the private sector.
• ~~Greensill overview. The Institute for Government’s Inside Briefing podcast examines the most recent developments in the Greensill scandal, the state of lobbying rules and the promise of various inquiries.
• ~~Inside Britain’s pandemic spending. In December 2020, the New York Times investigation into “waste, negligence and cronyism” analysed 1200 publicly available Covid-19 contracts (many remain secret), and found that half of the £22 billion spent went to companies with connections to the Conservative Party, no prior experience and/or a history of controversy.
• ~~Health service. The British Medical Association has published excellent overviews of the acceleration in outsourcing within the health service during Covid-19 and the windfall gains to private providers, despite a “litany of mistakes”. (See also: Drs Rebecca E Glover and Nason Maani’s “Have we reached ‘peak neoliberalism’ in the UK’s Covid-19 response?” for BMJ Opinion).
  

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• Rentier capitalism and outsourcing. Economic geographer Brett Christophers and others have argued the best way to understand major outsourcing companies is as specialists in winning long-term government contracts, and not in actually delivering services. They are then able to extract value from ownership of these contracts without providing commensurate social value, in the same way as owners of other scarce assets do. (See Christophers on the rentierisation of the British economy and Christine Berry’s review of Christophers’ book.)
• ~~Serco and Test-and-Trace. An example from the pandemic is the surge in Serco’s profits from its test-and-trace contract, despite its poor performance compared to local public health teams and its history of fraud and false accounting in public service provision.
• ~~Podcast. Listen to Brett Christophers, Ed Miliband and Geoff Lloyd discuss rentier capitalism during the pandemic on the Reasons to be Cheerful podcast.
  

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• Outsourcing, consultants and the erosion of public sector capacity. The government’s overreliance on the private sector to deliver core public services and develop strategy over recent decades has led to an erosion of public sector capacity, which in turn encourages further outsourcing.  
• ~~Rebuilding public sector capacity. UCL Professor Mariana Mazzucato has written extensively on the state as a creator of value - undermining the rationale for outsourcing and privatisation - and the need to improve public sector capacity to tackle societal “grand challenges” (see e.g. her article with Professor Rainer Kattel on the need for governments to build dynamic capabilities to prepare for future pandemics).
• ~~The Covid-19 gravy train. Former Cameron speechwriter and Times columnist Clare Foges has written on the need to “restore expertise and capacity to the public sector” in order to end the “coronavirus gravy train” - whereby private companies and consultants stand to make huge amounts of money at the taxpayers’ expense, even if they provide poor-quality services.
• ~~Lessons from Carillion. This is a longer standing issue. Following the Carillion scandal, the auditor general claimed that “there are lots of areas where the government does not have the capacity to do anything else but outsource”.
• ~~Consultants. The problem of lost capacity extends beyond service provision. Cabinet Office minister Lord Agnew argued last year that an “unacceptable” reliance on management consultants had “infantilised” the civil service at great cost to the public purse.
• ~~Public sector pay. Before the pandemic, public sector wages had fallen to a 25 year low relative to the private sector. At the same time, funding cuts have led to increased pressures on workers, further exacerbating recruitment and retention difficulties. This has undermined public sector capacity across a number of areas, e.g. recruitment and retention challenges in health and social care led to a combined shortage of over 222,000 full-time equivalent staff across NHS England and adult social care.
• ~~Guidelines for insourcing. The Institute for Government claims that insourcing of public services “can improve quality, increase reliability, and save money” and lays out guidelines for when and how public services should be brought back into government hands.

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• Procurement and contracting. The Government has also been criticised for its approach to procurement of goods and services (as distinct from the critique of outsourcing services that should be delivered by public bodies). Prior to the pandemic, the Institute for Government had criticised the government for failing to learn the lessons of Carillion and continuing to engage in risky contracts.
• ~~NASA and contracting. Prof Mariana Mazzucato used NASA as an example of how public sector expertise prevented “brochuremanship” - where private contractors can dictate terms in their favour because of a lack of public sector capacity - in her article for Project Syndicate on Biden’s need to reforge the social contract and build back the state.
• ~~Socially responsible outsourcing. The Centre for Local Economic Strategies’ (CLES) Neil McInroy and Tom Lloyd-Goodwin argued the present approach to outsourcing has failed, and that a combination of insourcing and a system of “social licensing” - criteria that non-government providers of public services must meet - would improve provision.
• ~~Community Wealth Building after Covid-19. In their October 2020 report, think tank Common Wealth offered a vision for democratising the economy after Covid-19, with recommendations including the reform of procurement practices and the creation of a Community Wealth Building Act.
• ~~Using the power of procurement. Public procurement creates large markets for goods and services. IPPR has argued the government could use this power to improve business practices - focussing on housing as an example - by strengthening legislation around procurement and social value. (Guardian coverage) ‍

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• Transparency. Further to the problems outlined above, a lack of transparency in public-private sector dealings creates the conditions for corruption. Corruption researcher Lucas Amin has written for openDemocracy on the need to change transparency law to allow for proper external scrutiny of public-private contracts.
• ~~Covid-19 contracts. The National Audit Office concluded that the Government did not meet transparency standards in its procurement of PPE and other goods and services (British Medical Journal coverage). ‍
• ~~Legal action. The Good Law Project has taken legal action against the government for its lack of transparency in awarding contracts during Covid-19 (see founder Jolyon Maugham’s article for the Guardian).‍

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• Lobbying Act. Polly Toynbee has written on how the Lobbying Act - introduced by Cameron - has failed to prevent the conditions for corruption between business and government, and instead has hamstrung charities.

• Global corporation tax. The Biden administration has released plans for a global minimum corporation tax with its “Made in America Tax Plan”. The two pillars of the plan are (a) provisions for allowing countries to tax multinationals based on a company’s sales in that country, and not registered profits (as these can be shifted to lower tax jurisdictions) and (b) an effective global minimum corporation tax, whereby multinationals paying lower than this minimum in a particular country would face a “top up” tax in their home country, reducing the incentive and ability to shift profits to a tax haven. (See Guardian explainer)
• ~~Rationale. Over the past thirty years, there has been a race to the bottom in corporation tax rates around the world, undermining countries’ ability to raise revenue, and profit-shifting to tax havens has increased (60% of multinationals’ foreign earnings are now channeled through tax havens, compared to 30% in 2000).
• ~~Context. The proposal builds on long-running OECD talks on global corporate tax reform, and may break the recent deadlock in these talks. The US government also hopes its proposals limit the incentive for countries to unilaterally impose taxes on US-based tech companies (e.g. a ‘digital services tax’). The New York Times’ Jesse Drucker outlined the history of advocacy leading to these developments on Twitter.
• ~~Benefits to the UK. Tax Justice UK estimates that the American proposals would translate to a £13.5 billion increase in annual tax revenue for the British government.
  

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• Policy analysis. Tax expert Richard Murphy argues in the Financial Times that Biden’s plans are "unexpectedly robust" but would require a comprehensive system of country-by-country profit and tax reporting to work, and criticises the plans for only applying to the largest 100 multinational companies.
• ~~Fairness for low-income countries. Last month, Chief Executive of the Tax Justice Network Alex Cobham wrote on the history of the OECD talks to date and profiled an alternative proposal for global corporate taxation. In particular, he argues reforms should not grant superior rights to the “home country” of multinationals - which the second pillar of Biden’s plan does - as this disadvantages lower-income countries (World Economic Forum).
• ~~Not just about tax rates. The Tax Foundation’s Daniel Bunn emphasised the need for a minimum tax base in addition to a minimum tax rate (Twitter).

