Youth Unemployment and Bank Bonuses

Rachel Reeves Excerpts

Monday 23rd January 2012 Commons Chamber

[Rachel Reeves (Leeds West) (Lab)]

I beg to move,

That this House notes with concern that unemployment has risen to its highest level for 17 years, youth unemployment has now reached a record level of 1.04 million and the number of young people claiming jobseeker’s allowance for over six months has more than doubled since January 2011; believes that cutting spending and raising taxes too far and too fast has choked off the recovery and pushed up unemployment and that it was a mistake for the Government to abolish the Future Jobs Fund; recognises that rising unemployment and the Government’s failing welfare to work programmes are leading to a higher benefits bill, which is contributing to the £158 billion of additional borrowing announced in the Autumn Statement; further notes reports that multi-million pound bank bonuses are set to be paid out this year, even in banks where the share price has almost halved; and in view of the most recent figures on unemployment, calls on the Government to take urgent action to kickstart the economy to promote jobs and growth and to reconsider its refusal to introduce a tax on bankers’ bonuses this year, in addition to the permanent bank levy, to fund 100,000 jobs for young people.

We have called the debate to raise the alarm on a crisis that is now on the verge of becoming a national disgrace—the disgrace of a few getting rewarded for failure while many more pay the heavy cost of the failure of the Government’s economic policies. However, the motion is not just a critique. It is also a call for action, a reminder to the Government that, despite the damage that has already been done, they still have a choice. There is an alternative—Labour’s five-point plan for jobs and growth could get people back into work, get our economy moving and get the deficit down in a balanced and sustainable way.

Every hon. Member who is present will have met victims of the unemployment crisis in their own constituency. They are families devastated by the arrival of the dreaded redundancy letter and afraid of what the future will bring, and parents determined to do the right thing and provide for their children but unable to make ends meet.

[Matthew Hancock (West Suffolk) (Con)]

The hon. Lady mentions unemployment in Members’ constituencies. Does she recognise that, based on the claimant count, unemployment in Leeds West has fallen by 106 since the election? Which of the Government’s policies would she recommend as being to blame for that?

[Rachel Reeves]

Youth unemployment in my constituency, like in most of our constituencies, is rising fast, whereas it was falling at the time of the last election.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

May I share with the hon. Lady the figures for her own constituency? Youth unemployment rose by 625 between 2005 and 2010, which was a 103% rise, yet rose by 25 between 2010 and 2011, which was a 2% rise. Can she explain why it rose so much between 2005 and 2010?

--- Later in debate ---

[Rachel Reeves]

The hon. Gentleman might be aware of the global financial crisis that took place. Between 1997 and the start of the financial crisis, unemployment and youth unemployment were falling in my constituency and nationally, and at the time of the last general election unemployment was falling. Now, it is rising.

Government Members are in denial about what is happening. The reality is that, over the past year, long- term youth unemployment has more than doubled. It is a reality that the Opposition recognise and would do something about, whereas Government Members ignore it.

[Toby Perkins (Chesterfield) (Lab)]

Is it not clear that what we have heard in the first moment or two of this debate is Conservative Members saying, “It’s all right, everything’s going great”? We have record youth unemployment, and all we hear from Government Members is laughter and complacency.

[Rachel Reeves]

I think many of our constituents watching this debate will say exactly that. The Government are in denial. Youth unemployment is at a record high, and Government Members say, “There’s not a problem. We don’t need to do anything about it. Everything is fine.” That is not the reality for our constituents.

[Mr David Winnick (Walsall North) (Lab)]

Even if this is a laughing matter for the Government, it certainly is not for us. My constituency has among the highest levels of youth unemployment. It is a tragedy—there is no other way to describe it—when young people are simply unable to find work. I have been in touch with Jobcentre Plus, and there is no doubt about the difficulties and hardships for such young people. Yet for the Government, it is a laughing matter.

