The Financial Fairness podcast

Episode One

Guest: Alistair Darling

February 2022

We speak to Alistair Darling, chair of abrdn Financial Fairness Trust and former Chancellor, about the financial response to the Covid-19 pandemic. Discussing the findings of a review of over 200 research reports into the government’s financial handling of the pandemic, Alistair also draws on his own experience and gives his verdict on how well the government handled the financial side of the pandemic.

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This episode discusses a rapid evidence review of the financial impact of the pandemic, by a team at the University of Bristol's Personal Finance Research Centre. The review is available to download for free.


Announcer: Two patients from the same family in England had tested positive for Corona virus, the first cases to be recorded in Britain (source BBC News)

Announcer: A quarter of the world's population is now living under some form of lockdown due to Coronavirus. More than 3 billion people in almost 70 countries and territories have been asked to stay at home (source BBC News)

Rishi Sunak: Today I can announce that for the first time in our history, the government is going to step in and help to pay people's wages (source UK Government)

Announcer: Figures today show shoppers have been hit by the highest price rises in almost 10 years (source BBC News)

Rishi Sunak: The government is to increase the national living wage next year by 6.6% to £9.50 an hour (source UK Government)

Announcer: OFGEM has revealed the price cap that will apply to around 22 million households on variable dual fuel tariffs from April is £1,971. That's up 54% that applies today (source SKY News)

Mubin Haq: Welcome to the first episode of our Financial Fairness podcast.

In today's episode, we discuss new research on the financial impact of the pandemic with our Chair, Alistair Darling. Alistair is ideally placed to comment having been at the heart of government decision making during the global financial crisis, which started in 2007.

He gives his verdict on government's handling of the economy during the pandemic, and some advice for how we could be better prepared in future.

The loss of jobs has been much lower than was first predicted Alistair and the review finds plenty of evidence that the government's response to the pandemic prevented the economic downturn turning into living standards disaster. Which actions do you think worked?

Alistair: I think a number of the government’s actions were very successful, of which I think the one you would single out is the furlough. Not only did it maintain people's incomes, but importantly, learning from the past, it kept people in touch with the labour market, because all the evidence is that if you come out of work, you know away from the workplace, it is very difficult to get back. So, I think the furlough was a great success and it stopped what otherwise would have been catastrophic levels of unemployment.

If you look at the self-employed, I think the picture there is more mixed. Firstly, it was undoubtedly the business support scheme in terms of keeping businesses going was successful. However, what it did expose, is that the fact that today's workforce is far more fragmented than it was, say 30 or 40 years ago.

So, you found people who didn't qualify because either they hadn't been trading on their own for long enough to get the appropriate accounts - or, you get people who are partly self-employed, but also partly working for somebody else on the PAYE system, or they didn't qualify.

So, I think the picture there was more fragmented. And of course, one of the byproducts of introducing a scheme in a hurry has been an awful lot of fraud - and in relation to business support – you know, the same thing there, you know, billions of pounds, which the government I hope will try and get back.

I think if you look at the position of the people on benefits, undoubtedly increasing the Universal Credit level was very successful. But of course, the legacy benefits if you like, weren't upgraded in the same ways. So, you know that's caused a hit there. And of course, you've got problems that have been with us for some time, you know, children going hungry during the school holidays, for example, and it's ironic it took the efforts of Manchester United footballer to get the government to change his mind on that one.

Announcer: Now, around 1.3 million children in England will be able to claim vouchers for free school meals during the summer holidays, following a campaign led by the Manchester United footballer Marcus Rashford. Ministers had previously said that they would not agree to free school meal vouchers outside term time. Prime Minister Boris Johnson praised Mr. Ashford’s contribution to the debate around poverty (source BBC News)

Alistair: But what I would say about all this is, the government introduced a number of measures in the face of a crisis that suddenly arrived. So, a lot of it had to be done ‘on the hoof’ if you like, but what is also exposed is some of them deep seated, long running problems that have been with us for a much longer period. And, you know, it’s to that we’re really going to have to turn our attention as a matter of urgency.

Mubin: So clearly, lots that went well. And if you've already picked up some things that didn't go so well. If you'd been Chancellor, what would you have done differently? What other measures would you have considered?

Alistair: Well, I think the reduction of the Universal Credit so soon was a mistake, because the people on Universal Credit weren't able to suddenly find another source of income. And that, you know, it's yet again an example of where people with very little, have run into difficulties because they don't have the resilience. I mean, you can't save very much, if you haven't, you know, you're only just getting by, as it were.