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• ‍$2 trillion infrastructure plan: climate, care and unions. The Biden administration has followed up its radical American Rescue Plan (see our analysis here) with an ‘American Jobs Plan’ which, if passed, “would be the most far-reaching climate bill ever enacted” (Economist). Further, the President has allocated $400bn to investment in health and care systems, marking a shift towards treating spending on social infrastructure as investment, as has been called for by the Women’s Budget Group. The plan also includes a “sweeping” pro-union bill. ‍
• ~~Analysis. For more details, see Ella Nilsen’s excellent summary for Vox, while clean energy writer David Roberts examines the climate-related elements of the proposal in detail.‍
• ~~COP26. Biden is expected to announce the US’s ‘Nationally Determined Contribution’ - its emissions reductions target ahead of the UN climate negotiations in Glasgow this year - and try to build international ambition at a climate summit on 22-23 April. ‍

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• Paradigm shift. The scale and radicalism of Biden’s proposals since entering office have strengthened the argument that a paradigm shift is underway in American, and global, economic policy making. Economist Noah Smith (Noahpinion) argues Biden’s policy reforms are comparable to the New Deal or Reaganomics in scale, and offers an analysis of the “unifying philosophy” of Bidenomics.‍
• ~~Biden the radical? Noting the break between Biden’s radicalism as president and his previous political career as a moderate, the New York Times’ Ezra Klein examines the reasons for such a shift, including the revival of the American left.‍
• ~~ICYMI, last month Economist J. W. Mason outlined 10 reasons why Biden’s American Rescue Plan bill represents a decisive break with neoliberal views on macroeconomics.

• Suez and supply chains. The blockage of the Suez Canal by container ship Ever Given (freed yesterday) provoked a major disruption to global trade - 12% of which passes through the canal. It also prompted widespread reassessment on the "just-in-time", complex global supply chains that characterise today's economic architecture.
• ~~Overview: For an analysis of recent developments in global supply chains, see WTO and World Bank's 2019 report on Global Value Chain Development).
• ~~Industry reaction. The CEO of Maersk, which carries a fifth of the world's seaborne freight, argued that the canal blockage will accelerate the shift to "just-in-case" supply chains - e.g. holding higher levels of inventory, building in redundancies - to protect against supply chain fragility.
• ~~In-depth analysis. The McKinsey Global Institute published last year a report on rebalancing 'global value chains' in a world of increasing environmental and political-economic fragility, offering a taxonomy of potential shocks, analysis of how these would affect supply chains and recommendations for building resilience. See also the World Economic Forum's 'White Paper', building on consultations with 400+ operations and supply chain executives.
  

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• Political pressures. The crisis builds on existing political pressures on global supply chains. Ngaire Woods, professor of global economic governance at Oxford University, has highlighted two such pressures:
• ~~'Reshoring'. Governments and firms are under pressure to reverse offshoring and bring areas of production back to 'host' countries, either because of economic populism/nationalism (e.g 'bringing jobs home') or due to concerns over national resilience, i.e. ensuring countries can produce food, medical equipment, vaccines and other baseline goods or goods of strategic import to reduce reliance on other countries.
• ~~Demand for ethical supply chains. Institutional investors and consumers have been pressuring businesses to improve labour practices and environmental standards across their international supply chains.
  

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• "Outsourcing exploitation" to Global South. Academic Dr Intan Suwandi has written on how multinational corporations (MNCs) based in the Global North exploit workers in the Global South in their supply chains, in a continuation of historical colonialism and imperialism. (See also the Washington Post investigation into human rights violations and environmental degradation in lithium battery supply chains used by Apple, Amazon and other major companies).
• ~~German government action. This month, the German labour ministry has "ramped up pressure" for a groundbreaking Supply Chain Law that would make large German companies responsible for ensuring adherence to human rights in their global supply chains, and is pushing the European Commission for a corresponding Europe-wide framework. The bill has wide public and mixed industry support, but some human rights and environmental groups have criticised the bill for leaving room for exploitation and violations.
• ~~A climate retrofit for trade. Think tank Common Wealth's proposals for 'greening trade' examine and address the exploitation, environmental degradation and inequalities arising from global value chains.
• ~~A new multilateralism. Academics from SPERI have outlined the contours of a "new multilateral compact" to address sustained global inequality and the "paradoxes of inclusive growth", engaging with the issue of exploitation in global value chains.
  

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• Within-country inequalities in Global North resulting from free trade. Pushes to reshore industries or otherwise restrict trade are often framed in economic nationalist or security terms. Professor Dani Rodrik has proposed the possibility of a "legitimate case for restricting trade to promote domestic social inclusion" - when within-country inequalities resulting from international trade arise due to 'offshore' violation of domestic laws or norms - and has proposed a "social safeguards clause" to tackle this inequality and promote a "more inclusive globalisation".
• ~~A collective bargaining strategy for trade. The union Unite has published a report arguing for a new industrial strategy for post-Brexit trade, based on coordination between workplace representatives. They argue that collective bargaining and "supply chain solidarity" can prevent "races to the bottom" on worker pay and conditions. (Tribune article from report authors here).
  

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• Other international issues. See below for an overview of recent developments relating to immigration, vaccine nationalism, debt justice, international financial institutions and more.

• New commission: Yesterday, Conservative-aligned think tank Bright Blue launched a cross-party commission to advise on reforms to the social security system. The commission brings together Conservative MPs Shaun Bailey and Stephen Crabb alongside Labour's Baroness Lister, the TUC's Anjum Klair, campaigner Jack Monroe and other academic and civil society figures. (Guardian coverage)
• ~~No return to the 2010s. Bright Blue Chief Executive Ryan Shorthouse commented: "After the last economic crisis in the late 2000s, those claiming working-aged benefits experienced deep and disproportionate cuts to their incomes as the Government repaired the public finances. That can't happen again."
  

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• Budget 2021. Shorthouse's statement contrasts with the Chancellor's relatively austere stance on social security at the March Budget - only deciding to extend the £20/week Universal Credit uplift at the eleventh hour, before a cliff-edge reduction in September that the Institute for Fiscal Studies' Paul Johnson has branded "remarkable" and "unanswerable".
• ~~What would ending the uplift mean? The Resolution Foundation highlights that ending the uplift as planned would see the basic level of benefits cut to levels last seen in the 1990s, right as unemployment is set to peak, which they argue would be both"disastrous for family incomes" and "bad macroeconomics (pp. 23-24).
• ~~Select committee response. Stephen Timms MP, head of the Work and Pensions Committee, has warned that ending the uplift in September "will be very difficult to justify" and criticised the Government for having "once again" ignored the needs of those on pre-UC 'legacy benefits', including many disabled people and carers.
• ~~The uplift is not enough. Even with the uplift, analysis from the New Economics Foundation finds that ~21 million people are set to fall into hardship by May, while the Joseph Rowntree Foundation has argued the Chancellor's social security and housing decisions will mean "more people are swept into poverty".
  

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• Longer-term reform. In addition to assessing the changes to social security introduced during the early stages of the pandemic, the commission hopes to: "consider which principles and approaches should guide future policies on social security, and develop a policy programme supported by the public and policymakers from across the political spectrum".
  

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• Momentum for change. The commission comes amid increased scrutiny of Britain's social security system during the pandemic, leading to calls for reform from across the political spectrum. Last year, for instance, the cross-party House of Lords Economic Affairs Committee published a comprehensive overview of the failings of the social security system in its report "Universal Credit isn't working". The authors argue that UC has "undermined the security and wellbeing of the poorest in our society" and outline a suite of recommendations to improve the system. Other proposals for reform include:
• ~~Trades Union Congress: The TUC (represented on Bright Blue's commission) has called for a suite of reforms, including raising the basic level of UC and legacy benefits to 80% of the national living wage; removing the five-week wait for first payment, conditionality requirements, and 'No Recourse to Public Funds' restrictions on migrants' access to support; and reform of Statutory Sick Pay so that it is paid at the Real Living Wage and that low-income workers can access it.
• ~~Minimum income guarantee: The New Economics Foundation (NEF) outlines how Universal Credit can be reformed to address the immediate crisis and improve the system over the longer-term in their "Universal Credit in the Time of Coronavirus" briefing, which proposes a Minimum Income Guarantee, amongst other measures.
• ~~Supporting families: In view of rising child poverty, the TUC and IPPR made the case for a "family stimulus" (Oct 2020), modelling the benefits of either doubling child benefit or scrapping the two-child limit and benefits cap for means-tested child support. They also outline proposals for targeted investment in childcare infrastructure.
  

