Good news on the jobs front, but why is the Youth Contract not working?

A year on from its launch, the Youth Contract looks feeble in comparison to the problem it is trying to solve. It's time for a jobs guarantee.

Today’s labour market statistics continued the good news of recent months. Employment rose at the fastest annual rate since 1989, and the inactivity rate, the proportion of the population neither in work or looking for a job, is at its lowest level since 1991. Whilst there are legitimate questions about how this 'jobs miracle' is possible given the poor state of the economy, we should be very encouraged that of all the issues the UK faces, job creation does not appear to be one of them at the moment.

But behind the positive headline numbers there are still some sections of the population facing a very difficult jobs market. Youth unemployment, which was falling at an encouraging pace until a few months ago, appears now to be stuck in reverse, with the number of young people unemployed rising 11,000 in the latest quarter. Even more worrying, the number of young people unemployed for over a year, and in danger of permanent wage scarring and disconnection from the labour market, is up by 10,000. There are some positive signs, with the numbers of economically inactive youth falling and employment amongst the group rising, but the high level of unemployment points towards a large proportion of the young being left behind as the labour market improves overall.

And what is being done about it? The coalition’s Youth Contract, launched over a year ago, aimed for a radical increase in support for young people’s entry into work, providing incentives for employers to take on young employees, increases in apprenticeship numbers, and greater provision of work experience placements. It was hoped to be, in the words of Nick Clegg, "a major moment for Britain’s unemployed young people".

And where are we now? Today’s data shows that youth unemployment remains stubbornly high. A week ago Cait Reilly succeeded in challenging the DWP over its mandatory work activity scheme. And last month the latest apprenticeships data showed that new places were disproportionately going to the over-25s, with the number of school-leavers moving into apprenticeships actually falling. A year on, the Youth Contract looks feeble in comparison to the problem it is trying to solve.

A better approach would be to tackle both the short and long-term causes of youth unemployment head on. Firstly, IPPR has suggested that a jobs guarantee be adopted, with anyone unemployed and claiming Jobseeker's Allowance (JSA) for over 12 months offered a paid job at the minimum wage. There were almost 80,000 young people in this group in December, a rise of 35,000 on a year ago. This would offer instant help to them, and is a fundamentally better policy than making people work for their JSA.

Over the longer-term, we need a revolution in how the system of transition from school to work operates. At the moment, most of the 50 per cent of young people who don’t go to university are faced with poorly-funded careers advice, low-quality or non-existent apprenticeship places, and a confusing plethora of vocational education options of variable worth. This group are being ill-served by the system, which doesn’t offer the skills or the experience needed for them to fully flourish in 21st century Britain.

Changing the deeply ingrained transition system will be difficult, but the evidence from other countries suggests it is not impossible, if the will from politicians, employers, unions and wider society is there. IPPR is currently carrying out a major research project in order to learn valuable international lessons on youth unemployment that can be applied to a UK context.

Today’s jobs data was great on most fronts. But if we fail to tackle the deeply-set issues around marginal groups in the labour force, including youth unemployment, we are in danger of a recovery for some, but one that misses out on those most in need.

Spencer Thompson is economic analyst at IPPR

Nick Clegg claimed the Youth Jobs Contract would be "a major moment for Britain’s unemployed young people". Photograph: Getty Images.

Spencer Thompson is economic analyst at IPPR

Photo: Getty
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George Osborne's mistakes are coming back to haunt him

George Osborne's next budget may be a zombie one, warns Chris Leslie.

Spending Reviews are supposed to set a strategic, stable course for at least a three year period. But just three months since the Chancellor claimed he no longer needed to cut as far or as fast this Parliament, his over-optimistic reliance on bullish forecasts looks misplaced.

There is a real risk that the Budget on March 16 will be a ‘zombie’ Budget, with the spectre of cuts everyone thought had been avoided rearing their ugly head again, unwelcome for both the public and for the Chancellor’s own ambitions.

In November George Osborne relied heavily on a surprise £27billion windfall from statistical reclassifications and forecasting optimism to bury expected police cuts and politically disastrous cuts to tax credits. We were assured these issues had been laid to rest.

But the Chancellor’s swagger may have been premature. Those higher income tax receipts he was banking on? It turns out wage growth may not be so buoyant, according to last week’s Bank of England Inflation Report. The Institute for Fiscal Studies suggest the outlook for earnings growth will be revised down taking £5billion from revenues.

Improved capital gains tax receipts? Falling equity markets and sluggish housing sales may depress CGT and stamp duties. And the oil price shock could hit revenues from North Sea production.

Back in November, the OBR revised up revenues by an astonishing £50billion+ over this Parliament. This now looks a little over-optimistic.

But never let it be said that George Osborne misses an opportunity to scramble out of political danger. He immediately cashed in those higher projected receipts, but in doing so he’s landed himself with very little wriggle room for the forthcoming Budget.

Borrowing is just not falling as fast as forecast. The £78billion deficit should have been cut by £20billion by now but it’s down by just £11billion. So what? Well this is a Chancellor who has given a cast iron guarantee to deliver a surplus by 2019-20. So he cannot afford to turn a blind eye.

All this points towards a Chancellor forced to revisit cuts he thought he wouldn’t need to make. A zombie Budget where unpopular reductions to public services are still very much alive, even though they were supposed to be history. More aggressive cuts, stealthy tax rises, pension changes designed to benefit the Treasury more than the public – all of these are on the cards. 

Is this the Chancellor’s misfortune or was he chancing his luck? As the IFS pointed out at the time, there was only really a 50/50 chance these revenue windfalls were built on solid ground. With growth and productivity still lagging, gloomier market expectations, exports sluggish and both construction and manufacturing barely contributing to additional expansion, it looks as though the Chancellor was just too optimistic, or perhaps too desperate for a short-term political solution. It wouldn’t be the first time that George Osborne has prioritised his own political interests.

There’s no short cut here. Productivity-enhancing public services and infrastructure could and should have been front and centre in that Spending Review. Rebalancing the economy should also have been a feature of new policy in that Autumn Statement, but instead the Chancellor banked on forecast revisions and growth too reliant on the service sector alone. Infrastructure decisions are delayed for short-term politicking. Uncertainty about our EU membership holds back business investment. And while we ought to have a consensus about eradicating the deficit, the excessive rigidity of the Chancellor’s fiscal charter bears down on much-needed capital investment.

So for those who thought that extreme cuts to services, a harsh approach to in-work benefits or punitive tax rises might be a thing of the past, beware the Chancellor whose hubris may force him to revive them after all. 

Chris Leslie is chair of Labour's backbench Treasury committee.