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Employment

Volume 705: debated on Tuesday 25 November 2008

My Lords, with the leave of the House, I shall repeat a Statement made by my right honourable friend James Purnell in the other place. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement on employment.

“Unemployment began rising in January, as we, like so many other countries, began to feel the shock waves of the credit crunch rippling out from the US banking system. Each and every job lost is a personal tragedy for the individual involved. Our goal is to ensure that newly unemployed people do not fall out of touch with the labour market. For those who have been out of a job for some time, we will do everything we can to bring them back closer to the world of work. So we will continue to reform the welfare state to help people back into work now and to prepare for the upturn.

“Britain starts from a strong position. The number of people in work reached its highest ever level, 29.5 million, this summer. Earlier this year, we experienced the lowest claimant unemployment level since the 1970s. There are over half a million vacancies in the economy. In the 1980s, claimant unemployment was above 3 million for 17 months and, between 1979 and 1997, the number of people on incapacity benefits trebled to over 2.5 million. We all know the human cost behind these figures. Communities were scarred and still carry those scars today. Whole families were left without work not just for years, but for generations.

“For the first time since 1945, the global economy is predicted to shrink next year. No country can be immune. But all Governments have the same goal—to make the downturn as shallow and as short as possible. If this had been done in the 1990s, the recession then would have been less costly to communities, less costly for individuals and less costly for the economy as a whole.

“Yesterday, my right honourable friend the Chancellor set out details of a £20 billion fiscal stimulus package to support our economy—the right action to reduce as far as possible the human and financial cost of the downturn. The money means help for small business, a timely boost to the economy and capital projects to maintain employment.

“The money also means a significant boost for older people in this country—a basic state pension of £95.25 for individuals and an increase to the guaranteed credit, which will ensure that no pensioner need live on less than £130 per week. My right honourable friend said yesterday that he wants to see pensioners benefit as quickly as possible. As we are not able to increase the pension and pension credit rates before April, we therefore announced that an additional £60 payment will be made to 15 million people from January. This is in addition to the £10 Christmas bonus, which will be paid as normal. These measures represent a significant increase in government support for older people, which will really make a difference to pensioners, particularly if prices fall as expected next year.

“The Chancellor also announced extra help for my department next year. This £1.3 billion package will ensure that we can respond to the higher number of people claiming benefits. Over the past decade, we have reformed the welfare state to match more support with personal responsibility. Yesterday’s announcement will enable us to continue with our reform of welfare to offer real help to people in these tough times.

“We will be able to maintain the service that we provide and strengthen our response in three key ways. First, we need to make sure that the right support and conditionality are in place for all who need it. We need to ensure that Jobcentre Plus can deliver as good a service as today to more people. In the past, Governments have cut back on the support and conditionality as the claimant count has risen. We want to do the opposite and do more to help people, rather than less.

“Over the past 10 years, we have modernised our employment services almost beyond recognition. It used to be that, in the past, people got benefits from one agency and job advice from another. Now you cannot sign on without looking for work. Jobcentre Plus takes 80,000 calls a week and gets 350,000 visits to our website. The National Audit Office reports that,

‘the Organisation for Economic Co-operation and Development found significant improvements in unemployment levels in the United Kingdom … related closely to the adoption of active job-seeking measures’.

“Our first priority remains to ensure that everyone continues to receive this top-quality service and I am pleased to say that the system is coping well. Our target for jobseeker’s allowance is to process all new claims within 11 and a half days—in the year to date, we are processing them within an average of 10. For our crisis loans, demand has gone up but processing times continue to fall—1.8 days against a target of two. Also, budgeting loans are being dealt with 17 per cent quicker than their target time.

“But with higher levels of claimant count, we need further investment. The extra money that the Chancellor announced yesterday will ensure that we are able to maintain and expand our offer during a time of increased pressure on our services—help with CV writing and job search and time with personal advisers to develop action plans, to identify skills needs and to get support with training, childcare and interview techniques.

“We need to ensure that we have the right capacity. In the last spending round, the department reduced its staffing by 31,000 and has increased productivity overall by 12 per cent, as confirmed by the National Audit Office. We have saved money in back-office processing and used this to invest in the front line. There are now 1,500 more personal advisers in Jobcentre Plus than two years ago. In the current economic circumstances, we need to ensure that these changes do not affect our front-line services, so we are today announcing a moratorium on Jobcentre Plus closures. I can also confirm that the PBR will mean 6,000 more front-line staff in place in Jobcentre Plus next year.

