Employment

Lord Giddens Excerpts

Thursday 20th March 2014 Lords Chamber

[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.

--- Later in debate ---

[Lord Giddens]

My Lords, I, too, congratulate the noble Lord, Lord Freud, on having initiated this debate, and I congratulate him in a non-partisan way on his work on welfare and on other areas, such as mesothelioma, which has touched me and my family personally. I greatly appreciate his efforts in that discussion. He will be pleased to know that I do not propose to emulate my noble friend in trying to rubbish him, but I want to develop an analysis which is quite different from that which has been offered by noble Lords so far.

I shall argue that when considering the level of employment in the UK it would be a great mistake to concentrate only on the incipient economic recovery and the return of demand. As the Minister said, net new jobs are being created, and there is certainly a debate to be had, as my noble friend said, about what kind of jobs they will be, who will hold them, how many are part-time and so forth. However, I shall concentrate on much deeper structural trends which provide a much more sober picture than some of the portrayals being offered so far because some of these trends are utterly dramatic. They are absolutely profound in their medium-term implications. Even in the short term, recovery in the job market could be completely subverted by them, and these changes are accelerating in the here and now.

The changes I have in mind are driven by two convergent sources of technological transformation: computer technology and robotics. It has aptly been said that we are entering a second machine age, one that it is totally different from anything we have seen before. One of the most important features of this technological innovation is that in some areas these innovations—and it is amazing when you look at the details—are exponential, not linear, and they are resonant with implications for the future.

The two fields—computer technology and robotics—are tied together by digitalisation. As digital areas, they are truly global, not national in any sense. Only some 15 years ago, it was confidently said by experts in the field that there was a range of tasks that computers could never do, essentially because computers cannot be creative. These tasks included driving a car and translating a natural language. With the advent of supercomputers, all this has changed. Most noble Lords will know that the Google driverless car has gone for something like 400,000 miles without accidents. The only two accidents it had were when two human drivers crashed into the back of it. Supercomputers can now do translations of natural language sources, including, for example, translations of poetry, as well as human translators. That is quite an extraordinary transformation.

The same thing is happening in the area of robotics. About 15 years ago I went to the Sony media lab in Japan and talked to the head of Sony at that time. He said, “From now on, we are concentrating on robotics; this is going to be our main emphasis”. I saw some of the robots they had there. They could barely walk. They could not climb stairs. They could not do the most mundane tasks. This was 15 years ago. How things have changed. I will give you a couple of examples which sound trivial but are actually a bit awesome to me. A robot recently took on the world table tennis champion at table tennis. The robot was winning for most of the match. The human suddenly came from behind at the end, and in fact triumphed, but it will not be long before the conjunction of the computer and the robot will beat all human table tennis players. If you see someone playing table tennis at the top level, it is a completely amazing phenomenon. To think that a machine could be on the verge of beating the world champion is quite awesome.

There is also a robot stand-up comic. It is able to innovate, to tell stories, to tell jokes which the robot itself invents and, as it were, to play the audience just like a human stand-up comic. For example, the robot stand-up comic said, “I went out with an Apple gadget. It didn’t work out—she was always i-this and i-that”. The robot stand-up comic also has a way of deflating the situation when it does not get a laugh: it will say, “Oh well, I’ll have to do better next time”, or, “Hmm, that was not good enough”. It sounds trivial, but there is something awesome going on here.

The implications for work and jobs are huge. Many of my economist friends and colleagues are working intensely on them. Supercomputers will be able to take over a large number of professional and technical jobs. Jobs which only a few years ago it would have been inconceivable for machines to do are now lined up for destruction. They include jobs in the law, the medical profession, accountancy, finance and other areas. These are not low-level jobs, but at least medium-level jobs. We are talking not about the distant future, but of the next 10 years. Some of these changes have already happened. For example, machine translation is already replacing human translators in some of these areas; that is quite widespread.

One detailed analysis carried out by economists in the United States concludes that 40% of technical and professional jobs are vulnerable to takeover by intelligent machines. This is a level of job displacement not seen since the transformation of agriculture by industry. Agriculture used to employ 40% to 50% of the population, and it is now down to 2% or 3%. It is potentially a level of job displacement of that order. That is why it is hard to get one’s head around it. It is easy to dismiss and say that it is just hype about a distant future. It is not that at all, I assure noble Lords. These things are already happening. It is most advanced in the American economy, but it is happening in many other economies, too. So what we see when we go into a supermarket and we are more or less obliged to checkout by machine, or we go into a bookstore and find the same thing—or we go into other shops where there is a checkout machine—is at the lowest level of what will increasingly happen, and is happening, at a higher level. That is serious stuff for future employment.

Could the Minister reflect on or give me a response to three questions? On my first question, an easy or ignorant response would be to say, “Oh well, new jobs have always been created in the past when you have technological change”. We absolutely cannot say this with any certainty here, because we have never been in a position where machines have outstripped us intellectually and physically in this way. What work is going on inside the Government on that issue? This is quite different from the rosy picture and the debate about the immediacy of jobs; it is a surging trend that could be massively important for how we look at the future of employment.

Secondly, if it proves true that there is not enough work to go around in 10 to 15 years, we might have to be much more imaginative about the role of work in life than we are today. Many of my economist colleagues are thinking about this; an example in your Lordships’ House is the noble Lord, Lord Skidelsky, in his recent book. They suggest that we should return to themes that existed primarily in the 1960s of basic income and negative income tax. Is any thinking going on inside the Government about those issues, should those trends become exponential, as to me they will?

Thirdly, and finally, these trends are going along with a phenomenon that my noble friend Lady Donaghy mentioned—the large-scale displacement of wealth and large-scale inequality. It is driven in some part by these technological changes, as has been demonstrated in the United States, where there has been an absolute decrease in the amount of wealth taken by the majority of wealth-holders; almost all of it has gone to the top. A similar pattern is seen with income: the closer that you get to the very top, the greater the proportion taken. That is a really disturbing trend, and it is pretty similar here. We need some seriously new policies to produce a more equitable society in this world of high technological change. I conclude by asking the Minister: where are these policies?