Lessons to be learned from the pandemic

The Covid-19 pandemic has immediate implications for its victims and those in health and care treating them. There are also medium and long-term implications to consider if we are to avoid the mistakes of the past.

The immediate implications are primarily for those working in the health and care sector. Testing has been inadequate, and the provision of Personal Protective Equipment (PPE) has been nothing short of scandalous. Both of these also apply to a much wider group of key workers in the public and private sector who have kept essential services going. This requires a much greater effort in both supply and distribution to protect those who are literally putting their life on the line for the rest of us.

For the economy introducing “suspended animation” policies will reduce the burden on governments because there are fewer bills that it needs to subsidise. This reduction of bills will give governments more breathing room to support the paused economy for a longer period of time. That’s why mortgage holidays, rent delays and similar policies are the right approach and stand the best chance of avoiding a standard recession spiral.

The crisis has also highlighted structural issues that we need to address. The Archbishop of Canterbury put it well in his Easter address: “The next wave coming is the economic one … We have a choice there as a nation and as a society and as a world. Do we take hold of our destiny and make sure the differences are mitigated, abolished where possible – or do we just let things happen, do we let the market rule, in which case there will be enormous suffering.”

Even some of the harder headed media recognise that change has to happen. A Financial Times editorial said; “Governments will have to accept a more active role in the economy; see public services as investments rather than liabilities; make labour markets less insecure. Redistribution will again be on the agenda.”

Here are some of the longer-term lessons being discussed:

·      Economy: As the Fraser of Allander survey and the OBR signals, the economic numbers are bad now, and likely to get much worse in future. It is absolutely right that governments do whatever it takes to support people and the economy through this pandemic and the job retention scheme was vital, even if other measures have many gaps in them. 

We also have to recognise that economy was in a poor shape before the pandemic hit. The reason the UK government has been pumping so much money into the health service, into wage subsidies, into support for the self-employed and for small businesses is that they were all only just managing before the crisis broke. The fundamentals of the economy are not as strong as some claim. Ultra-low interest rates have left no buffer and global supply chains exploiting marginal efficiencies have been found wanting.   

When it is over, there will be calls to tackle debt, and some will want to repeat the mistakes of the 2008 crash by instituting another round of austerity. In practice, most of the state debt we owe to each other, and we can meet obligations denominated in pound sterling. 

The conventional wisdom is that ‘monetising the debt’ is inflationary. However, there are no indications that inflation is a problem today. Lerner, an associate of Keynes, decried arbitrary government deficit and debt ratios as an inappropriate focus of economic policy. He also demonstrated that deficits do not need to be fully funded through bond sales. The UK’s experience after the second world war suggests that such high public deficit and debt levels do not in themselves prevent strong recovery or put an intolerable burden on the state. There is no rational case to inflict further damage to the economy through Austerity Mark 2.

A significant number of companies will do the right thing, and they should be supported. Consumers will remember those who have behaved badly. Nationally it has been the predictable names – Ashley, Green, Branson etc. But also, locally. Just look at community Facebook groups to see which local businesses have shown an amazing community spirit and those who haven’t.  

To ensure the economic effect of the pandemic is minimised, we must ensure there is money in the pockets of those on the lowest incomes. This will provide the greatest boost to demand. And public spending must not be targeted in any drive to reduce borrowing.

·      Private debt: Economic recovery could be undermined by household and business debt, which is vastly higher than after the second world war. Many people in Scotland and the UK are constantly a couple of weeks from going bust and have no savings cushion.  Economic growth before the banking crash was over-reliant on increasing household debt. Both have eased somewhat since the 2007-09 crisis (see chart below), but household debt, in particular, is rising again – driven this time by credit card and student debt rather than mortgages.

The UK Government recovery programme party addresses corporate debt by providing businesses with loans and generous payback conditions and other support. To achieve a sustained recovery, the government might need to have household debt partially cancelled, or at least frozen.