[Rachel Reeves]

My hon. Friend speaks for the many families and young people in all our constituencies who are experiencing a crisis, and I give him credit for recognising their challenges.

[Andrea Leadsom (South Northamptonshire) (Con)]

Does the hon. Lady feel at all positive about the Government’s steps to create new apprenticeships for young people to get them into real jobs that will endure?

[Rachel Reeves]

The reality is that the Office for Budget Responsibility has examined all the Government’s plans and predicts that unemployment will continue to rise all the way through this year, and the OECD predicts that it will rise next year as well. That is their verdict on the Government’s economic policy.

[Several hon. Members]

rose—

[Rachel Reeves]

I will make a little progress, because we know that many Members want to speak. I will try to give way again later.

Although many of our constituents are very fearful about the future, not everyone is looking to the future with fear and trepidation—not for all the question of how their money will last until the end of the month, or whether they can afford to heat their homes and eat three meals a day. For the past week, we have been hearing stories of banks preparing to pay bonuses to a few hundred senior employees amounting to hundreds of thousands, even millions of pounds in another multi-billion pound bonus season.

The Opposition believe in rewarding hard work and encouraging enterprise that contributes to the prosperity of the economy, but this is about fairness, responsibility and proportion. It is about the difference between rewards for success and rewards for failure.

When millions of families are struggling to find work, businesses are having their loan applications turned down and banks are continuing to rely on taxpayers’ hard-earned money for their very survival, the vast majority of people in all our constituencies find the idea of such sums being paid to a small number of individuals unacceptable. People rightly feel that we did not bail out the banking system to perpetuate a business-as-usual model or to pay big bonuses when ordinary workers are losing jobs. Surely we bailed out the banks to protect the businesses and families that depend on banks serving and supporting the wider economy.

[Mr John Redwood (Wokingham) (Con)]

Will the hon. Lady explain why Labour Ministers accepted and approved such grotesque contracts for RBS, so that they now personify payment for failure?

[Rachel Reeves]

We introduced a bank bonus tax to get some money back from the banks. The Government refused to go ahead with it and, instead, gave the banks a tax cut this year. That is not acceptable, and that is what the motion is about.

While banks seemingly return to the business-as-usual model, aided and abetted by the current Government, last week the Office for National Statistics published another set of dreadful unemployment numbers. Total unemployment is now at its highest since the summer of 1994. Women’s unemployment is the highest it has been since autumn 1987. Youth unemployment is now the highest since comparable records began. The number of young people claiming jobseeker’s allowance for six months or more has doubled in just 12 months.

Those figures on their own are shocking enough and should be sufficient to end all debate and drive the Chief Secretary and the Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling), to urgent action. However, most worrying is the fact that, on every measure, and according to every forecast and to the Government’s Office for Budget Responsibility, unemployment is set not to fall, but to get worse.

The Office for Budget Responsibility’s projection, alongside last year’s autumn statement, showed unemployment rising to 2.8 million this year. The OECD expects unemployment to rise to 9% in 2013. If unemployment continues to rise at the rate that it has done in the past six months, it will reach 3 million this summer. The economy may well be headed back to recession—we will hear the grim reality on Wednesday.

However, it is clear that, although the situation is now perilously close to tipping point, and the Government’s failures are mounting, they could still take action. Yet since taking office in 2010, the backfiring of their attempts to cut too far and too fast has added a shocking £158 billion in extra borrowing.

[Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

Does my hon. Friend agree that the growing trend of extended unemployment—more than six months—for young people creates the real worry that we will have a lost generation unless the Government act?

[Rachel Reeves]

My hon. Friend is right that long-term youth unemployment has a scarring effect, which affects more and more people throughout the country. It is similar to the situation in the early 1980s and early 1990s—the last two times a Conservative Government presided over a recession.

With more people out of work and fewer businesses succeeding, the Government end up paying out more in benefits and getting less in through taxes. They are filling that gap with the £158 billion more borrowing. The inheritance that that leaves for the next Government will mean more tough decisions about taxation and spending—the unnecessary and avoidable cost of the Government’s failure.

