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Analysis

UK business groups call for mandatory reporting of ethnicity pay gap

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A duty for large companies to publish the pay gap between staff of different ethnicities would be a straightforward step to tackle racial inequality in the workplace, according to UK business groups and economists who accuse the government-commissioned race report of downplaying the extent of problems in the labour market.

A storm of criticism greeted the report by the Commission on Race and Ethnic Disparities (Cred), after it concluded last month that the UK was not “rigged” against minorities and that “very few” disparities were linked to racism. But the main complaint from business groups was its failure to recommend a statutory reporting obligation of the kind in place since 2017 for gender pay disclosure.

The report said there had been a “broadly positive story” on ethnic minorities’ place in the labour market over the past 25 years, with “a gradual convergence on the white average in employment, pay and entry into the middle class”.

But Jonathan Portes, professor at King’s College London, said Cred had relied on “crude sleight of hand” in presenting statistics to back up its narrative.

Ethnic pay gaps have not improved over time in the UK, gap in mean wages (%), 9-year rolling average*

A headline gap of 2.3 per cent between the hourly median pay of all minorities and white British employees hides a much bigger gap for certain groups — with those of Bangladeshi and Pakistani ethnicity at particular disadvantage, and black men suffering a far bigger shortfall than black women.

Alan Manning, a professor at the London School of Economics, said that after adjusting the data for personal characteristics such as age, qualifications and family status, there was “no evidence for pay gaps being smaller . . . than they were 25 years ago”, and that while the ethnic penalties for some groups had improved over time, “the overriding impression is of stasis”.

These persistent pay disparities partly reflect occupational segregation, with many ethnic minorities clustered in low-paid jobs with little chance of progression. Andrea Barry, an analyst at the Joseph Rowntree Foundation, notes Bangladeshi men are three times as likely as white British men to work as chefs and waiters, while Pakistani men are more than 10 times as likely to work as taxi drivers.

But they also reflect the barriers to career progression in professional life. Ethnicity pay gaps are largest in managerial, professional and skilled occupations — and when employers examine pay differentials within their organisations, they generally find ethnic minority employees are concentrated in frontline roles, and under-represented at senior level.

The new rise in youth unemployment has been much worse for those from black and Asian backgrounds,  unemployment rate for those aged 16-24 in the UK (%)

A growing number of employers — from law and accountancy firms to local authorities and large companies such as Sainsbury and Network Rail — now report ethnicity pay gaps on a voluntary basis.

Cred endorsed this voluntary approach, arguing that there were statistical “pitfalls” in trying to impose the framework used for gender pay to report outcomes for many ethnic groups.

However, business groups have repeatedly urged the government to introduce a mandatory reporting requirement, modelled on gender pay disclosure, arguing that practical difficulties can be overcome.

Matthew Fell, CBI chief UK policy director, said pay gap disclosure was “one of the most transformative steps a company can take to address race inequality at work”.

Peter Cheese, chief executive of the Chartered Institute of Personnel and Development, criticised Cred for a “missed opportunity” to press for mandatory disclosure, adding: “Racial equality at work is not just about participation in employment but also about progression into more senior roles. Pay reporting can highlight organisations and sectors where this is not happening.”

Sandra Kerr, of Business in the Community, campaigns for mandatory reporting © S Meddle/ITV/Shutterstock

Sandra Kerr, race director at the charity Business in the Community, which has campaigned for mandatory reporting, said that while disclosure was not a “silver bullet”, it prompted companies to examine where people were sitting in their organisation, and was a way of “ensuring that the conversation is had at the top table”.

BITC has found that barely one in 10 large companies reports on its ethnicity pay gap voluntarily, and points to a sharp drop-off in gender pay reporting last year, when the pandemic led to a suspension of the usual requirement to disclose the pay gap between male and female staff.

The government consulted in 2018 on options to introduce a mandatory requirement, and has tested possible approaches to reporting with various businesses, but it has not yet taken further action. The Department for Business, Energy and Industrial Strategy said that it would respond to the consultation “in due course”.