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• Investment in public services. One question for the Bright Blue commissioners is whether their examination of the social safety net goes beyond the welfare system to include public services. Many have argued that cuts to public services have increased the strain on households and the social security system, and that provision of welfare and services like social care should be seen as part of the same system and examined holistically (e.g. NEF's Alfie Stirling and Sarah Bedford).
  

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• Universal Basics. Earlier this month, NEF's Anna Coote and Compass's Neal Lawson called for enhanced public services integrated with a basic income to form part of a new social guarantee after the pandemic. The article is notable, given that - as the authors note - UBI and UBS have often been framed as mutually exclusive alternatives in debates around social security reform.
• ~~Universal Basic Income. The House of Commons Library's research briefing on "The introduction of a basic income" (Oct 2020) offers a great overview of the debate around introducing basic income in the UK, highlighting research from the University of Bath as the most detailed work on what a UBI scheme in a British context would look like.
• ~~Universal Basic Services. The most comprehensive case for Universal Basic Services can be found in the UCL Institute for Global Prosperity's (IGP) literature review on the theory and practice of UBS (2019). The review builds on the Institute's original 2017 proposal, the first articulation of UBS.

• New ONS analysis on well-being. Last week the ONS published analysis of the gendered effects of Covid-19 in the UK, finding that women's wellbeing has been more negatively affected over the past year than men's - reporting higher levels of loneliness, depression and anxiety - and that women have consistently spent more time on unpaid childcare and housework than men during the pandemic.  
• ~~Ethnicity and mental health. Research from January this year found that both women and ethnic minorities experienced higher increases in mental distress from 2017-2019 to April 2020, with ethnic minority women seeing a higher increase than ethnic minority men or white women. UCL research from November found similar results.
• ~~Mortality rates. The ONS noted that men have suffered higher mortality rates than women. A peer-reviewed, global Covid-19 meta-analysis published in Nature Communications plays down the role of gender-based socioeconomic or cultural differences in explaining this disparity and argues "fundamental differences" between male and female immune responses are "likely to be a driving factor".

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• Socioeconomic inequalities during Covid-19. The ONS report builds on evidence from earlier in the pandemic that Covid-19 has exacerbated socioeconomic inequality between men and women, with ethnic minority women, disabled women, working class women and migrant women suffering disproportionately.
• ~~Overview. The Women's Budget Group's report "Lessons Learned: Where Women Stand at the Start of 2021" brings together evidence on the gendered economic and health impacts of Covid-19.

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• The burden of care. Throughout the pandemic, women have been picking up the slack with even more unpaid care work, which exerts a toll on their mental health. Research published this year, for example, found that working parents experienced a worse deterioration of mental health than other groups, especially when they spend more time on unpaid childcare and home-schooling, and that this pain is unevenly borne by women and financially-insecure parents.
• ~~Effects on employment. This uneven burden of care threatens women's labour market prospects over the longer-term, because e.g. mothers are more likely to be interrupted at work or to leave paid work to take on caring responsibilities.
• ~~International comparison. The uneven impact of the Covid-19 recession on women's economic prospects has been observed across the globe, reversing the gains of the past decade, and contrasts with previous recessions that did not have as gendered an impact.
• ~~Discrimination against pregnant women. A July survey of 19,950 mothers from campaign group Pregnant Then Screwed found significant employer discrimination against mothers, e.g. 15% of mothers had been or were expecting to be made redundant during the pandemic, 46% of which said that lack of childcare provision played a role in their redundancy. The group have also criticised the Government's SEISS scheme for discriminating against women taking maternity leave.
  

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• Budget 2021. Last week, the Women's Budget Group published its full gendered analysis of the 2021 Spring Budget, arguing that it represented a "missed opportunity to build back better" Key points included:
• ~~Public services. The planned cuts to public services (£14-17bn per year from 2022 relative to pre-pandemic plans) reflect a "concerning" focus on fiscal consolidation and risk ignoring the lessons of the previous decade, in which spending cuts undermined the public services necessary for an effective pandemic response and disproportionately impacted women, ethnic minorities, low-income and disabled people.
• ~~Social care and childcare. The Chancellor did not mention social care in the Budget, despite the Prime Minister's promises to "fix" social care, and made no funding available for this. Early years childcare was similarly overlooked, despite the acute financial pressures on both care homes and childcare providers. (See WBG's detailed briefings on social care and childcare for more information.)
• ~~Gender budgeting. Echoing calls from the EHRC, the Treasury Select Committee and Women and Equalities Select Committee have called on the Treasury to do more to meet its Public Sector Equality Duty obligations and criticised the lack of Equalities Impact Assessment.
  

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• A care-led recovery. The Women's Budget Group's analysis also criticises the Government for "unambitious" investment plans, arguing that these overlook the benefits of investing in social infrastructure.
• ~~Social infrastructure. Previous analysis from the Women's Budget Group estimates that investing in care as part of an economic stimulus package would provide almost three times as many jobs than the equivalent investment in construction, with wider benefits for decarbonisation and gender equality. Last year, the Greater Manchester Independent Prosperity Review argued that social infrastructure investment was vital for reducing regional inequalities.
• ~~Creating a caring economy. The final report of the WBG Commission on a Gender-Equal Economy lays out a blueprint for economic reform, including eight steps for building a care-oriented economy.
  

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• Violence against women and girls (VAWG). During the pandemic, there has been an increase in male violence against women and girls. Low income, migrant status and disability all increase women's likelihood of facing domestic abuse, underlining the need for policymakers to understand how gender intersects with other axes of inequality.
• ~~Funding for VAWG services. The WBG's briefing on violence against women and girls welcomes the Domestic Abuse Bill but argues this needs to be matched by funding. The additional £19 million promised at the Budget, in addition to the £125 million promised in the 2020 Spending Review, falls short of the £343 million that Women's Aid estimate is necessary for a "safe and sustainable" network of domestic abuse services.
• ~~Universal Credit. The structure of Universal Credit - e.g. its distribution at a household, not individual level - has been criticised for increasing women's exposure to financial abuse.
• ~~Policing. Following the tragic murder of Sarah Everard and cross-party outcry over the police handling of vigils, the Government's proposed Police, Crime, Sentencing and Courts Bill has come under criticsm for "failing to protect women" (BBC).

• Short-term business and job support measures. In a widely welcomed move, the Chancellor extended the Government۪'s business and job support schemes until the autumn.
• ~~Excluded. An estimated 600,000 more people - the newly self-employed in 2019-20 - are now eligible for the Government support through SEISS. Millions remain excluded from support schemes, however, as highlighted by Martin Lewis on Andrew Marr.

