Dr Jayaprakash Muliyil
Thursday, 16 April 2020
Wednesday, 15 April 2020
Regulatory Capture? Insurance Regulator rules in Favour of Insurance Industry
City regulator will not intervene over businesses ineligible for payouts writes Kalyeena Makortoff in The Guardian
Small and medium-sized businesses fear they will not be able to survive the economic impact of the coronavirus lockdown. Photograph: James Veysey/Rex/Shutterstock
Most UK businesses will not be eligible for insurance payouts over the Covid-19 lockdown, the City watchdog has warned, adding that it was not prepared to intervene on their behalf.
In an open letter to insurance chief executives on Wednesday, the Financial Conduct Authority said it found that most claimants on business interruption policies did not have the right coverage to warrant a payout during a pandemic.
“Based on our conversations with the industry to date, our estimate is that most policies have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic,” the FCA’s interim chief executive, Christopher Woolard, said.
“While this may be disappointing for the policyholder we see no reasonable grounds to intervene in such circumstances.”
The move is likely to anger small and medium-sized business owners who fear they will not be able to survive the economic impact of the coronavirus outbreak.
Typical business interruption policies pay up to £100,000 to cover the cost of keeping a company running if it is forced to shut for reasons beyond its control, such as flooding or fires.
However, while large insurers such as Hiscox sold policies before the lockdown that promised to pay out if businesses were forced to shut because of a notifiable disease, business owners say their claims have been denied because the policies do not specifically cover pandemics. A group of brokers and loss adjusters are planning legal action against some of Britain’s largest insurance companies.
The FCA said some small businesses – that earn less than £6.5m in revenues and employ fewer than 50 employees – can still take claims worth up to £355,000 to the Financial Ombudsman Service, which could result in faster decisions than if they were taken through the courts.
However, in a warning shot at the wider financial sector, the watchdog announced that it was also launching a new small business unit that would keep an eye on how smaller firms are treated by financial services during the outbreak.
The FCA also said insurers should be acting quickly to get money to businesses who have legitimate and undisputed claims, and should give partial payments where only part of the claim is under review.
Most UK businesses will not be eligible for insurance payouts over the Covid-19 lockdown, the City watchdog has warned, adding that it was not prepared to intervene on their behalf.
In an open letter to insurance chief executives on Wednesday, the Financial Conduct Authority said it found that most claimants on business interruption policies did not have the right coverage to warrant a payout during a pandemic.
“Based on our conversations with the industry to date, our estimate is that most policies have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic,” the FCA’s interim chief executive, Christopher Woolard, said.
“While this may be disappointing for the policyholder we see no reasonable grounds to intervene in such circumstances.”
The move is likely to anger small and medium-sized business owners who fear they will not be able to survive the economic impact of the coronavirus outbreak.
Typical business interruption policies pay up to £100,000 to cover the cost of keeping a company running if it is forced to shut for reasons beyond its control, such as flooding or fires.
However, while large insurers such as Hiscox sold policies before the lockdown that promised to pay out if businesses were forced to shut because of a notifiable disease, business owners say their claims have been denied because the policies do not specifically cover pandemics. A group of brokers and loss adjusters are planning legal action against some of Britain’s largest insurance companies.
The FCA said some small businesses – that earn less than £6.5m in revenues and employ fewer than 50 employees – can still take claims worth up to £355,000 to the Financial Ombudsman Service, which could result in faster decisions than if they were taken through the courts.
However, in a warning shot at the wider financial sector, the watchdog announced that it was also launching a new small business unit that would keep an eye on how smaller firms are treated by financial services during the outbreak.
The FCA also said insurers should be acting quickly to get money to businesses who have legitimate and undisputed claims, and should give partial payments where only part of the claim is under review.
Tuesday, 14 April 2020
Will GCSE and A-level students get a fair deal when coronavirus has cancelled exams?
Candidates have missed out on Easter revision but, say assessment experts, a new system could trump exams writes Liz Lightfoot in The Guardian
In any normal year, a sixth-form teacher would be pleased to be handed three four-page, well-researched essays by an exam candidate. But as schools broke up for Easter, one head of history in Kent had to tell his conscientious student she was too late.
Only work submitted before 20 March – the date schools closed because of the coronavirus, with this year’s public examinations cancelled – can be counted towards students’ final grades. Even practical coursework for arts subjects cannot be completed.
