Ten things the government can do right now to prevent a Corona depression

Social rights aren't just morally just, they could save us from economic catastrophe.

Commentary icon20 Mar 2020|Comment

Ewan McGaughey
Ewan McGaughey

Senior Lecturer at the School of Law, King’s College

The Coronavirus has triggered a stock market crash sharper and faster than the global financial crisis. It threatens a depression unless we move aggressively to protect social rights.

Companies with plummeting share prices, or evaporating customers, are prone to individually rational, but socially irrational, herd behaviour. They lose confidence and fire workers. Workers lose income, and spend less on goods and services. This means companies lose more customers. They fire more workers. This is the sinking spiral of every depression.

It requires social rights – social security, voice at work, job security, State aid – to halt this short-term herd behaviour, and spread losses to those who can best bear them. We know our health and emergency workers will do everything to save lives, and – with the right health response – the pandemic can be contained in around three months. But we must also stop the Corona crash becoming a depression, with social rights.

Here’s ten that we can boost right now, all without primary legislation.

Social security and working time rights

One – publicise workers’ rights

Every employee already has the right to work at home to avoid any ‘danger’ of the virus at work that is ‘serious and imminent’. Employees who refuse to go to work can be subject to no ‘detriment’: no pay cuts, no dismissal. Employees also have the right to a ‘reasonable amount of time off’ for child care, and to care for parents. But the government should publicise these rights, and ensure pregnant workers and carers suffer no detriment, to protect jobs and lives.

Two – extend rights to everyone who works

The government should extend these rights to everyone who personally performs work, whether their contract says they are ‘self-employed’, an ‘independent contractor’ or an employee. Sham self-employment is a huge problem in the UK, and across the ‘gig economy’, where people lack bargaining power. Employers like Uber or Deliveroo misrepresent worker status to evade social rights and tax.

The Secretary of State can extend the scope of employment rights to everyone by order, and say that this expanded definition of an ‘employee’ goes for all tax and social security rights.

Three – pay Statutory Sick Pay at a rate workers can live on

Statutory sick pay is the most important social security right now. But in the UK this is only £94.25 a week since March 2019. Instead of the planned rise to £95.85, it should replace people’s full income up to a reasonable cap: Sweden’s cap is around £600 a week. Unemployment insurance and Universal Credit should rise too, because the economy is only strong if everyone has a fair income.

Four – improve the right to paid holiday

Many employers will ask workers to take holidays if customers dry up. In the UK and every EU country there is a right to at least 28 days or four weeks’ paid holidays. The right to paid holidays – which is a universal human right – gives employers and workers more flexibility, especially in a crisis.

The European Social Charter 1961, which the UK has also ratified, requires States to take action for ‘the working week to be progressively reduced to the extent that the increase of productivity and other relevant factors permit’. The Secretary of State should raise the right to paid holidays for more flexibility.

Voice at work

Five – give workers a voice

To halt short-term, socially irrational dismissals by firms, workers need voice at work. Countries with elected work councils, with rights to veto or delay dismissals and rearrange working time, had lower unemployment rises in the global financial crisis.

German work councils with trade unions contained mass unemployment in 2007-2009, and are doing it again right now. By contrast, the UK has minimal dismissal protection (it was cut further in 2012) and had a critical rise in unemployment. The US has virtually no job security rights, and had a catastrophic rise in unemployment.

Ironically, the UK and US helped write Germany’s post-WW2 work council law after Hitler had abolished it (p.31 here).

We can create this right to a voice at work now with a new ACAS Code on redundancy procedure.

Six – let workers vote for their boss

Dismissal decisions begin on company boards. But votes for directors are monopolised by shareholders that are prone to irrational short-termism. We know that workplaces are more innovative, have fewer strikes, and are more productive when workers have the right to vote for directors.

Britain is way behind, even though a Conservative Minister for Transport was advocating for workers on railway company boards in 1920, Churchill himself put one on the Port of London Authority (pp.9-13 here), and Oxford University has had worker votes since 1854.

At the least, all government subsidies should be conditional on companies changing their constitutions to have a minimum of two elected worker-directors. We could do this for all listed companies by updating the UK Corporate Governance Code.

Seven – give workers a say in how their pension is invested

Irrational herd behaviour occurs in stock markets because the decision-makers are a tiny group of asset managers, like BlackRock, State Street, or Vanguard. They manage and vote on ‘other people’s money’, and are unaccountable for short-term decision-making. In the US, the top three asset managers combined would be the biggest shareholder in 438 out of the 500 largest companies, and they have around 50 people casting votes that control the economy.