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• Social security measures. Maintaining the £20/week uplift in Universal Credit was widely welcomed, but many campaigners have argued for a more permanent reform of social security.
• ~~Millions facing income crisis. NEF research has found that even with the uplift, a third of people are expected to fall into hardship by May, and almost 1 in 5 will be living with an "exceptionally high risk of material deprivation".
• ~~Cliff-edge. The Resolution Foundation has highlighted that the planned cut in Universal Credit is set to coincide with unemployment peaking in the UK, which would be both "disastrous" for families and undermine macroeconomic recovery efforts.
• ~~Legacy benefits. The Resolution Foundation also pointed out that many people on "legacy benefits" (pre-UC benefits such as Income Support) have not received an equivalent uplift, which the Disability News Service argues leaves 1.9 million disabled people worse off.  
• ~~Sick pay. The RSA has highlighted the need to reform Statutory Sick Pay - amongst the least generous in the OECD - a measure which gains clear majority support from both Conservative and Labour voters.
• ~~Longer-term reform. The RSA also argued the Government should replace Job Centres with Job Security Centres (bringing together unions, employers and others) as part of a new "Blueprint for Good Work" and look towards introducing a Universal Basic Income to address economic insecurity, elements of which could be put in place now.
  

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• Rebuilding public services? Despite widespread coverage of this being a "high spending" Budget, the Chancellor's announcements took £16bn out of pre-pandemic spending plans and "bizarrely made no provision whatsoever for virus-related costs beyond next year" (Economist). Day-to-day spending per head is set to be 6% below 2010 levels in real terms by the middle of this decade, in sharp contrast with the "build back better" narrative and popular support for increased public service spending.
• ~~Is that possible? The Economist coverage of the Budget highlights demographic pressures and argues "it is hard to find waste in the public sector", limiting scope for cuts. The IFS argue the Government's public spending plans "simply look implausibly low", in light of ongoing pressures on education, the backlog of court cases, and the need to reform social care, of which there was no mention in the Budget.
• ~~Health. The Health Foundation argues that major pressures on the health service were not factored into public spending plans: the cost of managing Covid-19 as it becomes endemic, the need for more capacity in the health system, and the backlog of patients that has built up over the pandemic.
• ~~Social care and inequalities. Beyond these direct pressures, the Health Foundation argues the pandemic has exposed the fragility of the NHS to shocks and the need to tackle the "broken" social care system and "deep-seated" socioeconomic inequalities, both of which increase the burden on the health service and neither of which were addressed by the Budget. (See the "Inequalities" section below for detail on the proposed 1% pay rise for nurses.)
• ~~An austerity Budget? Oxford economics professor Simon Wren-Lewis has labelled Sunak's budget "an austerity budget" while the Independent's Ben Chu has a Twitter thread examining "how exactly Sunak is bringing austerity back to public services".

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• Taxation. The Chancellor reaffirmed the Conservative manifesto commitment to not raising income tax, VAT or National Insurance, limiting the Party's room for manoeuvre when it comes to raising taxes in future.
• ~~Freezing income tax thresholds. The decision to freeze income tax thresholds - bringing more people into paying income tax and into higher tax bands - is one way to raise revenue from income tax while sticking to this commitment. While this measure is progressive, it is also the least progressive way of raising income tax.
• ~~Corporation tax to rise to 25% in 2023. The Chancellor has accepted arguments that corporation tax cuts have not stimulated investment (e.g. the final report of the IPPR Commission for Economic Justice), and the planned rise would bring headline rates of corporation tax more in line with the G7. There remains a question mark as whether the proposed rise will actually occur in full.
• ~~Council tax. Meanwhile, local authorities under financial pressure are already being forced to plan increases in council tax - which is highly regressive (see Sun coverage) - due to cuts in funding from central government, which the Financial Times has branded "austerity by stealth".

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• Super-deductions. In the near term, an est. £25bn will be spent on allowing businesses to write 130% of the cost of their physical investments against taxable profits. This could stimulate investment in the near-term, though there is a risk of "deadweight loss" - lowering taxes for businesses who would have invested anyway. Another risk is that super-deductions distort investment patterns by subsidising investment in plant and machinery compared to intangible assets.
• ~~Amazon wins. The untargeted nature of the tax cuts means that digital business who already pay low levels of tax in the UK - e.g. Amazon - will be able to further reduce their tax bills for investment that would go ahead anyway.

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• Levelling-up. Two of the Chancellor's "levelling-up" measures - freeports and the Levelling Up Fund - have come under fire.
• ~~Pork-barrel politics. Financial Times analysis has found that Conservative seats were consistently placed in a higher priority category for the Levelling Up Fund than their deprivation level would indicate, and the reverse is true for Labour seats. The Government is yet to publish its methodology, as promised. The Times' George Grylls has a thread on communities secretary Robert Jenrick's constituency receiving the "maximum amount of money it could have possibly received".
• ~~Freeports. The Chancellor announced the Government's freeport areas in the Budget. The criticism of freeports is that these encourage a politically costly race to the bottom, while the "advantages to business are almost non-existent", as argued by the UK Trade Policy Observatory. Tax Justice UK's submission to the Government's freeports consultation highlights significant money-laundering risks in addition.  

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• Recovery. IPPR has argued the Chancellor's stimulus is only half of what is needed to secure recovery, comparing the Budget's proposals to Biden's rescue package (see below), which is more generous despite the UK facing a deeper recession.  
• ~~Fiscal constraints? A popular narrative (e.g. Daily Mail) that works against arguments for higher spending is that the government's "colossal" debt will have to be paid back over "many generations". BBC economics correspondent Andy Verity has argued against this narrative here.
• ~~Stimulus and the deficit. The IMF and OECD have argued that the Government should prioritise recovery over fiscal consolidation - but these two goals aren't necessarily in tension. IPPR has argued that stimulus may also consolidate the public finances, as it would increase tax receipts and employment. The BBC's Andy Verity has highlighted that efforts to "balance the books" over the past decades have coincided with an increase in public debt, speaking to the need for governments to prioritise recovery.

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• Environment. Carbon Brief features a detailed look at environmental measures in the Budget and summarises the media response - overwhelmingly that the Budget fell short of the UK's environmental ambitions.
• ~~Political pressure. SPERI Professor Michael Jacobs has argued that COP26 and a shift in the Conservatives' electoral coalition has pushed the Government to change its approach to environmental policy, and that the Chancellor will likely have more "green goodies" to announce in the autumn as the climate summit draws near.  
• ~~"No vision for sustainable economic growth". UCL IIPP's Josh Ryan-Collins has argued that, despite the appearance of radicalism, this Budget is a reversion to economic orthodoxy. Common Wealth's Mat Lawrence argued that in the face of climate change, we need a "post-carbon growth coalition" in his analysis for the New Statesman.
• ~~Fuel duty. For the 11th year in a row, fuel duty has been frozen. Carbon Brief argued last year that these freezes have increased CO2 commissions by up to 5%.

• Corporation tax debate. A major focus of pre-Budget debate has been the proposed rise in corporation tax, in part because of an apparent, eyebrow-raising reversal of roles - the Conservative government is proposing higher taxes on businesses, while the Labour opposition argues a rise in corporation tax should not be introduced until later in the recovery. The issue is particularly thorny because it speaks to a number of interrelated debates.

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• No need for fiscal consolidation... Sunak has outwardly justified the proposed tax increase on fiscal grounds - arguing that there’s a need to ‘repair the public finances’. Labour have cited the IMF and OECD in arguing that the focus now should be on recovery, not on fiscal consolidation. (See e.g. our analysis of fiscal policy narratives and a thread from the BBC’s Andy Verity on why there’s no urgency to “pay down the debt”.)  
• ~~...but would raising corporation tax slow down recovery? Some have argued that given the UK’s low rate of corporation tax and the fact it is only paid on profits, not revenue, raising corporation tax would not unduly dampen recovery if accompanied by a large enough stimulus elsewhere. (See e.g. IPPR’s paper on taxation and the Budget, and Beyond Covid analysis of tax and recovery).