“Secondly, we need to make sure that we reach as early as possible people facing redundancy. The Insolvency Service now informs Jobcentre Plus immediately of redundancy notifications that it receives. We had already doubled the funding for our rapid response service. Yesterday, the money available was doubled again, allowing us to help all companies facing 20 or more redundancies. This service will bring people swift access to the £100 million that the DWP and DIUS announced last month to help people to retrain and to develop their skills so that they can move quickly back into sustainable work—people such as the workers at Butler and Tanner in Frome, Somerset, nearly 300 of whom lost their jobs when the printers closed in April this year. With the help of rapid response service funds and training programmes, it is estimated that 90 per cent have now found new jobs.

“We know that local employment partnerships, which help to match the unemployed to employers looking to hire, have been successful. Already, over 70,000 of our most disadvantaged customers have started work under the initiative. Now we will be able to extend this to include those who are newly redundant, too.

“We have also announced the National Employment Partnership. This group will be chaired by the Prime Minister and will include heads of business and public sector bodies with a remit to ensure that employers work with the Government to enable people facing redundancy to be moved as quickly as possible into new jobs.

“Thirdly, over the past 10 years, we have also opened up our service to private and voluntary sector providers. As David Freud recognised, this allows us to get the best of both worlds, with Jobcentre Plus providing the core support and processing, and specialist providers helping the harder-to-help people to find work.

“Despite opposition to them from some parts of this House, the New Deals have been effective, but they need to become more personal to the individual rather than be based on their age. So we are introducing the flexible New Deal. Some concerns have been expressed about the viability of these contracts in new economic circumstances, but I am glad to report that we have compliant bids from 24 organisations and a minimum of four organisations competing for each of the contracts on offer.

“It is important that we invest more in the flexible New Deal to give the providers confidence but also to make sure that this time people who are further from the labour market are not abandoned. Some people say that there is no point in helping people furthest from the labour market in the current circumstances. We say the opposite—that when times are harder, we should be giving people more help, not less.

“This Government are taking action—action on the economy and action to help people to face the effects of the global crisis. That is the right thing to do for this country, for individuals and for jobs. The £1.3 billion will help those who are newly facing redundancy and those who have been out of work for longer. There will be more front-line staff and more money for our private and voluntary providers so that we can maintain our active regime. For those who have been out of work for some time, we will maintain and accelerate our overhaul of the welfare system to do everything that we can to bring them back closer to the world of work. There will be more help now to prevent individual tragedies today from becoming the scars of communities tomorrow. I commend this Statement to the House”.

That concludes the Statement.

My Lords, the House will be grateful to the Minister for repeating this Statement on employment. However, I am afraid that I cannot be as ecstatic as I was the last time he and I debated a Statement. In summary, this one states what the Government are going to do for employment in response to the worst recession that this country has seen since the war—a recession already so deep that it will inevitably take longer to work through than any in my or his lifetime. What price, then, the Chancellor’s claim in his Pre-Budget Statement yesterday that he is,

“forecasting that output will continue to fall … for the first two quarters of next year. But then … I expect it to … recover”?—[Official Report, Commons, 24/11/08; col. 492.]

Can anyone seriously believe that that will happen quickly? No. What will happen is that all of us will start to pay extra taxes in 2010, when the country is still in recession. The whole plan in the Government’s mini-Budget might be summed up in Arthur Daley’s phrase, “Live now, pay later”, but not when you can afford it.

How will that affect employment prospects? Yesterday, the Chancellor made play of the fact that employment remains at a record high. What he does not say, and what I ask the Minister now, is: of the new jobs created since 1997, how many were in the private sector and how many in the public sector? We know, because the Office for National Statistics obligingly told us last week, that 300,000 private sector jobs were created this year and 50,000 public sector ones. The days may be long gone when Labour Governments created jobs by packing nationalised industries with people off the unemployment register, but it seems that the basic premise remains. Furthermore, is it not true that most new jobs have gone to migrant workers and not to British-born benefit claimants, and that the number of young people not in education or employment is 20 per cent higher than a decade ago? British jobs for British workers?

However, to get back to the real economy—the wealth-producing one. It is a sine qua non that to achieve an increase in employment you need firms of all sizes to be not only optimistic for the future but profitable. Neither of these conditions seems achievable in the near future, no matter how much money the Government pump into the economy or, as the Pre-Budget Report made clear, delay taking some away from employees and employers. The enormous sums that the Government have pumped into the banking system both through the nationalisation of two banks and the recapitalisation of most of the rest have clearly not had the desired effect. Banks are not lending to each other, nor are they lending anything like enough to business to maintain the cash flow that they need to survive. The Minister will no doubt reply, “Not yet”, but when, dear Lord, will we see bank lending back on a level footing?

