Leading article: Political positioning, costly initiatives and lost jobs

The Government's proposals must be judged on their economic impact

Tuesday 13 January 2009 01:00

The political calculation involved in the Prime Minister's high-profile "jobs summit" yesterday was not difficult to spot. Gordon Brown hopes that the more he is seen attempting to alleviate the effects of the recession, the more likely voters will be to stick with Labour in the next general election.

He also hopes to use his frenetic activity to ram home his characterisation of the Conservatives as the "do nothing" party of the recession. So much for the political choreography. But behind the machinations, what of the substance ?

It is certainly true that no responsible politician can afford to be sanguine about rising unemployment levels. The jobless figure, which stands at 1.86 million, will hit 3 million by the end of the year if businesses continue to shed jobs at the present rate. The employees of Land of Leather and Wincanton were the latest to feel the sharp edge of the downturn yesterday.

But will the measures announced yesterday actually help? The new training to be made available to the unemployed is highly worthwhile. So are the demands that those on the dole maintain regular contact with job centres on pain of losing their income support. The economic revolution of the Thatcher years was necessary, but the great mistake was its terrible failure to attempt to reintegrate the newly unemployed back into the workforce. This neglect compounded the misery of communities rocked by the disappearance of thousands of old manufacturing and mining jobs. It also stored up terrible social problems for the future, not least the culture of welfare dependency that still needs to be tackled. The Government is right to seek to avoid repeating those particular errors.

But the promised subsidy for employers who take on those unemployed for more than six months looks a typical Brownite gimmick, aimed more at headline writers than job seekers. And even if it was a more serious proposal, it demonstrates little more than a flawed faith in the influence of the state. The fact is that government cannot bribe businesses into hiring. The measures might provide a marginal incentive, but most firms will only start taking on labour again when the economic outlook and credit conditions improve. Does it make sense to pay them a £2,500 "golden hello" for each worker they would be employing anyway? If ministers really wanted to transform the employment landscape, they would examine the thicket of regulations surrounding the job market.

We cannot ignore the cost of these latest measures to the public purse either. The £500m of public money earmarked to fund the scheme might seem like a drop in the ocean compared with the billions injected into our banks and the Government's ballooning borrowing. But it will nevertheless have to be repaid one day. So will the rest of the £10bn the Government is planning as part of a job-creating fiscal stimulus.

Greater government borrowing in a recession is inevitable as unemployment payments rise and tax receipts fall. And there is a strong case for a further discretionary economic stimulus if it can help stave off the serious threat of deflation. The present rise in unemployment is a consequence of collapsing demand. If the Government can successfully prop up that demand, it will have served the country well.

But if Mr Brown borrows excessively to fund a blunted and wasteful attempt at a stimulus (and the recent VAT cut does not set a cheering precedent), he will rightly be held accountable for his mismanagement of the public finances.

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