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• Narrative and political challenges. Many people now agree that the UK corporation tax rates (19%, down from 30% a decade ago) is too low. It is much lower than other G7 countries, where the average rate is 24%. But among those who support a rise in corporation tax in the long-term, there is disagreement over the politics of supporting the near-term increase.
• ~~Support. Critics of Labour’s strategy, for instance, have argued that opposing corporation tax now risks wasting a time-limited opportunity to reform the tax system to make it more redistributive, and/or that Labour risks landing on the wrong side of public opinion. There is also a danger that opposition to tax rises helps reinforce their perception as anti-business.  
• ~~Opposition. The opposing argument is that supporting a rise in corporation tax now may reinforce the government’s claim that the public finances need to be ‘repaired’ through another round of austerity and fiscal consolidation. Regardless of other reasons to support an increase, it is this austerity narrative (it is argued) which will inevitably dominate debate and public perceptions.  

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• Other tax rises. The Government is thought to be proposing a freeze in income tax thresholds. The Resolution Foundation has pointed out that this is progressive in nature, as has the New Economics Foundation, which has previously argued for personal allowance reform. Meanwhile, councils are already being forced to plan increases in council tax - which is highly regressive (see Sun coverage) - due to cuts in their funding from central government, which the Financial Times has branded “austerity by stealth”.
• ~~Tax Day. The Government will signal its long term policy direction on tax on March 23, when it will publish consultations expected to cover capital gains tax, environmental taxation and more.

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• Supporting businesses and households. IPPR research has highlighted that more than 500,000 businesses are at risk of bankruptcy (equating to 9 million jobs) and argued for continued support, including through public equity stakes. Meanwhile NEF research estimates that around a third of UK residents will be living in hardship by May, even with the Universal Credit uplift.
• ~~Public attitudes. Surveys indicate that public support for increasing the generosity of social security far outweighs support for cutting benefits - a reversal from in 2014.
• ~~Universal Credit. The New Statesman’s George Eaton has highlighted that the UK’s unemployment benefits as a proportion of previous income are the least generous in the OECD. (See House of Lords review “Universal Credit isn’t working” for a comprehensive overview).

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• Size of stimulus? President Biden’s proposed $1.9 trillion economic recovery package has received a huge amount of attention. IPPR has highlighted that the UK faces a deeper recession than the US, but is planning to spend far less as a proportion of GDP on stimulus - and has called for planned spending to be increased 4x to match American ambition. (See FT coverage here)

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• ‍Environment. Guardian environment correspondent Fiona Harvey has analysed pre-Budget announcements will mark a test of the government’s green credentials ahead of COP26.‍
• ~~A green and fair recovery. A group of MPs and peers have written to the Chancellor outlining five priorities for a green and fair economic recovery, including investment in social infrastructure and green job creation, reform of the Bank of England mandate, and a move towards wellbeing budgets, echoing the recommendations of the widely-supported Dasgupta Review (which we analysed here).

• $1.9 trillion. Biden’s proposed American Rescue Plan (ARP), which if passed by Congress would see an injection of $1.9 trillion into the US economy, would constitute a “huge fiscal experiment”, with government borrowing and spending ($1.9 trillion is around 8.9% of US GDP) on a scale unseen since WW2. The package includes $2000 cheques being sent to most American households.
• ~~Analysis: Economist Professor Steven Fazzari examines the proposal’s four main components for INET (public health funding, unemployment benefit, support for state and local government and stimulus cheques) and argues that we should not be concerned by the public finance implications. The Brookings Institute examines the macroeconomic implications of the package.

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• Economists’ support. The proposals have attracted a wide range of support in academia. Indeed, support for ARP unites the unlikely pairing of Paul Krugman and Kenneth Rogoff, who have previously disagreed bitterly over the economics of austerity.
• ~~Opposition. Some high profile economists, including former Obama advisor Lawrence Summers and former Bundesbank head Axel Weber, have argued that the plan would risk large inflationary pressures - though it is worth noting that the latter has a history of being extremely hawkish on inflation (e.g. calling for monetary policy tightening in the Eurozone in 2011). Olivier Blanchard defended concerns over the ARP for the Peterson Institute, while asserting that he still believed in the need to “go big” on fiscal policy.
• ~~Explainer: Vox’s Emily Stewart offers an excellent overview of the economic debate around ARP, arguing on balance that the risks of not going big enough outweigh the risks of timidity.
  

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• Inflationary risk? In response to Summers and others’ concerns around inflation (above), Head of the IMF Research Dept Gita Gopinath has argued that “structural factors and central bank liquidity limit inflation risks”. Additionally, Wall Street’s investment banks are “increasingly saying that concerns about runaway inflation are misplaced” (Business Insider).
  

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• The politics of stimulus. Paul Krugman has highlighted that Biden’s proposals are “overwhelmingly popular” with both Democrat and Republican voters, despite otherwise deep partisan divisions and efforts by Republican lawmakers to discredit the stimulus package. Additionally, Krugman’s analysis highlights the political risks of undershooting, including undermining trust in the state to deliver security.
  

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• Implications for macroeconomics. The outcome of the ARP Act, if passed, would have enormous implications for debates over macroeconomic policy around the world. In recent years, the economic consensus has shifted decisively in favour of fiscal policy (see Lord Skidelsky in Project Syndicate and our overview of macroeconomic policy debates in 2021). If Biden’s “huge fiscal experiment” is successful, we might expect it to further strengthen the case for fiscal spending and against austerity. On the other hand, if it does stoke inflation or fail to create jobs rapidly enough, or if money is perceived to have been ‘wasted’, this is likely to strengthen the arguments of fiscal conservatives everywhere.
  

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• Eurozone debate. Already, President of the Peterson Institute Adam Posen is fearful that fiscal conservatives in Europe would jump at the chance to use the Biden plan to undermine efforts to increase fiscal ambition in the Eurozone.
• ~~Europe needs stimulus. The FT Editorial Board, on the other hand, has called for the Eurozone to follow Biden’s lead and “go big” on fiscal policy, arguing that the Eurozone’s deeper recession both increases the need for stimulus and undermines the risk of inflation.
• ~~A new fiscal framework. The debate in the EU is now over the entire fiscal constitution of the EU, in which the Stability and Growth Pact limits deficit spending. Over a hundred civil society leaders and academics have written to EU leaders calling for a review of economic governance, arguing that the bloc’s current fiscal framework is “the exemplar of irresponsibility”.
  

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• British debate. In the UK, the American Rescue Plan has inspired calls for the Government to “Boost it like Biden”. IPPR has highlighted that the UK faces a deeper recession than the US, but is planning to spend far less as a proportion of GDP on stimulus - and has called for planned spending to be increased 4x to match American ambition. (See FT coverage here)
  

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• Investment. A major difference between the IPPR proposals and the Biden plan is the former’s inclusion of public investment spending - while the Biden plan focuses entirely on Covid-19 relief and support for businesses and households.

March Budget. The Telegraph reported last week that the Chancellor is “thought to be moving away from major tax increases in next month’s Budget… delaying any fiscal pain to a second Budget later this year”. In their coverage, the Financial Times emphasised that while Sunak will focus on supporting the economy through lockdown, he will also use the March Budget to be “open and honest” about what “fiscal discipline” means - introducing some tax rises now and signalling more for the autumn.

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Conservative disagreement.The FT cites former Cabinet member David Davis and former Thatcherite minister Sir John Redwood as examples of Tory opposition to “fiscal discipline” in the short- to medium-term, e.g. Davis: “I would aim to start thinking about balancing the books in three years’ time. The aim now should be to do everything conceivable to help the economic recovery”.

• ~~Political concerns. Sunak’s motivations are in part political - reflecting a desire to put “clear blue water” between the Conservatives and Labour with his approach. The Chancellor might also hope that bringing forward tax rises will give him the freedom to cut them again before the next election, as reported in September.