“She was upset because she had not done any timed essays in the year that were long and precise enough. She thought she would get 60 and not the 75 she needed for an A*,” he said.
“But the rule is fair because some students have much better resources to work at home than others, and there would be too much scope for cheating,” added the teacher, who has been told by his senior leadership team not to comment publicly on plans to grade students.
Teachers tell of students in tears because the cancellation of exams means they have lost the chance to raise their grades with Easter revision.
Fortunately, say assessment experts, students need not be downhearted. They say this year’s results will be based on teachers’ recommendations, called “centre assessment grades”, plus statistical moderation by examiners, who can change the grades up or down. This combination, they say, is likely to be fairer than the usual exam system.
“This done well by teachers with integrity is the fairest method, and beats the reliability of the current exam system hands down,” says Dennis Sherwood, who monitors assessment systems and has worked as a consultant at Ofqual, the exams regulator.
A better exam system may be a welcome legacy of the coronavirus pandemic, he believes. “If we can demonstrate that teacher assessment works, is trusted, and can be done a lot more quickly and be less costly with a lot less emotional wear and tear for students, we are in a much better position in coming years to evolve something better than the present system.”
He says Ofqual’s own research, published in November 2018, shows that about 200,000 – a quarter – of A-level grades would be changed if the scripts were re-marked by a senior examiner. For GCSEs, 1.3m grades did not match, again one in four.
While it may shock the public to realise just how unreliable grades can be, it is no surprise to most teachers. “I am aware every year, particularly with my subject, psychology, that the outcomes vary to a degree I have never been able to predict,” says the head of social sciences at a large academy school in the south of England.
“Exams themselves do not provide a highly reliable outcome. Nor are results over the years necessarily stable. One year we had 80% A or A* for A-level, and the next year it went down to 20%. It comes down to the luck of which questions come up on the paper and how the scripts are graded.
“For a lot of us, grades are linked to our sense of wellbeing and efficacy. Ten years ago I felt they were my grades as well, but I don’t feel that any more, I have learned to accept that I cannot control the outcomes. All I can do is teach as well as I can.
“The problem is that this year I have been asked to put in the grades myself. I’ve been talking to other people in the same boat and we don’t like it, because our job is to be alongside the student, helping them to do as well as possible,” he says.
Usually exam papers are marked by examiners and then, once the overall picture emerges, the different exam boards decide the number of marks needed for each subject grade. They work out how many candidates will get each grade and submit the estimates to Ofqual. The regulator then collates the data from all the boards to check that the proportion of, say, A grades awarded nationally is in line with previous years and fits with the information it holds about the prior attainment of the cohort.
This year teachers will recommend what grades students should be awarded and put students in rank order within the grades – the ones most likely to achieve that grade at the top, and the weakest near the grade boundary at the bottom. To deliver the fairest outcomes, Sherwood suggests students should be ranked first, and then the grade boundaries determined to reflect the school’s previous results in the qualification.
Ofqual tells teachers they should take a student’s prior performance over the course into account, but suggests results in previous examinations should be used “at centre level” to judge the ability of the class and year group, not the individual candidate. In other words, an A-level student should not be marked down for their GCSE results.
A student working at an A grade during the year and hoping to raise it to an A* by the exam date, may still get the coveted top grade if the school got five A* grades last year and thinks he or she is one of their top five students.
Teachers have been told not to tell students what grades they are submitting, because they may not be the final ones. It could leave teachers open to bribery, abuse or even legal action. Ofqual has yet to announce how students will be able to appeal grades they feel are unfair.
A head of English, who wants to remain anonymous, says his department will not be relying much on teacher opinions, but on aggregated data showing how well the candidates performed in mocks, tests and assignments compared to each other.
“Results are capped by the proportion of grades awarded in previous years, so if you got five A*s last year, that’s what Ofqual will expect to see. It means that you have to be very careful, if you move someone up on a hunch they would have done better in the actual examination, you are moving someone else down,” he says.
Teachers also should be aware that research has consistently demonstrated unconscious teacher bias against some groups based on race, class, gender and even personal qualities such as attractiveness, he explains.
