What has Covid-19 revealed about the labour market and social security?
The disruption caused by the pandemic has exposed serious issues in the UK's labour market and social security system.
As more people have had to rely on the social safety net, Covid-19 has drawn attention to its shortfalls - particularly in relation to Universal Credit and statutory sick pay. At the same time the unequal impact of the pandemic has shone a light on sharp inequalities within the labour market, in terms not just of income, but of precarity, flexibility, and exposure to risk. Some people have found new freedoms in being able to work from home; others have been made redundant and then re-hired on worse pay and conditions.
Calls for reform of the welfare system range from proposals to increase the amounts paid by Universal Credit and other benefits to more radical ideas such as a minimum guaranteed income or an unconditional 'Universal Basic Income'. Reform of employment law is often suggested to give self-employed and casual workers more rights, while an increasing number of voices argue that trade unions should be given greater access to workers to organise collective bargaining over wages and conditions.
For information on job and income protection and job creation during and after the pandemic, see our 'Stimulating economic recovery' pages. For more on inequality, see our 'Driving down inequalities' pages.
The House of Commons Library’s briefing on Coronavirus: Universal Credit during the crisis reviewed Universal Credit claims and changes up to January 2021, and calls for reform. A parallel briefing on Coronavirus: Impact on the labour market tracks changes in employment, pay and the furlough scheme.
The Resolution Foundation's Low Pay Britain 2021 report looks at the impact of Covid-19 on poorly-paid workers and explores whether the recovery may improve both pay and job quality.
In its latest review of workplace conditions across the UK the TUC has found that one in 9 workers (3.6 million people) are now in insecure work, with black and minority ethnic workers more likely to be in such work than their white counterparts. The TUC calls for a new package of workers' rights.
In its research on sick pay the TUC found that one in 12 key workers (788,000 people) do not qualify for statutory sick pay (SSP), despite many of them being at greater risk from Covid-19 due to the frontline nature of their job. It calls for the lowest paid workers to qualify for statutory sick pay for the first time and for the rate of SSP to be raised from its current £96 per week to at least the level of the real living wage (£330 per week).
The Reset Inquiry commissioned by the All-Party Parliamentary Group on the Green New Deal heard from over 57,000 people on what ‘life after Covid’ should look like. Their nationally representative poll found majority support for a jobs guarantee, a reduction in working time and some form of monthly, guaranteed set income for every household.
The future of Universal Credit
The introduction of Universal Credit in 2013 replaced a number of separate working-age benefit schemes. The stated aim was to simplify the system and to avoid a 'cliff edge' whereby recipients would lose money if they found work - 'making work pay' and smoothing moves in and out of the labour market.
Since then, Universal Credit has been widely criticised, both before and during the pandemic. Targets for criticism include its bureaucracy, its low rates, the 'two child' limit for child support, the delay in receiving the first payment, the harsh nature of its sanctions, and the distribution of benefits at a household, not individual, level - which increases the risk of financial abuse, especially for women.
While some argue for reforms to Universal Credit to address these issues, others call for it to be scrapped altogether due to objections to its core principles (e.g. conditionality and means-testing). One far-reaching reform would be the establishment of a 'Minimum Income Guarantee' - which would set a ‘living income’ floor below which no household would fall and could be implemented within the Universal Credit system.
NB Some households are still on the ‘legacy’ system of benefits. The Government expects all households to have ‘migrated’ to Universal Credit by September 2024.
The cross-party House of Lords Economic Affairs Committee’s report Universal Credit isn’t working: proposals for reform is a comprehensive overview of the problems with UC. It argues that UC has “undermined the security and wellbeing of the poorest in our society” and outlines a suite of recommendations to improve the system.
IPPR examines the prevalence of poverty among working families and argues for greater priority to be given to bringing down the high costs of housing, childcare and other essential goods as a proportion of household income, as well as reforms to genuinely ‘make work pay’.
The New Economics Foundation's Living Income campaign finds that, without a change in policy, by 2022 almost a third of the UK population (over 21 million people) will be living below a needs-based ‘minimum income standard’. NEF calls for a new approach to social security, including a Minimum Income Guarantee of £221 per week. The Child Poverty Action Group has similarly proposed a minimum income guarantee in Scotland.
The Fabian Society’s year-long study of public attitudes to welfare used surveys and a citizen’s jury to identify a public consensus for additional social security payments totalling around £10 billion, as well as the retention of the £20-a-week Universal Credit uplift introduced during the pandemic.
Child support and childcare
The two main provisions for children in the social security system are Child Benefit and the child element of Universal Credit (or child tax credits in the legacy benefits system). Child Benefit is provided for all children, although there is a reduced effective rate for children after the eldest, and for families with one or more higher income earners (over £50,000 p.a.).
Means-tested support for families through Universal Credit or child tax credits is largely limited to two children. This aspect of child support has faced particular criticism for penalising children born into larger families. Nearly half (47%) of children in families with three or more children live in poverty.