Ethnicity pay reporting is more complicated than for gender. One issue is disclosure: many companies hold only patchy data because employees do not have to disclose their ethnicity and some are reluctant to do so — or unable to find a box to tick that matches their heritage.

A bigger issue is sample sizes. Ideally, employers would give a detailed breakdown of outcomes for different ethnic groups, but it is not always possible to do this while preserving anonymity. Cred argued that many employers recruiting from predominantly white areas do not have enough ethnic minority staff for a median pay comparison to be meaningful.

But business groups say these issues are manageable, if companies also put the headline figures in context and explain how they plan to close pay gaps.

Network Rail has published figures showing the pay gap for black employees is much bigger than for Asian colleagues © Alamy Stock Photo

Network Rail, for example, has published figures showing the pay gap for black employees is much bigger than for Asian colleagues, based on disclosure by 90 per cent of staff. With more than 100 nationalities among its staff, it collects more granular data to inform internal policy but does not publish figures where the sample size is too small to be reliable.

Sainsbury, meanwhile, has published figures showing that median pay for black employees is higher than for white colleagues — explaining that more black staff work in London stores with a higher pay weighting. Mean pay for black employees, who are under-represented at senior level, still lags.

Without an accompanying narrative of this kind, a pay report is “not worth the paper it’s printed on”, Kerr said.

The complexity of reporting ethnicity pay data is no reason not to report it, as Andy Haldane, the Bank of England’s chief economist, has argued.

“Published pay gaps are a starting point for corporate and national accountability and explanation, not an end point,” he said in 2019. “No single metric can perfectly summarise all dimensions of diversity. But publication of a single metric can, and has, served as the catalyst for an explanation and action.”



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Analysis

Signs of inflation emerge as Chinese producer prices leap

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For investors and governments eager to spot any sign of inflation as the global economy recovers from the coronavirus pandemic, Chinese factories are a good place to look.

The country this week released figures showing that the price of raw materials and goods leaving its factories rose 6.8 per cent year on year in April, its fastest pace of growth in more than three years.

For almost all of 2020, China’s producer price index was in negative territory as Covid-19 suppressed demand. The recent and sudden rise was partly driven by the comparison with a year earlier and, with consumer price rises still below 1 per cent, the overall inflation picture remained mixed.

But the data was nonetheless a sign of pockets of price increases emerging across China’s rapid recovery, where higher overall inflation is expected this year. It also reflected a global rally in commodity prices that has been supported by China’s voracious demand as well as hopes that other big economies will bounce back, too.

“A combination of China and external factors led to this PPI surge,” said Robin Xing, chief China economist at Morgan Stanley. “It’s like a perfect storm.”

Line chart of Producer Price index showing Producer prices in China rise at the fastest year-on-year pace since 2017

China’s PPI index is made up of prices of producer goods, such as wardrobes or washing machines, that factories sell to shops before they are sold on to consumers.

It also includes the prices of raw materials and commodities, such as coal, when they are sold from extraction companies to businesses that use them to make goods.

It was the latter that drove the recent surge in Chinese producer prices. Global commodity prices, which collapsed last year in the early stages of the pandemic, have since rebounded. Iron ore this week hit its highest level on record, while oil prices have recovered sharply from last year.

Xing estimated that 70 per cent of the April PPI increase was driven by commodities. That rally was also tied to China’s recovery, which has been backed by strong industrial growth and a construction boom that led to record output of steel last year.

As such, the data reflected both the pace of China’s recovery as well as a global commodity rally that it helped fuel and now extends beyond it.

For policymakers, one crucial question is whether higher producer prices will feed through to consumer prices. China’s consumer price index was just 0.9 per cent in April — its highest level in seven months, but far from a level that would generate immediate fears of broader inflation within China.

While economists expect a rise in CPI inflation in China this year, they suggested that any reaction from the People’s Bank of China to this week’s data was unlikely. The portion of the producer price index that represents the prices at which businesses buy consumer goods, as opposed to raw materials, was up only 0.3 per cent year on year.

Analysts at HSBC said transmission from PPI to CPI would be “limited”, allowing policymakers to remain “accommodative”.

