Employment

Lord Freud Excerpts

Thursday 20th March 2014 Lords Chamber

Moved by

[Lord Freud]

That this House takes note of the level of employment in the United Kingdom.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, it is appropriate that we should be debating the labour market today after yesterday’s figures showing record numbers of people in work and unemployment down again.

I believe that we will benefit from having a frank and open discussion. We have seen exceptional progress in recent months, but we know there is more to do and we must not be complacent. Indeed, the performance of the labour market in the recent recession can be seen as something of a puzzle. Previous recessions saw dramatic falls in employment. Yet despite this being, on some estimates, a deeper recession than in the 1930s, we did not see the number of people in work fall anything like as much as the experts predicted. GDP fell by more than 7% but the number of people in work fell by only one-third of that. I have yet to see a full and convincing explanation for why employment did not see the fall expected. There probably is no single reason. Active labour market policies and the flexibility of our modern labour market, as well as the bitter experience of those who went through past recessions, may all have played a part.

The resilience of the labour market in the recession has been matched by robust improvement now that we are getting the economy back on track. There are 1.3 million more people in work since the election, and more than 30 million people are working—more than ever before. In fact, if you exclude full-time students, the employment rate is now back to the peak that we saw before the last recession, and we have had further good news, with the female employment rate now at an all-time high.

I am often struck by what appears to be a widening gap between the impression that people have about the labour market and the reality of these figures. Many predicted that the fall in public sector jobs would not be matched by an increase in the private sector. They were right, but not in the way they expected. The rise in private sector jobs has not just matched the fall in the public sector but has far exceeded it—up nearly 1.7 million, with total employment up by 1.3 million as a result. Recently, there were reports that most of the growth in private sector jobs since 2010 has been in London. When I asked my officials whether that was true, I received a surprising response. Using already published and easily accessible data from the Office for National Statistics, the true position is almost the complete opposite. Nearly 80% of the rise in private sector employment has been outside London.

We are regularly challenged on the rise in long-term unemployment, particularly among young people. Long-term unemployment is a scourge, and through the Work Programme and the Youth Contract we have put in place just about the most comprehensive response that has ever been seen. Yet what those who criticise our record fail to mention is that the previous Government hid long-term unemployment by artificially removing people from the claimant count. They shifted people about to become long-term unemployed on to training allowances or into short-term job schemes, taking them off benefit in the process. We have put a stop to those methods, so now the figures are a true count of the number of long-term claimants. What really worries me is that the Opposition’s proposed jobs guarantee would result in the exact same problem, with long-term unemployment misrepresented as people are shifted off the claimant count.

People are rightly concerned about the effect the recession has had on young people. However, if we are to tackle youth unemployment, we need to have an understanding of where the real problem lies. When people talk about a “lost generation” of 1 million young unemployed, they are including those in full-time education, who make up nearly a third of the total. In fact, one young person in every 10 has left full-time education and is unemployed, and this proportion is the same for all under-25s and for those from an ethnic minority. This means that youth unemployment remains significantly lower than after past recessions: 9% of young people have left full-time study and are looking for work compared with 12% in 1993 and 14% in 1984. When it comes to NEETs—young people not in any form of education or work—we are not where we want to be, with a higher NEET rate than in many other EU countries. This is mostly due to lower participation in education in the UK. Although the NEET figures are now improving, this is something that the Government will continue to address. The other side of the picture shows that, among 20 to 24 year-olds who have left education, our employment rate outperforms the US and the EU average, and that, of the large EU economies, we are second only to Germany.

I should like to move on to some of policy responses we are making to the main labour market challenges that this country has been facing. It is unheard of for inactivity to fall in a recession, yet that is what has happened. Excluding students, inactivity is currently the lowest on record. The number of people claiming inactivity benefits has fallen by nearly 350,000 since 2010. People are better off in work and we did not want to repeat past mistakes by allowing people to drift into inactivity. Maintaining an active labour market policy ensures that people do not become detached from the world of work and are well placed to benefit as the economy picks up. We are changing the culture. People who can work are expected to work and, with our support, employment is rising. But challenges remain. Although falling, there is still a working age inactivity rate of more than 22%.

We have been successful in getting lone parents into work and have a record lone-parent employment rate. Before November 2008, lone parents could claim income support until their youngest child reached 16 years of age. This child age threshold has been progressively reduced and now stands at age five, and we are introducing additional measures best to support parents to prepare for work when their child is old enough. As noble Lords will be aware, the Prime Minister and Deputy Prime Minister announced further measures to help hard-working families. These included bringing forward a childcare package that will provide tax-free childcare for almost 2 million families. This will help parents go out to work and provide more security for their families.