[Mrs Madeleine Moon (Bridgend) (Lab)]

Unemployment among all 16 to 24-year-olds on jobseeker’s allowance in the Bridgend constituency is 8.8%. Would one way forward be to grant a one-year national insurance holiday, so that small businesses could take on young people, give them employment and the opportunity to experience work?

[Rachel Reeves]

My hon. Friend is exactly right. That is why, as part of Labour’s five-point plan for jobs and growth, we include a national insurance holiday for all small businesses taking on new workers—a policy that would help small businesses and the more than 1 million young people who are desperately searching for work.

[Elizabeth Truss (South West Norfolk) (Con)]

Does the hon. Lady accept responsibility for the failure to skill up our young people to take on jobs? For example, after the Labour party’s 13 years in office, we had the smallest proportion of 16 to 18-year-olds studying maths of any OECD country.

[Rachel Reeves]

People are not getting jobs at the moment not because they do not have skills but because the jobs are not available. In all our constituencies, five or 10 people are chasing every job. That is why unemployment is rising. Until the Government take responsibility for that, the numbers will get worse, not better.

The price that families struggling with the consequences of redundancy and young people forced to abandon their career plans pay is incalculable. We cannot go on like that. Maybe some hon. Members—we have already heard from many of them—greet the prospect of rising unemployment with a degree of fatalism, perhaps resignation. They may feel that the punishment being inflicted on innocent families and young people is the sad but inevitable consequence of austerity and economic adjustment. Indeed, as I said earlier, there is a grim familiarity about the figures, which bear a depressing resemblance to the record of previous Conservative Governments.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

The hon. Lady talks about a grim familiarity. Does she acknowledge that every Labour Government in history ended with higher unemployment than they started with? After a 40% rise in youth unemployment under the previous Government, some humility is required on both sides of the House, but not least on hers.

[Rachel Reeves]

Unemployment has reached 3 million twice, both times under Conservative Governments. At the last election, unemployment was falling; today, it is rising.

[Mr Stuart]

That is because we are clearing up your mess.

[Rachel Reeves]

In the 1980s and early 1990s, unemployment reached 3 million. Was that because Conservative Governments were clearing up a Labour mess? Really? I think it was because of the policies that Conservative Governments always pursue—policies that hurt young people and put more people out of work. That is the reality of Conservative Governments.

Labour Members are not complacent. We do not say that it is inevitable, that it has got to happen and that 3 million unemployed is a price worth paying. Labour Members are not prepared to give up on young people and we urge the Government not to give up on them, either.

In the coalition agreement, the Government said that a fundamental goal would be to

“sustain the recovery and to protect jobs.”

Before the election, the Prime Minister told voters that jobs would be his top priority. He said:

“I understand if you leave people unemployed, and short term unemployment becomes long term, then it becomes a lifetime of unemployment. It’s a waste of life. I must stop it happening.”

He was right then, but he does nothing now. The Deputy Prime Minister said earlier this month that

“supporting people into work is my priority for 2012”.

He is right, yet he does nothing.

We must—and we will—hold the Government to their promises because we cannot allow the next generation to be denied the chance of expanded opportunities that has always been the promise of Britain.

[Margot James (Stourbridge) (Con)]

Will the hon. Lady acknowledge that long-term youth unemployment is falling—and, indeed, has fallen by 5%? Will she also acknowledge that half a million new jobs have been created in the private sector in the past year? Currently, there are 90,000 vacancies in retail, 44,000 in hospitality and 11,000 in construction. What matters is that the Government, through the Work programme and so many other interventions, are maximising the skills and training for young people to get them into work.

[Rachel Reeves]

In the hon. Lady’s constituency, long-term youth unemployment has gone up by 25% in the past few months. I do not know what she says to her constituents—“There’s loads of jobs out there. Just go and get one”? More people are chasing jobs than there are jobs available. That is because the Government are pushing more and more people out of work. I am sorry that the hon. Lady does not know the numbers for her constituency, but we know.

