Charlotte Pickles: Ten million people are at risk of becoming unemployed. They must be Sunak’s priority this week.

5 Jul

Charlotte Pickles is Deputy Director and Head of Research at the Reform think tank.

The Chancellor’s economic statement next week may be his biggest test yet. During the last few days, UK firms have announced 12,000 job losses. John Lewis, Upper Crust, Topshop, Airbus, WH Smith, TM Lewin, Easy Jet, Accenture are just some of the household names cutting jobs. Small businesses will be doing the same; you just won’t hear about them.

This is the start of the wave of redundancies Reform predicted back in April when we called on the Government to extend the furlough scheme and make it more flexible. The Government stepped up then; they need to do so again. The alternative is the worst unemployment crisis since the Great Depression.

Some readers will be sceptical. Great swathes of the economy reopened this weekend. Across the pond, the American economy added almost five million jobs in June, and the rise in the Eurozone’s unemployment rate in May was lower than expected.

At home, Andy Haldane, Chief Economist at the Bank of England, announced that consumer spending had “risen both sooner and materially faster” than predicted, meaning the GDP hit could be half that predicted in May. Very good news indeed.

However, underneath these headline green shoots is a much starker picture. Haldane also says that the labour market outlook is not as encouraging – that unemployment could be worse than the Bank’s May forecast. As in much of Europe, where more than 40 million people remain supported on furlough schemes, we have no idea if furloughed workers will return to work or join the unemployment rolls.

So while it is promising news that the UK economy appears to be bouncing back, it would be dangerously foolish to assume a jobs recovery at the same pace. Indeed, vacancies last week were down 24 per cent on the previous week.

Next month, businesses are required to start contributing to the cost of their furloughed workers. That’s reasonable, over nine million people have had their wages subsidised and the Government cannot continue this £10 billion-a-month support indefinitely – not least as it risks keeping people in ‘zombie jobs’, delaying their move into new roles and damaging the economy further.

But the phasing out of the furlough scheme will trigger more redundancies. Hundreds of thousands of businesses have gone for three months with little to no revenue. The Government’s loans and grants provided a lifeline for many, but social distancing measures and people’s fear of the virus will mean suppressed revenues for some time.

Expenditure will have to be cut if businesses are to stay afloat – half of companies expect to make redundancies in the next few months.

Which is precisely why the Chancellor must use his statement on Wednesday to announce a comprehensive and ambitious plan for averting mass unemployment.

Because while it might be reasonable to see how consumers respond to the further lifting of lockdown before taking a decision on something like a VAT cut – which would be pointlessly costly if the issue isn’t demand – delaying decisions about investment in employment and skills could be catastrophic.

In a new report this week, produced jointly by Reform and the Learning and Work Institute, we estimate that around ten million people are potentially at risk of unemployment. Those at greatest risk are in areas that already had high unemployment, have low qualification levels and are currently in low paid work. In other words, they will be least resilient to losing their jobs. The result of inaction, even delayed action, will be a levelling down.

The Conservative manifesto pledged to undo the decade-long underinvestment in skills; to help workers “train and retrain for the jobs and industries of the future”.

This recession is unique for its sectoral nature, meaning a large number of workers will not only need to find new jobs, but to switch careers. But it is also unique in that the Government has a direct line to those most vulnerable to unemployment – the furlough scheme.

The Prime Minster should deliver on his manifesto promise with a bold offer to anyone on furlough, or in an at-risk sector like retail or hospitality. This should include universal entitlement to funding for a qualification, or modules of a qualification, up to and including level three, as well as online advice and support.

For those needing to change careers, which we estimate will be up to 200,000 people, the Government should provide a £5,000 learning account for accredited training. They should also receive a time-limited, means-tested maintenance grant to help mitigate wage drops as they start over in a new sector. Eligibility could be linked to an individual’s history of National Insurance contributions.

And to incentivise employers both to hire apprentices and career changers, and to pay living wages, the Government should allow firms to use a proportion of their apprenticeship levy to support wages, with an equivalent grant for SMEs.