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‍False trade-offs.The debate around tax rises is characterised by a supposed, binary trade-off between tax rises to ‘pay down the debt’ on one hand, and supporting recovery on the other - but this is misleading. ‍

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Do we need to pay down government debt? No - in the short-term, the overwhelming economic consensus is that there is no pressing need for fiscal consolidation, and that the focus should be on supporting recovery, as we have covered here and here. The OECD’s chief economist has expressed concern that the UK and other Western governments remain too fiscally conservative in this respect. ‍

• ~~Even once recovery is well underway, the case for tax rises still does not come from any need to “pay down the debt”. Oxford’s Professor Simon Wren-Lewis has written about how it makes little sense to target government debt reduction in light of its role as a shock absorber. Rather, higher taxes would support an ageing country with better public services in the long term, as SPERI’s Michael Jacobs has highlighted.

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‍Will tax rises inhibit recovery? While the case against overall fiscal consolidation, especially with respect to spending cuts, is clear-cut - as above, the economic consensus is that large scale fiscal policy is needed - tax is more complicated. Wealthier households and certain businesses have done disproportionately well during Covid-19 - raising taxes on these groups is unlikely to suppress economic activity, especially if combined with redistribution. Indeed, taxation could play an important role in shaping the recovery to be e.g. more equitable and more green.‍

• ~~Analysis. The Times’s Philip Aldrick and Tax Justice UK’s Robert Palmer both offer good overviews of the role tax can play in recovery.‍
• ~~Excess Profit Duty? Economic historian Norma Cohen writes for the FT on how a tax innovation from after WW1 could be used to target the “outsize profits” some companies have made during Covid-19 to prevent a “K-shaped recovery”.‍
• ~~Green taxation. The Grantham Institute has designed a fiscal framework for climate action, while Common Wealth and the New Economics Foundation have laid out principles for green taxation reform.‍
• ~~Wealth tax? Conservative MP and chair of the Treasury select committee Mel Stride appeared supportive of a wealth tax on Times Radio this week (video and details of proposal on Twitter).‍
• ~~Other forms of wealth taxation. The Chancellor’s review of capital gains tax suggested raising tax rates on income from wealth so they are closer to rates on income from work. (See IPPR for a good overview of wealth taxation.‍

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Tax reforms. There is also the opportunity to reform the tax system along these lines without necessarily raising taxes in any individual area, e.g.:‍

• ~~Personal allowances. In view of reports that the Government is looking into freezing the personal allowance, read NEF’s report on a cost-neutral alternative to the allowance that is both highly distributive and better for macroeconomic stabilisation. ‍
• ~~Property taxation. A number of Conservative voices (Onward, the Property Research Group) have made the case for reform of property taxation. As it stands, the present system is highly inequitable and inefficient - which is why coming rises in council tax are of serious concern (FT: “austerity by stealth”). ‍
• ~~Conservative view of tax reform. Last week Kevin Hollinrake MP set out a number of areas for tax reform on ConservativeHome, showing a considerable degree of overlap with progressive proposals. ‍

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Tax cuts. Conversely, it is unlikely that tax cuts - which for the most part benefit wealthier households with lower propensities to consume - would spur growth, especially if that entailed lower public spending. For instance, recent analysis of 18 OECD countries over the last half a century suggests, contrary to the promises of trickle-down economics, tax cuts on the rich have had no significant positive impact on growth or employment, while they have exacerbated inequality.

• ~~Corporation tax. ICYMI, the Conversation has an excellent article on ending the “race to the bottom” on corporation tax.

• What is it? Last week, HM Treasury published the landmark Dasgupta Review - the Final Report of the Independent Review on the Economics of Biodiversity. It is the first time a finance ministry has published a comprehensive analysis of the relationship between economics and the protection of Nature (capitalised in the Review).
• ~~Summary. The Review’s own short “headline messages” document can be found here. Our summary: the demands on Nature are dangerously unsustainable as a result of “deep-rooted, widespread institutional failure”. “Transformative change” is needed urgently, and for this “we cannot rely on technology alone: consumption and production patterns will need to be fundamentally restructured”. Key steps are to “change our measures of economic success” - at the very least, de-emphasising GDP - to incorporate the value of Nature and the cost of its degradation, and to transform our finance and education systems.
• ~~Analysis. James Murray, editor-in-chief of Business Green, offers an excellent overview of the report and surrounding debates. UCL IIPP’s Katie Kedward offers a more focussed, in-depth analysis of the Review’s implications for central banks and financial supervisors (Twitter).

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• International context. The report is published amidst alarming recent evidence that humans are destroying nature on an unprecedented scale and that none of the world’s internationally agreed targets for 2020 have been met (Leaked UN research).
• ~~British context: The Public Accounts Committee last week published its searing critique of the Government’s progress towards its long-term environmental goals. The report notes that “nine years [from setting these goals] it still does not have the right framework for success”. The Environment Bill’s passing has been delayed again (Guardian) and last week the Government rejected Caroline Lucas MP’s proposed amendment to replace GDP as the headline measure of economic success. It declared that “economic objectives and decision-making processes are already aligned with ambitious commitments to… improving the natural environment”. This is flatly contradicted by the Dasgupta Review.
  

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• Reception. The report was welcomed by a wide range of economists and environmentalists, including Nobel Prizewinner Joseph Stiglitz: “It provides, for the first time, a framework for the difficult global decisions we must have on how to restore sustainability, not just in climate but in all dimensions of the environment”.
• ~~Government: Boris Johnson gave the review an “early welcome” but the minister of the department that published the report - Rishi Sunak - has not made any public comment. He left it to a junior Treasury minister.
  

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• Natural capital. The most controversial aspect of the Review is its embrace of “natural capital” approaches to giving Nature a monetary value. The Review calls for an alternative headline measure of economic success - “inclusive wealth” - to acknowledge that GDP does not incorporate the value of the natural world. Its rationale is that by putting a value on biodiversity and other key functions, we would move away from the current situation where we “pay people more to exploit Nature than protect it” to the tune, it estimates, of USD $4-6 trillion per year.  
• ~~Background: The idea of natural capital is explained by proponent economist Dieter Helm here.
  

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• Critiques and alternatives. George Monbiot issued a searing critique of the Review and attempts to “put a price on nature”, arguing that natural capital approaches encourage a counterproductive “commodification” of the natural world.
• ~~Prior critique of natural capital approaches. UCL IIPP’s Katie Kedward has written on the limits to market-based mechanisms to protect biodiversity, and NEF have published an in-depth critique of natural capital specifically. Writing for CUSP in 2018, Aled Jones argued that natural capital approaches through monetising nature may in fact accelerate diversity loss.
• ~~Natural and man-made capital. One particularly interesting point is that natural capital approaches seem to imply a degree of substitutability both within natural capital and between natural capital and man-made capital, which is fiercely contested (see e.g. research from Oxford Martin School).
• ~~Economists as ecology experts? At the Dasgupta Review launch event, David Attenborough claimed that economists understand the importance of biodiversity more than ecologists do, which was criticised as “galling and absurd” by Doughnut Economics proponent Kate Raworth. Her critique of natural capital approaches is here (video).    
  

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• In defence of the Review. Other environmentalists and progressives welcomed the Dasgupta Review, highlighting its calls for complementary approaches to natural capital for protecting Nature.
• ~~Step in the right direction. James Murray in Business Green argues that though “natural capital” approaches are imperfect, the all-too-normal alternative is that the value of the natural world is simply ignored in economic decision-making - the Review’s proposals are a step in the right direction.
• ~~Other approaches to protecting Nature. Environmental campaigner Guy Shrubsole notes that the review does not simply call for the environment to be given a monetary value, but makes the case for “putting large parts of the biosphere off-limits to the market” and - radically for a report published by the Treasury - points out that material economic growth is inevitably bounded by environmental limits.

