Economy: Sustainable Jobs

Lord Wood of Anfield Excerpts

Thursday 27th June 2013 Lords Chamber

[Lord Wood of Anfield]

My Lords, I thank the noble Baroness, Lady Brinton, for this debate. I have learnt a lot from the various excellent contributions over the past hour.

The economic downturn that followed the crash of 2008 has been the most severe since the great depression and the most protracted since the Industrial Revolution. However, a conventional wisdom about the crisis has taken root, that although it is a growth crisis and a living standards crisis, it is not an employment crisis. This excellent debate has shown how misleading that conventional wisdom is. It is of course true that the headline unemployment rate, although too high, has remained remarkably stable over the past few years, despite a very poor record on growth over that period. However, it would be complacent in the extreme to point to the headline rate, or to the new private sector jobs created, and think that that is the end of the story. The truth is that we should be concerned not only by continuing patterns of unemployment but also by dramatic changes in the quality and conditions of employment in Britain today.

I will start with unemployment, and with youth unemployment in particular. We may not have a crisis of the proportions of Spain or Greece, but youth unemployment in Britain is now at an all-time high. There are now just under 1 million 16 to 24 year-olds unemployed in our country. This sits alongside a continuing rise in long-term unemployment, as discussed by the noble Lord, Lord Shipley. The number of people out of work for over a year is now at 900,000, three times the figure of seven or eight years ago. Just under half of this group have been out of work for two years, not just one. It is cold comfort for this group to hear that unemployment in Britain is lower than many economists expected.

The coalition’s response to this problem was to scrap Labour’s Future Jobs Fund and introduce a new welfare to work scheme, the Work Programme, discussed in detail by the noble Lord, Lord German. Last year, not only did this programme miss its targets but evidence showed its success rate in placing the long-term unemployed was lower than the expected rate if there had been no programme at all. Recent evidence suggests that it is doing better. However, I am afraid that there is a big gap between doing better and doing well. More than 900,000 of the 1.2 million people who have gone through the doorway of this programme do not yet have sustainable employment.

The lack of urgency in relation to youth and long-term unemployment is baffling and should concern us all. We know that protracted spells out of work have stigmatising effects, as the noble Lord, Lord Kirkwood, described so eloquently, as well as lifelong effects on well-being and physical and mental health. They also rack up huge costs to the taxpayer. Therefore, preventing worklessness must be a priority as much for people concerned with social justice as for people motivated by fiscal prudence.

I now turn from the world of unemployment to the changing world of work. One of the reasons that overall levels of unemployment have been lower than many expected is that much of the burden of adjustment in this crisis has been borne by those in work. For millions, pay, conditions and security of employment have changed significantly for the worse in the past five years. Let us take pay. Workers in Britain have experienced unprecedented cuts in real-terms pay of, on average, 6% since the global financial crisis began. Over two-thirds of all workers have experienced real wage cuts. One consequence of this has been the rise of in-work poverty. More than 6 million people in poverty are in working households. Some two-thirds of poor children are in working households.

Related to this is the growth in underemployment, also mentioned by the noble Lord, Lord Kirkwood. My colleague Liam Byrne has called this,

“the untold story of Britain’s jobs crisis”.

One in 10 people in work are now unable to work the hours that they need to make ends meet. There are 1.4 million part-time workers wanting but unable to get full-time work. This is the highest figure in 20 years, double the figure from five years ago. Add to this the numbers of people who would like to work additional hours in their existing jobs and there are a million more underemployed workers than five years ago.

These figures show a growing problem in terms of sustainable employment. For millions of working people, having a job is no longer sufficient to keep their heads above water and they are unable to find the extra hours or better work that they need to do something about it.

The composition of employment is also undergoing significant change, with a marked shift away from longer-term, more secure work to shorter-term, more precarious work. First, the number of jobs that are temporary contract jobs has gone up by a staggering 76% since 2008. Secondly, we are seeing a substitution away from full-time work. Since 2008 the number of full-time jobs has fallen by more than half a million while part-time employment has risen by well over a quarter of a million and part-time self-employment—mostly among lower-income workers—has risen by the same figure. Thirdly, we have seen a dramatic rise in the incidence of zero-hours contracts. Official estimates are that more than 200,000 British workers—predominantly younger and unskilled workers—are now on zero-hours contracts. The real figure is undoubtedly higher than this. That is a 150% increase since 2005. In 2012 alone, there was a year-on-year increase of 25%.