They have a record of supporting directors who fire workers en masse. Their power should be removed, and the people who save for retirement in pension, life insurance and mutual funds should have that voting power, like the Swiss. The Secretary of State can amend our pension laws to ensure at least one half of our trustees are elected, and clarify the FCA Handbook on conflicts of interest to prevent asset managers voting on other people’s money without instructions.

Job security and full employment rights

Eight – rights from day one

We should expressly extend job security rights to everyone from day one on the job. Everyone should have the right to not be unfairly dismissed, or made redundant. At the moment in the UK, this right only kicks in after two years. In the US, there is no right at all.

The Secretary of State can change it now.

Nine – make the government say how it plans to raise employment

We should restore the duty on government to say how it will attain ‘full employment’. The UK had this in the Welfare Reform and Work Act 2016, until it expired when Theresa May triggered an early election.

Full employment means the right to work ‘at fair wages’ with the hours one needs: not under-employment on zero-hours contracts. It means unemployment below 2%. It actually costs the taxpayer nothing because government saying it will do ‘whatever it takes ’ is enough to keep confidence up.

State aid and economic rights

Ten – a pause on rent, mortgages and debt repayments

Direct wage subsidies, like the Employment Subsidies Act that Thatcher renewed eight times, or like Denmark’s guarantee of 75% of employee wages, put money in people’s pockets and maintain confidence even more effectively than giving businesses £330 billion in guarantees. But people also depend on banks and landlords.

Loan repayments to banks, mortgage repayments, and rent payments should all be capable of being cancelled until this crisis is over. Banks crashed the economy, and were bailed out before, and so they must exercise responsibility in this crisis.

The government has the power to order this in the Civil Contingencies Act 2004. Nobody must lose their home because of the Coronavirus.

With the global financial crisis, its causes, and its culprits in recent memory, we know what works and what does not today. Social rights work: to ensure employers, banks, and government protect everyone from a new Corona depression. We could even come out stronger.

These policy proposals were supported by:

Dr Ewan McGaughey, School of Law, King’s College, London
Prof Tonia Novitz, University of Bristol Law School
Prof Lydia Hayes, Kent Law School, University of Kent
Ms Sandhya Drew, City University Law School
Ms Carolyn Jones, Director of the Institute for Employment Rights
Mr Hitesh Dhorajiwala, University College London, Faculty of Laws
Prof Nicola Countouris, Faculty of Laws, University College London
Ms Pascale Lorber, Deputy Head of the Law School, University of Leicester
Prof Adriana Topo, Institute of Advanced Legal Studies
Ms Natalie Sedacca, University College London, Faculty of Laws
Prof Diamond Ashiagbor, Kent Law School, University of Kent
Prof Steve Tombs, Department of Social Policy and Criminology, Open University
Prof Bridget Anderson, Director of Migration Mobilities Bristol, University of Bristol
Prof David Whyte, Department of Sociology, Social Policy and Criminology, University of Liverpool
Dr Katie Bales, University of Bristol Law School
Prof Jeff Kenner, School of Law, University of Nottingham
Mr Fotis Vergis, School of Social Sciences, University of Manchester
Prof Sandra Fredman, Law Faculty, University of Oxford
Dr Aristea Koukiadaki, School of Social Sciences, University of Manchester
Dr Andrew Moretta, Research Associate, University of Liverpool
Dr Inga Thiemann, College of Social Sciences, University of Exeter
Prof Nicole Busby, School of Law, University of Glasgow
Prof Simon Deakin, Faculty of Law, University of Cambridge
Prof Mark Freedland, Law Faculty, University of Oxford Prof
Amir Paz-Fuchs, Law School, University of Sussex Prof
Peter Turnbull, School of Management, University of Bristol
Prof Alan Bogg, University of Bristol Law School
Dr Rebecca Zahn, Law School, University of Strathclyde
Prof Colm O’Cinneade, University College London, Faculty of Laws
Prof Keith Ewing, School of Law, King’s College, London
Prof Sonia McKay, Faculty of Business, University of Greenwich
Lord John Hendy QC, Old Square Chambers
Dr Mauro Pucheta, School of Law, Kingston University
Prof Bernard Ryan, Law School, University of Leicester
Dr Panos Kapotas, Faculty of Business and Law, University of Portsmouth
Prof Joanne Conaghan, University of Bristol Law School
Prof Virginia Mantouvalou, Faculty of Laws, University College London
Prof Hugh Collins, Department of Law, London School of Economics
Ms Natalia Delgado, Law School, University of Southampton
Dr Joe Atkinson, School of Law, University of Sheffield

Ewan McGaughey

Ewan McGaughey

Dr Ewan McGaughey is a senior lecturer at the School of Law, King’s College, London, and a research associate at... Read more »