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Features

A jobs miracle is happening in Britain, thanks to tax cuts. Why don't the Tories say so?

If a jobs boom also creates demand for immigrants, it is apparently too embarrassing to mention

21 March 2015

9:00 AM

21 March 2015

9:00 AM

Feeling the genitals of freshly hatched chickens may not be the most glamorous job in the world but at £40,000 a year it’s not badly paid. It requires some stamina: you pick up hundreds of chicks a day and check their ‘vent’ for boy parts. If it’s a baby hen, then she’s sent off for a life of corn and egg-laying. If it’s a baby rooster — well, best not to ask. Almost nobody in Britain wants to do it, so vacancies go unfilled. The poultry industry, in desperation, has asked the government to add ‘chicken sexer’ to its growing list of seemingly unfillable jobs.

This fits a trend. In five short years, Britain has gone from having mass unemployment to jobs galore. Unemployment is falling at a rate that confounds the economists, and employers are starting to panic. Maths teachers, chefs — the list of ‘shortage occupations’ grows ever longer. Construction companies are not tendering for work in London because they can’t find bricklayers. Financially this is a headache, but economically it’s a problem of success. The Prime Minister set out to get rid of the deficit. He failed. But instead he has presided over a jobs miracle — one that economists and policymakers are still struggling to understand.

Just before the Budget was published, the latest figures came out — all of them smashing records. There are 30.9 million of us in work, the most ever. That’s an employment ratio of 73.3 per cent, the highest in history. Employment is up by 1.7 million since Cameron took power and 1.5 million of these jobs are full-time. The number on Jobseekers Allowance fell by 30 per cent last year alone and the youth claimant count stands at its lowest since the 1970s. Birmingham added more jobs to its economy last year than the whole of France; Britain is adding more than the rest of Europe. David Cameron can take credit for creating more jobs than any first-term prime minister in postwar history.

Against this backdrop, this week’s Budget wheezes pale into insignificance. Yet still the government prefers to focus on the smoke and mirrors than on its genuine and staggering success with jobs. Last month, Iain Duncan Smith briefed the House of Lords on all the progress and was given a standing ovation. And a few awkward questions. ‘This was all new to us and we’re Tory peers,’ said one present. ‘We wanted to know: why isn’t the party talking about this?’ Ministers are being asked to behave like pull-string dolls, repeating the nebulous phrase ‘long-term economic plan’ when asked a question about sport. It sounds like spin. The irony is that it conceals a genuine achievement of radical Conservatism.

At the start of this government, Ed Miliband predicted a jobs armageddon — austerity would inevitably mean mass unemployment. Osborne would cut 500,000 public sector jobs, he said, with ‘no credible plan to replace them’. And surely government spending is synonymous with prosperity? Boldly, he forecast a ratio: one private job would be lost for every public sector job lost — leading to the loss of ‘a million jobs in all’.

The conventional Keynesian wisdom, to which Miliband subscribed, is that government spending cuts make the economy weaker: fewer public sector workers means less money spent in the shops, so less demand, therefore more unemployment. Osborne saw things differently. What if the problem was not the supply of jobs, but the supply of willing workers? If you cut taxes on low-paid work, it becomes more attractive: more people want to move from welfare. Especially if welfare reform makes it harder to game the system.

Ed Miliband was right about the public sector job cuts. Almost half a million have gone — but two million private sector jobs have been created. The ratio, of almost five jobs created for every public sector job shed, was something no one dared predict when Osborne started cutting tax and reforming welfare. An admiring Barack Obama recently told David Cameron that he must be ‘doing something right’. By contrast, the White House tried an expensive ‘stimulus’ that ended up stimulating little more than the US national debt.

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To left-wing economists, the sight of a jobs boom taking root in austerity Britain is like watching an orchard spring from the desert. Isn’t the Chancellor halfway through an austerity drive? Shouldn’t Britain be shivering under a cloud of gloom? The prevailing orthodoxy was so strong that even the Tories seem to half believe it — and have stuck to their uninspiring script. Osborne hoped vaguely that an economic recovery would speak for itself. As Sir John Major found out, this does not happen: in economics, as in politics, every step needs to be explained.

Much of the jobs boom is to do with income tax cuts, or raising the starting rate of tax — from £6,475 to £10,600 over the past five years — a Liberal Democrat policy that ended up meaning that work pays more. Crucially, these tax cuts have made low-paid work much more attractive. The take-home pay of a minimum-wage worker has risen by about 20 per cent over the past five years, twice as fast as the average salary.

