Lockdown and beyond – Reflections at the end of week 77

Those of you who have read these notes on a regular basis may recall me posing from time to time the question of how the significant spending incurred by the government over the last 18 months would be paid for. We started to see the answer to that question this week.

The headline story was the government’s proposals on social care, a matter which, with justification, the Prime Minister said was a can that had been kicked down the road by a number of his predecessors. In truth, the proposals announced did not seem to pay any great attention to the provision of care or the considerable debate as to what constitutes clinical care, non-clinical care and the accommodation element of any social care provision. Instead, it was about its financing. Then again, if you look more carefully at the announcement, it was not about financing social care for the next three years. Instead, the money raised by the rise in NI contributions and, subsequently, the Health and Social Care Levy will for the next three years go to funding the NHS. What in essence that means is that part of the additional government spending on Covid measures will be raised by a tax levied on the working population at the same flat rate across the board.

At the same time, Amazon has announced figures which reflect the effect of lockdown in driving us from high street to online shopping as its sales surged. It has paid corporation tax on its increased profits and spoken of its investment in UK infrastructure, the growth of its UK workforce and its contribution to the UK exchequer via employment taxes. However, there is no proposal of the type of windfall tax which we have previously seen levied on utility providers in the UK and none seems to be in prospect.

So for the time being, the first stages of paying for Covid will be undertaken by the working population in a regressive tax which will impact most substantially on the lower paid who, in many cases, will be the younger members of our population. It is not for me to comment in these notes as to whether that is right or wrong, but it will add to the challenges which many of our younger workers face and try further the patience that they have so far shown over a challenging 18 months.

The UK economy, which is still 2.1% behind pre-Covid GDP levels, grew by 0.1% in July. It is a common theme amongst many employers that they can’t get the labour that they need, with the haulage industry and its 100.000 missing drivers being the most reported example in recent weeks. There are many other areas where real problems exist.  The government seems determined that the market will resolve these issues, but in doing so risks missing the core issues which are driving many of the problems. In order to replicate the effect of workers who have returned to their home countries in the EU, there is a need to understand what it is that is causing the failure to plug the gap which they have left behind, a gap which has been masked for over a year by the retraction of the economy during lockdown. The cost and availability of training, the cost and availability of accommodation in a housing market where rent has, in most of the UK, risen higher than average income in recent times and the affordability of moving to where work is available are all factors. Significant wage rises would be the market’s way of resolving some of them, but the government will not want that for any sustained period either, because it will not want the economic recovery choked off by the inflation which those wage rises would cause or by higher interest rates being introduced to counter that inflation. It seems that there must come a point where a dogmatic adherence to free market economics cannot be sustained to any benefit in the context of particular circumstances that are dysfunctional in the context of the economy as a whole. Will that happen? It’s hard to say, but we have seen one manifesto promise famously sacrificed to the cause of Covid this week.

 At a time when attention in New York has been turned to the 20th anniversary of the attack on the World Trade Centre, we also have the positive breath of fresh air that is Emma Raducanu and her own unexpected but thoroughly uplifting fairtyale of New York. We wish her well for this weekend’s final, and hope for everyone’s sake that her success does not lead to a video conference call with the Education Secretary.

Whether you’re watching the tennis or doing other things, enjoy the weekend.

Ian Waine leads Prettys’ Corporate Services Team and has advised on a large number of corporate recovery and corporate restructuring cases over the last 30 years. He can be contacted at 07979 498817 or iwaine@prettys.co.uk.

Ian Waine
Senior Partner