There will be anomalies for some schools. Putney High, an independent school in London, for example, last year added Fashion and Textiles to its art and textile A-levels; only six girls chose it, with half getting an A* grade and half a B, making an A grade average. This year, with numbers doubling, the school expects two-thirds to get an A* and one third an A.
“This year’s is a very strong cohort and they deserve the grades but will the exam board look at last year’s results, think we have been too generous, and put their grades down? That would be very unfair,” says Stuart McLaughlin, the school’s head of textiles.
Fast-improving schools could also miss out if their grades are mapped to those awarded before, as could those where the intake changes, such as a boys’ school admitting girls to the sixth form. But a spokesman for Ofqual said it was still consulting on its model of “standardisation” that could take such circumstances into account.
In any normal year, a sixth-form teacher would be pleased to be handed three four-page, well-researched essays by an exam candidate. But as schools broke up for Easter, one head of history in Kent had to tell his conscientious student she was too late.
Only work submitted before 20 March – the date schools closed because of the coronavirus, with this year’s public examinations cancelled – can be counted towards students’ final grades. Even practical coursework for arts subjects cannot be completed.
“She was upset because she had not done any timed essays in the year that were long and precise enough. She thought she would get 60 and not the 75 she needed for an A*,” he said.
“But the rule is fair because some students have much better resources to work at home than others, and there would be too much scope for cheating,” added the teacher, who has been told by his senior leadership team not to comment publicly on plans to grade students.
Teachers tell of students in tears because the cancellation of exams means they have lost the chance to raise their grades with Easter revision.
Fortunately, say assessment experts, students need not be downhearted. They say this year’s results will be based on teachers’ recommendations, called “centre assessment grades”, plus statistical moderation by examiners, who can change the grades up or down. This combination, they say, is likely to be fairer than the usual exam system.
“This done well by teachers with integrity is the fairest method, and beats the reliability of the current exam system hands down,” says Dennis Sherwood, who monitors assessment systems and has worked as a consultant at Ofqual, the exams regulator.
A better exam system may be a welcome legacy of the coronavirus pandemic, he believes. “If we can demonstrate that teacher assessment works, is trusted, and can be done a lot more quickly and be less costly with a lot less emotional wear and tear for students, we are in a much better position in coming years to evolve something better than the present system.”
He says Ofqual’s own research, published in November 2018, shows that about 200,000 – a quarter – of A-level grades would be changed if the scripts were re-marked by a senior examiner. For GCSEs, 1.3m grades did not match, again one in four.
While it may shock the public to realise just how unreliable grades can be, it is no surprise to most teachers. “I am aware every year, particularly with my subject, psychology, that the outcomes vary to a degree I have never been able to predict,” says the head of social sciences at a large academy school in the south of England.
“Exams themselves do not provide a highly reliable outcome. Nor are results over the years necessarily stable. One year we had 80% A or A* for A-level, and the next year it went down to 20%. It comes down to the luck of which questions come up on the paper and how the scripts are graded.
“For a lot of us, grades are linked to our sense of wellbeing and efficacy. Ten years ago I felt they were my grades as well, but I don’t feel that any more, I have learned to accept that I cannot control the outcomes. All I can do is teach as well as I can.
“The problem is that this year I have been asked to put in the grades myself. I’ve been talking to other people in the same boat and we don’t like it, because our job is to be alongside the student, helping them to do as well as possible,” he says.
Usually exam papers are marked by examiners and then, once the overall picture emerges, the different exam boards decide the number of marks needed for each subject grade. They work out how many candidates will get each grade and submit the estimates to Ofqual. The regulator then collates the data from all the boards to check that the proportion of, say, A grades awarded nationally is in line with previous years and fits with the information it holds about the prior attainment of the cohort.
This year teachers will recommend what grades students should be awarded and put students in rank order within the grades – the ones most likely to achieve that grade at the top, and the weakest near the grade boundary at the bottom. To deliver the fairest outcomes, Sherwood suggests students should be ranked first, and then the grade boundaries determined to reflect the school’s previous results in the qualification.
Ofqual tells teachers they should take a student’s prior performance over the course into account, but suggests results in previous examinations should be used “at centre level” to judge the ability of the class and year group, not the individual candidate. In other words, an A-level student should not be marked down for their GCSE results.
A student working at an A grade during the year and hoping to raise it to an A* by the exam date, may still get the coveted top grade if the school got five A* grades last year and thinks he or she is one of their top five students.
