Employment in Wales

Hywel Williams Excerpts

Tuesday 27th January 2015 Westminster Hall

[Chris Ruane]

Cuts have to be made, but the tempo, pace and degree of cuts, and the ideology behind them, are the key issues. These are cuts for cuts’ sake, because the Conservative party believes in a low percentage expenditure of GDP on the public sector—an issue I will come to in a moment.

[Hywel Williams (Arfon) (PC)]

I am sorry, but does that not sound like trying to be a little bit pregnant?

[Chris Ruane]

I am not sure whether the hon. Gentleman has ever experienced that state in his time in Parliament. I am saying that the cuts proposed by my party—indeed, his party has had to make cuts in Gwynedd—are not ideological. They have been practical cuts. The Conservative party wants to introduce cuts for ideological reasons. It wants to cut back the state and sees the public sector and the state as bad. I do not perceive them in that way.

In the autumn statement, the Chancellor said that he wants to see the percentage spent by the state come down to 35% of GDP. His own creation, the Office for Budget Responsibility, said that, if he did that, public sector spending would be at its lowest since the 1930s, before the establishment of the national health service—we spend £115 billion on the NHS, yet the Chancellor wants to take us back to the 1930s. His vision for the UK economy and our society is “The Road to Wigan Pier” and “Love on the Dole”. It is not a vision I share, or one that the Labour party shares; I dare say Plaid Cymru does not share that vision either. It is a dark, bleak vision, offering no hope. The British public, especially in those areas that rely on public sector jobs, will reject the Chancellor’s vision.

Although one faced the effects of recession and the other the effects of war, Franklin D. Roosevelt’s Government of the 1930s and the Labour Government of the 1940s knew that investment and capital projects were the key to recovery and growth. The Labour Welsh Government are heeding the lessons of history and have implemented a huge capital building programme in the Vale of Clwyd. They have invested £100 million in refurbishing ysbyty Glan Clwyd. In partnership with Denbighshire county council, they are investing £70 million in refurbishing and rebuilding schools.

I will graphically illustrate the difference in approach between the Welsh Government and this Government in just one town in my constituency—my home town of Rhyl. The Prime Minister stood at the Dispatch Box and said that the town of Rhyl had been neglected by the Labour Welsh Government and the local authority. While he was speaking those words, he was closing down the Army recruitment centre in John street in Rhyl, which opened in 1914, and was closed in 2014 by the Tories; while he was speaking at the Dispatch Box, he was also closing down Rhyl county court and the tax office in Rhyl, and relocating the Crown post office from Rhyl.

Compare and contrast that with the investment that has come to my home town of Rhyl from the Welsh Government. There is a £10 million new harbour, a £22 million new community hospital, opening in 2017, and £28 million is being spent on replacing the old houses of multiple occupation with decent family accommodation. As we speak, £25 million is being spent on a new high school and £12 million on new flood defences in Rhyl. Now tell me who is neglecting Rhyl.

--- Later in debate ---

[Hywel Williams (Arfon) (PC)]

I congratulate the hon. Member for Vale of Clwyd (Chris Ruane) on securing this important debate. I will begin with a timely reminder to the hon. Member for Aberconwy (Guto Bebb); he is slightly behind the wave on the matter of cuts. The Prime Minister, on Radio 4 this morning, called them not cuts but adjustments—but of course, both sides are signed up to those adjustments.

I want to consider some of the more interesting facts of the matter, as opposed to engaging in rhetoric such as we have heard this morning. A key element in respect of employment in Wales is the balance between the public and private sectors. That is extremely important in my constituency, and in Vale of Clwyd, Aberconwy and other constituencies. A key element of the Government’s austerity strategy is that public sector expenditure cuts will be rebalanced by growth in private sector employment. What has happened and, in particular, how far has Wales succeeded compared with the rest of the UK?

The financial crisis broke in 2008 and the immediate impact was seen in the sharp drop in employment in the private sector in the following year to September 2009. There were 60,000 fewer people employed by the private sector in Wales in the year to September 2009 compared with a year earlier. Since bottoming-out in 2009, private sector employment in Wales has steadily increased and is now slightly higher than in 2008, with an increase of 1%. I am, by the way, using figures from the Office for National Statistics. That 1% compares poorly with the figure for the UK as a whole, which is 12%. We have done comparatively badly. Had private sector employment in Wales tracked that of the UK since 2009—the low point—and had we performed as well as the rest of the UK, there would have been an additional 43,000 people in private sector employment in Wales by September 2014. That is a criticism of the UK Government’s macro-economic policy, but also of the performance of the Welsh Labour Government in Cardiff.