·      Tax avoidance: The sight of Richard Branson calling for state bailouts from his tax haven should be a defining image of this pandemic. Sadly, it is probably not as simple as saying no to the tax dodgers because jobs and supply chains who do pay taxes could also be victims. However, that doesn’t mean that taxpayer support comes without strings. It should be used to take an equity stake in these businesses and change the business greed culture. Global action would be good, but we must not wait for that to happen.

·      Employment: As the STUC and TUC have said as we clap key workers each week; ‘Public sector workers are for life, not just for a crisis’. The gratitude is also striking because it highlights just how much we under-value these same people in normal times. We now see that we can do without celebrities, but not shelf-stackers. Many of the people we rely on most – social care workers, cleaners, retail staff - are among the lowest paid and least secure workers in the country. They deserve better, and we need a different approach to wage inequality and employment security in future. The crisis has also shown that new ways of working are possible.

·      Preparedness: There can be little doubt that governments were poorly prepared for this crisis, despite past emergency planning exercises that highlighted many of the issues we face today. Clearly, we had an insufficient stock of the right types of PPE, but it has also been a failing of logistics. The NHS has centralised the buying and distribution of its core supplies on the grounds of efficiency. That may work well in normal times, but as soon as the pandemic hit that supply chain was overwhelmed. For those outside the NHS, particularly in the fragmented social care system, there was no system to support them.

The inability to follow the WHO’s instruction to “test, test, test”, points to the UK response as one of the severest failures of public administration in our history. This also points to the importance of supporting public research rather than relying solely on drug companies who will always prioritise research that delivers short-term profits. With Trump closing down public research facilities in the USA, Britain and Europe needs to step up to the plate. 

‘Unprecedented’ may be the word of the year but governments have struggled to communicate effectively. The public accepts that scientists and medics do not yet understand all aspects of this virus. But that is not an excuse for the lack of honesty and clarity around issues that politicians are responsible for. This includes basic information and some pretty appalling commentary – Priti Patel and Matt Hancock in particular. We are self-evidently not ‘all in this together’ as it is the poor and BAME citizens who are hit hardest. 

·      Health and social care: With the understandable focus on the NHS, it took some time before our already stressed social care ‘system’ came under the spotlight. It took a pandemic just to get a Scotland wide agreement to pay all social care staff straight away. As the CEO of Enable put it: “it requires commissioners to enter complex negotiations with multiple providers (with a total of around 1,000 different third sector and private sector social care providers operating in Scotland this must have been tough); and – most importantly of all – it has meant the frontline staff delivering care in our communities have had to wait many months for a backdated uplift to (hopefully) be secured and paid – all subject to the outcome of those negotiations.”

The case for a Scottish Care Service that sets a national framework while leaving delivery local is now overwhelming. Perhaps it is also time to think about some radical ways of funding social care, including Andy Burnham’s plan to tap the wealth of the older generation, so everyone contributes 15% of their assets on retirement, usually through equity release on their property.

·      Social security: Many more people from all walks of life have discovered what the poor have known for years – our social security safety net doesn’t work. Universal Credit, with its five-week waiting time for a payment isn’t fit for purpose. 

A poll for the Food Foundation showed that more than 1.5 million adults in Britain say they cannot obtain enough food. Half of the parents on low incomes with children eligible for free school meals said they had not yet received any substitute meals to keep their children fed. Around 830,000 children are therefore likely to be going without daily sustenance.

The need to protect incomes has led to a call to adopt Universal Basic Income. Personally, I have been a sceptic on structural and cost grounds, although I agree that it is worth trialling in a serious way. 

What is not in doubt is the need to build a stronger safety net. Total out-of-work payments received by UK employees are on average around 34% of their previous in-work income – the third lowest among 35 OECD advanced economies. At 15% of average earnings, the main adult unemployment payment is worth less than at any time since the creation of the welfare state in 1948.

NEF has proposed a Minimum Income Guarantee to sit alongside the other support schemes. This would be a comprehensive, sufficient, non-conditional, non-means tested at the point of access, minimum income floor to catch everyone who is currently missed out by the job retention scheme and the self-employed income support scheme.