On Wednesday, the Chancellor must show the same bold thinking that delivered the furlough scheme. Failure to act now could mean mass unemployment with its sky-high social and economic costs. That’s a legacy the Government should do everything to avoid.

Alan Mak: Reform capital allowances and R&D tax credits to fire up investment and create jobs

1 Jul

Alan Mak is MP for Havant and Founder of the APPG on the Fourth Industrial Revolution.

Improving Britain’s productivity is key to both our economic recovery after Coronavirus and enhancing our global competitiveness post-Brexit. The best lever for firing up Britain’s productivity is incentivising more investment in the latest IT and software, new plant and advanced machinery – all proven catalysts of growth and efficiency. Failure to direct billions of pounds into these fundamental building blocks of our economy will hold back our recovery.

The State cannot be expected to do all the heavy lifting, especially given the Government’s substantial spending commitments to help the country through the lockdown and beyond. Instead, it must be businesses that take the lead, especially SMEs who have traditionally made up the “long tail” of unproductive companies.

Rather than a safety-first approach of hoarding cash, postponing investment and hunkering down, businesses must be incentivised to invest more in the coming months. This must be an economic recovery powered by bold investment decisions that create jobs, upgrade technology and boost productivity.

The dampening effect on capital expenditure (capex) and investment caused by Coronavirus is already large and destructive. One investment bank estimates that £23 billion has been slashed from this year’s capex budgets already, whilst the Bank of England predicts a 26 per cent drop in business investment for 2020. In 2009, as the financial crisis erupted, the fall was 16 per cent by comparison. Some of the country’s biggest employers such as BP and HSBC have already started cutting investment.

In practice this means IT systems and software – now at the heart of every business – being used for longer. Machines normally replaced every decade will have their life extended. Trucks and vans will be allowed to age. Outdated buildings that offer no room for new employees will be kept on. Research and development (R&D) could stall.

Reductions in investment not only have negative consequences for our country’s GDP, jobs and productivity, it also damages our capacity for R&D and our reputation as a nation that innovates for the future – key to our leadership of the Fourth Industrial Revolution.

Reforming and adapting two existing incentive schemes – the Annual Investment Allowance and the R&D Tax Credit – would have a major impact in reversing this decline in business investment and productivity.

Introduce a new Annual Investment Allowance ceiling for green or digital investments

Capital allowances enable a business to deduct the cost of qualifying items from their profits, lowering their corporation tax bill. This incentivises investment in key productive goods from machines to laptops.

The Annual Investment Allowance (AIA) is the annual cap on such deductions and its level has varied dramatically in recent years from £25,000 in 2012 to £500,000 in 2015. Until December 2018, the AIA was £200,000 but it was raised to its current £1M level from January 2019. The £1 million level is due to expire this December.

To encourage a green recovery and investments that focus on digitisation, the AIA could be allowed to fall back to the previous £200,000 ceiling, except for certain types of capital expenditure that achieve environmental or digital goals which would still benefit from the £1 million special ceiling. Replacing a diesel-powered machine on the factory floor with one powered by electricity, or digitising a production line by adding new software powered by artificial intelligence (AI), could be examples of investment that would be rewarded by the new special AIA ceiling.

Alongside the introduction of a special £1 million ceiling, the scope of what can be claimed through capital allowances should also be expanded to take account of the growing digital dimensions of every business. For example, digital tools purchased on a subscription basis (such as monthly website hosting costs) should benefit from relief not just one-off investments in physical goods (such as buying a new machine).

Increase R&D tax relief rates for SMEs and widen the scope of the reliefs

R&D tax reliefs support companies that work on innovative projects in science and technology, and enables the cost of qualifying projects to be reclaimed from HMRC. They’re especially effective for digital start-ups, who get a tax break and much needed cashflow back for critical work.

From April this year the relief rate is 13 per cent, but the lion’s share of R&D tax relief is claimed by large, research-intensive businesses. SMEs can currently claim up to 14.5 per cent in certain circumstances, but incremental increases such as this do not have a dramatic effect on investment appetite.

