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The key to a strong economy? Put people at its heart

by Derek Mitchell, CAS Chief Executive

NB This column first appeared in the Herald on 10 June 2020.

As lockdown begins to ease, policymakers are turning their thoughts towards the significant economic challenges we will face as a result of Covid-19. These will likely outstrip even those following the 2008 Financial Crisis.

In the decade following that crash, the Citizens Advice network in Scotland saw unprecedented levels of demand from people hit by austerity. Through our advice, we unlocked a total of £1.3 billion for those people. We will be well-placed again to support people during the economic fallout of Covid-19, and our insight means we can also offer policymakers guidance on how to re-build the economy.

Our starting point is that returning to ‘the way things were’ is not an option. Even before the pandemic, many peoples’ incomes were not keeping pace with the cost of living. And this was not just confined to the margins of our society: 19% of people in Scotland are living in poverty - including many who were in work.

As shameful as that statistic is, we believe that cycle of poverty may apply to more households as a result of the pandemic, dragging even more people into debt and destitution.

Firstly, people will struggle to access appropriate levels of income from employment due to furloughs not covering their full wage, or losing their job entirely. And structural flaws in the social security system, such as the 5 week wait for Universal Credit, will mean people can’t access cash when the bills come in. This will push some into debt for the first time, and others into deeper debt.

As a charity, our primary focus is on the personal and social impact of this. But it will also hit consumer spending, and so stop a proper economic recovery.

Policymakers must recognise that every citizen is a consumer and every policy step taken to boost incomes will ultimately help boost consumer spending. So the economic recovery should be built on these twin foundations: maximising income for people and minimising the cost of living. 

We believe this can be done by adhering to some basic principles: employment strategies should ensure people are paid enough to live on; bills should be affordable; the social security system should be a real safety net; and debt recovery should take into account the debtor’s ability to pay.

This week, Citizens Advice Scotland published our response to the Scottish Government’s Advisory Group on Economic Recovery (AGER). It was based on these principles, with key recommendations including faster investment in energy-efficient housing - to create jobs, lower energy bills and cut emissions. We also want to see existing schemes like the Warm Homes Discount re-designed to more effectively target those in need.

Our broader calls apply to the UK government too, where many of the economic policy levers are reserved. But there is much that the Scottish Government could do. For example, they could promote fair work by making state support for business contingent on fair work principles, and targeting it to encourage initiatives in deprived communities.

There also needs to be a new deal for people in low-paid work, particularly in sectors which have been revealed as essential during COVID-19. The value of these workers should be properly recognized, not with applause on a Thursday night but with higher wages and better conditions.

In addition, we suggested that the AGER consider a Guaranteed Minimum Income. This guarantee would not necessarily have to take to form of a Universal Basic Income, as others have argued for. Our priority is the outcome of ensuring people have enough to live on rather than the output measure of a new payment system.

And finally, as the biggest provider of free debt advice in the country, we told the AGER that any economic recovery requires serious action to help people who are drowning in debt. Because they too are unable to fully participate in the economy, which then holds back growth. With Council Tax debt the biggest debt issue we see in the CAB network, we suggest it is time to consider cancelling old local government debts, for example Council Tax arrears that are over 5 years old.

Some of these ideas are radical, and some may seem over-ambitious. But the current crisis will force us to re-order our economy, and that gives us a real chance to make it fairer. But only if we think big.

What connects all of our ideas is the understanding that inclusive economic growth needs to be based on people having enough money to live on. We can’t keep dividing our society into citizens who need support and consumers whose spending generates growth. Instead we need to recognise that investing in people and communities ultimately delivers progress for our economy - as well as a happier, healthier society.