Money Talk: Big idea that may not work

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WORK is the bedrock on which Tony Blair's grandiose plans for the reform of the welfare state are being built, and on which they may also founder.

Few people will shed tears for professional fraudsters who milk the benefits system, and measures to raise the starting point for the payment of National Insurance and remove disincentives to low-paid, part-time workers, single parents and disabled people coming off welfare and into work are clearly welcome.

Efforts to subsidise wages for unemployed youngsters and the long-term unemployed out of the proceeds of the windfall tax on public utilities are well meant, even though they are just as likely to be paid for out of the pockets of consumers as the shareholders in the utilities.

But the whole programme of welfare to work only makes sense if there is work out there for the welfare recipients, the vast majority of whom are neither well-off nor well-qualified. If only things were that simple. Service industries and self-employment have absorbed most of the skilled workers squeezed out of company labour forces by the Thatcherite reforms of the Eighties. The UK economy is now supposed to be running close to full capacity.

But 1.4 million able-bodied people still cannot find work and are living on benefit. Many of them are trapped in places where there is no work and no public transport to get them to where the jobs may be. In some parts of the country, including most of the big post-war housing estates where "social exclusion" is at its worst, unemploy- ment among young men in particular is still running as high as 50 per cent.

At the very least they will need training which will take both time and money to provide, and there is no guarantee that there will be work available for them. There is a real possibility that employers who sign up for the Government's work programme will employ them and sack existing workers who have become relatively more expensive to employ, or will take on cheap labour and milk the system only to dump them again when times get hard.

There are clear limits to the speed at which a mature economy like the UK can grow, and employers already routinely cull their labour forces to absorb productivity gains and achieve increased output without increasing employment.

Even the current level of growth should not be taken for granted. Half the members of the Bank of England's monetary policy committee already think there are strong signs of over-heating, although their only response is likely to be a further belated rise in interest rates, which would push up the value of sterling and make UK goods and services even less competitive. Meanwhile the Chancellor has made it clear that he is not in the business of maintaining demand by cutting taxes.

There is a real risk that the Government's plans to cut welfare budgets by getting people into work will melt away as soon as unemployment rises again, as certainly it must when the economy starts to slow down.