·      Housing market: Governments moved quickly to remind mortgage holders of existing provisions for mortgage holidays. They were much slower to intervene in the weakly regulated private rented sector, which so many now rely on. The pandemic may well have long term impacts on the housing market, including house prices and construction. 

Instead of simply patching together a housing market that was already failing, we could take the opportunity to rethink our whole approach to housing. This could include restoring the historical link between house prices/rents and local incomes; a massive programme of social house building and renovation; effective regulation of the private rented sector; and building houses for people rather than investment.

·      Food: The weakness of global supply chains and the need to take climate change action will inevitably strengthen the case for local food sourcing. This is a two-edged sword as it may well have an impact on some Scottish exports, including whisky and salmon.

·      Industrial strategy: The crisis has highlighted the absence of an effective industrial strategy. The shift to a service-based economy and the reliance on ‘just in time’ global supply chains has to end. For example, China is the only immediate high-volume source of clinical gowns, and there are similar problems with other PPE. 

Relying on a cottage industry of 3D printers is no way to run a country. We need a new industrial strategy that supports Scottish and UK ownership, and that includes using the pandemic support measures to take strategic stakes in companies. Only ten out of the top fifty Scotland’s firms are owned by shareholders in Scotland, and of these only four are in manufacturing.  We have to break the short-termism of investment companies who prioritise dividend payments at the expense of investment.

·      Community: The pandemic has highlighted the importance of strong communities, supporting and looking out for each other. In the main, people and communities across Scotland stepped up to the plate. Even the Tory Prime Minister made a point of saying that there is such a thing as society, in a deliberate attempt to distance himself from the Thatcher doctrine.

This crisis will also have a long-term impact on the economy of local communities, and we must, therefore, put a renewed focus on initiatives like Community Wealth Building. It will be the foundational economy that takes us forward – not global supply chains. 

·      Global solidarity: A new sense of community is not an excuse for isolation and protectionism. We are not alone in this crisis.  People right across the globe feel the same uncertainty, fear, despair and isolation. Pandemics do not respect national boundaries and abandoning the global south is not only morally wrong, but it is also in all our interest. As the Pope put it: “Indifference, self-centredness, division and forgetfulness are not words we want to hear at this time. We want to ban these words for ever!”

·      Climate crisis: Global emissions have crashed during the crisis giving us a glimpse of what the world might look like without fossil fuels. But hopes that we will emerge into a healthier, cleaner world will depend on the long-term political decisions made about what follows. We must ensure that the postponement of the COP26 talks is used effectively. As Nicholas Stern has said; “There is an opportunity in the recovery from the Covid-19 crisis to create a new approach to [economic] growth that is a sustainable and resilient economy in closer harmony with the natural world.” 

We should not assume that these lessons will be learned. After all, not much changed after previous events, including the 2008 banking crash. As Kevin McKenna put it: “Each of these seemed to provide opportunities to step back and evaluate the choices and behaviours which led to them. But after a respectable period of moral introspection the bacchanal resumed.” 

Hedge funds have already proudly announced the billions they have made from disaster capitalism. The Tories, despite appearances, have not turned into Corbynites. These are temporary measures to preserve capitalism.

The problem will lists like the above is that they can become a shopping list of all the ‘good’ things progressives would like to see. This pandemic has exposed many social ills, and it is those that we should address first.  Yes, they must be radical, but they must also be relevant to recent learned experience if they are to attract wide public support.

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Overall, we must ensure that the lessons are learned. These include the importance of community, the impact of globalisation and the vital role of the state, local and national when nothing else stands between the people and penury or even death.

The case for Universal Basic Services

If the current crisis teaches us anything, it has to be the importance of a genuine safety net for everyone in our society and the weakness of the global economic system. COVID-19 has brutally exposed the failings of capitalism and the failure to maintain effective public services.

Now that a crisis threatens to wreck the livelihoods of those normally comfortable under capitalism, there are pleas for increased state support that were previously confined to the left. Robert Peston, writing in The Spectator of all journals, quotes a Tory minister saying; “We’ll find ourselves implementing most of Jeremy Corbyn’s programme.”

