Government Record on Education, Employment and Welfare
(Limited Text - Ministerial Extracts only)
Read Full debate
Lord Frost (Non-Afl)
My Lords, I congratulate the noble Baroness, Lady Evans, for securing this debate and for her excellent opening speech. Britain’s economic problems did not begin with this Government. That would be an unjust accusation. I am afraid Governments of all parties have laboured diligently over many years to produce today’s situation.
The fundamentals can be summarised in one simple set of figures. Since 2008, productivity growth has consistently fallen back. The ONS tells us that, before the financial crisis, multi-factor productivity grew at nearly 2% annually. It is now growing at about 0.5% or less and has recently stagnated. In 2025, per capita GDP was lower than in 2022.
No party in government over this period can regard this record with satisfaction. All three—that includes the Liberal Democrats, of course—to varying degrees regulated, taxed, subsidised and drove energy costs up and industry out. Then came Covid, Ukraine and inflation; each inflicted genuine damage but also provided Whitehall with that most renewable of resources: a convenient explanation to hide bad policy.
Now, there is perhaps a glimmer of something better. Maybe artificial intelligence will finally raise output per worker. Indeed, the ONS’s experimental measure on productivity suggests that it has risen by 4.2% since 2019, rather than 2.3% under the old measure. So, perhaps something is going on.
But at precisely this delicate moment, the Government have chosen to test whether a green shoot can survive being repeatedly struck with a Treasury shovel. The tax burden is forecast to rise to 38.5% by the end of this decade—the highest since records began. The Government are planning to spend nearly half of all the money in the country. The reforms to education brought in by the noble Lord, Lord Gove, have been reversed, and we know from Wales and Scotland what the result of that is likely to be. As we have heard, the Employment Rights Act has undone one of this country’s few remaining strengths—our flexible labour market. Unemployment is at its highest level for a decade. Youth unemployment is even worse.
Net zero is compounding the problem, zeroing one industry after another. Denby Pottery, in my own home region of Derbyshire, survived the Napoleonic Wars, two World Wars, the early 1980s recession and the pandemic but could not survive Ed Miliband.
Of the terrors yet in prospect under Andy Burnham, we are currently left to guess, since he refuses to face any parliamentary scrutiny until September. We know, though, because he told that pillar of our constitution, Gary Lineker, a day or two ago, that he is going to
“ask for a little more”.
It may be a wealth tax or maybe a land value tax. Certainly, we will get municipal corporatism on a grand scale.
I am at a loss to know what question to ask the Minister today. After all, she comes to your Lordships’ Chamber without, I suspect, knowing what is going to come next, so that she can tell us anything about it. Yet she has to defend, as a programme for growth, an economic record of higher taxes, higher spending, riskier and more expensive jobs, a return to union-dominated schools and among the most expensive energy in the OECD.
We know that Ministers want prosperity—of course they do—but the problem is they do not know how to get it. Maybe they have got lucky. After nearly 20 years of stagnation, maybe they just might have been handed the first genuine prospect of a positive productivity shock in a generation. But the problem is that their instinct, faced with something that might at last grow of its own accord, is to reach for weedkiller and try to convince us that it is really fertiliser—a persuasive effort that I suggest is most accurately described as a different kind of fertiliser altogether.
Lord Sharpe of Epsom (Con)
My Lords, I am grateful to my noble friend Lady Evans for securing this debate and it is a pleasure to follow the noble Lord, Lord Frost. The Government’s stewardship of the economy over the past two years has been little short of catastrophic for our labour market. When the Government took office two years ago, they inherited a labour market that had recovered from the pandemic, although it still bore some of its scars, and what did they do? As my noble friend Lady Evans so powerfully explained, they immediately taxed employers for the act of hiring. Unsurprisingly, as we have heard, unemployment has risen rapidly ever since and now stands at just under 2 million, with over 1 million young people unemployed.