[Charlie Elphicke (Dover) (Con)]

The hon. Lady talked about the scarring effect of the fast-buck culture. Will she condemn the right hon. Member for South Shields (David Miliband) for taking a consultancy with private equity?

--- Later in debate ---

[Rachel Reeves]

I will not condemn my right hon. Friend for taking a job. I am talking about the reality of the challenge that people in our constituencies face. More and more people are out of work. We should listen to them. They are saying that they are getting degrees, A-levels and vocational qualifications but that they cannot find work. As I have said, many would be shocked that many MPs say, “That’s just inevitable—it’s just what happens, and nothing can be done about it.” That is not acceptable. Our constituents see unemployment rising. The House should be taking action to address that challenge.

[Sheila Gilmore (Edinburgh East) (Lab)]

I would have intervened earlier, but I was trying to work out the arithmetic of Government Members. We are constantly told that 500,000 jobs were created last year, but we have been told about them for the past 20 months. Does my hon. Friend agree that Government Members cannot constantly refer to those same jobs, which were largely the result of the stimulus applied by the previous Labour Government?

[Rachel Reeves]

I agree with my hon. Friend. We have to look only at the forecasts from, for example, the independent OBR, which says that unemployment will continue to rise this year, or at the OECD numbers, which say that unemployment will continue to rise into 2013. That is the reality.

I am sure we will hear the Chief Secretary to the Treasury and others defend the Government’s inaction and talk about their various half-baked and half-hearted solutions. We look forward to hearing a report on the progress of those initiatives, and in particular what difference the Government expect them to make to future unemployment. As I have said, the OBR has said that there is no reason for it to revise its unemployment projections as a result of the Government’s measures.

The Government’s response is inadequate for the scale of the challenge. When the Prime Minister was challenged last week on his performance on unemployment, all he could do was admit with regret that youth unemployment is a problem. However, the Opposition are asking the Government not simply to acknowledge they have a problem—we all know that—but to do something about it. The Prime Minister says he takes responsibility for everything that happens in our economy, but taking responsibility means taking action.

[Claire Perry (Devizes) (Con)]

Unemployment in my constituency is creeping upwards and long-term unemployment is coming down, but in both my constituency and the hon. Lady’s constituency apprenticeship starts are increasing at an incredibly rapid rate. Can she and I agree on one thing: that the best way to get young people into work is to get them such opportunities with the private sector, and relentlessly to support them, as this Government are doing?

[Rachel Reeves]

I expect the hon. Lady’s constituents, like mine, regret that the Government cancelled the future jobs fund, which was helping young people back into work. Since that cancellation, long-term youth unemployment in her constituency has gone up not just by a little bit, but by 36%. That is the reality that her constituents face day in, day out.

I hope we will not hear the usual hand-wringing—although I might have to give up that hope—or the usual shoulder-shrugging or blame-shifting. The jobs crisis is not a fact of life or a force of nature, and the Government cannot play the innocent bystander, as they have tried to do. The jobs crisis is a result of the choices they have made. They chose to cut too far and too fast; to abolish employment programmes that were working; and to destroy job opportunities in both public and private sectors.

[Mark Pritchard (The Wrekin) (Con)]

The hon. Lady approaches such matters very thoughtfully indeed, and as a future Labour leader I would expect nothing else of her, much to the shock and horror of the shadow Chancellor.

Does the hon. Lady accept that the economy needs to be rebalanced and that we need more tax producers than tax consumers? Surely we can all agree on that.

[Rachel Reeves]

I am not sure how the Government will rebalance the economy by throwing more people on the scrapheap. Perhaps the hon. Gentleman and I will just have to disagree, but that does not seem to me to be the way to rebalance the economy and to get it growing again.

Despite the Government’s mistakes, they still have choices open to them.