That has not worked as fast as we were led to believe, so what is next? There is to be a temporary reduction in the rate of VAT, from 17.5 per cent to 15 per cent. On sales of £250,000 this amounts to a tax saving of £6,250. Does the Minister really imagine that that will encourage a firm to take on even one extra worker, especially when the employer knows that national insurance charges will be increasing from April 2010 and that VAT will resume its 17.5 per cent status from January the same year? I have already heard reports of firms that pay half the amount in tax and national insurance that they pay individual employees in wages. That is not a happy situation. To get back to VAT, does the Minister really expect that a 2.5 per cent reduction will generate one extra sale when there are discounts of 20 per cent and more in the shops? What confidence can business have when it awaits a £2.8 billion tax rise through national insurance charges? What gives the Minister confidence that deferring the small business corporation tax rise and business rate relief will persuade businesses to employ more people?

I can find, as I often do, something with which to agree in the Statement, such as that all Governments would want to make the downturn as shallow and as short as possible. I am sure, therefore, that the £60 payable to pensioners in January will be most welcome. But the Minister must realise that this will help businesses, and employment, only if the money is spent. There is another point. Since the money will be taxable and will reduce pension credit, what is the net cost to the Treasury of this measure? How many jobs will come from this apparent largesse?

As I hinted during Question Time, I believe strongly that the Government should continue with welfare reform, including progressively shifting single parents with children under 16 from income support to jobseeker’s allowance. As long as the Government do not bottle out. I therefore await the publication of the next Session’s welfare reform Bill with great interest. I also agree that this is no time to be shutting the one-stop shops we now call jobcentres, and I am glad that the closure programme has been halted. Unfortunately it is a little late because it is almost at the end of the programme. I understand that there are only three more centres to be closed. It is right that more front-line staff will be recruited, but what a topsy-turvy world jobcentre staff live in. One moment there are cuts, and the next there are increases. Is that not proof that the Government did not see the recession coming? Is not the extra money for jobcentres a panic measure?

Lastly, the Government cheat by using claimant count to measure unemployment. The only true measure of the changing nature of employment is the economically inactive count. Will the Minister give us the figures for 1997 and 2008 when we next discuss the matter in January?

My Lords, I thank the Minister for repeating the Statement. Although I share a good deal of the scepticism of the noble Lord, Lord Skelmersdale, about how effective the measures announced yesterday in another place will be, and tempting though it would be to have an action replay, I do not propose to go there. I shall focus a little more on the employment and pensions aspects of this Statement.

The Statement is pretty complacent. Does the Minister accept that the problem now is that many of the long-term jobless that we are so concerned to help will in this new, dramatically changed world have to compete with hundreds of thousands of newly jobless people who in many ways will be more obviously attractive to employers? Many people are now being thrown out of work purely because of the refusal of banks to lend to perfectly sound businesses so, by definition, many of these people will be extremely employable and powerful competitors, if I can put it that way, to the longer-term unemployed.

What can we do to address the fact that long-term unemployment is increasing so fast and that under the flexible New Deal people will be left for 12 months before getting intense support back to work? Can some of the extra spending be directed so that personal advisers can have more time with claimants to get them back to work quickly? We have also heard about the rapid response service helping companies that have to announce more than 20 redundancies. How many companies does the Minister expect to announce more than 20 redundancies in the next year? What steps are the Government taking to shift the backlogs of unprocessed JSA claims? They have risen from 30,000 last December to 66,000 in September 2008.

The Statement also talks about pensions. In fact, the pensions paragraph reads rather more like a general DWP press release. Will the Minister explain why in table B16 of the Pre-Budget Report net expenditure on public service pensions is shown as more than trebling over three years from £1.2 billion in 2006-07 to £2.3 billion last year, to £2.9 billion this year and £3.8 billion in 2009-10? Why is the estimated cost for this year—£2.9 billion—almost five times the cost of £600 million that the Treasury predicted for this year as recently as the 2005 Pre-Budget Report? Why has the Treasury persistently underestimated the future cost of public sector pensions in the PBR year after year? Is it incompetence, wishful thinking or both? How on earth can the total public sector pensions bill be allowed to rocket through the roof when private sector pensions are being cut to ribbons and ordinary taxpayers are losing their jobs and tightening their belts? Is not the real reason for the ballooning public sector pensions bill that the Government bottled out of raising the retirement age in the public sector for many years to come, so public finances are now being savagely squeezed by the refusal of the Government to ensure that something is done about people retiring at 60 for many years to come and the unlimited indexation of pensions in payment?