So, you know, I don't criticise the emergency measures that were introduced – and with hindsight, you could have got a whole bunch of things that could have been done better or in different ways.

What I'm more concerned about is that the structural changes in the labour market over the last 20, 30,40 years, where more and more people are classified as self-employed, even though they're not the conventional, you know, the image of a self-employed person or business, or something like that, whose income is uncertain, it's insecure, people are being offered hours that are not regular, they can come and go. And of course, who weren't, you know, protected in the way, that with others - people who have got two or three jobs, for example.

And what we're finding there is, typically, there are people who are being paid less, therefore they don't have the financial resilience when something goes wrong. I know, in your lifetime, something is going to go wrong from time to time, and you need that. And that's one of the reasons that we set up the Financial Fairness Trust is to look at measures that the government might take in the future to try and make sure that people - when they work - it’s good quality work, they get decent pay, so they can meet you know, the day-to-day commitments and hopefully put, put money by.

I think the other thing that worries me is that it would appear that 400,000 people have simply dropped out of the labour market - it may be older people who decided that's it, or it's people who for one reason or another are no longer in the labour market. Now, that should worry all of us because people who are not earning can't be saving by definition, and they certainly won't be building up resilience in the future. So, what I would say in terms of where we are now - and the lessons to be learned - is, in many ways, the pandemic simply put off with us dealing with problems that have been growing for over a decade now.

Mubin: Yeah, absolutely. Just going back to the self-employed, and you've highlighted that, and clearly they come out as a group along with insecure workers in general, as being significantly effected during the pandemic. Why do you think that group has been so overlooked over the past couple of decades?

Alistair: I think because, that group of people who were now classified as self-employed is something that began to appear probably about 10-15 years ago, but it's gathered pace, you know, since then. You've got, you know, ‘the Uber problem’ - if I can use that example - where, you know, the view initially was, these people are self-employed, they choose their hours, and you know, you know the arguments here. Whereas, in fact, they looked and sounded like people who were employed, except that there was no PAYE, there was no employers contribution into, you know, the National Insurance Fund, and so on. So, I think that it's a problem that grew. And because it wasn't a pressing problem, you know, governments have other things to do - that they went and did those other things.

Now, the pandemic has, you know, it emphasised the problems that you have with people who are working casually, no formal agreement with somebody who looks and sounds like their employer, and therefore, they're putting nothing by for the future, and you know, if they go out of work, then they simply don't have anything.

The other thing, of course - its shown in wider areas - is the correlation between the highest rates of pandemic and sadly, infections and death is a very, very close alignment with decades of deprivation, and people on low incomes. That's another problem that the governments will have to face up to.

Mubin: So we've got that problem in terms of insecure work. And Theresa May did try and make some efforts in terms of addressing this through the Matthew Taylor review - but that didn't really go as far as many people were hoping in terms of take up. What do you think are some of the next steps in that area?

Alistair: Well, I think one of the things you do need to learn is that this is something that Government can do something about - let me give you two examples, if you like from the past, but they've subsisted.

It's only less than 25 years since the minimum wage was introduced. And when it was introduced, we were told that this would be the end of civilization as we knew it, the economy would tank and there’d be millions of people unemployed, terrible things would happen.

In actual fact, putting a floor beneath which people's pay should not drop is not only now - it's still remained on the statute book - but you know, there's a consensus now, you know it has changed its name to the Living Wage, but the argument each year is, how much can you increase it by and that's a recognition, that if people go to work, they ought to be paid enough not only to ensure they can meet the day to day commitments, but they've got a better chance of putting something by for a rainy day. So that you know, that's one example.

Another example is that in the early 1980s, the government quite deliberately allowed people to opt out of contributing to the pension system, with the result that you got people coming up to retirement with nothing. Now, you know, auto enrolment was introduced, you know, probably about just over 10 years ago, 12 years ago - it's got a long way to go, and I think we need to make changes to it - but it did ensure that people were making a contribution to their pension, which they will need, you know, when they reach their later years and so on.

So, I think the answer to that question is regulation can work. But the big challenge for the government, indeed, any government over the next, you know, 10-20 years is how do we ensure in the economy we have today that we get sufficient growth, to create jobs and keep people in employment. What's worrying is, if you look at where we are now, it's expected that living standards are likely to rise by 0.1% over the course of this current parliament.