If business had not had enough already, the Government then introduced their business-busting Employment Rights Act, which their own impact assessment forecasts will cost employers at least £5 billion a year, with smaller businesses bearing much of the burden of course, further harming the prospects of the very people the Government claim to champion. Noble Lords opposite usually mischaracterise our arguments against the most damaging aspects of this Act as that we are somehow against workers’ rights. This is absolutely not the case. The simple fact is that the most fundamental right is to have access to a job in the first place. The argument we advance is that extending rights to the moment a worker enters the building for the first time, removing the flexibility that suited both employer and worker, and making employment unaffordable leads inexorably to the fact that too many aspirant workers do not even get a day one, never mind the rights that attach.
What has been the Government’s response to the unemployment that they have created? It is a youth jobs guarantee, under which they now propose to pay employers to hire the young people those employers can no longer afford to take on because the Government put up employers’ national insurance in the first place. You genuinely could not make it up. My noble friend Lady Evans rightly called it surreal; I think she was too polite.
Throughout this period, we have had nothing but confirmation of what Pat McFadden admitted in private: that in the Labour Party, every conversation is about who we can tax in order to pay benefits to others. That is precisely what has happened, with the benefits bill rising and rising, and disincentives to work multiplying with it. It became so serious that the Chancellor was forced to concede before the Treasury Committee in March that her jobs tax is responsible for the rise in youth unemployment—perhaps timed with an eye to saving her own job, which looks like another fail.
There was a rare moment of humility last week. The other place passed a Motion regretting the combination of the rise in employers’ national insurance, the impact of the Employment Rights Act 2025 and the regulations that make it harder for young people to get their first job. We now look to Mr Burnham to reverse the failed policies of the past two years, although nothing in his conduct so far gives us confidence that he will. Perhaps the Minister can tell us exactly what Mr Burnham thinks of the Government’s employment-related policies so far.
In the previous century, not a single Labour Government left office with unemployment lower than when they arrived. Every other Labour Government since, including the last two, have left with it higher. Unless the Government radically change course under their new Prime Minister, that unbroken and unenviable record looks set to continue.
The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)
My Lords, I thank the House for some really interesting and wide-ranging contributions today, and the noble Baroness, Lady Evans, for bringing this debate to the House this afternoon. If it is a Thursday afternoon, it must be a debate on education, employment and young people.
As I say, it has been a broad debate, but as a Minister who works across the Department for Education and the Department for Work and Pensions, I know all too well just how interlinked the areas we have covered today often are. Whichever system we are talking about—education, employment or welfare—none operates in a vacuum, and they all have an important role to play in extending opportunity so that everybody can fulfil their potential. This is key to raising living standards and boosting economic growth. Sadly, though, as my noble friends Lord Rooker and Lady Gill identified very robustly, we inherited a broken system that too often did the opposite and held people back.
If we are examining the record of this Government so far, it is important to consider the starting point when we took office. Education was not working for all children, school attendance was at an all-time low and local authorities were being bankrupted by the rising costs of special educational needs and children’s social care. The number of children growing up in poverty had increased by 700,000 since 2010 to 4 million. Nearly 1.5 million adults were unemployed, and between 2021 and 2024 the number of young people not in employment, education or training increased by 250,000. We had a welfare system that all too readily wrote people off and left them without the support they needed. This was an unacceptable waste of human potential. That is why this Government are putting opportunity at the heart of our education, employment support and welfare systems. We are doing this by giving children the best start in life and by lifting 500,000 children out of poverty—my noble friend Lady Lister is absolutely right in identifying the link between poverty and education and opportunity.
We are increasing the number of people, particularly young people, in education, employment and training, and we are shifting from a welfare state to a working state that provides not only a safety net but a platform upon which people can change their lives for the better. The noble Baronesses, Lady Coffey, Lady Stedman-Scott and Lady Spielman, bemoan the fact that the welfare system incentivises people to stay out of work. They are right that that is a bad design. It was of course the design that we inherited from their Government.
My noble friend Lady Nargund was absolutely right to describe education as “where opportunity begins”. That is why this Government stand for excellence everywhere, across education and care, to break the link between background and success. We are fixing the foundations of our education and care systems by ensuring that attendance is going back up; hiring more teachers, social workers and nursery staff; rebuilding more schools and opening free breakfast clubs; stabilising our universities and increasing training opportunities. On universities, I share the right reverend Prelate the Bishop of Newcastle’s view of the significance and importance of humanities for understanding our world and being able to tell the stories and build the analysis of where we need to go. Of course, it is not the role of government to tell universities what courses to offer, but it is our task to deliver financial stability to ensure proper planning and provision of all courses, including humanities courses. That is what we are doing, through our increase in maximum tuition fees and through our focus, in the Office for Students, on financial stability.