• ‍What’s going on? r/WallStreetBets (WSB) – an irreverent Reddit forum (or ‘subreddit’) where users discuss stock and options trading – has dominated financial news over the past week, as retail investors from the forum piled into the shares of games retailer GameStop in a ‘short squeeze’ aimed at hedge funds betting against the company.
• ~~Short squeeze? Redditors identified that a number of hedge funds held significant short positions on GameStop - that is, they were betting its share price would fall. By coordinating the buying of shares in enormous quantities, retail investors sent the price skyrocketing, making short sellers lose money – e.g. as of Sunday, hedge fund Melvin Capital had sustained a 53% loss of $4.5bn.
• ~~Explainers. Vox’s Emily Stewart offers a good overview of the situation, as does economist and trader Gary Stevenson on LBC (video here).‍

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• Next stop, silver? Retail investors also poured into silver markets– seemingly in an attempt to apply the same tactics – but this market is much harder to influence and, unlike GameStop, there is no significant short position on silver amongst speculators. Hedge funds and other speculators would likely gain from a rising silver price.‍
• ~~Who is driving the squeeze? Many WSB members have objected to the media narrative that the forum is behind the silver squeeze – indeed, posts warning against the squeeze dominate the forum, unlike with GameStop stock – and have alleged some sort of false flag operation. FT coverage raises the possibility that “silver promoters may have used Reddit to advance their own agenda”, speaking to broader dangers (see below).‍

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• Why is this happening? The astronomic rise of GameStop’s share price clearly transcends any argument based on “business fundamentals” – yesterday’s falls suggest the bubble may already be bursting. What explains the rise, and what lessons can we draw from it?‍
• ~~David and Goliath? It is tempting to project an underdog narrative onto these events – ordinary people taking on the hedge funds. The fact these funds were “betting against” the fortunes of a bricks-and-mortar store adds to its memetic/political charge. Indeed, it’s notable that the companies targeted by Redditors (GameStop, Blackberry, Nokia) have nostalgic appeal. But this is an oversimplification:‍
• ~~Goliath wins. Investment management firms (e.g. BlackRock), as owners of GameStop stock, stand to benefit hugely from the saga. FT Alphaville suggests the saga is probably “a phenomenon born of a clandestine action between several hedge funds”. Financial institutions will almost certainly have got in on the Reddit action, perhaps in bad faith (see silver, above), for their own gains. All this undercuts the populist narrative.‍
• ~~David loses. When the bubble bursts, the danger is that amateur investors are left holding the bag, losing savings they cannot afford to lose – and while the saga benefits GameStop’s owners, it’s unclear how it benefits its workers.‍

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• Money to burn. Some traders have been motivated by political cause, perhaps enough to bear a loss, but most are looking to make money. Covid-19 has dramatically reduced consumer spending and, for those who haven’t lost their jobs and incomes, this has translated into a rise in savings. Stimulus cheques have given middle-class Americans even more money to burn, and interest rates are at record lows. These factors all increase the appeal of riding the GameStop wave in an attempt to outsmart other, amateur investors and make a quick buck.‍
• ~~Decade of asset price inflation. The backdrop to this exuberance is that since 2008, a reliance on monetary policy and protection of the financial system in times of crisis has pushed asset prices – including stocks – up, as wages have stagnated, driving wealth inequality. This has been true during Covid-19 too, as stock markets have performed well despite a shutdown of the real economy and spiralling unemployment.
• ~~Where to channel this money? James Meadway proposed "recovery bonds" as a vehicle for increased middle-class savings in the UK - highlighting how increased public investment (and "crowded-in" private investment) could provide an alternative destination for these savings to financial speculation.‍

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• Regulation. Trading of meme stocks will not address the fundamental problems of wealth inequality and financialisation. But the saga has shone a light on hedge funds and is expected to expedite a regulatory review under Treasury Sec Janet Yellen.‍
• ~~Politicisation. More broadly, the perceived hypocrisy of hedge funds complaining after they have “treated the stock market like their own personal casino” (Sen. Warren) and the decision of Robinhood to stop GameStop stock trading – whether or not this was the result of a regulatory need to cover the risk from volatile trading – has strengthened the narrative that it is one rule for ordinary people, and another for the hedge funds. Alexandria Ocasio-Cortez and Ted Cruz have both sided with the former. The question is how this diffuse political force translates into addressing wealth inequality.

• Singapore-on-Thames... The Times reported last week that the Prime Minister was “pushing for Britain to become a low-tax, low-regulation regime like Singapore” in the aftermath of Brexit. Some suspect Chancellor Rishi Sunak - who now leads a Whitehall committee on regulatory reform - will use the March Budget to set out “substantive ‘divergence’ plans from the EU”, though this conflicts with previous reports that this will be “just another emergency statement”.‍

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• ...but with tax rises? At the same time, it is reported that the Government plans to raise corporation tax and make progressive reforms to property taxation (Times). ‍
• ~~Political divides. The mixed messaging reflects ideological divisions within the Conservative Party (small state versus “levelling up” interventionism, in brief), and indeed a tension between the free market libertarianism of the party’s most prominent Eurosceptics and its new electoral base (see Unchecked UK's research on public attitudes to regulation in Red Wall seats).‍
• ~~Electoral strategy. The FT reports that Sunak hopes to put “clear blue water” between the Conservatives and Labour with his proposed tax rises (and spending cuts). The Chancellor might also hope that bringing forward tax rises will give him the freedom to cut them again before the next election, as reported in September.‍
• ~~Need for stimulus. The progressive tax changes Sunak is considering could well support recovery, but the Chancellor’s hopes for restrained spending in the near-term go against consensus among the IMF, OECD and others on the need for large-scale fiscal stimulus. Read our analysis here.

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• Labour market deregulation. New Business Secretary Kwasi Kwarteng has confirmed his department is reviewing EU employment protections, following reports that “worker protections enshrined in EU law… would be ripped up” under proposals for a post-Brexit labour market overhaul. ‍
• ~~“Own goal for Britain”. The measures reportedly under consideration - ending the 48-hour work week, excluding overtime in holiday calculations, changing rules around rest breaks and logging of work hours - have been roundly criticised by the Financial Times as unaligned with the needs of both employers and workers.‍
• ~~UK labour market standards. In defence, Conservative MPs are pushing the line that the UK’s labour market standards currently compare favourably with the EU’s (e.g. here). The category error here is comparing the UK with an EU-wide floor. Most individual EU countries go beyond this minimum and more so than the UK, which has “one of the most lightly regulated markets in the OECD in terms of employment protection”.‍
• ~~Britannia Unchained. Kwarteng has insisted that the Government is not trying to “whittle down standards”. Sceptics point out that he - alongside fellow Cabinet members Priti Patel, Dominic Raab and Liz Truss - advocated strongly for the removal of worker protections in Britannia Unchained, a publication which accused British workers of being “among the worst idlers in the world”.‍

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• Environmental protections. IPPR has warned that the Government’s Brexit deal leaves both workers’ rights and environmental protections at risk of erosion. It is worth noting that the “build back better council” of business leaders being consulted by Johnson on regulatory reforms include the CEO of BP, the Chairman of Heathrow and other representatives from big polluters. (Independent)‍
• ~~Level playing field? While safeguards in the UK-EU deal are meant to prevent too much regulatory divergence on e.g. labour market and environmental measures, IPPR argue that the bar for proof of infringement is so high that enforcement would be rare. ‍

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• Financial deregulation. This month, the Chancellor promised the UK financial sector a “Big Bang 2.0”, harking back to the explosion of financial deregulation in the 1980s. City of London bosses have welcomed the Government’s keenness to engage with businesses, but have argued there is “little need for wholesale deregulation in the UK” and the focus should be on “reregulation”.  ‍

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• Freeports. The Government hopes to establish its first freeports this year, and we may see announcements on these in the Budget as part of the Government’s deregulatory stance, Meanwhile the SNP have proposed “green ports”, though it is unclear how much these differ in substance. ‍
• ~~Analysis. The criticism of freeports is that these encourage a politically costly race to the bottom, while the “advantages to business are almost non-existent”, as argued by the UK Trade Policy Observatory. Tax Justice UK’s submission to the Government’s freeports consultation highlights significant money-laundering risks in addition. ‍

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• Red tape. The irony is that Brexit has, in some cases, led to a lot more red tape for British businesses. Over the weekend, the Times reported that “tens of thousands of small British firms are being crippled” by the new administrative burden of trade with the EU, while the Observer revealed that the Department for International Trade has advised British firms to set up in the EU to avoid extra costs resulting from Brexit. ‍
• ~~Northern Ireland. Earlier this month, NI first minister Arlene Foster came under fire as Brexit red tape has left the country facing the prospect of prolonged shortages.