The Minister has answered for the Treasury and the DWP in recent years. I trust that he will either get these answers from the Treasury and write to me himself or will ask the noble Lord, Lord Myners, to do so. We discussed this at considerable length during the passage of the Pensions Bill. Unfunded, unfair and unaffordable public sector pension liabilities are the real time bomb ticking away, even though they are buried on page 210 of the Pre-Budget Report. That is the real time bomb, not the tax rises that we all know about.

My Lords, I thank both noble Lords for their contributions. I understand the basis on which they made them. I shall start with the comments made by the noble Lord, Lord Skelmersdale, about the position in which the Government find themselves. The economic situation that we face is unprecedented over decades. It is a global crisis. As said in the Statement, it is the first time since 1945 that the global economy has been projected to contract. These are new and different circumstances, but notwithstanding that, the position we start from is strong. To repeat part of what was said in the exchanges yesterday, we have nearly 3 million more people in employment than 10 years ago. The employment rate is something like 1.7 percentage points higher. Unemployment is 227,000 lower on the ILO measure and 638,000 on the claimant count.

That is not to diminish the challenges that we face, but we need to be fair and realistic about the context. The noble Lord was sceptical about the projections for output GDP presented to Parliament yesterday. He may be sceptical, but those are the figures. They show, in the latter part of next year, signs of recovery and, in 2010, a return to positive GDP growth. Treasury forecasting stands well by comparison with many independent forecasters.

The noble Lord said that most of the jobs that have been created have been in the public sector.

My Lords, perhaps I may help the noble Lord by putting it this way. Overall, the private sector accounts for three-quarters of the growth in employment since 1999.

The noble Lord referred to migrant workers and their impact on the economy. We are clear from independent analysis that economic migration has been good for the British economy; it has certainly been good for public services. I think I am right in saying that 8 per cent of those in employment are foreign nationals, so UK nationals account for more than nine out of 10 people in employment. About 47 per cent of the increase in employment since 1997 is accounted for by foreign nationals. By implication, therefore, 53 per cent is accounted for by British nationals.

The noble Lord asked what I believed would be the impact of the proposed reductions in VAT; I believe that it is as the Chancellor set out in the Statement before Parliament. We believe that that is an effective way to produce a fiscal stimulus for the economy. It is in stark contrast to what the noble Lord’s leader proposed, which was some reductions in national insurance contributions, the costing of which was totally chaotic and a lot of which was perceived as a dead weight cost.

The noble Lord asked about the net cost of the £60 payable to pensioners. I do not have that figure to hand, but I will certainly write to him on that. He challenged us on using the claimant count as a basis for counting unemployment. There are two different bases for counting unemployment, which have been recorded routinely and used by Governments of both parties. He asked me specifically about the number who are economically inactive. You need to drill down into the figures to get a clear picture on that. If you extract students from the statistics for the economically inactive—it is right that we do and right that we have a substantial increase in the number of students in our country today—you will see that the rate has declined under this Government.

The noble Lord, Lord Oakeshott, said that the long-term jobless will be competing with those newly redundant. Obviously, if more people are out of employment, that must follow. That makes it doubly important that we continue to support those people who have been furthest from the labour market. The resources that the DWP now has and can deploy through Jobcentre Plus mean that there will be more people at the front line to help both those made newly redundant and those who have been long-term unemployed. The flexible New Deal is an effective way to do that. The New Deal has been successful over the years, but probably less successful as time has gone on. It has been more difficult to get those harder-to-reach people into work, which is why the flexible New Deal is so important.

The noble Lord asked how many companies we believe will declare 20 or more redundancies. I do not have a figure, and I doubt that there is an estimate, but the resources that have been made available to the rapid response service mean that we can give national coverage to the service and support those situations, wherever they arise.

The noble Lord also asked about JSA claims and the clearance backlog. As I said when I repeated the Statement, we are dealing with those claims faster than the target rate of 10.5 days. This shows that we are on top of them and that the changes that have been made to Jobcentre Plus to make it more efficient—in many ways to move people from the back office to the front office—are paying dividends.

