All change: as government returns, we need a new plan for jobs and growth

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22 Sep 2022

Tony Wilson, Institute Director

Follow @tonywilsonies

This comment piece was originally published on the Prospect website on 21 September.

The events of the last two weeks have been momentous. If nothing else, they have reminded us of the constancy of the Queen in our lives and through nearly a century of our national story. Regardless of your views of the monarchy, Queen Elizabeth clearly kept the promise that she made on her 21^st birthday, 75 years ago, that she would dedicate her life to service. However, this week politics has started again—and in place of constancy and stability, “normal” service resumes with a new prime minister (our fourth in six years), an economic crisis and an emergency (mini) budget this week. This turmoil of course partly reflects the challenges we’re facing in our economy. But while much of the focus and debate this week will be on whether planned tax cuts can boost demand, this “new” government also needs a new plan, quickly, to do far more on supply—to help more people into work, to address labour and skills shortages, and to support growth and bring down inflation. 

Last week’s jobs figures, in particular, make this case clearer than ever. Unemployment is at its lowest in nearly 50 years, but this is being driven by people leaving the labour force altogether—with a record number of people not working due to long-term ill health (which is rising at its fastest ever rate) and 600,000 more older people out of work than before the pandemic began. At the same time, vacancies remain close to their highest ever as employers struggle to fill jobs, meaning for the first time in our lives we have more vacancies than there are unemployed people. These labour shortages are in turn holding back growth and contributing to higher inflation, with both “core” inflation (which strips out volatile energy and food costs) and services inflation both above 5 per cent and still rising.

These issues have been building for over a year now, and part of the problem is that the government had been preparing for a very different crisis in the labour market—of mass unemployment, long-term unemployment and weak demand. They moved quickly to address this, first through the furlough scheme in 2020 and then the Spending Review in 2021, and committed around £10bn in employment and skills support for the unemployed. But as the crises have changed, our labour market response largely hasn’t. The new “Way to Work” campaign is mainly focused on reducing short-term unemployment (which is at its lowest ever) even as the Kickstart scheme for unemployed young people underspent by at least £700m. The Restart scheme, for the long-term unemployed, is on course to spend £1bn less than the £2.9bn set aside, and thousands of Jobcentre Plus work coaches hired during the pandemic have been let go.

Just to be clear: I was one of those who thought (and said) in the summer of 2020 that we were heading for an unemployment crisis. But as the facts have changed, I’ve changed my mind. And with ministers changing, the government needs to do so as well. I think that there are now four areas where we need to see action, starting at Friday’s budget.

First, most importantly, we need a major and rapid expansion in access to employment support for those who are out of work and want help to get back in. Currently our employment services are almost entirely limited to those in the “Searching for Work” (ie unemployed) group of Universal Credit. Yet the large majority of the three million people who are out of work and want a job aren’t unemployed at all: 1.7m people are classed as “economically inactive” and are either on the wrong bit of benefit or on no benefit at all (particularly among older people). We need far more access to regular employment services—on a voluntary basis—for those people, but also a lot more investment in specialist support, particularly for older people, parents and those with health conditions. The good news, however, is that there is at least £2bn in underspends from the Plan for Jobs that we could put to use.

Secondly, this needs to be rooted in local areas and partnerships so that we can reach people closer to the places where they live. This should mean more co-location and outreach of Jobcentre Plus work coaches and support, but also a recognition that Jobcentre Plus often won’t be best placed to deliver specialist services itself—like Individual Placement and Support, help for older people not on benefit, or help to address complex needs. So we need to build on some of the pilots that are already being taken forward, and on models like the Local Government Association’s Work Local proposals, and the Greater London Authority’s No Wrong Door approach.

Thirdly, we need to have a much better conversation with employers, who often seem to fall between three or four stools in government on the labour market, employment and skills. Even if we don’t have a single Employment Ministry, we need to act like we do—with a single, coherent approach on workforce planning, decent work, recruitment and retention, workplace skills and wider support. A new Employment Bill appears to be off the table again (despite representations from both business and unions), but we can expect more from employers and do more to help them too—especially on recruitment, retention and job quality. In the meantime, local government is stepping in (our recent work for the LGA sets some of this out).

Finally, linked to this, we need to act on skills as well as labour needs. The reality is that labour shortages are likely to become a permanent rather than temporary feature of the UK labour market, and so we need to do far more to help people out of work and in work to improve their skills, be productive in work and progress. As a start, this should include making the apprenticeships model more flexible so we can leverage more employer investment; lengthening the training available under the successful Sector Based Work Academies model, and scaling up skills bootcamps. But in the longer term we need a more coherent, stable and joined up approach to how we co-invest in adult training and co-ordinate this within industries and places.

Of course doing all of this in more normal times, with an established and functioning government, would likely be a tall order; doing it now, with the turmoil we have had, may be too much to ask. But if we don’t take action now to address the supply issues that we are facing in the labour market, then much of the demand stimulus that is planned for this Friday’s budget—on payroll costs, business taxes and incentives—will do more for inflation than it does for growth, which will further erode living standards and push interest higher.

With all that has changed the last few weeks, we have an opportunity now to act; and the scale of the challenges we face means that we must seize this chance.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.