Nick Clegg’s doublethink on cuts

Clegg admits the cuts are having a “chilling effect” (but supports them anyway).

In today's Financial Times, Nick Clegg makes the startling admission that the coalition's spending cuts are having a "chilling psychological effect" on the public. Clegg's words put him at odds with George Osborne, who has consistently argued that the cuts will increase confidence and that excessive state spending is "crowding out" private investment.

As Anatole Kalestky pointed out in an important column in the Times (£) on Thursday, Osborne's views are based on the theory of Ricardian equivalence (propounded by the economist David Ricardo) – the belief that whether a government finances its spending through borrowing or taxation, the effect on demand is the same.

Kaletsky wrote:

In a paper written in 1820, Ricardo examined whether a government that went to war would be better off collecting £20m in taxes or borrowing the same amount at an interest rate of 5 per cent or £1m a year. "In point of economy, there is no real difference," he concluded. "For £20m in one payment and £1m per annum for ever . . . are precisely of the same value.

Osborne and other anti-Keynesians have since exploited this theory to argue that the public treats government borrowing as "deferred taxation" and, therefore, spends more when the state spends less.

But as Kaletsky notes, this respone ignores Ricardo's explicit rejection of the doctrine. Immediately after the passage on the theoretical equivalence of state borrowing and taxation, he wrote: "But the people who paid the taxes never so estimate them, and therefore do not manage their private affairs accordingly . . . It would be difficult to convince a man possessed of £20,000, or any other sum, that a perpetual payment of £50 per annum was equally burdensome with a single tax of £1,000." In practice, human beings do not see borrowing as being comparable with taxation.

The disastrous final-quarter growth figures proved that the public is reducing, not increasing, its spending in response to the cuts. The widely predicted surge in consumer spending, as shoppers rushed to beat the New Year increase in VAT, never materialised. Yet in spite of all this, Clegg insists that the coalition will maintain its "fiscal stance". With the economy at renewed risk of a double-dip recession, he will have to perform many more intellectual contortions in the months to come.

George Eaton is political editor of the New Statesman.

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There's nothing Luddite about banning zero-hours contracts

The TUC general secretary responds to the Taylor Review. 

Unions have been criticised over the past week for our lukewarm response to the Taylor Review. According to the report’s author we were wrong to expect “quick fixes”, when “gradual change” is the order of the day. “Why aren’t you celebrating the new ‘flexibility’ the gig economy has unleashed?” others have complained.

Our response to these arguments is clear. Unions are not Luddites, and we recognise that the world of work is changing. But to understand these changes, we need to recognise that we’ve seen shifts in the balance of power in the workplace that go well beyond the replacement of a paper schedule with an app.

Years of attacks on trade unions have reduced workers’ bargaining power. This is key to understanding today’s world of work. Economic theory says that the near full employment rates should enable workers to ask for higher pay – but we’re still in the middle of the longest pay squeeze for 150 years.

And while fears of mass unemployment didn’t materialise after the economic crisis, we saw working people increasingly forced to accept jobs with less security, be it zero-hours contracts, agency work, or low-paid self-employment.

The key test for us is not whether new laws respond to new technology. It’s whether they harness it to make the world of work better, and give working people the confidence they need to negotiate better rights.

Don’t get me wrong. Matthew Taylor’s review is not without merit. We support his call for the abolishment of the Swedish Derogation – a loophole that has allowed employers to get away with paying agency workers less, even when they are doing the same job as their permanent colleagues.

Guaranteeing all workers the right to sick pay would make a real difference, as would asking employers to pay a higher rate for non-contracted hours. Payment for when shifts are cancelled at the last minute, as is now increasingly the case in the United States, was a key ask in our submission to the review.

But where the report falls short is not taking power seriously. 

The proposed new "dependent contractor status" carries real risks of downgrading people’s ability to receive a fair day’s pay for a fair day’s work. Here new technology isn’t creating new risks – it’s exacerbating old ones that we have fought to eradicate.

It’s no surprise that we are nervous about the return of "piece rates" or payment for tasks completed, rather than hours worked. Our experience of these has been in sectors like contract cleaning and hotels, where they’re used to set unreasonable targets, and drive down pay. Forgive us for being sceptical about Uber’s record of following the letter of the law.

Taylor’s proposals on zero-hours contracts also miss the point. Those on zero hours contracts – working in low paid sectors like hospitality, caring, and retail - are dependent on their boss for the hours they need to pay their bills. A "right to request" guaranteed hours from an exploitative boss is no right at all for many workers. Those in insecure jobs are in constant fear of having their hours cut if they speak up at work. Will the "right to request" really change this?

Tilting the balance of power back towards workers is what the trade union movement exists for. But it’s also vital to delivering the better productivity and growth Britain so sorely needs.

There is plenty of evidence from across the UK and the wider world that workplaces with good terms and conditions, pay and worker voice are more productive. That’s why the OECD (hardly a left-wing mouth piece) has called for a new debate about how collective bargaining can deliver more equality, more inclusion and better jobs all round.

We know as a union movement that we have to up our game. And part of that thinking must include how trade unions can take advantage of new technologies to organise workers.

We are ready for this challenge. Our role isn’t to stop changes in technology. It’s to make sure technology is used to make working people’s lives better, and to make sure any gains are fairly shared.

Frances O'Grady is the General Secretary of the TUC.