Our reforms to the benefit system are a key part of the Government’s long-term economic plan to build a stronger economy and secure a better future. Much of our effort has been focused on improving the support available for people who are on sickness benefit but able to work to enter or rejoin the labour market. We are not just writing off people on long-term sickness benefits, as happened in the past. We believe it is only fair that we look at whether people can do some kind of work with the right support—support offered by Jobcentre Plus, specialist provision or through the Work Programme. We need to ensure that the longer-term unemployed do not drift away from the labour market. That is what happened in past recessions, with worrying consequences. It is because we are not going to allow that to happen again that we are investing in the Work Programme. That is expected to provide personalised support to more than 2 million claimants over the life of the contract.

The Work Programme is the largest employment support programme that Britain has ever seen, with far more financial risks sitting with the provider. Payment is by results, with higher payments for getting those with the biggest barriers to employment into sustained work. The Work Programme is better designed than previous employment programmes and is supporting more people into sustained work. Industry figures show that the Work Programme has already helped nearly 500,000 people into work and, of these, more than 250,000 have escaped long-term unemployment and got into lasting jobs. While all contracts are on track to hit their contractual JSA targets, there is significant variation in performance. The worst performing providers are being tightly managed to ensure that they up their game. One contract has been terminated. For the first time, a government employment programme is harnessing the disciplines of the marketplace so that only those providers who succeed are retained to help claimants into work.

Of course, young people still face many challenges, particularly in making that important transition from school to work. Youth unemployment is falling but we need to continue working to bring it down in the aftermath of the recession. We need to ensure that young people have the experience and skills that they need to succeed in the labour market. The Government are raising the participation age so that all young people are now required to continue in education and training beyond the age of 16. We are also implementing wide-ranging policies to improve standards in schools, reform post-16 academic and vocational education and ensure that apprenticeships continue to meet the needs of a modern labour market. We have a wide range of programmes, including those funded by the European Social Fund, and the Youth Contract, to support young people who are NEET to return to full-time education, training or employment.

In a recent report commissioned by Tesco, 60% to 70% of young people said that they had concerns about lack of experience. Many said that they wanted more help from business and struggled with CV writing. That is why it is so important that, through Jobcentre Plus, young unemployed people are given the opportunity to be referred to a careers interview with the National Careers Service. They can also work with local employers who offer work experience and pre-employment training to give them the chance to build up their CVs and job skills.

Apprenticeships play a vital role for many young people, helping them at the outset of their working lives to progress their careers, and the Government offer a £1,500 grant to smaller businesses to take on their first apprentices. Yesterday, the Chancellor announced an extension of this scheme. The Government will now be making more than 100,000 additional incentive payments for employers to take on young apprentices aged 16 to 24, providing a major boost to their job prospects. Traineeships are a new programme to help young people aged 16 to 23 to develop the skills and vital experience that they need to secure apprenticeships and other sustainable jobs.

This Government continue to support economic growth across the regions and help to create the conditions for businesses to feel more confident in hiring more people. Private sector employment has been rising across the UK, and we need to ensure that this continues. To satisfy the recruitment needs of employers, Jobcentre Plus and Work Programme providers use their local labour market knowledge and expertise to improve claimants’ skills and readiness for work. Local enterprise partnerships, in England, provide the vision, knowledge and strategic leadership needed to drive private sector growth and job creation in their areas. Through our strong local offer, Jobcentre Plus district managers work with local enterprise partnerships to ensure that their strategic economic plans make the important link between growth, unemployment and social exclusion. In Humber, Jobcentre Plus and the local enterprise partnership have mapped local and national employment support services and identified where they need locally to plug the gaps.

Developing City Deals has provided a blueprint for working together and co-designing local initiatives. Cities are being given greater freedom to invest in growth and enterprise and being given greater powers, including the power to boost skills and jobs. In Leeds, DWP supports the city region to achieve its aim of being a NEET-free city. Its plan is to enable small businesses to provide apprenticeships when they would not normally have the capacity to do so. The aim is to deliver 680 apprenticeships over three years.

My 2007 independent report on the future of welfare, Reducing Dependency, Increasing Opportunity: Options for the Future of Welfare to Work, came on the back of a long-term aspiration to secure an employment rate of 80%. On the basis that the ONS now defines it—looking at those aged between 16 and 64 rather than between 16 and 59 for women—today this would be equivalent to an employment rate of around 78%. Clearly, a lot has happened since then, not least the deepest recession in nearly a century. Our first aim must be to regain the ground lost in the recession, which would mean a rate of 73% against the current level of 72.3%. It is interesting to speculate that, because most students are outside the labour market, rising participation in education makes it harder to achieve higher levels of employment. But, of course, it is no bad thing to see more young people in education. So, adjusted for that higher participation in education, that 80% employment rate probably translates today into a level some three percentage points higher than the 72.3% that we are currently looking at.

[Lord Giddens (Lab)]

My Lords—

[Lord Bates (Con)]

My Lords, I understand that, by convention, the mover of the Motion is given the opportunity to be uninterrupted and then can respond to questions in the wind-up.