These contracts are often used to abuse vulnerable workers. Here is an anecdote from a care worker in the north-west from a recent excellent Resolution Foundation report. She said:

“It’s the uncertainty that gets to me … These contracts only work one way—they don’t offer any flexibility even if you wanted it because if you turn down hours you suffer. One of the girls had her hours permanently reduced because she asked the line manager for a day off to take her child to the doctors. From that day on her card was marked”.

That kind of treatment cannot be tolerated. I welcome the fact that the Government have at last woken up to the scale of this problem and announced a review into the practice. I hope that this can be a priority across the party divide.

This is the new world of work for too many in our country: a shift from permanent to temporary contracts, a shift from full-time to more part-time work, a shift from more secure to more insecure work, a growth in self-employment and a growth in employment in less well protected sectors of our economy. I firmly believe that these developments should give us cause for concern whatever our political affiliation, and whatever we think the Government’s priorities should be.

Why is that the case? First, the effects of long-term unemployment and insecure work are becoming increasingly obvious wherever you look in Britain and they are imposing significant costs on us. The Trussell Trust, a charity that operates food banks in the UK, says that many of the 300,000 people that it is helping are low-income working families. The national helpline charity National Debtline says that almost half of the 250,000 calls that it received in 2012 were from people in work. The size of the UK’s payday lending industry has increased in size by about 150% since 2008. Paying less in more insecure jobs is far from costless for all of us.

The second reason that we should be concerned is that restoring strong wage growth and building more secure jobs is sensible fiscal policy if we are to relieve the ever-growing pressure on the social security system to support low-income families. We must aim to shift some of the burden of supporting lower-income workers from the state to the private sector over time. This is why, of course, policies such as the promotion of the living wage are so important.

The third reason that we should be concerned is that it is hard to see how Britain can compete internationally with an economy that is increasingly characterised by lower-wage jobs in more and more precarious conditions. We cannot hope to compete with China, India and emerging African economies over the next 50 years if our model of competition at home is one of a deregulatory race to the bottom. There is no low-wage, low-skill, low-investment route to our country succeeding in a world where labour costs are significantly cheaper and skills are being built up significantly faster, as they are in many developing and emerging economies. We will succeed only if we build a higher road to economic success, not one built on insecurity in our labour market or tolerance of entire cohorts of people in our country who will never engage in productive work.

What can we do to bring about more sustainable employment? In the short term, there is a lot that we can do. We could and should introduce a compulsory jobs guarantee to get the young unemployed into work and to get the long-term unemployed into jobs too. We should reform the Work Programme so as to have better integration with the employment and support allowance tests. Most importantly of all, the Government should realise that they are not powerless to get the economy motoring again and that they should take action now to get growth up and unemployment down.

In the longer term, we need to think about how we can reshape the way our economy works. Better jobs have to be created in the context of a different kind of economy. If we want to have a higher-productivity, higher-skilled, higher-wage economy, we cannot do that by pulling one or two levers alone. It means reforming our banking system and re-examining the rules that generate short-termism in too many of our largest companies. As the noble Baroness, Lady Brinton, discussed, we need to address the UK’s poor record on technical skills and ask how our education system and our employers who do or do not offer apprenticeships need to be challenged to turn this around. We should use the power of government procurement to say that any company that wants a contract with the Government has to offer training and apprenticeships to its workforce.

The Government talk constantly about the need to rebalance our economy, but as this debate has shown, the world of work in Britain today is rebalancing, but in ways that are making lives tougher and more insecure for millions. That is not just bad for social cohesion; it is bad for our economy and it undermines our competitiveness. If we really want to break from this, we have to abandon an approach to economic management that sees wealth creation as the preserve of the wealthiest and which mistakenly seeks to succeed by giving lower taxes to the best off and less protection to the vast majority of workers. That way lies national decline, not national success.