Overall there were around 3.4 million children living in poverty in 2019-20. Nearly half (46%) of all children from black and minority ethnic groups are in poverty, compared with a quarter (26%) of children in white British families. 75% of children growing up in poverty live in a household where at least one person works.
Good affordable childcare enables parents to work and provides early years learning. But only a little over half (57%) of local authorities in England have enough childcare places for parents who work full-time, and less than a quarter (22%) have sufficient for those who work atypical hours.
The Child Poverty Action Group’s research on 'the cost of a child' shows that two parents working full-time on the minimum wage will still be £47 a week short of the income they need to raise a child. It wants the child element in Universal Credit restored, child benefit increased by at least £5 a week and both the two child limit and overall benefit cap abolished.
IPPR and the TUC make the case for a “family stimulus”. They show that increasing the child element of Universal Credit (UC) and child tax credit (CTC) by £20 per week per child and removing the two-child limit would increase GDP by 0.5% (£14 billion a year) and lift 700,000 children out of poverty. They also propose an increase in childcare spending.
The Women's Budget Group explains the current landscape of childcare and childcare support in England. The TUC analysed the cost of childcare prior to the pandemic. It found that childcare fees rose three times faster than wages; for lone parents, seven times. In a 2021 survey of 20,000 parents in the UK coordinated by Mumsnet, 97% felt childcare was "too expensive", and a third said they paid more for childcare than their rent or mortgage.
The Coram Family and Childcare Trust argues for universal availability of affordable childcare for all children, including school age children. It argues that the cost of childcare must be such that every parent is better off working after childcare costs; there must be good child care available for disabled children and those with special needs; and the value ofchildcare professionals should be recognised through pay, professional development and representation.
Universal Basic Income
The proposal for a Universal Basic Income (UBI) is that all adults should receive a regular cash payment without means-testing or a requirement to work.
Supporters of UBI argue that it would simplify the social security system, reducing the bureaucracy, intrusiveness and stigma associated with claiming means-tested and conditional benefits. It would recognise and reward valuable unpaid work (such as care work and voluntary work) and would force up the quality and pay of currently low-paid jobs in order to make them attractive enough for people to do. Supporters often argue that automation will make full employment impossible, so a UBI would ensure everyone had at least a subsistence income.
Critics of UBI question the administrative cost of providing payments to every adult citizen. The government revenue needed to provide such payments would be substantial, requiring higher taxes; many recipients would effectively have the entire benefit taxed back. There would still need to be other benefits (possibly means-tested) for children and special needs such as disability. A UBI, critics argue, might also reduce incentives to work.
There are significant differences between various UBI proposals, for example concerning the size of the payment and the extent to which it would replace existing social security benefits. There are no examples of UBI being implemented at a national state level, but a number of trials and experiments are currently under way in different parts of the world.
The House of Commons Library’s research briefing on “The introduction of a basic income” (Oct 2020) offers an overview of the debate around introducing a basic income in the UK, highlighting research from the University of Bath as the most detailed work on what a UBI scheme in a British context would look like.
Economist Guy Standing outlined the moral and practical case for “Basic Income as Common Dividends” (2019) in his independent report to the Shadow Chancellor on piloting a basic income scheme in the UK.
A policy paper for the Women’s Budget Group Commission for a Gender-Equal Economy examines the pros and cons of basic income from a feminist perspective, and reviews recent proposals in this area.
The Basic Income Earth Network (BIEN) website features the latest news and research from supporters of UBI around the world. The Basic Income Conversation provides regular information on UBI campaigning and pilots in the UK.
The Liberal Democrats and the Green Party are both committed in principle to a UBI, and in October 2020 a cross-party group of over 500 parliamentarians and councillors wrote to the Government calling for UBI trials.
The New Economics Foundation’s Anna Coote offers a critique of UBI from a progressive perspective, and argues that Universal Basic Services (below) would be a better route to radical social security reform, while Harvard political theorist Alyssa Battastoni wrote for Dissent on the “false promise” of UBI for radicals.
Universal Basic Services
Proposals for Universal Basic Services take the principles underlying the NHS - the universal provision of healthcare, free at the point of need - and argue these should be applied to a wider range of public services, such as transport, shelter, food and information (e.g. Internet access).
UBS is often contrasted to UBI (above). While the two proposals are not diametrically opposed, the difference in focus leaves room for disagreement. Some UBS supporters argue, for instance, that the best way to spend our resources and political capital in ensuring people’s core needs are met is in the radical expansion of public services, and that unconditional cash transfers would not achieve the same uplift in living standards.
Conversely, while many progressive proponents of UBI support wider and improved provision of public services - e.g. health, social care, education, information - they take issue with some proposed universal basic services (e.g. food provision) and argue that cash transfers are a more efficient, less paternalistic route to ensuring some basic needs are met.