Perhaps this all started out, like so much government policy, as a gimmick to elicit applause during speeches or to appease the Liberal Democrats. But when work pays better, more people are persuaded to move from welfare into work. A study published last week shows that Britain is now the best country in Europe in which to move from welfare to work.

Osborne’s corporation tax cuts have helped: he inherited a rate of 28 per cent and has lowered it each year — it will fall to 20 per cent next month. This has given a massive stimulus to the economy: companies that pay less tax have more money to spend on hiring workers. On paper, this has shown that Britain has a productivity problem — companies hire a disproportionate amount of workers while pay has remained stubbornly low. But it is better to have a recovery that creates jobs than the other way round. This, alas, is a point that no one in the government has made.

Then there is welfare reform. Much attention has fallen on Iain Duncan Smith’s proposed Universal Credit, which will one day replace a whole slew of other benefits. But after a series of missteps and delays, it has had minimal impact. The real work was done in extending the best ideas of the reforming Blair-era ministers, and asking welfare-to-work companies to give more support to those on the dole. More controversially, it has been tougher to live on benefits, what with penalties being imposed on those who miss meetings or turn down job interviews. Last year an average of 2,000 sanctions were issued each day to people who were felt to be gaming the system, a 50 per cent rise on the Labour years.

Such moves have brought the government no end of trouble. The sanctions were denounced as showing ‘inhuman inflexibility’ not by Labour but by Nick Boles, a Tory minister. Crisis, the homeless charity, recently denounced the new welfare system as a ‘punitive and deeply flawed regime’ that can leave people cold, hungry and destitute. It published a study showing that in the Richmondshire district of North Yorkshire, sanctions were being applied to 15 per cent of those on Jobseekers Allowance. In Test Valley, Hampshire, it is 10 per cent. On the face of it, such a ratio does indeed look cruel — are we to believe that so many are gaming the system?

But the proportion is high because, in these places, there is hardly any anyone left on the dole. The number on Jobseekers Allowance has collapsed by three quarters in Richmondshire, by two thirds in the Test Valley, and in both places it now stands at just 1 per cent of the population. This is what economists call ‘full employment’ — an unemployment rate so low that it may as well not exist.

Full employment brings new problems: companies can’t find workers and therefore can’t grow. Just this week Robert Walters, a financial recruitment firm, said the City has 10,600 vacancies to fill but only 6,100 looking for work. Without workers, the economy can’t grow — and taxes won’t be paid.

The problem is wider than that: hauliers have long complained about the lack of people wanting to train to drive lorries. There is a shortage of carpenters and electricians.

Kevin Green, who runs the Recruitment and Employment Confederation, says that factories in the Midlands are struggling to find workers for entry-level jobs. ‘We need to think how far away we are from full employment across Britain,’ he says. ‘Many of the Eastern Europeans who were doing these jobs left during the crash and aren’t coming back. The politicians are doing us a disservice by talking about immigrants in a way that makes them feel unwelcome.’

For employers, more immigrants is the answer. But for a Prime Minister worried about a Ukip threat, immigration is a problem. David Cameron foolishly pledged to reduce net immigration to the ‘tens of thousands’ — yet it stood at 298,000 a year at the last count, as the Spanish, French and Italians flee their own moribund economies. When the latest figures came out, Cameron’s government panicked; one BBC studio had an empty chair where a minister was supposed to be. The minister should have turned up and explained that the jobs miracle devoured the immigration target. That no one imagined a scenario where Britain would be surging out of recession when Europe remains mired in it. Normally, continents rise or fall together — but Britain is a job-creating freak in a continent of gloom. And this good economic fortune did not blow in from the Atlantic: it was created in Downing Street when Tory ministers implemented market-favouring reforms, with little idea of how amazingly effective they would prove.

There is much left to do. Salaries have been too low for too long. Yet a shortage of workers means that pay rises will not be far behind. The jobs miracle has cost George Osborne a fortune: his tax cuts mean he doesn’t claw back as much money from people in low pay. His tax credits means he is subsidising entry-level jobs. It’s an expensive business, which helps explain why the deficit is three times higher than he first said it would be.

The Chancellor treats all this as a dirty secret; it should be his proudest boast. He has invested in people and saved communities from the scar of long-term unemployment.

There is still time — just — to come up with a coherent narrative. The jobs miracle was the result of Conservative principles in practice, and it has emerged in defiance of conventional wisdom. Jobs numbers are at a record high; the next mission must be to lift salaries — against a new backdrop of low inflation, falling energy prices, record low mortgage rates and booming consumer confidence. It’s not a bad prospectus on which to ask voters for permission to finish the job.

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