[Susan Elan Jones (Clwyd South) (Lab)]

None of the automated Government Members mentions the VAT tax bombshell, because they must know in their heart of hearts the absolute disgrace of the VAT increase for small companies. Does my hon. Friend agree that when Labour Members speak of a VAT cut for home improvements, we are speaking up for jobs in construction in a way that some Government Members will never understand?

[Rachel Reeves]

The cut in VAT to 17.5% is part of Labour’s five-point plan for jobs and growth. It would put £450 in the pockets of an average family, which is desperately needed to help people who are struggling with the rising cost of living—the rising train, energy and petrol prices.

We have rising unemployment and excessive bank bonuses, but it does not have to be that way. While millions of families up and down the country struggle with the effects of redundancy and millions of young people lose the hope of fulfilling their potential, very little is being asked of those with the broadest shoulders. Despite his pre-election promises to tackle the bonus culture, the Prime Minister will not take the measures recommended by the High Pay Commission to make a difference. Despite the Government’s call for more shareholder activism and engagement as a check on excessive remuneration, they wash their hands of the reported decision to award more than £1 million to the chief executive of RBS, in which they are a major shareholder.

[Mr James Gray (North Wiltshire) (Con)]

Will the hon. Lady express some degree of regret, because bank bonuses under this Government are 40% lower than they were under the previous one? She must tell the House who it was who gave Sir Fred Goodwin his knighthood.

[Rachel Reeves]

The Leader of the Opposition has said that the knighthood for Fred Goodwin was not warranted, but I do not remember hearing Conservative Members saying that he should not get a knighthood when it was awarded.

Bank bonuses were taxed at 50% in the last year of the Labour Government. That brought in £3.5 billion, which was used to help to support families and to support young people back into work. Unlike Labour, which introduced a tax on bank bonuses, the Government are introducing a tax cut for banks this year. That tax cut is unwarranted and unjustified as unemployment and youth unemployment continue to rise.

The Opposition proposal is simple. While banks are still not doing their job—they are not supporting jobs or growth—the Government must step in to ensure that resources are put to better use. A 50% tax on bank bonuses above £25,000 would, on a cautious estimate, raise enough revenue to support the creation of 100,000 jobs for young people.

We know that such a measure would work because it has worked before. Labour’s 2010 bank bonus tax raised £3.5 billion, according the OBR. The future jobs fund, which was created by the previous Labour Government, supported more than 100,000 people back into work. That is a record of which Labour Members are proud. By contrast, the Government have chosen a tax cut for the banks and a belated, half-hearted and ineffective response to rising youth joblessness.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

My hon. Friend is making an excellent speech on Labour’s proposal to create 100,000 jobs for the young from a bankers’ bonus tax. The north-east is bucking the national trend in manufacturing, which is in the doldrums in the rest of the nation, but 7,000 private sector jobs were lost in the past three months of 2011, whereas 4,000 public sector jobs were lost. Given that clear disparity, what does my hon. Friend make of the Prime Minister’s rhetoric on the creation of private sector jobs?

[Rachel Reeves]

My hon. Friend speaks passionately about his region of the north-east, and I know he does a huge amount of work for businesses, young people and families in his constituency.

The reality is that northern towns and cities are paying a particularly high price for this Government’s policies. In my city of Leeds, the local authority is losing more than 25% of its grant over the next four years. As a result, more people are losing their jobs and fewer services can be provided. It is people in the poorest areas who are paying the highest price for this Government’s policies.

[Several hon. Members]

rose—

[Rachel Reeves]

I will give way to the hon. Member for Pudsey (Stuart Andrew), who can perhaps try to justify the cuts in the grant to Leeds city council over the next four years.

[Stuart Andrew (Pudsey) (Con)]

The hon. Lady talks about cuts to Leeds city council, but does she not remember that it was her Government who took away neighbourhood funding, stripping the city council of £118 million and, funnily enough, giving the money to Sedgefield?

