Economy: Sustainable Jobs

Lord Newby Excerpts

Thursday 27th June 2013 Lords Chamber

[Lord Newby]

My Lords, I thank my noble friend Lady Brinton and all noble Lords who have spoken in this extremely interesting debate. The Government remain committed to creating the right conditions for the private sector to grow and to create jobs. Despite the challenging economic context, employment has been increasing robustly and today it stands at record levels. While employment in the UK is higher than it was before the recession, it remains below its pre-recession level in the US, Japan and all the major European countries except Germany. Over 2012, UK employment growth was the strongest of all the G7 economies, and the Office for Budget Responsibility has forecast employment to continue rising, to reach 30.5 million by 2017. The performance of the UK labour market has also been strong compared with previous downturns. At this point after the recessions of the 1980s and 1990s, employment was still around four percentage points below its pre-recession peak.

Some of the increase in employment that we have seen since 2008 has come from an increase in part-time working and self-employment. While these increases have been part of a longer-term trend, the last few years have also seen an increase in those who are working part-time but would like a full-time job. The shift in the composition of employment during this downturn has been a testament to the flexibility of the labour market. This is something we have not seen to the same extent in previous recessions. While it means that some may be working fewer hours than they would wish, they are employed, keeping unemployment lower than it otherwise would have been and meaning that, as growth strengthens, we will be in a better place to benefit from the recovery. Over the past year alone, over 80% of the increase in employment has come from full-time employment.

Policies announced by the Government have increased the incentives for people on benefits to enter paid work. Participation in the labour market is now around its highest rate for 20 years and is in stark contrast to previous recessions when vast swathes became discouraged and gave up looking for work. From our experience in previous downturns, we have learnt the potential lasting costs of detachment from the labour market, a point that a number of noble Lords made clear, so we are encouraged by the flexibility and resilience of the labour market over the past five years. This flexibility has also been demonstrated as a result of relatively low earnings growth, which has supported the strength we have seen in employment. While earnings growth has not been keeping pace with inflation because of the strength in employment, household income has risen by 2.1% more than consumer prices over the past year, and that is not least because of the increase in the income tax threshold. With less flexibility and higher wages, employment would be lower and unemployment would be higher, and this would be a less fair way of making the necessary adjustment after the crisis.

When this Government announced the difficult decisions we had had to take to reduce the budget deficit and reduce employment in the public sector, we were told that the private sector would never replace the public sector jobs being lost. But, instead, private sector job creation has offset public sector job losses more than three times over. Nevertheless, as many noble Lords have pointed out, unemployment still remains too high, particularly youth unemployment. We are not complacent, but have introduced several policies to support those out of work back into employment, alongside the £3 billion a year the Government spend on employment support to job seekers through Jobcentre Plus.

This Government recognise that young people may be more vulnerable when the labour market is tough, and so last year we launched the £1 billion youth contract. This support brings together a menu of options to help young people build the experience and skills that they need to compete in the job market. These options range from getting young people into the jobcentre on a weekly rather than fortnightly basis to help focus their job search, to funding more work experience and sector-based work academy places so that we have at least 100,000 of these places to offer our young people, and offering 160,000 wage incentives worth up to £2,275 to an employer who recruits an 18 to 24 year-old who has been unemployed for at least six months. For an employer, this wage incentive covers four and a half times the national insurance contributions cost of taking on a young person. The point of this, and of the youth contract more widely, is to help provide young jobseekers with sustained job outcomes and to help them build their longer-term employment prospects.

We know that long-term unemployment can have potentially damaging effects on a person’s longer-term employment prospects. While 90% of those claiming jobseeker’s allowance move off benefit within the first 12 months of their claim, there is still 10% who do not. To help combat the cycle of worklessness and despondency that long-term unemployment can bring, the Government launched the Work Programme in 2011, the purpose of which is to provide personalised support to an expected 3.3 million long-term and vulnerable jobseekers over the next five years. The premise of this support is simple. We have given providers the freedom to design interventions that are better tailored to individual and local needs. The incentive is strong: to providers we say, “If you do not get these people into work and stay in work, you do not get paid”. Moreover, the concept is innovative. For the first time, providers will be paid partly out of the benefit savings that they help to realise by getting these people into sustained employment. This is the biggest individual payment-by-results programme ever attempted in the United Kingdom.

