Employment

Lord Desai Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Desai]

My Lords, I thank my noble friend Lady Prosser for introducing this debate and for the very skilled way in which she did it. She started by saying that once upon a time there was an economy in the UK and that manufacturing was a major part of it. It used to be said that 48 years, 48 weeks per year and 48 hours per week was the way that traditional working-class employment was carried on. For various reasons, but mainly because of globalisation and a massive shift in jobs away from the western world as a whole to Asia and other parts where labour was cheaper, we had a fundamental transformation— not only us but also the US and various other economies. We managed for a while by shifting to a variety of service industries and what we might call abstract goods—design, fashion, music, banking and others. There were some highly paid jobs in the service sector and lots of low-paid jobs in retail and things like that. What has now happened is that we have come to the end of that revolution. That transformation has occurred and the news is much worse than most people think.

We have fundamentally to rethink where the competitive areas in which we will create sustainable, long-term jobs are going to be. As my noble friend Lady Prosser said, it is not conceivable that we will get back to manufacturing on anything like the scale that we were at. Perhaps my noble friend Lord Monks is right; we may be able to do something more like the economies across the North Sea. But that requires a level of savings and investment which we have not been able to achieve for a long time. One of the peculiar things that happened during the long boom of 1992 to 2007 was that households steadily lost the habit of saving. We convinced ourselves that there was no need to save as long as you could buy a house. If you bought a house, appreciation in the value of that house was enough to compensate for any savings you did not have. Lately savings rates have gone up but we fell to a practically negative savings rate in the household sector. The same thing happened in the government sector. Our problem is going to be that we will have to recover some of the jobs we have lost and create new jobs. The question will be where those jobs are going to come from.

An additional factor, to which some noble Lords have already referred, is that as our dependency ratio gets very high with fewer active working-aged people compared to retired people, those who are going to retire will have to work longer hours for more years and those who are of an active working age—say, 15 to 55 or 20 to 55—will have to save more in order to finance their retirement as well as the various other demands which are going to be made on us for care of the elderly and so on. We face a profound crisis of undersaving and if we do not tackle that crisis, it will be difficult for us to create the kind of jobs that will sustain our economy. As many noble Lords have already said, the key to recreating those jobs will be investment, whatever the short-term considerations and the seriousness of the recession, which I do not deny. I do not think it will be easy to get out of the recession any faster, but getting out of it is crucially dependent on us being able to find new innovative sectors where investment can take place now, regardless of the state of current demand, and then employing people in those sectors. Obviously green technologies are going to be a major factor, but things like healthcare technologies are also going to be crucial. We will have to adapt our lifestyle to be able to deal with people who not only live longer but want to have a quality of life that is much better than that which their parents had. These are opportunities for us to be able to create jobs. They will be jobs that are skilled in terms of numeracy, literacy and IT; they will also be skilled in terms of training oneself in nursing or personal care. On the one hand, we will need a lot of green technological jobs; on the other, we will need lots of personal care-type, one-to-one jobs. To finance them, we will have to have an economy that is different from that which we have had so far. It will be much more severely restrictive of consumption growth, more discouraging of the wild house-buying business that we have got ourselves strapped into and more encouraging of savings.

This is not an occasion to discuss economic issues—the noble Baroness on the government Front Bench cannot do anything even if I do suggest tax changes. However, I shall say one thing: the time has now come to examine whether national insurance contributions are a good idea. They are a tax on employment. I have never understood why we have a tax on earned income which is paid twice: you pay it once as income tax and a second time as an NIC. I know that the Chancellor is doing something about merging income tax and national insurance contributions, but he should much more seriously examine whether we should relieve taxation on employment. Either the employer or the employee, or both, should be relieved of that kind of tax as we need to encourage employment in the sector. At the same time, we should have policies designed to encourage people to shift away from asset-buying in housing. This is not a debate on housing, but we need an economy where people are much more attuned to renting or making other kinds of housing purchase rather than be caught with assets which are not guaranteed to be wealth-creating.

We need more saving, more investment and more innovation. We have also to find a way of making our workforce think about work differently. I shall make one suggestion about the way in which we measure employment. We measure employment in terms of bodies of people—how many people are in work—but, as we have already found out from our discussion, work is not really how many people are working but how many hours they work. We should take a lifetime perspective on how many years people work, because future generations will have to work for more years and more hours over their lifetime than the previous lucky generation, of which I am a proud member. The good days are gone and I do not know when they are going to come back. One of the burdens that the new working generation will have to face is that of catching up with a lack of savings during the past 25 years as well as financing their own retirement. The question of employment is therefore tied in as much with long-term economic policies and growth strategies as with institutional employment in the labour market.

I join many noble friends in saying that the Government should not be seduced by the idea that making it easier to fire people will somehow solve the problem. Just as nobody fixes the roof when the sun is shining, everybody starts talking about how to sack people when unemployment is high. I never see the logic of that. Everybody has to calm down and realise that there are much more serious issues than a sudden need to make sacking people much easier. I hope that the Government listen and start to think about a long-term strategy of investment and growth.