Despite this progress, we must go further and faster to ensure that everybody has the opportunity to succeed. We must start early, which is why we are investing £1.5 billion over the next three years, through our best start in life strategy, to expand and strengthen family services and make early education and childcare more accessible, more affordable and of higher quality. It is why we will improve the quality of early education and childcare. It is why we are making sure that every child is achieving and thriving, through the work of our RISE teams that are driving school improvement. It is why we are recruiting more teachers in secondary and special schools. It is our ambition to halve the disadvantage gap for children with special educational needs and disabilities.
The noble Lord, Lord Mohammed, raises the issue of primary schools, where we see a real challenge from the falling numbers of primary pupils. Even this week, we have talked about imaginative ways of enabling school buildings, for example, to be used to develop community and other facilities, and we will continue to consider the challenges for schools as that demography changes.
The noble Baroness, Lady Bottomley, and the noble Lord, Lord Addington, rightly raise the issue of teachers. High-quality teaching has the biggest positive impact on a child’s outcome in schools, which is why we pledged to recruit 6,500 additional teachers across this Parliament in secondary and special schools and FE. We have already achieved over 70% of our target, including 3,008 more teachers in secondary and special schools since this Government came to office. We are continuing to offer bursaries worth £29,000 tax free to encourage more talented people to train to teach key STEM subjects. Both noble Lords suggested, and I agree with them, that retaining high-quality teachers is key to our plans. I am sure they will welcome the fact that we are making strong progress, with leaver rates dropping to 8.5%, one of the lowest ever on record. Of course, part of the reason for that is because we have been willing to find the resources to pay teachers properly, with a 10% pay increase over the last two years and acceptance of the STRB’s recommendations for the next two years. We have set out plans to invest in a new teacher retention programme from autumn 2026.
To ensure that everybody who can benefit from our world-class higher education system is able to, we are reintroducing maintenance grants for courses for the academic year 2028-29. This will ensure that anyone with the ability can access university. We are prioritising skills and further education—as the noble Lord, Lord Addington, demanded that we should, and as we set out in our skills White Paper—including through record investment in post-16 education and skills, with more than £18 billion a year in funding and an additional £800 million for 16 to 19 education in 2026-27.
We are expanding high-quality technical and vocational pathways through new V-levels and more T-levels and by establishing 29 technical excellence colleges. While I am loath to disagree with the noble Lord, Lord Baker, given the nice things he said about me, it was the current Prime Minister who made a strong speech about the need to reinvigorate non-academic routes and to develop a prestigious FE sector, which we have been delivering on. We will also give, and have already given, local leaders more powers and funding to shape provision to meet local skills needs.
To boost employment, we are making sure not just that people get skills but that they get the skills that employers and our economy need. That focus is precisely why I am now working across both departments, with DWP now responsible for adult skills. We are able to link that skills capacity and understanding more closely to the employment support that we are offering through the new jobs and careers service. We set up Skills England to assess skills needs to inform national planning. We have made the skills system more flexible, for example with shorter, more targeted training options to meet specific and fast-changing needs in the form of new apprenticeship units, developing the flexibility in the growth and skills levy to meet the needs of employers. We are investing in skills packages for key sectors in construction, defence, clean energy and advanced manufacturing. We have introduced fast-track approval of new apprenticeship standards to get rapid skills support in place for major projects in England.
All this is about making sure that people are able to seize the opportunities of the future. While some noble Lords may paint a rather pessimistic picture of the labour market, others, such as my noble friend Lady O’Grady, are right to be more optimistic. There are 400,000 more people in employment than last year; we have the third-highest employment rate in the G7; and since this Government took over, real wages have risen more than in the first 10 years of the previous Government. These figures show not a failing Government but one who are creating opportunity and security for their people.
However, we of course know that there is more to do. With over a million young people not earning or learning, and nearly 3 million people out of work due to long-term sickness, we are determined not only to help people into work but to ensure that it is good work. My noble friend Lord Knight is right to say that a determined focus on employment can make a difference, and that is why this Government are determined not to give up on a generation of young people.