As my noble friend Lord Kirkwood observed and as we recognise, people coming out of the Work Programme who have still not found sustained employment are the hardest to help and many in this group face significant and multiple barriers to work. Building on the expert training and support that the Work Programme will have delivered, all claimants will receive flexible support tailored to their individual needs and underpinned by a core regime of face-to-face meetings. Those who do not take the necessary steps to prepare for work face a tough sanctions regime. These programmes replace much of the complex range of employment support that was previously on offer, such as the New Deal, employment zones and the Future Jobs Fund. Those programmes were overly prescriptive, failed to achieve enough sustained job outcomes, and did not deliver good value for money for the taxpayer.

My noble friends Lord German and Lord Kirkwood discussed the effectiveness of the Work Programme. As my noble friend Lord German pointed out, the figures released today show that since March this year, the number of people who have found lasting work through the programme has increased to 132,000. I am not saying that that is enough, but it is a very significant increase from the position in the previous year. My noble friend also pointed out that the outcomes in terms of ESA recipients were significantly below those we had expected. That is undoubtedly the case, but this is by common consent the most difficult group to deal with. We have a double problem here in that it is not just about getting recipients ready for work but about persuading employers to consider them as potential employees, particularly in an environment where many people are looking for a job. Lastly, my noble friend asked what we could learn from the black-box approach. As I said, we are allowing providers to innovate and test new methods. We are asking them to share best practice and we are doing our best to facilitate it so that when we can see that something is working, we can replicate it.

The noble Lord, Lord Kirkwood, asked what happens if providers do not reach their targets. We are taking decisive action with those who are not delivering the standards we expect. We have issued performance improvement notices on 12 contracts that we deem are not delivering the Work Programme to the agreed standards and we are also introducing the concept of market-share shift, which means that we will be increasing the proportion of claimants we refer to those providers who have outperformed their competitors by reducing the number of claimants we send to the lower-performing providers. We will be implementing this programme in at least 16 instances from August.

The noble Lord, Lord Kirkwood, also asked what happened to the underspend. Any underspend in the Work Programme will be subject to the usual budget exchange rules, which means that the Chief Secretary to the Treasury has the discretion to allow a proportion of a department’s budget to move across to the following financial year. I direct the noble Lord to my right honourable friend Danny Alexander because he is the man who can deal with that issue.

The noble Baroness, Lady Brinton, very astutely started with export, an area where we have seen and will see many new jobs. She talked about the need to build up the work that UKTI is doing. We are doing that. More resources are going into UKTI, as we announced in the Autumn Statement. We are redirecting people working for UKTI to the higher-growth markets and we are already beginning to see some improvement in that area. The British Chambers of Commerce survey of members which came out earlier this week showed that the proportion of its members who were exporting had increased over the year from 32% to, I think, 39%. That is a sample but over a year it is a significant shift. However, there are major barriers to exporting and one of the chilling figures in that survey was that 70% of BCC members who export do not have a single member of staff with the relevant language skills to undertake business. So language training, among many other things, is very important.

The noble Baroness raised the point that if we are going to get small businesses taking on more staff, we are going to need greater bank lending. This, as she knows, has been a huge source of frustration to the Government. We have introduced the Funding for Lending scheme with the express purpose of incentivising banks to lend to SMEs and in the last Budget we increased that incentive by introducing a 10:1 ratio in terms of the amount that banks can draw down under Funding for Lending for every pound they lend to SMEs. There is a bit of evidence that that is beginning to work. Much more encouraging is the growth of new, admittedly smaller, challenger banking institutions which are lending to SMEs. We have discussed in this House before the success of Handelsbanken and Aldermore. Cambridge & Counties is a very interesting new institution which has been set up by Trinity Hall and the Cambridgeshire County Council pension fund specifically to lend to SMEs in the east Midlands. It is new but it has grown at a rapid rate, which gives the lie to the argument that there is no demand from SMEs for borrowing. The more these challengers grow, the quicker we will see a more positive response from the larger lenders, who, in fairness, are trying to do more.