[Lord Freud]

My Lords, that is three percentage points higher than the figure of 72.3% that was reported yesterday. That gives a feeling of the factors that we have been looking at over the past seven or eight years. As I said, that extremely challenging outcome implies that any employment strategy would need to target all of the inactive groups. Noble Lords will be pleased to see that, since 2007, the number of people on inactivity benefits has fallen by around half a million. The economy is now recovering and creating new jobs, making this a once-in-a-generation opportunity to help those who have been trapped on welfare to return to work. It is in that light that I would ask noble Lords to view the Government’s welfare reform ambitions. I beg to move.

--- Later in debate ---

[Lord Freud]

My Lords, I have really enjoyed the debate. I thank noble Lords for the energy and effort they have put into some of these complicated issues. I particularly enjoyed the noble Baroness, Lady Sherlock, stealing the “Get Britain Working” slogan that we used in the last election, but that is a compliment. I enjoyed the first two sentences from the noble Baroness, Lady Donaghy, but the next sentence, about where my personal support lay in the Chamber, was incredibly dangerous so I did not like that. The rest of her speech I did not like at all.

To start dealing with the issues, at the core of what the noble Baroness, Lady Donaghy, and the noble Lord, Lord Haskel, said—the real attack on this—is, “Forget the quantity, feel the quality”. However, according to the figures, in the past three years, three-quarters of a million of the extra employment has come from managerial, professional and associate professional occupations. That is 70% of the rise in overall employment. The noble Lord, Lord Shipley, made a point about the importance of having quality jobs that come from the efforts on exports, having the most competitive export finance in the country and reducing the costs of energy. Those are the fundamentals and they create real business and quality jobs.

The noble Lord, Lord Monks, spoke about different parts of the country and the north-west in particular. Clearly, the Budget announcements work in that respect: the business energy package, for instance, helps firms in the north-west, including 27 CHP plants, while the SME package helps 481,000 SMEs in the north-west. The noble Lord, Lord Haskel, cavilled at the numbers going up, pointing out that the population is also going up, but the underlying employment rate is moving up to 72.3%. The most interesting thing is that, if the people in full-time education are taken out of the figures, we are now back in rate terms to the peak point that we reached before the recession. According to the projections of the OBR, we are now moving into new ground, at least on the quantity side.

I tried to go for the fundamentals in my speech and I think noble Lords might find it interesting to read it; it can be hard to take something in when you are listening to it. I was trying to say what was really happening. Productivity is really very interesting and I do not think we understand exactly what has been happening in our labour market in the past five years. We had a crash, the like of which we had not had in a very long time, so there are peculiar things happening. One of the things that was happening with productivity was that, clearly because of the impact on the financial sector, there were some odd moves. There are now forecasts from the OBR that productivity will pick up. Clearly, one of things that will happen as a direct result of that is that wages and take-home pay will start to move in the right direction.

The noble Lord, Lord Giddens, made a lot of interesting points, but one simple one was on income inequality. There is a figure, but the figure is the lowest now—as the Chancellor said—for 28 years. More fascinating were his technological issues and what we need to do about those if they happen. Clearly, as the noble Lord, Lord Bilimoria, said, there have been predictions like this regularly. The noble Lord, Lord Giddens, said that we were now really at a discontinuity, so perhaps it would be different this time. I think that was—in the jargon—such a shocking or disruptive event, however, that it is hard for us to expect the Government to sit down and be able to plan it through. When we see it really start to happen, we will have to work on it. We are getting jobs up, so we have not seen it yet. To respond to him, we have got, in universal credit, something effectively close to a negative income tax. We can actually make the adjustments. On the point made by the noble Lord, Lord Giddens, on the displacement of wealth, the interesting study that came out a few months ago from UBS showed that we were the only major country where the impact of the crash was seen evenly right the way along the income spectrum.

On the gender pay gap, there is a long-term downward trend for full-time employees, falling from 17.4% in 1997 down to 10% and it narrowed in all regions between 1997 and 2013. The noble Lord, Lord Monks, said youth unemployment was too high. On the other hand, it has been falling: the JSA claimant count has now been falling every month for 21 months: it peaked at 480,000 in December 2011 and is now at 295,000, so it is going in the right direction.

Turning to apprenticeships, the point raised was that demand exceeded expectations. That is why the Budget announced funding for more. As for the concerns of the noble Baroness, Lady Donaghy, about their low quality, all first-time apprenticeships will now involve a job and low-quality provision has been ended. My noble friends Lord Shipley and Lord Holmes said that we needed to ensure that youngsters were better equipped with career guidance by schools. Ofsted is also concerned that schools need to meet their duty better and it will give higher priority to guidance in school inspections. The effect of the increase in participation is coming through now and the latest data indicate that the proportion participating is still going up.