A comprehensive case for Universal Basic Services can be found in the UCL Institute for Global Prosperity’s (IGP) literature review on the theory and practice of UBS (2019). The review builds on the Institute’s original 2017 proposal, generally regarded as the first articulation of UBS.
The idea of Universal Basic Services is now widely becoming known as the 'Social Guarantee'. A new group of that name is coordinating information and campaigning in the UK, and has gathered together a range of papers by Anna Coote and others setting out and analysing the proposal.
Henrietta Moore, founder and director of the Institute for Global Prosperity, writes on how UBS could invigorate local economies in the context of Covid-19 and the work IGP has been doing with local authorities in this area.
Professor Guy Standing argues against the idea that Universal Basic Services are an alternative to UBI, engaging with a number of arguments that UBS supporters make against Basic Income.
UBS supporter Anna Coote and UBI supporter Barb Jacobson debate the merits of their proposals with Ayeisha Thomas-Smith for the NEF podcast.
Insecure work and the gig economy
Trade unions and collective bargaining
Since the 1970s, in common with many other countries, the UK has seen a declining share of national income go to wages and salaries and a rising proportion returned to the owners of capital and assets. This period has coincided with a dramatic fall in trade union membership.
Many economists argue that the two are closely connected. Through collective bargaining, trade unions are able to raise workers’ wages and to improve their working conditions. Where unions are absent, employers have greater relative power.
This recognition has led to calls for a revival of trade unionism and of collective bargaining. In a more fragmented workforce where many workers are now self-employed or on precarious contracts this is difficult, but many trade unions have been finding ways to organise insecure workers.
The New Economics Foundation and the University of Greenwich have set out the economic case for trade unions, demonstrating the relationship between wage levels and union membership.
The TUC has called for a series of reforms to make it easier for workers to negotiate collectively with their employer, and to broaden the scope of collective bargaining rights to include all pay and conditions, including working time and holidays and equality issues.
Arguing that stronger trade unions can boost productivity, particularly when the fruits of automation need to be more fairly shared, IPPR argues for easier statutory recognition to enable firm-level collective bargaining, accompanied by sectoral collective bargaining in low-paid sectors.
In Work in 2021: A Tale of Two Economies the Centre for Labour and Social Studies (CLASS) brings together analysis of ONS data, interviews with trade union reps and a survey to paint a picture of workers’ differentiated experiences of the pandemic and how they are organising in response.
Reducing working time
There is nothing inherently fixed about the standard working week of 9-5 Mondays to Fridays. ‘Normal’ work hours have changed over time, with the weekend and bank holidays as we know them today being the products of campaigning by workers and trade unions in the past.
Reducing working hours has been a longstanding proposal to improve working life and the balance between work, leisure and important unpaid activity such as care.
Supporters note that as productivity rises it is possible to take the gains as increased leisure time rather than income. This would have the additional benefit of spreading the available work more widely. Some advocates argue that it could even help increase productivity, as employees may work harder in their reduced hours.
Some supporters of reduced working time today are proposing a four-day standard working week. Others argue for a reduction in hours per day, which might suit working parents better. Others propose an increase in the number of bank and public holidays.
Critics of working time reductions argue that they would be expensive - even when productivity is rising in some sectors, it is not in all.
A key issue for proponents of reduced working hours is whether this would be accompanied by a proportionate reduction in pay. Workers in many countries (including the UK) already have the right to ask for shorter and more flexible hours, but this is very difficult for those on low wages. A key feature of many shorter working time proposals is therefore that this should not be accompanied by a reduction in pay, especially for low earners. This would increase its cost.
A widely cited template for a shorter working week is the German Kurzarbeit (short-work) scheme (summarised here by the New Economics Foundation), which has been resurrected in the light of Covid to help support workers through its employment impacts; the German industrial union, IG Metall, secured an agreement to move its members to a 28-hour working week. In New Zealand, Jacinda Arden has proposed a 4-day week as a way to rebuild New Zealand's economy after Covid, and there are many other examples.
The shorter working week is part of the International Labor Organisation’s concept of ‘time sovereignty’ for workers, which aims to reframe the concept of workers’ time to give them greater autonomy.
A survey by productivity charity Be the Business found one in five small British firms are at least actively considering a four day week. Nearly 300,000 small and medium-sized UK businesses and over 840,000 employees are already working a four-day week and over 1 million UK firms and 3 million employees could move to a four-day week in the near future.
A comprehensive report from Autonomy and the 4 Day Week campaign situates the shorter working week as a response to some of the fundamental factors changing the nature of work in the UK, such as precarious work, the threat of automation, and inequalities. More recently, in response to the pandemic, Autonomy has proposed a reduction in working time to tackle rising unemployment.
Ireland has began a six-month trial to test the benefits and effectiveness of a four-day working week, with businesses in receipt of training, support and mentoring to facilitate a smooth transition.