Teachers have been told not to tell students what grades they are submitting, because they may not be the final ones. It could leave teachers open to bribery, abuse or even legal action. Ofqual has yet to announce how students will be able to appeal grades they feel are unfair.
A head of English, who wants to remain anonymous, says his department will not be relying much on teacher opinions, but on aggregated data showing how well the candidates performed in mocks, tests and assignments compared to each other.
“Results are capped by the proportion of grades awarded in previous years, so if you got five A*s last year, that’s what Ofqual will expect to see. It means that you have to be very careful, if you move someone up on a hunch they would have done better in the actual examination, you are moving someone else down,” he says.
Teachers also should be aware that research has consistently demonstrated unconscious teacher bias against some groups based on race, class, gender and even personal qualities such as attractiveness, he explains.
There will be anomalies for some schools. Putney High, an independent school in London, for example, last year added Fashion and Textiles to its art and textile A-levels; only six girls chose it, with half getting an A* grade and half a B, making an A grade average. This year, with numbers doubling, the school expects two-thirds to get an A* and one third an A.
“This year’s is a very strong cohort and they deserve the grades but will the exam board look at last year’s results, think we have been too generous, and put their grades down? That would be very unfair,” says Stuart McLaughlin, the school’s head of textiles.
Fast-improving schools could also miss out if their grades are mapped to those awarded before, as could those where the intake changes, such as a boys’ school admitting girls to the sixth form. But a spokesman for Ofqual said it was still consulting on its model of “standardisation” that could take such circumstances into account.
Monday, 13 April 2020
Auditors clash with firm directors over the question of 'firms that can survive'
Businesses are under pressure to give full account of how pandemic has affected trade writes Tabby Kinder in The FT
UK companies in the retail, hospitality and construction industries are locked in a battle with auditors to prevent their accounts carrying warnings that risk making the fight to survive the coronavirus crisis harder.
The country’s accounting watchdog is pushing auditors to be tougher when judging whether a company can continue trading as a going concern for the next 12 months. The going concern test is one that companies must pass to secure a clean bill of health from their auditors.
The increased pressure from the Financial Reporting Council is stoking tensions between audit firms and company directors, who are worried that an official question mark in their accounts over whether they can keep trading — known as a qualified audit — would automatically trigger a breach of lending agreements with banks or bondholders.
Several of the UK’s six largest accounting firms, which include KPMG, Deloitte, PwC and EY, have put additional steps in place to review signing off companies as a going concern.
PwC has introduced a panel to sign off on its audit opinions, while Grant Thornton is sending every one of its audits through its technical review team, which is usually reserved for its riskiest or complex audit judgments, according to people familiar with the matter. Both firms declined to comment.
“If any of us are accused of not challenging management after all this is over, that will be hideously unfair,” said one senior auditor. “We are having challenging conversations [with company directors] at colossal scale.”
The pressure on auditors from the FRC comes after a series of accounting scandals led to criticism that the regulator has been too slow to act, lenient and too close to the audit firms it supervises.
“We don’t want boilerplate, we want specific circumstances and disclosure about judgments on going concern,” said a senior official close to the FRC. “For corporates that means the trading environment, and now the audit environment is tougher than ever. It is creating tensions in the system.”
With the government expected to extend the lockdown, senior auditors at a number of the UK’s largest firms said they were asking companies in the hospitality, retail and construction sectors to stress test whether they could survive “zero revenues” for six months or longer.
“It’s not an impossible prospect,” the head of audit at a major accounting firm said of the scenario. “We’re saying you’ll breach covenants in that situation and you need to tell the world that. Directors are pushing back and telling us that’s not realistic. The issue is any consensus on how long this will last is quickly meaningless.”
The economic turmoil unleashed by the government’s effort to contain the virus has already upended the reporting calendar for companies. The Financial Reporting Council and the Financial Conduct Authority have given listed companies two extra months to file their accounts in order to better assess the impact of Covid-19 on their profitability.
The FRC is also urging lenders and investors to react sensibly if the accounts of some large listed companies end up being qualified. “[There is a worry that] markets will overreact to what is a statement of the blindingly obvious,” the senior official close to the watchdog said.
The watchdog is holding talks with banks, shareholder groups and bondholders to warn them to prepare for a flood of going concern warnings in the companies they own or have lent to.