The noble Lord, Lord Haskel, simply said that I was wrong on the job guarantee, a point echoed by the noble Baroness, Lady Sherlock. I happen to have a pretty long memory about these schemes from various places. I can, and will, have a go at what is really wrong with that scheme, but I am more concerned about the people who are unemployed. We can help them—we know who they are—but we do not know about the youngsters who just disengage, who are called “inactive”. We all find it very difficult to do anything about that. It is probably where the most serious problem is, because if they are coming into the jobcentre, you have got them and can put them on any scheme you like. If they are not engaging, however, you have a problem.

The guarantee scheme—the one we have got hold of—is fine: it is very like the Future Jobs Fund, which I never liked at the time; instead, we put in work experience. The outcomes of work experience are virtually the same as those of the Future Jobs Fund and the guarantee strategy, but it costs one-20th, and that is how to waste money. Even then, on the sums that I can see, there is not enough money put aside. We cost this policy from Labour at £2.6 billion every year, and very considerably less has been put aside. I am not going to make the joke much about how often the Labour leadership has spent the bank bonus taxes. It spent them on reversing the VAT increase, it spent them on more capital spending, it spent them on reversing child benefit saving and it spent them on reversing tax credit savings. It says that it is not going to do any of that now—it is going to spend them on this. Let us see how long that lasts.

[Lord Haskel]

We can keep spending the bonuses because the bonuses keep going up.

[Lord Freud]

Not by that much—not by a factor of 30, or whatever it is.

The noble Baroness, Lady Turner, spoke of her concerns about childcare. We have also been concerned about childcare. Clearly, not only will she have seen the announcement yesterday about the money for taxpayers but she will have also spotted that within universal credit the rate will now be 85%. I know that she and a lot of other noble Lords will welcome that.

My noble friend Lord Soley mentioned skills. I am sorry, he is not my noble friend: I quite like the noble Lord, Lord Soley, but cannot call him a noble friend. On skills, our priority must be to get English and maths training first. One of the things we are doing with universal credit is ratcheting up the requirement for getting people to the basic level of digital involvement. We are doing a lot of work currently to work out how to help people to get to that basic level. The noble Lord is looking at a slightly higher level—into coding. That would be something separate.

[Lord Soley]

I understand what the Minister is saying. However, many people who are not good at reading, writing and arithmetic actually have quite good keyboard skills, but that does not get picked up. You can see that with kids. My noble friend on the Front Bench leading for the Opposition referred to ex-prisoners. If you look at their digital skills they are actually very good but they are not targeted in a way that enables them to do jobs.

[Lord Freud]

That is a very good point. I looked a couple of years ago at a scheme that went very specifically for youngsters who had failed in the conventional exams-based syllabus. They were given a chance by various companies to work on computers. Actually, some of them did very well and it was a new recruitment line because they were just tuned that way. There is something very real there that one could probably expand.

My noble friend Lord Shipley—he is indeed my noble friend—raised procurement. That is a matter for the Cabinet Office. I will not predict anything for the next year.

On zero hours, people are more likely to be satisfied than dissatisfied with their hours, mainly because the flexibility suits their current circumstances. While there has been an increase in the estimate, that does not mean there has been a recent increase over that period in the number—as the noble Baroness, Lady Sherlock, would accept. The implication is that, even using the very largest estimate, we are talking about only three in every 100 workers. We are looking currently at making sure that the zero-hours system is appropriate and not abused. That is in hand at BIS.

We accept the point on the enforcement of the minimum wage. Employers who fail to pay can now be publicly named and shamed. That is on top of financial penalties, and civil and criminal proceedings for the most serious offenders. The minimum wage will rise by 3% from October this year to £6.50. That will produce a pay increase for more than 1 million people—the largest cash increase in the minimum wage since 2008.

It is clear, as my noble friend Lord Shipley said, that the Government inherited a very damaged economy, with high levels of unemployment and inactivity. We are now getting back on our feet. The better news on the economy is feeding through to an improving picture in the labour market. As a result, the number of people in work has now exceeded 30 million. We have record numbers of men and women in work and the highest female employment rate on record. As I said earlier, excluding students, we are now at an all-time peak in the employment rate and inactivity is the lowest on record. Given the context of what we have been handling in terms of the recession, that is an extraordinary achievement.

Despite the difficult global economy, over 1.3 million people more now have a job than in 2010—600,000 more than at the peak before the last recession. There are 1.7 million more people working in the private sector. Despite contrary perceptions, the rise in employment—both over the year and since the election—has been dominated by full-time permanent jobs. Things are still looking up. According to the OBR, the economy is expected to grow by 2.7% this year and the number of people in work is expected to increase by 3.3% by 2018. That does not take us quite to the figures I was working with when I wrote my report in 2007, but it does not leave them that far short.

Motion agreed.