Coalition needs to tackle jobs crisis

 
Allister Heath
BRITAIN’S jobs market has ground to a halt and with more people joining the labour force than leaving it unemployment is soaring. This is an emergency, yet the government is paralysed, with radical supply-siders (including, perhaps surprisingly, several advisers in 10 Downing Street) largely stymied, thanks to Vince Cable and allies. There are some reforms in the pipeline that will make employers more likely to take on staff but they are too little, too late, and lack real urgency.

The issue is that the number of people in employment aged 16 and over increased by just 26,000 on the year to November – but full-time workers are down, male employment is down and self-employment is up. Just as worryingly, the number of hours worked overall in the economy has stagnated in recent months and is up by just 0.2 per cent over the past year.

Part of the problem is that private firms are only adding slightly to payrolls, thus no longer compensating for the (much-needed) reduction to the public sector workforce. Public sector employment was 5.99m in September 2011, down 67,000 from June; private sector employment was 23.12m, up just 5,000. Over the year to September, private sector jobs rose by 262,000 – and public sector jobs fell by 276,000.

Another major ongoing issue is that UK-born workers are increasingly uncompetitive, partly because of poor education, incentives or attitudes: hard-working migrants have the upper hand. The number of UK born people in employment fell 311,000 on a year earlier. The number of non-UK born people in employment rose by 181,000, continuing the trend.

The answer is not for the government to borrow and spend more. McKinsey’s latest research on the subject, out today, shows total private and public debt in the UK is now 507 per cent of GDP, with only Japan higher at 512 per cent, and hugely higher than number three Spain (363 per cent), France (346 per cent), Italy and Korea (both 314 per cent) and the US (279 per cent). Britain’s figures are exaggerated by its reliance on financial services, as banks are always leveraged; but the statistics are nevertheless awful.

The solution is to liberate and incentivise the private sector to hire more people; to make it easier for unproductive workers to be dismissed and replaced by new staff, including from the ranks of the unemployed; and to improve the quality, education and motivation of the workforce. It is a scandal that Adrian Beecroft’s report, commissioned by the prime minister himself, and which called for firms to be given the power to fire unproductive workers and for the unfair dismissal rules to be replaced by a new Compensated No Fault Dismissal procedure, has been diluted out of all recognition. The government is rightly changing its mind on airport expansion, after 18 months of prevarication and time wasting, realising at last that London cannot cope and that economic growth and jobs creation need to be prioritised; it needs to perform a similar U-turn on the labour market.

There are many reasons for our elevated levels of unemployment; some will take years to solve. The welfare state needs to stop trapping people into joblessness. But it is time to stop artificially protecting those who have jobs at the expense of those who are clamouring to get into the labour market, including the young. We need a little more bravery and a little less demagoguery from our politicians.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath