Unemployment could again be the measure of political failure

If unemployment rises, New Labour's most distinctive theme would start to become its greatest liability

THE MOST significant change in politics since the election has been hardly noticed: unemployment has become a politically important issue again. After 1979, the jobless level ceased to have political consequences. Elections could still be won by governing parties presiding over high unemployment. But greatly to its credit, and possibly to its cost, New Labour has changed all that. This government cannot win again, surely, unless unemployment is lower at the next election than it was at the last.

For an explanation of New Labour's distinctive appeal can be summed up in one word: "Work". Gordon Brown, a man with a huge appetite for work himself (as you are reading this he will be devouring books by obscure American economists on his "holiday" in Cape Cod), sees it as the key to economic and social progress. The word "work" recurred more than 20 times in his spring budget. The welfare to work programme, paid for by the windfall tax, announced in his first budget in July last year, was New Labour's "big idea". Childcare schemes have been expanded so that more single parents are able to work. The Government's main pre-election pledge was to cut the unemployment bills, the money spent on "economic failure", and transfer it to "productive spending" on education and health. Brown's view of the entire welfare reform package is predicated on the assumption that work will create opportunities and erode the culture of dependency. The mantra of New Labour is work, work, work.

So what happens to the Government if unemployment starts to rise fast, as several economists have gloomily predicted in recent days? There is a real danger that New Labour's most distinctive and positive theme would start to become its greatest liability. Exhortations about the value of work would incite only anger and contempt.

Senior aides of Cordon Brown are fully aware of the political repercussions. If the economy suffers a hard landing, they have a response prepared: the jobs situation would have been much worse, they will say, if we had not introduced schemes such as welfare to work. This would no doubt be the case. Even so, "It Could Have Been Worse" is hardly a great clarion call as the Government enters the awkward mid-term phase. The Government will suffer, possibly fatally, if a recession blows apart its programme for jobs.

It does not deserve such a fate for returning to the more civilised pre- Thatcher era, when politicians trembled at the publication of the monthly unemployment figures. One of Margaret Thatcher's more depressing contributions to politics was her triumphant defiance of what had been regarded as a post-war electoral law: a government could not be re-elected if unemployment was high.

In 1983, with unemployment close to a post-war record she won a landslide. Nine years later, in the middle of a job killing recession, John Major was also returned to power. Such had been the change of political climate that a chancellor, admittedly one who was politically inept, could declare publicly that "unemployment was a price worth paying". For ministers in the Eighties and early Nineties, there seemed to be no long-term political pain.

During this period, earnest experts appearing on late night by-election programmes rapidly devised a new theory about elections: a party could be returned to power if those in work were enjoying rising standards of living, even if unemployment was high. This was a revolutionary shift in our political culture, as any leader who struggled through the Sixties and Seventies would testify.

When unemployment hit one million in early 1972, the Heath government regarded it as a political catastrophe, prompting his famous U-turn from embryonic Thatcherite to a high-spending interventionist. In spite of the inflationary madness that overwhelmed the Labour government of Wilson and Callaghan, both ensured that unemployment remained relatively low compared with other European countries for the rest of the Seventies. For them, without hesitation, unemployment was the number one enemy.

Now we are in new political territory. For the New Labour Government has returned us to the pre-Thatcher era in one sense. It recognises the importance of work, and the Government's role in creating the opportunities for people to work. Only it rejects emphatically the policies adopted by the governments of the Sixties and Seventies. It would no more rescue a "lame duck" in industry than the Thatcher government would have done. Nor would it relax its onslaught on inflation in order to ease the pressure on employment, which is what the Heath and Wilson/Callaghan governments both did.

It has become almost a cliche to declare that Brown is the most powerful chancellor since the war, so much so that even Blair, himself a dominant Prime Minister, is getting itchy. And yet, Brown has given more power away than any chancellor since the war. Unlike his predecessors, who shared his assumptions about the importance of work, Brown has no control over interest rates and the level of income tax.

The decision to hand over control of interest rates to the Bank of England was the right one, establishing a degree of early stability that previous Labour governments have lacked. In the context of the current fears about jobs, it is also a red herring. The rate would not be lower if Brown was taking the decision each month himself. Indeed, a few months ago it was Brown's (and Blair's) personal view that the rate should have been higher.

But the pre-election decision not to raise the rate of income tax was purely political and almost certainly unnecessary. Labour would have won the last election without such a firm commitment. Amidst the economic uncertainties, there is one safe assumption: Labour will not break this pledge.

Yet if Brown had raised income tax in July 1997, interest rates might well have been lower now. Perhaps at the time of the next budget an income tax rise would be the fairest way of raising money - if the unemployment bills start to rise and the previously buoyant tax revenues start to decline. Even the Tories raised income tax when faced with recession.

Unless politicians - and it will only be Labour and Liberal Democrat ones - start to talk more realistically about the need, sometimes, to put up income tax, Labour chancellors will be permanently stuck with rates decided by the last Conservative government. And yet such rigidity may prove incompatible with sustained levels of high employment.

Fingers crossed, then, for a soft landing, so the Government's admirable objective of encouraging people into worthwhile jobs can be achieved.

The only problem is that Brown can do little more than keep his fingers crossed as well. He will certainly be doing so, for he has created a climate once more where governments will pay a price for unemployment.