Ting Lu, chief China economist at Nomura, forecast CPI inflation to rise to 2.8 per cent by the end of the year, with “pass-through” effects from PPI. But he suggested that the PBoC was unlikely to tighten in response to PPI, and that higher raw material prices instead posed a risk to Chinese demand and the wider recovery given controls on credit availability.

“For a typical borrower, $1bn six months ago may be enough to buy steel and cement to finish one project, but today it’s [maybe] not,” he said.

While the PBoC has not increased official rates since lowering them last year, the Chinese government has nonetheless tightened credit conditions over recent months.

It has also taken measures to rein in both its property sector, on concerns that easier money would encourage asset bubbles, and its steel sector, which has churned out the metal at a rate that threatens Beijing’s environmental commitments.

China’s gradual decarbonisation ambitions — and any production cuts they lead to within the country — are seen as constraints on supply, buoying the price of commodities further. 

Beyond raw materials, economists are closely watching other shortages. Iris Pang, chief economist for greater China at ING, said producer price inflation would be followed by chip inflation. A shortage of semiconductors, she said, was already beginning to drive price increases for consumer products such as washing machines and laptops.

Line chart of Per cent  showing Producer prices for consumer durables are gathering momentum this year

While the PPI index showed a much weaker increase in consumer goods than for raw materials, on a month-on-month basis there were notable rises. Durable consumer goods were up 0.4 per cent month on month in April, the fastest pace of growth since at least 2011, according to CEIC, a data company.

Apart from domestic construction, part of the demand for raw materials has been to drive the production of goods for export to western countries.

Data on Friday showed Chinese exports leapt 32.3 per cent year on year in April. But even when compared with April 2019, before the pandemic, the rise was about 16 per cent on an annualised basis, Morgan Stanley estimated.

Competition between producers in China meant this did not necessarily imply inflation for consumers overseas. Instead, China’s recent PPI jump hinted at just one of the global effects of western responses to the pandemic.

“If you try to figure out what is the end demand here for this PPI recovery, it is global stimulus,” said Xing. “External demand led to China’s export recovery, [and] now it’s far beyond its potential growth”.



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Analysis

Covid batters India’s aspiring middle classes

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When Ram Prakash died after a feverish and breathless week, his wife and 16-year-old daughter’s heartbreak was compounded by fear that the modest middle-class safety net he had knitted together might be ripped apart.

The 53-year-old, a tax adviser to local businesses, was one of the millions who had joined India’s fast-growing middle class in recent decades. Their rising incomes, better education and consumption powered one of the great global economic success stories.

But the calamitous second wave that claimed the life of Ram, the family’s breadwinner, has shattered the Prakashes’ hopes for the future. “Our life was going good but now it’s all over,” said Uma, his widow.

Economists warned that the latest outbreak could have long-term ramifications for middle-class Indians, whose rising consumption was expected to be the country’s growth engine for many years.

“India, at the end of the day, is a consumption story,” said Tanvee Gupta Jain, UBS chief India economist. “If you never recovered from the 2020 wave and then you go into the 2021 wave, then it’s a concern.”

India reported more than 320,000 Covid-19 infections and 3,800 deaths on Monday. Experts maintain that both figures are vastly undercounted.

The disease has heaped suffering on Indians irrespective of background. Yet this time, it has also hit hard an aspirational middle class whose newfound privilege previously helped shield them.

A lack of oxygen has been blamed for thousands of deaths © Sanjeev Verma/Hindustan Times via Getty

Public-health experts pointed to signs that after widespread infection among the urban poor last year, sectors of society including the comparatively affluent were more vulnerable this time round. This was compounded by the near-collapse of private health services on which they relied.

“You’re affluent but you can’t get a hospital bed. You’re affluent but you can’t get oxygen,” said Saurabh Mukherjea, founder of Marcellus Investment Managers. “That’s deeply disorientating.”

India’s middle class was already severely weakened by the recession that followed last year’s lockdown, even if they were better protected from the virus.