[Rachel Reeves]

In Pudsey, which is my next-door constituency, long-term youth unemployment has increased by more than 20% in the last few months. I am sure that the hon. Gentleman will agree that the cuts that Leeds city council is having to endure over the next few years are out of all proportion to any reduction in the neighbourhood grant under the Labour Government. His constituents and mine are the people paying the price.

I hope that we can show in this debate that the House is in touch with the problems of those who are paying the highest price for the failure of this Government’s policies. Hon. Members will know from their own constituencies the heart-breaking stories behind some of the statistics that we have already gone through today, and I am sure that we will hear some of those stories in the debate this evening. Most of all, I hope that this debate will be focused on action—effective and practical measures that can make a difference for the millions at the sharp end of this crisis. The Government have no excuse for inaction. A tax on bank bonuses would be fair and proportionate, and would enable us to address the immediate, pressing and growing challenge of getting young people back into the jobs that are so needed.

--- Later in debate ---

[Danny Alexander]

I have heard nothing coherent from the Opposition, and I have heard nothing from the business community in this country but support for our policies to deal with the deficit and restore this country’s economic credibility. The coalition has never shirked its responsibility to take tough and sometimes unpopular decisions to tackle the deficit and pull the country out of the hole that the previous Government dug. Because we did not delay, and because we took action to get ahead of the curve, we can cut the deficit on our own terms and shelter the UK from the debt storm that has engulfed our nearest neighbours.

[Rachel Reeves]

The right hon. Gentleman says that the Government are tackling the deficit, but will he confirm how much extra borrowing there will be during this Parliament, compared with the prediction when they took office? Is that not a cost of their failed economic policies?

[Danny Alexander]

I can confirm that according to the latest forecast, there will be significantly increased borrowing compared with the previous one. The hon. Lady should have explained in her opening speech that her policies involve substantial further increases in borrowing, which would destroy this country’s economic credibility and the hard-won low interest rates that we have achieved.

As a result of our action, we have record low bond yields that feed through to record low interest rates, which benefit households paying mortgages and businesses refinancing loans right across the country. Whereas our bond yields are just 2.1%, those of Spain have risen to 5.5%, those of Italy remain over 6%, and those of Greece have climbed to a staggering 34%. Even a 1% rise in our market interest rates would force taxpayers to find an extra £21 billion in debt interest payments. A 1% rise in effective mortgage rates would result in an extra £10 billion for mortgage payments.

The Opposition have had 18 months to come to terms with the mess they created, but they still do not get it. It has taken them 18 months to move from the wrong place to all over the place. The Leader of the Opposition called the pay freeze an

“ideological attack on the public sector”,

but he now accepts it. The shadow Chief Secretary to the Treasury called the uprating of pensions with the consumer prices index an “ideologically driven move”, but it is a move that the Opposition have now accepted for their party’s own pension scheme. So let us be clear—financial discipline is not ideological; it is a necessary condition for effective government. In the past 10 days, members of the Labour shadow Cabinet have succeeded in proving that they cannot even convince themselves of the credibility of their economic policy.

--- Later in debate ---

[Danny Alexander]

I do not think that those on the Opposition Front were trying to shout the apology that the country wants from them. They should say sorry, too, for letting the deficit and the country’s debt get out of control. Instead, all we have heard today is the apology of a speech made by the shadow Chief Secretary.

[Rachel Reeves]

I wonder when the electorate might get an apology from the Liberal Democrats for trebling university tuition fees and imposing a VAT bombshell.

[Danny Alexander]

I am sorry that the shadow Chief Secretary did not take the opportunity to offer an apology for the terrible mess made by her party and the Government of which the shadow Chancellor was a leading member.

It is the coalition Government who are investing in skills, infrastructure and innovation to create new opportunities in the recovery. It is this coalition that is reforming a broken financial sector to entrench greater stability and embed long-term sustainability. It is this coalition Government alone who are determined to face up to today’s economic challenges to build tomorrow’s fair, prosperous and sustainable economy.