The crisis should be an opportunity to rethink our approach. Instead of a series of ad-hoc measures and bailouts without conditions, we should recognise the value of systems that provide the essentials for everyone.

For example, last December many commentators regarded Labour’s plan for a British Broadband Service as unrealistic. Today, universal, free, full-fibre broadband is an essential service for almost everyone who is trying to minimise face to face contact. Some of the opposition came from the same people who would have opposed free education or universal access to clean water in the 19^th century.  

The crisis has highlighted the case for Universal Basic Income. While there are sceptics (including me) over this as a long-term plan, there is a strong temporary case, which could add to our understanding of how it might work in the longer term. It should at least get the DWP and HMRC to cooperate with the planned Scottish pilots.

Ed Miliband makes a good case for turning statutory sick pay into employment retention pay, available to all those workers whose businesses have had to cease or reduce activity due to the crisis. If Denmark can pay up to a 75% cap – so can we.

Another idea is Universal Basic Services (UBS). Anna Coote and Andrew Percy make a case for expanding the principle of collective universal service provision in their new book. The goal as they put it is; “Acting together to help each other, and ourselves, so that everyone has access to three things that are fundamental to a successful, peaceful, functioning democracy: security, opportunity and participation.”

 Central to their case is that we must improve the quality of existing services and reach into new areas such as care, housing, transport and digital access. This is the collective ideal, which the current crisis is bringing out in many communities. The politics of individual choice and market competition leads to the actions of some supermarket customers and the spivs in private healthcare selling testing kits for just short of £300.

This doesn’t mean just using existing service delivery models - services need to be genuinely participative. This can be linked to measures that provide meaningful engagement with wider forms of democracy.

The authors take us through the benefits of UBS, concisely outlining and referencing the evidence. This is not an academic tome, it is very readable while pointing to further reading. They set out how UBS could be rolled out and address the challenges and likely responses. They cost the additional expenditure required for the services proposed at around 4.3% of GDP for a typical OECD country, less than 15% of total government spending. And that doesn’t take account of the savings brought about by economies of scale and a healthier population.

As the post-war rebuilding, 2008 financial crisis, and now COVID-19 shows, when governments decide to increase spending, it is more a matter of political choice than applying rules of contemporary economics. 

While it is right that we focus on the measures necessary to tackle the current crisis, we should also learn the lessons. There will be those on the far-right who will exploit the crisis with disinformation, conspiracies and scapegoating. We need to develop new, sustainable solutions based on social justice. A starting point is ensuring everybody has access to collective services that are sufficient to meet their needs. 

Turning climate change rhetoric into action

Despite the best efforts of industry lobbyists, the debate over whether climate change is happening is over.  In Scotland, we have ambitious targets, but targets alone don’t remove emissions from the atmosphere. For that, we need equally ambitious action plans.

The Scottish Government has recently published a new Environment Strategy. It offers some long- overdue reassurance that our environment and biodiversity will be protected and enhanced in the face of the climate emergency. It also recognises that the climate and nature crises are intrinsically linked.

Like many government strategies, it is strong on vision, has lovely infographics, and describes processes.  There are some actual plans, such as SEPA’s sector plans, expanding forestry, and re-using vacant land. Other plans don’t really have the level of activity that most organisations would recognise as an action plan. In fairness, there is a commitment to outcome pathways, but we are not there yet.

As the UK Committee on Climate Change (CCC) said, Scotland and the UK now need to "walk the talk". Not least because we are hosting COP26 in November - international experts will not be much impressed by a nice infographic. 

A key area for action is industrial strategy. We need a Green Industrial Revolution that includes a massive investment in low-carbon infrastructure. People in cold, damp homes waste over £400 on gas every year, and fuel poverty is a challenge for many households. Retrofitting homes would employ thousands of people, and the resulting health benefits of warmer homes could save the NHS millions.

A real industrial strategy, including the creative use of public procurement, will stop the reduction of emissions by simply offshoring jobs. The recent loss of contracts to manufacture turbines for a wind farm off the Fife coast demonstrates the dismal failure of the Government to link climate action and industrial strategy.