The noble Lord challenged me on, I think, table B16 and public service pension costs. I am bound to say that I have not had a chance to study that table in detail but will certainly do so. The important thing about public sector pensions, as we have discussed before, is that we need to look at affordability over the long term. The long-term financial forecast is the right place in which to look for affordability. It is also important to recognise that we have not bottled out of the challenges with which public service pensions have confronted us. Each of the big schemes has been the subject of negotiations and change for new entrants. The retirement age has been raised, and there have been negotiations on cost-capping and cost-sharing for each of those schemes. The costs have thereby significantly reduced.

I think that I have dealt with the key points that noble Lords have made, but I will be perfectly happy to try to answer any further questions if they think that I have not done so.

My Lords, as the president of the National Training Federation for Wales, I thank my noble friend and particularly the Chancellor for the extra support that he has given to jobcentre and jobseeker programmes in the light of the new economic and employment threat. Although we entirely endorse the wonderful work that jobcentre personal advisers have done, we also confirm that a host of local training providers have delivered these programmes over the past decade or so and made them such a success.

In that context, I draw my noble friend’s attention to the considerable concern expressed by a host of such providers that the flexible new deal, whatever its virtues, has the potential to destabilise the existing provider network. Will he therefore convey to fellow Ministers that, whatever the future of the flexible New Deal, we will need every possible support from the local providers, who have delivered so well in the past decade, if we are to deliver and to meet the new challenges of the high unemployment that we are facing?

My Lords, my noble friend makes a very important point. It is right to say that there is a host of providers, particularly local ones, who have served us well and have helped to get people into employment and to sustain them in employment. However, the challenges of where we are lead us in the direction of broader, longer contracts with providers. As I said when I repeated the Statement, we have had bids from a whole range of would-be providers, but we need to ensure that local providers and specialist, niche providers do not miss out. We are engaged with the Office of the Third Sector to see that sub-contracting arrangements can be put into place with these broad overall contractors. It is an important strand of the work that we have to do.

My Lords, the ever patient Minister has not been entirely clear in some of his responses to my noble friend Lord Skelmersdale and the noble Lord, Lord Oakeshott. Is he aware that £4 in every £5 that the 80 per cent of people who work in the private sector put aside for pensions is invested in the contributions of the 20 per cent of people who work in the public sector, and that only £1 is invested in their own private sector pensions? This is an unacceptable ratio. Is he also aware that the OECD has stated that one reason why this country will have the deepest recession of all the leading economies and will be the last out of recession is that the markets see the off-balance sheet debts, of which public sector pensions is a key one, as a reason to have little confidence in the strength of sterling?

Is the Minister further aware that the number of public sector jobs has increased in recent months, while the number of private sector jobs has diminished? Of 600,000 vacancies that now exist, what percentage is in the public sector and what percentage is in the private sector? Is he aware of the article in yesterday’s Financial Times, which showed that nearly 40 per cent to 50 per cent of the new jobs being created in this country are in the public sector and that in many parts of the country, including the West Midlands, the majority of new jobs are in the public sector and not the private sector? Does he believe that these background figures give international investors hope that the Government’s figures produced yesterday for our recovery are accurate?

My Lords, it seems that we have had a fairly full-frontal attack on public sector pension provision from the noble Lord, which is regrettable. We need to see public sector pension costs in the context of the public sector pay bill generally and total public expenditure. I come back to the point that if you look at the long-term forecast—these are generally unfunded pension liabilities and are not like a funded scheme—their affordability is judged by looking over the long term to see whether in cash-flow terms they can be afforded. I have not yet looked at the 2008 data, if they are available, but certainly the last data I looked at indicated that the total cost would increase from around 1.5 per cent of GDP to 2 per cent over a 50-year period. I do not accept that they are not affordable.

On off-balance-sheet debt, whatever funding arrangements are in place, how they are recorded in the national accounts is not at the whim of the Government. There are clear international guidelines to cover this. The noble Lord shakes his head, but that happens to be the truth. The Government cannot simply decide by whim whether they will put something on the balance sheet. The National Audit Office has a role in this and we apply international criteria in making that judgment.

The noble Lord asked what percentage of vacancies is in the public sector and what percentage is in the private sector. With respect, that misunderstands the nature of that figure. We have a dynamic labour market. It is not a fixed number of vacancies which gradually go up if people are made redundant or down when those vacancies are taken up. There is a whole interaction of people moving from employment to another job, from employment to unemployment and from unemployment to employment. You cannot simply look at that number and say that this is a fixed stock of vacancies. That is not how it works.

The noble Lord asked whether I read the article in yesterday’s Financial Times about the extent to which job growth has been in the public sector or the private sector. The answer is, yes, I did. I thought that I had dealt with that question in response to an earlier point raised.