If you look at the growth projections - and I know growth projections are things that can change - but at the moment, the IMF, for example, is predicting the British economy will grow at a rate of half that of other developed economies, that means there's going to be less job opportunities, and you're doing this against a world where a lot of the certainties or things we came to rely on, you know, really since the 1980s, are questionable, if not, you know, highly doubtful now, and that's something that, you know, there's things that you can do to help people and work through regulation and so on - what's going on in the economy generally is equally important, because otherwise, you're always going to be chasing your tail on this.

Mubin: I suppose the tricky thing in terms of regulation with insecure work is, the examples you highlighted were about employees - and these are those who are quite in that grey area, and some aren’t like the self-employed, though there are inconsistencies as to who is self-employed or who is and as you said, with Uber workers. But it's a real challenge going forward.

One other thing that we picked up from the evidence review is that many people just had no savings, and they weren't able to cope with the loss of income. In addition, many more were already in debt. How much was that earlier period of austerity, which lasted about a decade, an issue for many people not being prepared? And why do you think austerity has not been the answer this time around?

Alistair: I think, in 2010, when the then government decided it would set itself a target of reducing our deficit to nil, over five years, meant they had to take pretty draconian steps. And of course, you know, I would say this, but as a matter of politics, they also, you know, were quite happy to see you know, benefits being cut - it can be a very populist thing to do. But for a lot of people living on the borderline, to see their benefits frozen therefore, for real terms being cut, you know, has had a drastic effect. And the longer you go on, you compound the problem, you can maybe do that for a short period, but the longer it goes on the you know, the more poor and disengaged people become.

And also, there is undoubtedly the case that our economy has been bumping along now, since 2010 - it was growing in 2010, but it we had very low rates of growth generally. And of course, now as a combination, you've got the hangover from the financial crisis, Brexit, you've got COVID. The projections are - the government's own projections from its own Office of Budget Responsibility - are the economy is unlikely to be growing much more than about 1% by the end of this Parliament.

So, I think if you want to know, why is austerity not being practised again, it’s firstly, I don't think people could take it anymore in terms of the benefits. But secondly, economically, it makes no sense, you know, great thing in politics, you ought to be able to learn from your mistakes. You know, in the 1930s, we had a depression. And then after that people thought that the great economist John Maynard Keynes might have been right when he said, when things hit rock bottom, it's really only the government that could actually put enough money into the economy to get it to grow again. It's what I did, you know, in 2009.

But, you know, what I'm saying is, there are some things we have to do that will require regulatory action, you know, for example, looking at who is really self-employed, and who is not, but the other thing to do is to make sure you've got the right economic conditions to make growth happen. And here's one other thing just on that front, I think the growth of the hospitality industry in many ways, masked the fact that if it hadn't been for that, unemployment would have been a lot higher. But again, it illustrates the problem - a lot of the hospitality employees, many are on PAYE and are treated properly, but for a lot of people is very casual. And that's okay if there's other jobs to go to, because it may suit some people. But I think as far as the economy is concerned, and as far as the well-being of individuals concerned, I think we've got to look at how we can make things better, which is why in the Financial Fairness Trust, we'll be commissioning research over the next few years to look and see what other things we can do to radically change, structurally change if you like, the conditions under which people work, and therefore what they earn and how much resilience how much they've got to put by for the future.

Mubin:  So we saw that period of austerity, we then had a pandemic and now we've got this huge squeeze on living standards as wages and incomes failed to keep pace with rising costs, especially energy bills, which we are planning to see a big hike in, lots of people are worried and will have to make difficult choices between eating and heating. What do you think can be done to address this?

Alistair: Well I think the government is going to have to do something about it. Because the combination of energy prices, the fact that inflation is now much higher than people forecast even six months ago, and remember, there is a whole generation of people who don't remember inflation, you have to explain it, what does it mean, it means prices are going to go up very, very dramatically. Therefore, the cost to you and the weekly shop is going to go up.

But I think where, I think where the government needs to take action urgently, is particularly people on low incomes. And there's a number of things that you can do on that, you can raise the threshold before which you don't pay National Insurance contributions, which otherwise, with them going up is quite a burden. You could index instead of keeping benefits frozen at about 3% - which is what the inflation rate that governs the increase was - to maybe increase it to 6%. You know, that there's all sorts of measures, you know, that people have talked about. But I would target the public support, the government support, if you like, on people with low incomes. There are general things you can do as well, you know, if you want faster, and so on, but I think that's the most urgent thing.