The Pew Research Center found that 32m people fell out of India’s middle class — defined as those earning between $10 and $20 a day — in 2020. That represented more than half of those added to the category since 2011.

Bar chart of Estimated change in number of people in each income tier due to the global recession (m) showing India’s poor grew while middle class shrank in 2020

India’s economy was expected to roar back before the second wave struck. For middle-class Indians on the brink, such as the Prakash family, this second shock may prove too much.

Ram, the tax consultant, had moved his family to a one-bedroom house in a humble New Delhi neighbourhood, bought a car and sent his daughter to a low-cost private school, hoping she could become a chartered accountant.

“He gave us so much when he was alive,” said Vasundhara, his daughter. “I only hope I will be able to continue my studies.”

Experts have debated what drove the high caseloads among middle class and rich Indians during the second wave.

Anup Malani, a professor at the University of Chicago, suggested that those populations proved more susceptible, especially as new variants spread.

In Mumbai, for example, studies last year found that about 50 per cent of slum residents had Covid-19 antibodies, compared with less than 20 per cent in more affluent surrounding neighbourhoods.

This is believed to have left the middle and upper classes more vulnerable, particularly to severe disease, researchers said. Doctors have reported similar trends elsewhere in India.

“The first wave largely infected poorer populations,” Malani and two co-authors wrote this month. The second wave “is disproportionately composed of individuals who are from non-slums”.

Bar chart of Estimated number of people in each income tier in 2020 before and after the global recession (m) showing The pandemic sets back growth of India’s middle class

Researchers said more data were needed but other susceptible populations could include those outside cities, such as in poor rural areas with shoddy healthcare where the virus was wreaking havoc.

The outbreak was so sudden that it overwhelmed even India’s best hospitals, including private facilities in cities such as Delhi or Bangalore.

Fewer than 1 per cent of Delhi’s 5,800 Covid-19 ICU beds are available, while crippling shortages of oxygen have contributed to countless deaths.

After Ram Prakash’s oxygen levels dropped, his family spent two frantic days ferrying him to six separate hospitals — both private and public — in a desperate bid to find treatment.

In the end, they brought him home. Ram died on April 27.

Uma and Vasundhara fear economic ruin. They have a shortfall of Rs30,000 ($408) to meet immediate expenses, including school fees and the mortgage on a neighbouring unit that Ram bought as an office.

“Right now our worry is just to survive, to get food and meet our daily expenses. But there won’t be enough,” said Vasundhara.

They plan to sell their car and Uma, a former Sanskrit teacher, wants to find work again. But they worry hopes of a better life are over.

“We had never imagined this could happen to us,” Vasundhara said. “We just can’t get our head around this.”



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Analysis

Reeves promotion underlines Labour shift to centre ground under Starmer

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When Sir Keir Starmer promoted Rachel Reeves to shadow chancellor late on Sunday night it emphasised his determination to defy the left of the Labour party and move in a more “centrist” direction after a series of disappointing local election results.

Reeves is unpopular with many “Corbynista” members — supporters of the party’s former hard left leader Jeremy Corbyn — because of comments she made in 2013 when she was shadow work and pensions secretary. That controversial moment saw her promise to be “tougher” than the ruling Tories on benefit costs.

Her role as vice-chair of Labour Friends of Israel is also contentious among many Corbyn supporters who oppose the actions of the Israeli government. And while other MPs agreed to serve on the Labour front bench under the Corbyn leadership in 2015, Reeves was one of a handful who refused to do so.

Starmer first considered making Reeves shadow chancellor when he became leader in April last year — only to drop the idea, fearing that it would prompt a backlash from left-wingers.

Yet it would be wrong to characterise the 42-year-old MP for Leeds West — a former junior chess champion — as a “Blairite” or “rightwinger” even in Labour terms.

Sir Keir Starmer promoted Rachel Reeves in a reshuffle of his front bench on Sunday © Stefan Rosseau/PA

During the last parliament she chaired the business select committee, a position she used to interrogate corporate failure by Carillion, the collapsed contractor. She meanwhile struck out as a writer, penning two books about female MPs.

