Boris Johnson claims he is a “one nation Conservative”, bringing together the wealthy “classes” with the “masses”. Leaks from Downing Street signal a leftwing approach on economics and rightwing one on culture. Mr Johnson presents himself as the first Tory post-Thatcherite prime minister. His Brexit sales pitch was that he was prepared to sacrifice business profitability to regain “sovereignty”. Yet the Covid pandemic has shown Mr Johnson is unable to resolve the tension between his party’s free-market orthodoxy and a desire to cater to new working-class voters.
Pre-crisis the British economy was characterised by low levels of business investment, a poor skills base, stagnating wages and the zombification of UK companies, which had taken on £1.2tn of corporate rated debt. Covid presented a chance to reset the economic model that has seen the share of wages fall as a share of the country’s gross domestic product. As providers of capital, investors might think that having a bigger share of economic output is a good thing. But companies also need customers who can afford to buy their goods and services.
The question for Mr Johnson is whether demand in the economy should be profit-led or wage-led. His rhetoric suggests the latter while his policies advocate the former. The government’s Covid strategy is to save employers, not necessarily employees. The government has supported businesses with £50bn of state-backed coronavirus loans but done so without attaching any conditions about saving jobs. Since the government shamefully will not name who receives the state cash it is impossible to say which firms have benefited. If the Bank of England’s lending is any guide then the outlook for workers is bleak: Rolls-Royce took out a £300m emergency loan from the central bank and announced 3,000 job losses. The taxpayer is estimated to be on the hook for at least £23bn worth of losses.
In the last seven days it has emerged that UK companies owned by private equity firms will be able to access emergency state-backed loan schemes. Private equity specialises in borrowing huge sums to buy firms after they have been refused loans by the banks. Once in charge the investors can increase “profitability” by sacking staff and selling off the company’s assets. The pandemic will lay waste to many corporates. Guildhawk, a leading software translations company, cautioned the government in March that “vulture funds” will use the crisis to “acquire, asset-strip and neutralise good companies”. Its warnings fell on deaf ears.
While owners of capital are bailed out, support for workers has been withdrawn. Rather than extend the furlough scheme, like Germany and France, in the UK only “viable” jobs (those that can be done part-time) will receive state help. Tony Wilson of the Institute for Employment Studies warned those most likely to miss out “will be people with less secure contracts, shorter service (often younger workers), the lower paid and those in non-unionised workplaces”. The result is that UK unemployment will rise by a million by the end of the year. The economy will contract. People on universal credit, a meagre support in OECD comparisons, cannot consume much.
Conservatives are wary about government intervention but the state ought to help employees and employers stay afloat. Red wall voters who lent Mr Johnson their support won’t be happy if the economy falls over because he followed his party and let unemployment surge. There is a double whammy. Mr Johnson’s new support is in areas dominated by low-skilled and manufacturing employment. Coronavirus has hit them hard: they have unusually high levels of furloughed workers. Brexit would hit them harder. Mr Johnson could emulate Australia’s rightwing government, which says it will drop “debt and deficit” rhetoric to prioritise job creation. But the country needs deeds, not just words.