The Institute of Chartered Accountants in England and Wales, the profession’s trade body, is expected to put out guidance this week that will “remind” accountants working in the finance departments of listed companies of their disclosure obligations on going concern, according to a person familiar with the matter.
“Many boards are going to have to come to conclusions today that would have seemed absurd three months ago, and they are obliged to consider that in their results,” the person said.
UK companies in the retail, hospitality and construction industries are locked in a battle with auditors to prevent their accounts carrying warnings that risk making the fight to survive the coronavirus crisis harder.
The country’s accounting watchdog is pushing auditors to be tougher when judging whether a company can continue trading as a going concern for the next 12 months. The going concern test is one that companies must pass to secure a clean bill of health from their auditors.
The increased pressure from the Financial Reporting Council is stoking tensions between audit firms and company directors, who are worried that an official question mark in their accounts over whether they can keep trading — known as a qualified audit — would automatically trigger a breach of lending agreements with banks or bondholders.
Several of the UK’s six largest accounting firms, which include KPMG, Deloitte, PwC and EY, have put additional steps in place to review signing off companies as a going concern.
PwC has introduced a panel to sign off on its audit opinions, while Grant Thornton is sending every one of its audits through its technical review team, which is usually reserved for its riskiest or complex audit judgments, according to people familiar with the matter. Both firms declined to comment.
“If any of us are accused of not challenging management after all this is over, that will be hideously unfair,” said one senior auditor. “We are having challenging conversations [with company directors] at colossal scale.”
The pressure on auditors from the FRC comes after a series of accounting scandals led to criticism that the regulator has been too slow to act, lenient and too close to the audit firms it supervises.
“We don’t want boilerplate, we want specific circumstances and disclosure about judgments on going concern,” said a senior official close to the FRC. “For corporates that means the trading environment, and now the audit environment is tougher than ever. It is creating tensions in the system.”
With the government expected to extend the lockdown, senior auditors at a number of the UK’s largest firms said they were asking companies in the hospitality, retail and construction sectors to stress test whether they could survive “zero revenues” for six months or longer.
“It’s not an impossible prospect,” the head of audit at a major accounting firm said of the scenario. “We’re saying you’ll breach covenants in that situation and you need to tell the world that. Directors are pushing back and telling us that’s not realistic. The issue is any consensus on how long this will last is quickly meaningless.”
The economic turmoil unleashed by the government’s effort to contain the virus has already upended the reporting calendar for companies. The Financial Reporting Council and the Financial Conduct Authority have given listed companies two extra months to file their accounts in order to better assess the impact of Covid-19 on their profitability.
The FRC is also urging lenders and investors to react sensibly if the accounts of some large listed companies end up being qualified. “[There is a worry that] markets will overreact to what is a statement of the blindingly obvious,” the senior official close to the watchdog said.
The watchdog is holding talks with banks, shareholder groups and bondholders to warn them to prepare for a flood of going concern warnings in the companies they own or have lent to.
The Institute of Chartered Accountants in England and Wales, the profession’s trade body, is expected to put out guidance this week that will “remind” accountants working in the finance departments of listed companies of their disclosure obligations on going concern, according to a person familiar with the matter.
“Many boards are going to have to come to conclusions today that would have seemed absurd three months ago, and they are obliged to consider that in their results,” the person said.
Don't be fooled: Britain's coronavirus bailout will make the rich richer still
The government schemes protect asset owners, while the bulk of the costs will eventually be borne by ordinary people writes Christine Berry in The Guardian
Posters for a rent strike during the coronavirus lockdown, Bristol, 31 March 2020. Photograph: Ben Birchall/PA
Recent weeks have been profoundly disorienting, as we all adjust to life in lockdown during a pandemic. For the left, they have also been politically disorienting, as a Conservative government borrows hundreds of billions of pounds to underwrite wages.
Some have been mesmerised by this spectacle, convinced that a socialist utopia is just around the corner. We need to snap out of this, and fast. Instead, we must ask the same questions we always should: who benefits from these interventions, and who pays? Who will be empowered and who disempowered?
The crisis itself is already exacerbating economic inequalities. At first sight, the government’s income support schemes might look as though they will help to redress this. In reality, they will achieve almost exactly the opposite. It’s been widely noted that many people remain excluded from the safety net, but the problem goes deeper than this. Where is all this money coming from – and where is it ultimately going?
