‘Off to work we go’?

Jeremy Hunt’s budget is unlikely to get many more people into the labour market. Most of the newspaper headlines have focussed on the child care reforms – particularly providing up to 30 hours for very young children (from 9 months to 2 years) but, as child care sector representatives have been quick to point out, they can’t recruit enough new staff to provide this and with current funding arrangements not enough to meet provider costs, it could lead to higher fees for non-funded hours. Even more nursery closures.  Many of the measures announced yesterday will take years rather than months to implement and also be subject to lengthy pilots.

At the moment, all families in England with three and four-year-olds qualify for 15 free childcare hours a week, spread across 38 weeks (school term time). Households can now apply to bump this up to 30 hours a week if parents earn the equivalent of 16 hours a week (£152) at the national minimum or living wage. The Institute for Fiscal Studies argues that the reforms will mostly benefit existing working parents and that some of those in the higher salary band might cut their hours to qualify. Professional women who have parked careers may also benefit. With the cost of living ( now becoming a standard of living) crisis, many women currently working in low paid service sector jobs even without children, find it difficult to manage.

At the other end of the scale, Hunt’s changes to pension taxes aren’t likely to change the behaviour of people they are designed for: bringing ex NHS doctors out of retirement in particular, but more generally the equity rich 50 pluses who have found they can afford to retire early and having a new life plan, won’t be tempted back by promises of new style apprenticeships ( “returnerships” ) or mid life MOTs. Instead, the government is likely to end up trying to bully people on sickness or disability allowances and family credit back into the work force. Even if it ignores the fact that post-Covid, two million people aren’t working because the cash starved NHS can’t offer the treatment they need.

But the Hunt budget also has to be put in a wider context.  The UK economy is a labour-intensive economy which has relied on a large ‘reserve army’ of labour to fill thousands of low-paid, low-skilled jobs in the service sector, particularly workers from Eastern Europe who have left in droves post-Brexit. The government is now trying to replace these with other groups, like students and young people, (while at the same time trying to ban ‘economic migrants’ from its shores!). Yet the monthly job figures show that even if more students are working part-time, desperate to fund their studies, the number of NEETs (young people Not in Employment, Education of Training) has increased lately. One in eight 16–24-year-olds are now NEET. For 18–24-year-olds the figure is even higher.

So, with unemployment already below 4% and wider ‘economic inactivity’ figures not really budging downwards, Hunt and the Tories will find it difficult to expand the labour force to fill the million plus vacancies.   But even if they could it’s unlikely that there’d be the sort of economic growth that Hunt craves and Labour promises.

The latest forecast by the Office for Budget Responsibility suggests that the British economy will grow only 1 per cent a year on average during the period from the end of the pandemic to the start of 2028. A major problem is that UK productivity (amount produced per worker) rates are abysmal, particularly compared to countries like Germany and Japan, but also the US where in addition, as the chart shows, GDP per capita is much higher.  Adding more workers might push up total GDP, but it doesn’t necessarily improve productivity.

The aim of the Tories has been to let an ‘unburdened’ private sector come up with the investment for growth and it has been a complete disaster with  Hunt’s investment ‘incentives’ to the private sector come at the expense of increased expenditure in the state sector. As his ‘back to work’ budget was being digested in Parliament, half a million public sector workers were absent from work on strike!

Neither does the UK economy have anything resembling an industrial strategy with a plan for long term capital investment, particularly in the new technologies that will enable it to both raise productivity but also allow people, especially those in ‘lousy jobs’ (and who are invariably lectured about the value of ‘hard work’ by people in ‘lovely jobs’) to work less, not more – and by implication be able to spend more time with their children. In otherwords, rather than just free market ‘growth, growth, growth’ it would also allow other objectives to be set. The reality is that rather than there not being enough workers, there’s not enough robots.