With the Office for Budget Responsibility predicting that unemployment will surpass the peak of joblessness in the 1980s, over the next few months this issue will come to dominate politics.
We aren’t in the same world as we were before the pandemic hit. Through no fault of our own, on net we have become less productive – particularly anyone working in sectors like retail and hospitality. This is simply a result of customers’ understandable reluctance to shop and eat out, and restrictions like the Rule of Six, Tier Two measures, and curfews that are aiming to stymie the pandemic.
Sadly, the National Living Wage could exacerbate the problem, with the weight of evidence suggesting minimum wages around the world cause unemployment. This isn’t a surprise as it’s predicted by the theory, and it’s why we have a Low Pay Commission to advise the government of the level we should set it to avoid too much damage.
The Living Wage is set to rise in April, but the Low Pay Commission may soon suggest an emergency break in an effort to reduce unemployment. However, the government may choose to increase it anyway. And you can understand why. On the face of it, it looks very mean-spirited and the disemployment effects aren’t easily observable.
But there is a way out of this impasse. As Research Director Sam Dumitriu argues for CapX, there is a third way: the taxpayer could split the difference. Drawing on the work of Prof David Neumark, Sam suggests creating a Living Wage credit to reduce the unwanted side-effects of a higher minimum wage.
Sam explains: “What if employers got a refundable Living Wage credit worth up to half the difference between the National Living Wage and what the National Minimum Wage was in 2016. It would be a significant subsidy to employers, but it could prevent job losses and allow businesses to stay open when trading under significant restrictions. To reduce the cost of the scheme, it could be targeted at certain sectors facing restrictions, similar to the Job Support Scheme Open. phased suggests limiting the subsidy to people without a university education. The subsidy would be phased out gradually as workers move up the wage scale.”
I think it’s a cracking idea, not least because it’s something people across the political spectrum could back due to its progressivity. As well as increasing unemployment, National Living Wages can lead to lower profits for business owners. But this isn’t just hitting the wealthy, but also the many marginal business owners struggling to get by. In contrast, the tax system is more progressive, meaning the richest will pay relatively more. Also, as we come out of the recession, it could be better targeted at people who really need it, such as the long-term unemployed.
Charter schooling
Our friends at the Small Business Charter have got in touch to share news of an initiative to help small and medium-sized businesses survive and thrive beyond COVID-19 which they’re running with the Department for Business, Energy & Industrial Strategy.
The Small Business Leadership Programme is free to participants and will be delivered by top business schools across England. The programme will support senior leaders to enhance their business’s resilience and recovery from the impact of COVID-19, and develop their potential for future growth and productivity. Find out more here.
In the SheEO
SheEO is looking to give away some cash to women-led businesses turning over between £40,000 and £2m. You would join a portfolio of 73 other ventures in Canada, the US, New Zealand and Australia. The deadline is Monday and all the details you need are here.
Late payments
The Government has opened a consultation on increasing the scope and powers of the Small Business Commissioner. They are seeking views on strengthening the Commissioner’s ability to provide small businesses with mechanisms for redress, in respect of late payments. The consultation will remain open until 24 December 2020 and you can respond here. If there is enough interest from the network, we could coordinate this to save time. Just let me know if you would respond to a survey from us on this – if there is enough interest I’ll let you know how this will work next week.
Folk tales
Were you born outside of the UK, have settled in Norfolk or Suffolk and subsequently created a thriving business? If so, Warren Page would like to hear from you. He is embarking on a photographic project and wants to illustrate the diversity of sectors and nationalities involved to show the positive effect migration in his area. The project is backed by Suffolk/Norfolk Director magazine and they will run it as a feature early next year. I appreciate this opportunity is quite niche, but even if it’s not one for you it would be great if you could pass it onto someone who might be able to help. Warren can be contacted here.
A fair COP
Next week was supposed to be COP26 in Glasgow. The pandemic has put paid to that, but not the need to protect the environment. Alongside the Enterprise Trust, we’ll release a report on Monday on how entrepreneurs can solve – nay, are already solving – the biggest environmental challenges we face. It’s got 20 policy recommendations so that we can speed this up and properly align the interests of business and the environment.
I can’t say anymore for now, but if you would like me to send it to you on Monday morning, just let me know. If you’ve already told us that you're interested in the environment when you signed up, we will send it to you. And if you’ve not let us know what you’re interested in yet – let us know here.
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