The answer lies principally in a massive expansion of debt. Wage support is being funded by large-scale public borrowing of the kind we were told was unaffordable just a few months ago (although this is now being supplemented by direct financing with newly created money from the Bank of England). Yes, this could usher in a new era of state intervention – but it could just as easily herald a new era of austerity.
Conservatives such as Sajid Javid – who tweeted that “the whole point of fiscal conservatism in normal times is to be able to act decisively if there is a genuine economic emergency” – are already trying to reconcile the crisis response with austerity politics. Fiscal hawks will be keen to draw a line under the crisis period and insist that we now need to tighten our belts again to pay for it.
Meanwhile, mortgage and rent “holidays” and guaranteed loans for small businesses require people to take on private debts that they will have to pay back when the crisis is over. One way or another, then, the bulk of the costs will still eventually be borne by ordinary people.
On the other hand, virtually no sacrifices have been demanded of banks, landlords or profitable corporations, such as utility companies. The only people in society not being asked to share the burden are “rentiers”: those who make money by owning assets they can charge others to use.
Landlords have access to mortgage holidays but are not required to pass these on to their tenants. If they do, they can recoup any missed rent when the crisis is over. Since the same cannot be said for tenants’ lost income, many will be pushed further into debt or face eviction.
Banks are enjoying government loan guarantees with few strings attached. This means that they are not shouldering the risk of extending credit to struggling businesses during a downturn – that is being borne by the state. Meanwhile, mortgages and credit card debt will still be repaid in full – or with added interest if holidays are granted.
Given all this, wage support acts primarily to protect rentiers’ income streams by enabling working people to keep paying rent and bills, and debtors to keep making loan repayments to their creditors.
The government moved swiftly to protect the interests of rentier capital but has consistently dragged its feet in protecting the interests of workers. Indeed, most support has been channelled through banks, landlords, employers and utility firms – with government simply trusting them to benignly pass it on. This is at best naive and at worst irresponsible.
Guidance innocently declares that mortgage holidays for landlords “will mean no unnecessary pressure is put on their tenants”. Unsurprisingly, emerging anecdotal evidence suggests precisely the opposite. The business interruption loan scheme has already had to be overhauled after banks failed to extend low-cost credit to struggling businesses, while the Financial Conduct Authority was forced to stop them hiking overdraft charges. Meanwhile, some large companies are still laying off workers, or at best, pocketing government support and refusing to top it up from their own coffers.
The government has built an economic bunker from which rentiers will emerge unscathed into the scene of devastation wreaked on the rest of the population. Many will find their bank balances considerably enhanced, since they have been unable to spend money in theatres, bars and restaurants. As economist Gary Stevenson points out, if some of this windfall is spent on property, the result will be to push house prices up – adding insult to injury for the low-paid renters who will have borne the brunt of the crisis. All of this is simply indefensible.
Crises always create winners as well as losers. The bank bailouts of 2008 should have taught us that state intervention is not necessarily progressive. Back then, the state assumed the liabilities of finance capital and ordinary citizens ultimately footed the bill. Now, we are seeing a very similar story play out again – but the mechanisms at work are more subtle, the implicit subsidies for rentier interests passing under the radar.
The left must ruthlessly follow the money and ask in whose pockets it will end up. It must stand alongside those demanding that the big winners in our economic system pay their share: groups such as London Renters’ Union, demanding a true rent freeze. Wetherspoons workers, still fighting to be paid in full. The Jubilee Debt Campaign, calling for personal debt repayments to be frozen and ultimately written off.
Perhaps, as Stevenson suggests, we should also be demanding an emergency wealth tax to redress this huge tilting of the scales towards the asset-owning rich. Without such measures, we should be under no illusions: this crisis will leave our economy even more unequal and unstable than it was before.
Posters for a rent strike during the coronavirus lockdown, Bristol, 31 March 2020. Photograph: Ben Birchall/PA
Recent weeks have been profoundly disorienting, as we all adjust to life in lockdown during a pandemic. For the left, they have also been politically disorienting, as a Conservative government borrows hundreds of billions of pounds to underwrite wages.