This is something highlighted in the interim report of the Just Transition Commission. The report also stresses the importance of turning sectoral emission targets into detailed Just Transition plans. As they say; “To date this sort of planning has not been undertaken in as rigorous a manner as might be the case.”

Transport is responsible for more than a third of Scotland’s greenhouse gases, while estimates suggest air pollution causes upwards of 2,500 deaths every year. Electric cars will be part of the solution, but what is needed a real shift to public transport and active travel. This means a step change in the provision of low-emission buses and the early electrification of our railways. Aviation growth also has to be curbed and needs measures like a frequent flyer levy, if the polluter pays principle is to mean anything.

A lot of progress has been made in decarbonising electricity generation in Scotland, but that still leaves heat decarbonisation, which will require the roll-out of technologies like solar hot water and hydrogen and investment in district heat networks.

A recent WWF report clearly sets out the actions needed to reduce emissions in agriculture. I am not sure this week’s NFU report really steps up to the challenge with its steady-state message. We need a much more radical approach to land use and food production, as well as action on fertilisers and pesticides.

As this week's row over fossil fuel investments at Strathclyde Pension Fund shows, some parts of the public sector have some way to go in taking climate change action seriously.

Many of these issues are covered in a new Scottish Labour policy consultation paper.  The paper argues the action required to deliver on our climate change targets cannot simply be done by governments imposing top-down solutions. It requires grassroots action and social innovation, changing social norms and behaviour as much as technology. A (low carbon) net-zero economy can mean many more jobs, but we must ensure that there is a Just Transition, which doesn’t leave any community behind.

Scotland needs to demonstrate that we are not just a world leader in climate change ambition, but that we can also lead in climate change action.

How pension funds can invest responsibly

In the last few months, I have completed three projects on Responsible Investment (also known as Environmental, Social and Governance (ESG)) in the pensions sector. One a broad policy paper and two projects reviewing the Responsible Investment policies of pension funds. In this blog post, I cover some of the issues I encountered.

All pension funds should understand that we must keep global warming to less than 1.5oC (compared to pre-industrial levels), in line with the 2015 Paris Agreement on climate change. UK and Scottish legislation set ambitious targets and measures to help achieve this. Most funds also understand that the ethical policies of the firms they invest in can also impact on investment performance. A study undertaken by Morgan Stanley shows that sustainable funds provide both financial performance and lowered risk, as well as ways to invest responsibly.

The mechanism pension funds use to consider ethical investment is usually through their Environmental, Social and Governance (ESG) policies. Many have signed up to the UN Principles for Responsible Investment, which has more than 2,000 institutions with over US$82 trillion of assets as signatories. At the heart of the Principles and other frameworks is the commitment to integrate ESG factors into decision-making at all levels.

Many pension funds use a systemic approach such as the investment statement on the Just Transition, Climate WGBI and certification schemes. More than 20 UK-based institutions with nearly US$2 trillion in assets have signed the international investor statement on the Just Transition. The problem with these schemes is they are primarily about sharing best practice. There is little in the way of targets or other accountability measures.

One of the funds I have been working with had signed up to one of the certification schemes that companies can join. There is a legitimate criticism that some of these schemes are simply cash generators and require minimal hard action from the companies concerned - a nice plaque on the wall. I am also pretty sceptical about the growth in ‘Ethical’ funds, as only a tiny number of these funds screen out fossil fuel companies. 

Pension fund trustees are reluctant to join divestment campaigns, sometimes because they are frightened off by advice (usually wrong) that this would be a breach of fiduciary duty. They are therefore more likely to want to focus on shareholder engagement. 

Only the largest funds have the capacity to do this effectively themselves and rely heavily on agencies or their external investment managers. The quality of these varies considerably, with most adopting very conservative strategies, which are unlikely to be very effective. Most of the funds I have worked with believe their engagement strategies have been effective, but in practice, they struggle to support that belief with any meaningful data.

Share Action is one of the better agencies

If pension funds are serious about responsible investment, they need something more than a glossy document and some fine statements of principle. Here is my outline seven-point plan:

1.     The statement of investment principles needs to explicitly set out the pension fund position on key ESG issues including climate change, workforce issues and tax avoidance. Vague assurances that these issues will be considered is not enough.