But although it's not urgent, as in, you've got to do it next week, you do have to ask yourself, how on earth did we get into a position where, you know, we, we were producing oil, you know, at record levels for decades. And now, we used to store gas - we don't store gas anymore. How have we gotten to the stage now, where we are completely at the mercy, in many ways, of supplies of energy from overseas, which is why I think we desperately need t – you know I'm all in favour of renewable energy, it's very, very good - the trouble is when the wind doesn't blow, you don't get anything, you don't get the electricity.

So, we've got to look at supply. Okay, that's the slightly longer term. But after years of discussing it, we're really don't have an energy policy. And the one thing that the government used to rely on the energy market is close to collapse, it was a phony market in the first place, but that those particular chickens are coming home to roost with a vengeance.

Announcer: Inflation and the cost of living in the UK is causing more and more people to turn to food banks. According to one of Britain's biggest food bank networks, The Trussell Trust, a record 2.5 million parcels were given to people in crisis last year alone. Since 2015, the number of people needing help to obtain food has risen every year. (Euronews 2021)

Mubin: Were you surprised at the growth of food banks, which were a big sign of the past 10 years?

Alistair: No. Food banks are simply a symptom of where you've got people who don't have enough income, to feed themselves and to feed their children.

Food banks should have no place in an economy like ours, you know, we are one of the biggest economies in the world. And you know, that's not just looking at measures to increase income. But as I said, the key thing that, frankly, we are far too far away from at the moment, is securing the sort of growth that will allow good quality jobs with good pay, therefore people's ability to meet their obligations as well as to save. But you can't be surprised if you squeeze people with little or virtually nothing so hard - where are they supposed to go? And that's something that we should not be doing, you know, in an economy of our size and without potential that we have.

Mubin: And can I just come back on this focus on people at the bottom in terms of particularly focusing on raising, for example, say Social Security benefits? Do you think that would be popular with the British public?

Alistair: I think most people in the country are fair minded. They do not want to see people who are forced into the position of do I eat or do I heat my house? They don't want to see it. But what they really want to see is, you know, yes, this action you have to take as a matter of urgency when a crisis hits, but also what are we doing to make sure it's less likely to happen in the future. And that's the thing that seems to be pretty absent just at the moment.

Michael Gove: The white paper that we're publishing today sets out a detailed strategy to make opportunity more equal and to shift wealth and power decisively towards working people and their families (source UK Government)

Mubin: We've also heard a lot from the government about levelling up. And there's been some new plans announced recently by Michael Gove in this regard, do you think these go enough? And do you think we'll really, truly level up?

Alistair: But look, I think there's a couple of things I would say. We live in one of the most centralised countries in the world. And it's been something that I've always thought, you know, in particular in England, we do not devolve enough decision making and you know, the old saying about the ‘man Whitehall knows best’ - we all know that's not true.

I think the other longer-term thing that needs to be tackled is that the big cities in the UK have done okay, over the last 20 to 30 years, and what you saw was people growing up in towns and villages around those cities who went to the city to get work. And that means that you've got a lot of towns in the country where you walk down the high street and looks pretty deserted. Now, and it's not surprising that people think, look - there’s something gone wrong here, you know, we've been left behind. You know, the English seaside towns, for example, it will take more than a government announcement, and more than a promise to put the, you know, 50 years’ worth of problems right, you have to ensure that there is a focus for employment in those towns and villages, you need to make sure there's decent housing, decent schools, a health service that works, I see that as a generations work. And it will mean spending money. If levelling up was going to happen without spending money it would have happened already. And it hasn't. But it also needs a mindset change, as I said at the start, that you don't have to when you're opening an office or whatever, you have to put it, you know, in London or with other big cities, and especially one thing this pandemic has shown is, you can actually work from home and work distant from a large centre. And there's no reason why we can't capitalise on that. People can be in different parts of the country, doing their work - for some well paid work, you know, skilled work - but they don't need to go into the office or into a big city to do that work. So perhaps we could start thinking imaginatively about what opportunities have arisen. You know, who would have thought even two years ago that with Zoom, or wherever, you can do lots of things that people thought you couldn't do without actually climbing into a bus or a train to go and see someone, although don't get this wrong, human contact is rather important, as I think we've all discovered

Mubin: Just on that inequality point in terms of a divide between towns and cities, even within cities though, there's huge divides. I mean, we had the Grenfell tower incident in Kensington and Chelsea, which is cheek by jowl with huge wealth - so there's lots of people in the cities also missing out.

