Why unemployment remains so high

Allister Heath
UNEMPLOYMENT in the UK is far higher than most commentators realise. The figures used by economists and the media only include people who are looking for work, thus missing out several million benefit claimants who are on the dole in all but name. The latest official statistics (from last November) reveal that there are 5.87m adults on one of the out of work benefits, 15.8 per cent of the working age population. This extraordinary figure includes everybody officially on the dole, as well as all those on other benefits such as incapacity.

A decent guesstimate is that 1m of these are incapable of working, either because they suffer from debilitating physical or psychological disabilities or because they are acting as carers. That leaves close to 5m people who should be working but are not, a near-criminal waste of resources and lives.

In Liverpool, 27.4 per cent of the working age population are on out of work benefits, in Glasgow 25.7 per cent, in Birmingham 23.3 per cent and in Manchester 22.5 per cent. The disparities within the UK are enormous: in Richmond upon Thames, it its just 8.1 per cent; in Kingston 8.3 per cent. London isn’t as bad as some places but the stats can be awful here too: over 20 per cent are on out of work benefits in Hackney, Tower Hamlets, Barking and Newham. At the height of the bubble, 5.12m adults were on out-of-work benefits across the UK – so the recession is only partly responsible for Britain’s high joblessness. The real problem is the welfare system, which has trapped many onto a life of benefits. Millions of jobs were created during the past decade but few went to those on benefits.

It often makes little financial sense for low-skilled individuals who are out of work to take a low-paid, entry level position: the loss of benefits eliminates almost all the extra income gained. That is why the proposals to reform welfare from Iain Duncan Smith, the secretary of state for work and pensions, are so welcome. IDS knows all about the system’s crippling disincentives, as well as its absurd complexities.

There are more than 50 benefits, administered by the department of work and pensions, HMRC, local authorities, the department for education and the department of health. The existence of so many benefits makes life extremely tough for claimants. One woman with a disabled son was forced to complete ten application forms, containing 1,200 questions, to apply for benefits.

As David Martin, formerly head of tax at Herbert Smith, notes in a pamphlet for the Centre for Policy Studies, the DWP issues a total of 14 manuals – 8,690 pages of guidance – to its staff. An additional set of four volumes totalling over 1,200 pages covers housing and council tax benefits, primarily the responsibility of local authorities. HMRC’s tax credits manual is a further 260 pages – though one also needs to consult other tax manuals to understand what is going on. There also exists a cornucopia of circulars, press releases and guidance notes, as well of course as all the legal statutes and statutory instruments.

It is vital that all of these rules and benefits be torn up and replaced by a single, simple universal benefit, as advocated by Duncan Smith, and for the poor to be able to retain as much of any income they earn in the labour market as possible, to incentivise them to quit welfare and get a job. David Cameron must back his secretary of state all the way.