Often the most cutting-edge innovation, especially in the digital sphere, is carried out by small teams and growing start-ups – not just multinationals. To encourage more micro businesses and SMEs to pursue more R&D, new and much higher rates of relief should be introduced. For example, a rate of 25 per cent for SMEs with fewer than 150 employees, and 35 per cent for SMEs with fewer than 50 employees.

What qualifies for relief must also be broadened to include more of the digital tools that software developers use, including software testing tools and data analytics software. In addition, cloud storage fees, user experience development work and the cost of buying data sets needed to train algorithms for AI-driven start-ups should also be tax deductible.

Britain is currently 19th out of the 37 industrialised nations in the OECD when it comes to R&D investment, spending 1.7 per cent of GDP against the OECD average of 2.4 per cent. To match world leaders including Germany and Japan, who invest over three per cent, we must urgently update and expand our R&D tax relief regime.

This is the second in a three-part series on how to boost our economy after Coronavirus.

Neil O’Brien: The New Puritans want to tear down our liberal settlement. Here’s who they are, what they think – and why they must be resisted.

29 Jun

Neil O’Brien is MP for Harborough.

Consider recent news.

JK Rowling criticised the expression “people who menstruate,” leading to accusations of “transphobia”, numerous authors quitting her literary agency, and staff at her publisher refusing to work on her new book.

Various controversies have followed the Black Lives Matter protests. Liverpool University will rename a building named after Gladstone.  UKTV deleted an episode of Fawlty Towers making fun of a racist character. The RFU is reviewing the singing of “Swing Low, Sweet Chariot”.

These stories illuminate a new division in our politics. It’s not left vs. right, but is uniting conservatives and liberals against something new, which we need to give a name to.

“Woke” is the most common term, and laughing at its excesses is part of the cure. But we also need to take it seriously. Paul Staines calls it “Neo-puritanism”, which captures the absolutist, quasi-religious nature of it – the urge to “police” others behaviour.

Like puritanism, it’s strongest in America, but powerful here.

So what is Neo-puritanism?

First, Neo-puritans want to change the balance between free speech and censoring offensive speech.

The embodiment of liberalism is the slogan: “I disapprove of what you say, but I will defend to the death your right to say it.”

Neo-puritans feel a duty to “call people out”, often pressing for people to be sacked or shunned.

Don’t debate JK Rowling – “cancel” her. They see debate not as a chance to test and exchange ideas, but as unwelcome, wearying, maybe impossible.

Neo-puritanism has tightened the boundaries of free speech. Like Amber Rudd being “no platformed” by Oxford students. The NUS trying to block Peter Tatchell from speaking. A school dropping plans to name a house after JK Rowling. A DJ sacked (now reinstated) for denying he has “white privilege.” An Oxford professor given security guards after threats from transgender activists. Sheffield University paying students to police “micro-aggressions”. Hundreds of Guardian employees attacking Suzanne Moore’s “transphobia” for writing: “Female is a biological classification.”

Second, Neo-puritans believe in “hard” quotas and targets.

Conservatives and liberals often support increasing numbers of women or ethnic minorities in certain roles. They favour outreach programmes, mentoring, open days, etc.

Neo-puritans want quotas and sex/racially defined scholarships which other groups can’t enter. For example, Reni Eddo-Lodge argues that “when there are no hard targets for programmes of positive discrimination, they will always run the risk of looking like they’re doing something without achieving much at all.”

Examples include Cambridge University’s scholarship scheme (worth £18,000 a year) solely for black British students and Oxford’s  Arlan Hamilton scholarships for Black undergraduates. UCL has scholarships for BME postgraduate students. The Bank of England has scholarships for African Caribbean students.

Third, Neo-puritans (i) think people are defined by their group, (ii) say people have “false consciousness” about our society and (iii) attack the liberal idea that people can be neutral.

A wave of bestselling books by Neo-puritan authors ramp up the importance of group differences Whether we’re talking about “White supremacy”, “White privilege”, or “White Fragility”, it’s not that some people are racist, but society.

For Neo-puritans, not only are people defined by their race, but race is defined by behaviour in an almost mystical way. The founder of “decolonise the curriculum,” Pran Patel, said: “Priti Patel is the perfect example of whiteness inhabiting a different coloured vessel”.

Dr Priyamvada Gopal, a Cambridge academic, tweeted: “White lives don’t matter. As white lives” and “Abolish whiteness.” This isn’t just divisive and unhelpful. The concept of “whiteness” – that there are certain ways of behaving that are “white” – is intrinsically racist.

This explains why Neo-puritans think it’s OK to attack Conservative MPs from ethnic minorities as “coconuts” or “bounty bars” Robin DiAngelo argues there is deep false consciousness in our society: “Our racial socializatition sets us up to repeat racist behaviour regardless of our intentions.”

Neo-puritans see the “colour-blind” ideals of liberals as part of this false consciousness.

Reni Eddo-Lodge argues: “Colour-blindness is used to silence talk about structural racism while we continue to fool ourselves with the lie of meritocracy.”

A headteacher in Sheffield agrees, writing to parents: “Our society is built upon white supremacy… the world’s systems and structures are built on this bias, and this therefore creates White Privilege.”

Finally, Neo-puritans have a particular take on history, with the emphasis on criticism.

The self-styled “leader” of the BLM protests says Churchill’s statue is offensive and should be taken down.  A university lecturer argues: “Churchill must fall”, because he was an “imperialist racist,” “hated” by the working class. Maya Goodfellow argues: “The way Churchill is remembered in the UK has always been tied up with ideas of white superiority.”

Nor is it just Churchill.

Take the student union leader who vowed to paint over a First World War memorial: “Mark my words – we’re taking down the mural of white men in the uni Senate room, even if I have to paint over it myself.”

Or the Oxford lecturer who hopes Oxford researchers don’t invent a coronavirus vaccine first because: “it will be used as it has been in the past, to fulfil its political, patriotic function as proof of British excellence.”

So what’s the problem with Neo-puritanism?

First, I worry hard quotas lead to resentment; undermine those who succeed (am I only here because of my race or gender?); and lead to unfair, arbitrary decisions: can a scholarship for black students be awarded to a mixed-race person?

Second, there’s an abuse of language here. Apartheid South Africa and the Confederacy were states with an ideology of “White Supremacy”. Britain isn’t.

Third, relentless emphasis on group membership plus tighter boundaries on speech will lead to a society not at ease with itself. Instead of the colour-blind world liberals hope for, we’ll end up in a world walking on eggshells, where more and more we’ll see each other primarily as members of groups.

Fourth, I worry about the counter-productive effects of this conversation. If the “core function” of the police is racism, why should anyone non-white join up?

A 13 year old boy recently pleaded guilty to kicking a police officer on the head as he lay on the ground because of protests he’d seen on TV. Ideas have consequences.

If you claim our society is built on “white supremacy”, this will be heard by some people with fragile mental health. I know of a case of a young person who feels oppressed by all around her, seeing offers of friendship and help from white people as disguised attempts to hurt her.

Compared to a world in which you tell kids – ‘you’re all just the same, you just have different coloured skin’ it makes it more difficult to have natural relationships, and friendships without hangups.

Overemphasis of group differences is disempowering. Katharine Birbalsingh, head of one of the country’s top performing state schools says it: “undermines much of the work we do at school in trying to empower our children to take personal responsibility and grab life by the horns.”

Finally, healthy countries need a balance of self-criticism and self-confidence. Self-loathing is unattractive, but might also have bad practical consequences. People are often called on to do things for the greater good of the nation, from paying tax to fighting for their country.  If Britain is basically shameful, why bother?

Neo-puritans sometimes highlight important problems. But though there is more to do, the big picture is one of progress. Sexism is down, racist attitudes are declining and ethnic minorities are steadily getting better off. Neo-puritanism won’t accelerate that, but instead risk a whole set of new divisions.