Alistair: Well, absolutely. And if you look at every British city, you will see there are extremes of people who are extremely wealthy, and people who are, you know, who are very poor.

In Glasgow, for example, the life expectancy of a man and one part of the city could be seven years less than someone living, you know, seven or eight miles away. So, these inequalities have got to be tackled. And they're not just income, you know, it's quality of housing, it's generations of, you know, where you've got a history of poor health and so on. That's what I'm saying - this is not something you can fix by an announcement, or even the promises spend more money this year and a bit more next year. This is a generation's work. And you know, it's something that everybody's going to sign up to it and keep having signed up to it, keep on the case, because it's not going to be sorted in the near term. It's a long term project this.

Mubin: We've now changed our name from Standard Life Foundation to abrdn Financial Fairness, Trust. What does financial fairness mean to you?

Alistair: I think it means two things, one is you've got to provide people with the opportunity to work, to do the best they can for themselves, and for their families. That means decent education, it means growing up an environment where people can feel confident, but also means that you know, when you are at work, that you are being paid enough not just to meet your day-to-day obligations, but for the rainy days that inevitably come along. And also to make sure that you have security, especially as you approach old age and retirement, which means a decent pension system and you know, perhaps, because of the demographic changes that are taking place, you also need to look at the quality of health care and so on. But I think the relationship between individuals - what we do and what the state does, on our behalf - that's something else that I think we're going to have to examine, because, you know, the model has worked by and large for most people for the last 70, 80 years, I think, you know, we're gonna have to start looking at again as to what precisely we do, because the population pattern is changing. And the key thing I think, in relation to fairness is, we've got to watch that we don't institutionalise the fact that a growing number of people in this country could perhaps never be in secure employment, or never be earning enough to make ends meet, let alone put anything by for the future. It’s not in anybody's interest, not in their interest and it's not in the interest of the country.

Mubin: And as part of that, do you think we also need to look at those inequalities, that gap between the bottom and the top?

Alistair: I think, you know, a fair country is where people think, well, okay, not everybody's going to get paid the same. But I think we want to avoid what you see in some countries where there is a massive, massive gap between the people on the top and people at the bottom - you know, this isn't just a natural order of things, it's something that's you know, you live in a country where people feel it's a fair, fair country. There's always going to be you know, unfairness’s here and there, but you've got to try and make sure there's a degree of fairness, if you like, as between, you know, people living in the same country.

Mubin: And lastly, what do you feel are some of the standout policy changes of say, the last 50 to 100 years, that have really delivered financial fairness?

Alistair: I think I'd single out three. One is undoubtedly the pension reforms made just before the First World War, where people for the first time when they were in work, there was pension provision, which there hadn't been before that.

I think, secondly, the foundations that were laid for the welfare state after the Second World War. The NHS is probably, you know, the most famous and known product of that generation. But there was an example of where after the trauma of two World Wars, remember, only 20 years apart, people wanted to see change, they wanted to see ordinary people get on, and have the opportunities and security and that's what happened in the immediate postwar years.

And I think the other one is the minimum wage, because for the first time it signaled that, you couldn't be paid less than the minimum wage. It's taken time and indeed you know, it's unfinished business in many ways, but you know, I'm sure there's lots of other things people can single out but those are the three that I would point to, and, you know, it does show that actually, you don't have to put up with things - things can change, and indeed they have to change.

I talked earlier about, you know, the demographics changes that are happening now that we need to deal with. But also we've got, you know, there are opportunities. And although, you know, the economy is always in a state of flux, I suppose to some extent, you know, there are opportunities now, for us to ensure that we can do things in this country that perhaps hither to, we've looked at other countries that do them for us and supply chains, and so on, where there are jobs to be created.

And you know, we have very strong sectors in technology, the financial services sector where we can, we can capitalise on those strengths. Because above all, at the end of the day, the best way in which we can ensure people’s standards of living, is by having an economy that is vibrant, dynamic, and it's growing and creating those jobs, and creating the wealth that we need to do those things that we can't do for ourselves. It's urgent, we should have the same determination, I think now post pandemic to look at the world as it is now and see what we need to do, with the same determination as they had in 1945 after the Second World War. So there's reasons to be optimistic, but that optimism will only be sustained if people see that people are actually making the effort to make those changes necessary.

Mubin: Well, I think that's a really good note to end on Alistair, which is things can change, but we need the determination. So thanks very much again for your insights.

The evidence review on the financial impact of a pandemic is on our website, and we will be again with you soon, with another Financial Fairness podcast. Thanks