The noble Baroness talked about the importance of literacy and numeracy, not least in respect of apprenticeships. From next year all apprentices who begin an intermediate apprenticeship with level 1 in English or maths will have to take up study of level 2 in those subjects, and apprentices who begin their apprenticeship without level 1 in English or maths will be offered the chance, but not be obliged, to study at level 2. They will still be required to achieve level 1 in English and maths as part of their intermediate apprenticeship, so we are doing something about that. I will not repeat the extent to which apprenticeships have increased in numbers and the extent to which they are popular. I was very struck by the point the noble Baroness made about Jobcentre Plus pulling young people off college courses to go for job interviews so that they then lost their place. This seems short-sighted and I will certainly raise that with ministerial colleagues because that is not what we are seeking to achieve.

The noble Lord, Lord Teverson, talked about the possibilities of generating more jobs via the move to the green economy. I completely agree. The Government announced yesterday that we will be making an additional £800 million available to the Green Investment Bank, which is doing very well and is proving popular. We are already seeing a growth in employment in that sector and the Government will be doing everything in their power to promote that.

The noble Baroness, Lady Sharp, talked about the skills shortage paradox. There has been a skills shortage paradox for as long as I have been involved in these debates. I seem to remember as a student hearing about it. I was pleased that she talked about the trainee programme being expanded and felt that was a good start.

The right reverend Prelate the Bishop of Bristol talked about the value of co-operatives and social enterprises. I completely agree. I was pleased to be able to help pilot through Parliament the Public Services (Social Value) Act, which makes it easier for public sector bodies to take on co-operatives and social enterprises, and I hope very much that it has the effect that we wish. The most telling figure the right reverend Prelate gave was that 39% of social enterprises operate in the top 20% most deprived wards. I urge him and his fellow prelates and the church as a whole to build on the Portsmouth model. I cannot help saying that if the church spent more time doing that and less time worrying about sex and gender it would be to the benefit of the church and to broader society.

With that sideswipe I move quickly on to the noble Lord, Lord Cotter, talking about the importance of the hospitality and tourist industry. I agree with him. It is a very large and undervalued industry in respect of jobs. The visa issue has been widely discussed and we hope that we will move further in a sensible direction on that. I agree with almost everything that the noble Lord, Lord Shipley, said, and I certainly agree that doubt about EU membership generates problems in terms of international employers thinking about the long-term sustainability of jobs in the UK.

I want to finish by touching on the issues raised by the extremely thoughtful speeches by the noble Lords, Lord Kirkwood and Lord Wood, which were on the same theme. It is now a well established, if not hugely long-standing, trend that there is a decreasing proportion of jobs as we know them in the labour force as a whole. Instead, we are seeing jobs with no guarantees, temporary or zero-hours contracts and low wages, even for people in work. The noble Lord’s suggestion that we discuss this on a cross-party basis is extremely sensible because of long-term development. This situation may have been hastened somewhat by the recession but it was not caused by it. It predated it and it will undoubtedly carry on. There are so many examples of very successful companies operating like this. Amazon is a good example as one of its major distribution centres pays a penny more per hour than the minimum wage. There is very little job security. However, it is seen by the outside world as an immensely successful company and a company of the future, and the fact that it is doing that kind of thing is rather depressing.

We need to think about how we can engage with employers to ensure that they think, in some cases, rather more about the long-term implications for their employees of these extremely difficult economic conditions and how we can confront them with the uncertainty that these kinds of practices cause. It cannot, at the very least, be good for productivity. These are hugely important, long-term issues and we will definitely return to them.

I hope that I have gone some way to answering the points that have been made in the debate this afternoon and to reassuring noble Lords that encouraging job creation is a key priority of this Government. We will continue to build on the progress that we have already made to ensure that we are creating the conditions that businesses need to grow and create jobs and that we are providing people with the support that they need to get back into work.