That is why we are investing £3.5 billion in employment support for disabled people and those with health conditions, through our pathways to work offer, and overhauling job centres to be places where you sign up for work, not benefits. When it comes to young people who are not earning or learning, as has been emphasised by several noble Lords during the debate, we are creating half a million opportunities for young people to earn or learn, backed by £2.5 billion of additional investment through our youth guarantee. These include hiring bonuses for businesses, more work experience and workplace training, and subsidised jobs for young people who are out of work for 18 months; and we are rebuilding the apprenticeships ladder for young people, given the 40% fall in young people’s apprenticeships starts that we saw over the last decade.
Many noble Lords opposite raised the issue of national insurance increases and the minimum wage. I recognise why, and it is a common refrain, but they do so at the same time as praising the Milburn report that this Government commissioned. As I have pointed out previously, it was Alan Milburn himself who identified the fact that it is neither national insurance nor the national minimum wage which is at the heart of—or even really key to—the number of young people who are out of work. Furthermore, the Resolution Foundation Lost in Transition report found that reverting national insurance levels to the 2024 threshold for under-25s would raise the job total by 7,000 but cost the Exchequer £1 billion. Scrapping NICs entirely for under-25s would create only 38,000 jobs and cost £5.1 billion. Noble Lords opposite who want to talk, and always do, about national insurance contributions need to answer the question of what they would cut to revert this Government’s national insurance contribution changes. Presumably it would be the investment in our health service, which is helping to cut the waiting lists that keep people out of work and create additional burdens for employers. The Resolution Foundation also said that, through our £2.5 billion funding of the youth guarantee, our hiring incentives and jobs guarantee will unlock up to 200,000 employment opportunities.
I believe that we are focusing on the right place. Of course, we also need to prevent people becoming out of work and not learning in the first place. That is why we are also focused on prevention, including better support for young people with SEND and those with mental health challenges, as we roll out support across schools. My noble friend Lord Knight is right that schools need to have greater responsibility for the destinations of their students and the transition of young people at 16, so that they do not fall out of the system.
The noble Lord, Lord Baker, is right about the contribution made by technical education, and I have already outlined the changes the Government are making. The noble Lord, Lord Willetts, is right that we need to use data effectively to be able to identify at an early stage those who are at risk of becoming NEET, which is why we have provided for local authorities the “risk of NEET” indicator tools. These enable them, at the earliest stages of secondary school, to identify the young people who are at risk and take action to prevent them falling through the gaps.
All this is designed to get more people into work, and we are ensuring that it is good work—we make no apology for that—by boosting the national minimum wage, partnering with employers through the Keep Britain Working review to build healthier and more inclusive workplaces, and bolstering workers’ rights with the Employment Rights Act. I wholeheartedly agree with my noble friend Lady O’Grady’s argument for productive, not just cheap, labour.
Much of what I have already set out is welfare reform in action. It is how we are putting work, skills and opportunity at the heart of the welfare state. Welfare spending as a percentage of GDP continues to be broadly stable, as it has been for many years, and we have slowed the increase in the number of people coming on to health and disability benefits. This is where spending is increasing the most.
Far from circling the wagons around the status quo, we are determined to rewire the social security system itself, as my noble friend Lord John argued for, to promote and support work. This includes through the changes we have made to universal credit to reduce disincentives to work; by legislating for a right to try, so that disabled people can take steps into work without fear of automatic reassessment; and increasing the proportion of face-to-face assessments, which collapsed under the previous Government.
In the medium term, the Timms review of personal independence payment, to ensure it is fair and fit for the future, and the Milburn review into young people and work, have both already produced their interim reports ahead of publishing full reports later this year. This will provide the framework for further action in both these crucial areas.
From childhood through to adulthood, across the education, employment and welfare systems, we are ensuring that everybody gets the chance to succeed, equipping people with the qualifications and skills they need, creating the opportunities they need and changing the welfare system, so that instead of trapping people, it helps people to change their lives. Rather than picking up the costs of failure, we are investing in success. That is better for people’s lives and better for the public finances, and it is the change this Labour Government are delivering.