If employment in the public sector in Wales had shown the same rate of decline as in the UK between 2010 and 2014, an additional 12,000 jobs would have been lost. The Welsh Labour Government have protected public sector employment, which is a good thing, and it has been more resilient than in the UK as a whole, but the figures are significant for the Government’s contention that cutting public sector employment leads to growth in the private sector. If Wales had tracked the UK since the Conservative-Lib Dem Government came to office in 2010, there would have been an additional 41,000 in employment in Wales by September 2014.

[Jonathan Edwards]

My hon. Friend is giving a forensic analysis of the employment situation across the UK and in Wales in particular. Is not private sector employment growth geographically lopsided, located very much in the south-east, with the other nations and regions of the UK lagging behind? There has not been the geographical and sectoral rebalancing of the economy promised in 2010.

[Hywel Williams]

My hon. Friend makes an interesting point. We have such a geographical imbalance in Wales, in relation to not only the number of jobs, but their quality, as the hon. Member for Vale of Clwyd pointed out. We have seasonal and low-quality jobs—some part-time and some on zero-hours contracts. My hon. Friend’s remarks have several implications.

In the case of Wales, therefore, the figures show scant evidence that austerity has worked either to rebalance the employment mix between the private and public sectors or to increase total employment. The data on the balance between the public and private sectors need to be treated with caution, because of the effects of reclassification. That political sleight of hand has frequently been used in the debate on the issue. For the UK, the proportion employed in the public sector has fallen from 20.4% in 2008 to 17.7% in 2014. In Wales, the proportion has declined from 25.8% to 23.9%. That is a smaller drop, and of course there is a much larger public sector in Wales.

We in Plaid Cymru were concerned about whether growth in private sector employment would be achieved for the UK, and particularly for Wales, because of its greater dependency on the public sector and the fragility of its private sector. After four and a half years, and with an election pending, the statistics are interesting, but we must be careful because, for example, the ONS reclassified staff of RBS and Lloyds Banking Group from the private sector to the public sector in 2008, and that represented 225,000 workers. Royal Mail staff went from the public to private sector following privatisation in the fourth quarter of 2013, while further education staff in England were reclassified to the private sector. In a later twist, employees at Lloyds Banking Group have been reclassified to the private sector, as the share of private sector ownership of Lloyds has grown.

The total private sector year-on-year decline of 6% in Wales compares unfavourably with the corresponding fall of 4% across the UK as a whole. Since the trough in 2009, private sector employment in Wales has steadily increased, as I said, but that compares poorly with the UK, where private sector employment has grown by a massive 1.7 million jobs. As I said, public sector employment in Wales has declined, while private sector employment has risen slightly, but in the UK, the situation is a good deal better. The conclusion that one has to reach is that had private sector employment in Wales tracked that of the UK since 2009, an additional 43,000 people would have been in private sector employment in Wales. Public sector employment in Wales has been quite resilient, which has been a good thing.

Let us have a quick look at the unemployment figures. If the unemployment rate in Wales was the same as that of the UK, 10,000 more people would be in work. In Wales, the figure for those who are economically active is 74%, whereas it is 78% for the UK as a whole, so we also have a problem with economic inactivity. That is well known, but the point is the number of people involved. It is equivalent to 67,000 fewer people of working age in Wales either being in employment or seeking work, and that shows the size of the problem that we face. Of those economically inactive people, 120,000 would like work. We therefore have people who are looking for work, which suggests to me and other observers that the measures in place to encourage those who are economically inactive into work just are not working properly. That is the challenge facing Wales—not only reducing the unemployment rate, but raising the rate of economic activity to the UK level and ensuring that the quality of the jobs is right for Wales.

There is scant evidence that austerity has worked for Wales, either from the viewpoint of rebalancing the employment mix between the private and public sectors, or by growing total employment. A great deal needs to be done, and we are looking in vain to the two main London parties for action.

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[Chris Evans (Islwyn) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Hollobone, and to follow the hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart). We nearly ran into each other this morning when we were on our daily jog.

Only a fool would not welcome the news that there are 4,000 more people in work this year than there were last year. Even though Wales has the lowest employment rate of any region in Britain, at 68.7%, anybody gaining work can be only a good thing. However, the number of long-term benefit claimants and long-term unemployed remain stubbornly high. It seems that we cannot talk about employment in Wales without mentioning the elephant in the room, which is welfare reform.

For too long our welfare system has been broken. It teaches the wrong values, rewards the wrong choices and hurts those whom it should help. We must offer people on welfare education, training, child care and all the things they need to get back to work. We need to offer them opportunity, but at the same time we must demand responsibility. We know that no one wants to change the system more than those who are trapped in it, such as the single mother who came to see me recently in a surgery in Islwyn who has to work part time because she simply cannot afford to go full time. More than 70,000 people in Wales feel the same way.