In 2018, she used a speech in London’s East End to call for a new series of wealth taxes to raise more than £20bn a year — shifting the fiscal system from income to property. The then shadow chancellor John McDonnell resisted the idea, amid concerns over a backlash from middle class Labour voters.

Indeed, there was a moment in 2019 when some of Corbyn’s aides — including policy adviser Andrew Fisher — advocated bringing Reeves into the shadow cabinet.

Sharper edge but no shift in strategy

In the short-term her promotion to one of the most important roles in the shadow cabinet may give a sharper edge to Labour’s top team but not necessarily bring a shift in strategy.

That is because the party creates its election manifestos through a drawn-out process called the “national policy forum” over several years.

Starmer has eschewed creating new policies on the hoof in favour of a focus on rebranding, telling voters Labour is “under new management” after the electorally disastrous Corbyn, who lost two general elections in 2017 and 2019 — the latter by the biggest margin in nearly a century.

The opposition leader’s popularity rose last year as he forensically attacked the ruling Conservative government over pandemic failures. But with the Tories enjoying a bounce from the vaccine rollout, he was criticised during the local elections for a lack of a positive policy vision. Some Labour insiders blame that for the setback at the polls — in which the party lost 326 council seats and was defeated in the Hartlepool by-election.

On Monday, many colleagues were positive about the promotion of Reeves after a year in which she has been one of the most high-profile figures on the front bench.

As shadow Cabinet Office minister, she took the fight to the Conservative government over its spending on personal protective equipment — expressing anger at the many contracts given to Tory contacts. She has also kept up the pressure on the Conservatives over the Greensill scandal.

Colleagues said as shadow chancellor she will emphasise the need for Labour to show it can be trusted to run the economy — an area of traditional political weakness for the party.

‘Competent and sensible on the economy’

That would continue the theme set by Dodds, who said in a speech in January — using the word “responsible” 23 times — that Labour would offer “responsible economic, fiscal and monetary policy”. The Starmer team has already distanced itself entirely from Corbyn’s 2019 election manifesto, with £83bn of annual public spending increases.

In an interview with the Financial Times last year Reeves struck a similar tone, saying the party needed to be “competent and sensible” on economic matters.

Yet she is not expected to return the party to the “austerity lite” approach of Ed Balls, shadow chancellor under former leader Ed Miliband, who promised not to increase borrowing even for capital expenditure.

One ally said Reeves could be expected to draw up a “transformative” programme — involving changes to the tax system and the decarbonisation of the economy — while also reassuring the public that Labour would spend people’s taxes wisely.

The decision to shift Angela Rayner, deputy leader, from her job as party chair plunged the reshuffle into chaos at the weekend © Jacob King/PA

Starmer’s reshuffle at the weekend was thrown into chaos after allies of Angela Rayner, the deputy leader, leaked she was being demoted from her job as party chair after the local election failures. The ensuing political storm overshadowed some more positive electoral results on Saturday in cities such as Manchester, London and Bristol.

Rayner turned down the job of shadow health secretary and instead took Reeves’s old job as shadow Cabinet Office minister as well as “shadow secretary of state for the future of work”.

Deep discontent

On Monday, after a two-hour shadow cabinet meeting, Starmer was seen buying a coffee at Westminster with Rayner in an attempt to put on a public show of unity after a weekend of acrimony.

Starmer’s bungled reshuffle has sown deep discontent among senior Labour MPs. “You can’t understand how angry people are,” said one. Allies of Rayner said she felt a “deep sense of betrayal”.

The reshuffle saw Dodds move to party chair and Alan Campbell promoted to chief whip with the departure of 70-year-old Nick Brown.

Lisa Nandy, shadow foreign secretary and MP for Wigan, told colleagues she was convinced Starmer was planning to sack her and it was only a rearguard action by her supporters that persuaded him to drop the plan.

Nandy warned Starmer that she would quit the Labour front bench, rather than be demoted to another role.

Referring to the plans to demote first Rayner and then Nandy, one Labour MP said: “What genius would think it a good idea to demote not one but two women representing northern seats?”

 



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