At some point, Rishi Sunak is going to need to pick a lane. There is only so long that the Chancellor can claim to believe that excessive borrowing is immoral while borrowing to such excess. His trick yesterday was to make all the right noises about restraint while unrolling a £500 million ‘plan for jobs’. Take away his earnest delivery and it’s still not clear whether he’s the boozer at the bar telling the world about the dangers of alcoholism, or the sensible friend ordering the taxi home.
Let’s be fair. Sunak has had to deal with exceptional circumstances in the last 18 months, and is taking steps to cease the unprecedented spending spurge. He’s shown resolve in unwinding the furlough scheme last week and ending the £20 Universal Credit uplift today. Another three months of furlough could have cost another £3 billion, another year of the UC uptick £6 billion.
And it’s understandable that the Chancellor wants to take the sting out of these unpopular decisions by announcing extra money for schemes we’ve already seen. But the 'high-wage economy' has been a leftist trope for years. The Trades Union Congress, IPPR, and Labour Party politicians have all called for it. Yet Tory ministers are now bashing companies for being 'drunk on cheap labour,’ seemingly forgetting that business's main function is to provide for their customers and keep their prices competitive.
We don’t yet know the state of the post-Covid labour market. Job vacancies are at a record high, hitting over one million last month, while over a million workers are expected to be in post-furlough limbo. If ever there was a time for politicians to accept the truism that the labour market cannot be controlled by government intervention, it is surely now, a period of near-unprecedented fluidity and uncertainty. But even in 2017 when, to many, global epidemics were the stuff of Gwyneth Paltrow movies, 2.2 million jobs were lost while 2.6m were generated.
Furlough’s slow cessation did have one benefit: it gave individuals time to adjust career plans and companies to reform their business models. Those who benefitted from the scheme until its dying hours are not displaced steel workers or miners in isolated parts of the country, as in the 1980s. They are workers with more general skills disproportionately located in London. For such people, new opportunities will arise, giving cause for cautious optimism.
Ministers love to utter catchy soundbites about 'creating jobs’. Yet direct government interventions are expensive and rarely successful. Take the Kickstart scheme, which aimed to provide 350,000 six-month jobs for 16-24 year olds claiming Universal Credit. Of the 196,300 Kickstart jobs made available across the UK since its inception last autumn, just 76,970 (39 per cent) had been started by end-September 2021.
Schemes such as these always have a 'deadweight loss' – that is, workers who are taken on who would often have found employment regardless. One group is always boosted at the expense of another – in Kickstart's case, younger age groups would benefit. Yet the Institute for Fiscal Studies has warned that it is older workers who are most vulnerable as furlough was unwound: only a third of those over 50 who had lost jobs during the pandemic had managed to find a new one within six months.
There's also the 'displacement effect', which means some firms benefit from the subsidy while others lose out. Inevitably some businesses are more able to take on subsidised workers than others – larger firms, expanding firms, firms with better contacts with Jobcentres. These firms get the benefit of subsidies while others, such as smaller businesses and the self-employed, do not.
It is hard to take seriously the government’s insistence that it is in the business of job creation, given it is simultaneously adopting measures that will make it harder for companies to hire – hiking National Insurance, plotting new workers' rights, and maintaining the Apprenticeship Levy. Even before the pandemic, regulations and employment law permeated all aspects of work. This slows growth, keeps earnings lower than they could be, and undermines the power of private enterprise to generate employment, growth, productivity and higher living standards.
Spending other people’s money might be politically acceptable during a period of turmoil, but the government can only eschew tough decisions under the pretext of crisis management for so long. Soon it will need to stop talking a good talk on jobs and put forward a coherent strategy for facilitating job creation. Sunak should stop just talking about getting the government out of the economy, and start giving the private sector freedom to flourish.