• OECD: “Rethink constraints on public spending”. At the beginning of the year, OECD chief economist Laurence Boone made headlines for pushing governments to revolutionise their approach to macroeconomic policy - and showing concern that the UK government among others has not yet made this leap.‍
• ~~No return to 2010. Boone argued that the mistake following the 2008 financial crisis was to withdraw stimulus too early, and that fiscal tightening should be avoided for the first one or two years of recovery. Fiscal, not monetary policy, should do the heavy lifting, for macroeconomic and distributional reasons. ‍
• ~~IMF: “Spend as much as you can. Then spend a little more.” IMF MD Kristalina Georgieva made similar appeals to governments to push ahead with stimulus, and in particular for global coordination in green stimulus packages.‍
• ~~Sunak’s approach. The IMF and OECD’s position - both former cheerleaders for austerity - lies in contrast to the Chancellor’s narratives around a “fiscal emergency”, deployed to support e.g. the public sector pay freeze and potential cuts to Universal Credit. (Read our analysis here.)‍

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• Ditch deficit and debt targets. Beyond immediate stimulus, Boone argued that “one-size-fits-all” fiscal rules based on short-term deficit/debt targets are unfit for purpose, and that governments should “embrace long-term sustainability goals”. ‍
• ~~No more rules! In the same vein, a recent paper from an unlikely trio of authors - former US Treasury Sec Robert Rubin, former head of Congressional Budget Office Peter Orszag, and Joseph Stiglitz - outlines a new approach to fiscal policy that abandons top-down anchors or rules, which they argue are unfit to deal with radical uncertainty.‍
• ~~New buzzwords: “Semiautonomous discretion”. Their proposals focus on significantly increasing the budget’s responsiveness to broader economic changes - e.g. through beefing up “automatic stabilisers” - thereby making the task of discretionary fiscal policy easier and more streamlined. Read the paper here.

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• Mais lecture. Shadow Chancellor Anneliese Dodds addressed these themes in her Mais lecture. Her proposals included testing “every single budget line” against the Government’s net zero goal - part of centring resilience in economic policymaking - and asking the National Audit Office to submit an annual report to Parliament on the effectiveness of public spending, which the Government must respond to.‍
• ~~Fiscal responsibility. Glowing Financial Times coverage emphasises Dodds’ responsible approach to spending - it is worth noting that this fiscal framework appears more expansionary than Labour’s 2016 Fiscal Credibility Rule, doing away with a debt-GDP target but maintaining the current spending balance target. (See Stephen Bush on the politics of her speech.)‍
• ~~Fiscal anchor? Dodds does propose a “fiscal anchor” that would limit increases in discretionary current spending during a crisis - the rigidity of this goes against Stiglitz et al's approach (above) to fiscal policy-making “in a deeply uncertain world”, and is based on an Institute for Fiscal Studies paper written before the Covid-19 pandemic.‍
• ~~Public sector net worth. While a lot of coverage has contrasted Dodds’ approach to the Fiscal Credibility Rule, relatively little has touched on the “public sector net worth” approach adopted by Labour in 2019, based on a paper written by the now head of the Office for Budget Responsibility. This would take a broader view of public sector liabilities and, crucially, assets. James Mills picks up on this for the Independent.

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• Financial Times mea culpa. In their coverage of the emerging fiscal consensus, the FT editorial board acknowledged their mistake in supporting fiscal retrenchment after 2008, though a number of prominent economists, including Oxford’s Simon Wren-Lewis and Lord Robert Skidelsky, question the FT’s assertion that “the facts have changed” as an explanation. (See Laurie Macfarlane’s Twitter thread on the FT position here).‍

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• Weird QE. A graph showing that QE bond purchases have “perfectly tracked government borrowing needs” raised some eyebrows earlier this month, as did the assertion - by its own internal watchdog - that “the Bank of England does not understand its own flagship quantitative easing programme”. ‍
• ~~Would monetary financing be so bad? The CIO of BlueBay argued that monetising the debt needs to be “an option in the toolkit”, citing the successful Canadian monetisation of its debt in the 1930s as precedent. (See IIPPs review of fiscal-monetary coordination for other examples.) Before Covid-19, Blackrock published an article on how monetary financing could help us “deal with the next downturn”.‍

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• Financial Times U-turn. In their editorial on fiscal policy(above), the FT draws a line between QE and monetary financing, and argues the latter cannot be part of the policy toolkit. This contrasts with their April editorial - in which they argue “there is no clear distinction between QE and monetary financing” and that “printing money is a valid response to the coronavirus crisis”.

• Lockdown. UK hospitals are facing their “worst crisis in living memory” (infographic Twitter thread here) and the situation will likely deteriorate further, as the effects of mixing over the Christmas break emerge. Politico reports government projections of a peak of 2,000 deaths per day. This points to an extended lockdown to begin 2021, with March 23 seen as the date “coronavirus restrictions might realistically begin to be eased” within Whitehall (Sunday Times).‍

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• Is low compliance to blame? Aside from the highly-transmissible new strain of the virus and the easing of restrictions in December, reduced public compliance is being blamed for this most recent wave of infections. While strict compliance is increasingly crucial, recent evidence suggests that adherence to and support of regulations remains high. Psychologists writing for the BMJ Opinion blog argue that “the narratives of blame… project the real frailties of government policy onto the imagined frailties of public psychology”.
• ~~One exception is low adherence to self-isolation rules, e.g. following a positive test or contact with a Covid-positive person. But here, the authors argue this has “less to do with psychological motivation than with the availability of resources''. ‍

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• Support for self-isolation is therefore crucial. Dr Alex Crozier (UCL) profiles the workers who cannot afford to self-isolate and argues for:‍
• ~~Increasing the rate and coverage of statutory sick pay (SSP). UK SSP is amongst the least generous in Europe, and millions of low-paid and migrant workers do not qualify. ‍
• ~~Increased practical support - e.g. New York has made use of the thousands of empty hotel rooms to offer free accommodation, food and care to support self-isolation.
• ~~(ICYMI: The British Medical Association and other health bodies wrote to the Prime Minister last month on the measures needed to tackle financial insecurity and improve compliance.)‍

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• Protecting household incomes. The Government has extended the evictions ban in a welcome move, but it is still due to cut Universal Credit by £1,040 per year in April. Back in October, the Resolution Foundation argued this would have an “unimaginable” impact on the living standards of the poorest households and on the wider economy - read their analysis here.
• ~~Child Poverty Action Group analysis has revealed that over 1m households face “debt deductions” on their UC payments, leaving them with up to 30% less in benefits than their Government-assessed need.‍
• ~~Gaps in coverage: Up to 3 million people are estimated to have fallen through the gaps in Government support schemes (Financial Times), with no new measures in the Chancellor’s recent announcements to address this (ExcludedUK).‍