Could Rachel Reeves’s ‘black hole’ be filled not through tax rises or even spending cuts but rather through getting an extra two million people into work? That is the claim this morning made by the Jobs Foundation, a think tank set up by Matthew Elliott, now Lord Elliott, who formerly ran the Taxpayers’ Alliance. Raising the employment rate from 75 per cent to 80 per cent of the working age population, it claims, would raise an extra £20 billion in tax. That is not quite the £35 billion to £40 billion worth of tax rises which we have been briefed to expect in Wednesday’s Budget, but never mind – all those extra jobs would be a huge contribution to the public purse.
How do you create those jobs and, equally importantly, persuade British people to fill them? It isn’t that UK employers are failing to create jobs; they are. But there is a very large and growing contingent of the UK adult population which it seems would prefer not to take up employment, preferring to get by on welfare instead.
The Jobs Foundation report is full of worthy case studies of how employers have created jobs for people who were previously on welfare, in many cases taking employment to coastal towns where there has long been a culture of unemployment. That is all very good, but it is hard to imagine how any government is going to tackle the vast rise in people on out-of-work benefits without a hefty stick as well as a carrot. As first revealed on The Spectator’s data hub, low levels of official employment in recent years – the lowest in 50 years, the previous government tried to tell us – have masked a rather more important trend: a sharp increase in the number of people on out-of-work benefits of all kinds.
Contrary to what is often claimed, this did not begin with Covid and the furlough scheme – although that gave it a big kick. It began a couple of years earlier. What had changed to provoke the rise? It coincided with significant numbers of people being moved onto Universal Credit from other benefits. Although praised even by some on the left for trying to simply the benefits system, Universal Credit now stands out as the most shocking failure of the Cameron and Osborne government. For some reason which is far from obvious, it has achieved the opposite of what was intended, and brought about a huge rise in people on benefits. And yet it hardly showed up on the political radar, with the Tories damned for virtually everything except this.
If the government is going to reverse the phenomenal growth in people on out of work benefits, and thus have a chance of righting the public finances to the tune of £20 billion, it is going to have to understand what has gone wrong and find some way of undoing the damage wrought by Universal Credit. Does the fault lie with work capability assessments, which were criticised at first for being too harsh but which might since have become a little too soft, thus allowing people too easily to be dismissed as not fit enough to work? Universal Credit was designed with the honourable intention to eradicate the welfare trap, where people remain on benefits because they are perversely better off that way than in work. Yet still we hear of cases of people who find themselves trapped in this way.
Moreover, the Cameron government failed to foresee what seems to be the fundamental problem with Universal Credit: replace a Byzantine benefits system with a rationalised one-stop-shop for welfare claims and you might end up encouraging more people to claim. Putting that right is not going to be easy politically, but the alternative is ever-increasing taxes: a shrinking pool of workers has to support a growing pool of people who have convinced themselves (and benefits offices) that they are too sick to earn a living.
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