2.     Systemically assess the risks associated with their investments concerning ESG policies. This must include pooled investments.

3.     Risk assessments should be published regularly along with regular communications to scheme members.

4.     The annual report should include progress made by the fund in reaching their ESG objectives.

5.     Publish an engagement policy which includes how voting of shares is handled, together with an annual assessment of how they have advanced the fund’s ESG principles.

6.     Identify categories of investment that represent a significant long-term risk to the funds and consider the case for divestment in a way that ensures no damage to the fund and members pensions.

7.     Set targets for positive, responsible investment in specific sectors, including low-carbon infrastructure, housing, and low emission transport.

Pension funds exist to provide pensions for members. However, surveys show that members want to see their pensions invested responsibly, especially when this can be done without damaging the fund. To achieve this, pension funds need to move from fine words towards effective systems for delivering responsible investment. 

Still learning the lessons of PPP

Nearly thirty years after John Major’s government introduced the Private Finance Initiative (PFI), it is astonishing that we are still writing about and using this failed model of delivering public services.

Today, we are reminded by Audit Scotland, yet again, of the costs of using this model. It has been modified and rebranded many times over the years. In Scotland, the SNP government calls it Non-Profit Distributing (NPD) and the Hub Initiative, but these all come under the broad heading of Public Private Partnerships (PPP). In May last year, they announced another rebranding with the Mutual Investment Model (MIM). Another PPP scheme with many of the same problems, as is well covered in a recent Common Weal report.

I and others have written thousands of words on why this model doesn’t work. This archive page on the UNISON Scotland website covers many of my earlier publications. It reminds me that I even used to write a regular briefing called ‘PFI Illusion’. I have to say I didn't expect to be making the same points all these years later. Most recently, in Stockholm a couple of weeks ago. 

I first became interested in PPP as a union organiser covering Lanarkshire Health Board in the 1990s. Two of the three acute hospitals were to be financed by PFI, and I recall a meeting with Lanarkshire MPs explaining why this was a bad idea. Particularly to John Smith MP, who as the MP for Monklands was likely to be the loser because his hospital didn’t have ring-fenced PFI funding.

The fact that PPP schemes are more expensive is not disputed as it once was. As today’s report reminds us even the SFT accepts this:

“The SFT calculated in April 2019 that the lifetime costs (construction cost, ongoing maintenance, plus repayment of borrowing) of NPD and hub private finance projects signed under the pipeline approach were on average about 2.9 times the construction cost of the assets. This compares with lifetime costs of 1.5 times the construction cost when using capital grants and between 1.9 and 2.6 times the construction cost when using public sector borrowing.”

The costs are higher than this as the Audit Scotland report also confirms: "The Scottish public sector is contracted to pay a total of £40.1 billion in annual payments between 1998/99 and 2047/48 under current PFI, NPD and hub privately financed contracts. This is over four times the capital value of the assets developed”

There are also plenty of other risks and problems associated with PPP schemes as the Edinburgh Sick Kids Hospital, and the collapse of Carillion has highlighted. As today's report also concedes projects that involve technology, legislation changes or complex service delivery are unlikely to be suitable. In practice, very few public services remain static for the 25-40 years of a typical PPP project.

The report also points to the reason governments of all colours have persisted. Devolved administrations have always had limited borrowing powers and therefore keeping borrowing off the public balance sheet is attractive. Few Scottish Government ministers in the early years of devolution thought PFI was a good idea, but it was in the parlance of the time, 'the only game in town'.  The Scottish Government now has much higher borrowing powers, which is why it uses PP less, but still insufficient for its capital programme. Hence the new MIM scheme, which they hope will keep these new schemes off-balance sheet.

Even the Tories have given up on PFI, not least because they can borrow very cheaply and they recognised that the projects were not delivering value for money. The solution for Scotland to go the same way is to give the Scottish Government prudential borrowing powers, ending the current limits. That would end the chase for off-balance-sheet financing and invest the savings in our crumbling infrastructure.