Some have been mesmerised by this spectacle, convinced that a socialist utopia is just around the corner. We need to snap out of this, and fast. Instead, we must ask the same questions we always should: who benefits from these interventions, and who pays? Who will be empowered and who disempowered?
The crisis itself is already exacerbating economic inequalities. At first sight, the government’s income support schemes might look as though they will help to redress this. In reality, they will achieve almost exactly the opposite. It’s been widely noted that many people remain excluded from the safety net, but the problem goes deeper than this. Where is all this money coming from – and where is it ultimately going?
The answer lies principally in a massive expansion of debt. Wage support is being funded by large-scale public borrowing of the kind we were told was unaffordable just a few months ago (although this is now being supplemented by direct financing with newly created money from the Bank of England). Yes, this could usher in a new era of state intervention – but it could just as easily herald a new era of austerity.
Conservatives such as Sajid Javid – who tweeted that “the whole point of fiscal conservatism in normal times is to be able to act decisively if there is a genuine economic emergency” – are already trying to reconcile the crisis response with austerity politics. Fiscal hawks will be keen to draw a line under the crisis period and insist that we now need to tighten our belts again to pay for it.
Meanwhile, mortgage and rent “holidays” and guaranteed loans for small businesses require people to take on private debts that they will have to pay back when the crisis is over. One way or another, then, the bulk of the costs will still eventually be borne by ordinary people.
On the other hand, virtually no sacrifices have been demanded of banks, landlords or profitable corporations, such as utility companies. The only people in society not being asked to share the burden are “rentiers”: those who make money by owning assets they can charge others to use.
Landlords have access to mortgage holidays but are not required to pass these on to their tenants. If they do, they can recoup any missed rent when the crisis is over. Since the same cannot be said for tenants’ lost income, many will be pushed further into debt or face eviction.
Banks are enjoying government loan guarantees with few strings attached. This means that they are not shouldering the risk of extending credit to struggling businesses during a downturn – that is being borne by the state. Meanwhile, mortgages and credit card debt will still be repaid in full – or with added interest if holidays are granted.
Given all this, wage support acts primarily to protect rentiers’ income streams by enabling working people to keep paying rent and bills, and debtors to keep making loan repayments to their creditors.
The government moved swiftly to protect the interests of rentier capital but has consistently dragged its feet in protecting the interests of workers. Indeed, most support has been channelled through banks, landlords, employers and utility firms – with government simply trusting them to benignly pass it on. This is at best naive and at worst irresponsible.
Guidance innocently declares that mortgage holidays for landlords “will mean no unnecessary pressure is put on their tenants”. Unsurprisingly, emerging anecdotal evidence suggests precisely the opposite. The business interruption loan scheme has already had to be overhauled after banks failed to extend low-cost credit to struggling businesses, while the Financial Conduct Authority was forced to stop them hiking overdraft charges. Meanwhile, some large companies are still laying off workers, or at best, pocketing government support and refusing to top it up from their own coffers.
The government has built an economic bunker from which rentiers will emerge unscathed into the scene of devastation wreaked on the rest of the population. Many will find their bank balances considerably enhanced, since they have been unable to spend money in theatres, bars and restaurants. As economist Gary Stevenson points out, if some of this windfall is spent on property, the result will be to push house prices up – adding insult to injury for the low-paid renters who will have borne the brunt of the crisis. All of this is simply indefensible.
Crises always create winners as well as losers. The bank bailouts of 2008 should have taught us that state intervention is not necessarily progressive. Back then, the state assumed the liabilities of finance capital and ordinary citizens ultimately footed the bill. Now, we are seeing a very similar story play out again – but the mechanisms at work are more subtle, the implicit subsidies for rentier interests passing under the radar.
The left must ruthlessly follow the money and ask in whose pockets it will end up. It must stand alongside those demanding that the big winners in our economic system pay their share: groups such as London Renters’ Union, demanding a true rent freeze. Wetherspoons workers, still fighting to be paid in full. The Jubilee Debt Campaign, calling for personal debt repayments to be frozen and ultimately written off.
Perhaps, as Stevenson suggests, we should also be demanding an emergency wealth tax to redress this huge tilting of the scales towards the asset-owning rich. Without such measures, we should be under no illusions: this crisis will leave our economy even more unequal and unstable than it was before.
Subscribe to:
Posts (Atom)