We have to end welfare as a way of life and make it a path to independence and dignity. The problem is that the terms of the debate are all wrong and too partisan. Knock on any door in any constituency in Wales, and if it is answered by someone who is in long-term work, they will attack those whom they term “benefit scroungers” and people who make benefits a way of life. The coalition and the Opposition are locked in a battle over the merits of their respective approaches to tackling long-term unemployment. The coalition has set a limit on the annual increases in the majority of benefits; for tax credits it is 1% over the next three years. Only today in an interview, the Prime Minister set out the battle lines when he said that the Tories will reduce the welfare cap to £23,000 if they are elected in May. In fact, he said that that would be the first piece of legislation for any future Conservative Government.

[Hywel Williams]

The Prime Minister has also said that he wants to cut the welfare bill by £10 billion or £11 billion over the next five years. The hon. Gentleman’s colleagues signed up to the welfare measures last week. Does he support that level of cuts over the next five years?

[Chris Evans]

There we go again. I have a lot of time for the hon. Gentleman, but I have just said that we need to change the terms of the debate. The debate is once again about the various approaches, but we are missing the wider picture. Every time that we talk about welfare reform, it becomes about hitting various groups in society. The major problem is not benefit scroungers, but the simple fact that thanks to globalisation—a good thing that is creating more opportunities than ever before for people in Wales, young and old—the labour market has changed beyond all recognition. As we have heard, the recent growth in jobs has been at either the very top or the very bottom. That means low pay at the bottom and high pay at the top, but those in the middle are finding themselves forced out due to what we could call a hollowing out of the labour market. When those people lose their jobs, they encounter tremendous barriers to getting back into work, which forces many families into poverty, and that process will only quicken as the years go on.

We must be honest about the fact that despite attempt after attempt, welfare reform, in all its guises, has failed. Long-term unemployment remains stubbornly high and there are still long-term benefit claimants. At the same time, we carry on debating the belief that there are welfare scroungers abusing the system, but I believe that we need to change the terms of the debate. Policy Exchange recently came up with a programme with three planks that merits further consideration. We need to build self-sufficiency in the welfare system. In the UK as a whole, 60% of households receive more in benefits than they pay in tax, so they are net recipients of state support. That is, in part, the result of the tax credits introduced under the previous Labour Government which, in an attempt to tackle low pay and to eradicate relative income poverty for children, began to support families earning as much as £50,000 a year. Poverty came down, but the problems remain.

There is still a general presumption in the welfare system that the solution to low pay and poverty is to redistribute income through cash benefits. I emphasise that doing so simply subsidises low pay, leads to low wages for recipients and does nothing to encourage progression and self-sufficiency. Future reforms must be built around the principle that income should come from work, not benefits, but that will require reforms to the scope of benefits while ensuring that family earnings increase along with the living wage. There needs to be more support for those who seek to increase their income, but that is sadly lacking from this Government.

We need to build a system on the principle of “something for something”. Although it is important to build a system that encourages self-sufficiency, we must recognise that some families will fall on hard times. Companies will close; that is the way of life and the way of the economy, no matter who is in government. In such times, the welfare system should support people and recognise the contributions that they have already made. The current welfare system does not reflect such contributions. Strengthening the contributory principle through a system of welfare accounts that sit on top of universal credit, which can be drawn down in periods of need, should be a key plank of a “something for something” system that all parts of society believe to be fair.

Employment support is the most controversial part of the system—it is the biggest bugbear in my constituency. The state must get better at helping people to move back to work through a modern system of employment support, and that must begin with an acceptance that Jobcentre Plus has not been effective for some years. Although 75% of jobseeker’s allowance claimants move off benefits within six months, only about half of them are still in work eight months later, while a third are claiming benefits again. The goal should be to support claimants into substantial long-term employment and that should be delivered by providing targeted support for jobseekers not after six months, but from day one of their employment claim.

We should also look at examples such as that in Australia with regard to building and improving the Work programme. That is particularly relevant for groups furthest away from the labour market that currently face being parked without support and still face a real risk of benefit sanctions. Those groups need a new support system that ensures that they have help for the very real difficulties that they face, and that view was backed up by a National Audit Office report on the Work programme in July 2014, which stated:

“The Programme has…not improved performance for harder-to-help groups compared to previous schemes. The Department designed the Programme to help participants whose barriers to employment mean that it is more difficult for them to move into employment. However performance has been similar to previous initiatives and falls well short of the Department’s and bidders’ expectations. Prime contractors have reduced what they plan to spend on the hardest-to-help, with support for these participants lower than for those with better employment prospects.”

We need reforms that build on the three principles that I mentioned to make the welfare state more effective, efficient and fair. That would rebuild support for the welfare state around the principles upon which it was founded by Beveridge all those years ago and ensure that all families receive the support they need to increase their earnings and reduce their reliance on the state. At the same time, it would ensure that those in need get the support they require. As we face the general election, those three principles should be the terms of the new debate on welfare reform.