My Lords, why the focus on employment? I have always considered this to be central to our country’s success and quality of life. This fact was brought home to me by my right honourable friend Robert Halfon MP, who, having lost Harlow by 97 votes in 2005, went on to win well in 2010. He is disabled and not mobile. He told me the story that during his campaign he had to have a new tyre for his car. As he was waiting in his car, a large, heavily tattooed tyre-fitter came up to him with the greeting, “Oi! Are you the Tory? I want a word”. Rob admitted, with some temerity, that he was the candidate. “Well,” the fellow said, “I am voting for you lot this time”. “Why is that?” asked Rob. He replied, “Because I’ve got a job”. Jobs are central to our economic success.
This is a time when capitalism itself is being questioned and the siren song of socialism rings out from the party opposite—or, if not exactly from the noble Lords opposite, certainly from some of their colleagues in the other place. Frankly, I was horrified to read John McDonnell’s comments in the weekend press that he wants to replace capitalism with a system of common ownership and businesses run by workers’ votes. He has said publicly that his job is “to overthrow capitalism”. I hope all speakers will distance themselves from this aspiration as, meanwhile, Conservatives continue to believe that the market economy and the jobs it creates provide the best route from poverty to prosperity.
We have today 32.7 million reasons to be cheerful; that is the number of people currently in work, earning a wage, providing for a family and contributing to a community, which is 354,000 more people than a year before and the highest number since records began in 1971. The female employment rate stands at 71.8%, the joint highest on record, and the unemployment rate is currently down to 3.8%, the lowest since 1974—a remarkable achievement and cause for some optimism, as the UK continues to work through this difficult period for its political economy.
I called this debate for two reasons. The first is to celebrate these numbers, and I hope noble Lords will join me in so doing. The other is to probe them, to make sure that we are doing everything we can to future-proof our labour market, drive up the quality of work, create more high-paying jobs and, of course, increase productivity—something I feel sure that the noble Lord, Lord Haskel, will focus on—to improve the UK’s ability to compete globally. And there is more cause for optimism. To those who say these are the wrong sorts of job, either low quality or low wage, I would draw noble Lords’ attention to a recent report from the Resolution Foundation, which found that the proportion of workers on low wages is now at 17%, its lowest level since 1980. When this is combined with the Government’s progressive approach to tax policy, taking low-wage earners out of tax altogether, the picture is a compelling one for social mobility.
My Lords, I bring some news that may be joyous to Back-Benchers. It has been possible to extend the time for Back-Bench contributions to seven minutes. However, noble Lords should not think this will introduce an uncharacteristic mood of indulgence on my part; seven minutes is the limit.
My Lords, I thank the noble Lord, Lord Hurley, for the opportunity to hold this debate. A few years ago, I had the privilege of leading Newcastle City Council, and I remember being asked in an interview what I worried about most as council leader. I think the expectation was that I would reply, “Keeping council tax down”, or perhaps, “Getting re-elected”, but I actually said that I worried most about the next generation of jobs—what they would be, where they would come from, whether there would be enough to generate full employment, whether they would be good jobs and whether they would offer career progression to encourage graduates to stay in the city. I worried about that then and I still do, because I lived through the 1970s and the 1980s with the huge loss of jobs in mining, iron and steel, chemicals, shipbuilding and manufacturing.
Thanks to the automotive industry, the growth of services and the major achievement of our local universities in attracting students and some cutting-edge research, employment in my region—as elsewhere—is very high. But too many jobs are low-paid and insecure, with too many employees stuck in jobs that they do not enjoy and without opportunities for career progression. It is not just about employment rates, as the Taylor review demonstrated.
I want to talk about people and places. Today, job losses have been announced or forecast: by Aviva, of 1,800; by BT, amounting to 13,000; and by Ford, of 1,700 at Bridgend. Job losses are pending in the steel industry, and it was recently reported that car production has dropped 44% between April 2018 and April 2019. Foreign direct investment is down, and investment generally is below its pre-referendum level. These trends are worrying in the context of our debate about Brexit.
I mentioned BT. Today, site closures have been announced by BT of 270 sites—the company is moving from 300 sites to 30—with a loss of 13,000 jobs. BT has identified eight key future locations in Belfast, Birmingham, Bristol, Cardiff, Edinburgh, Ipswich, London and Manchester. It is reported in the Times this morning that BT claims these places demonstrate its commitment to the whole country, but it has missed out Yorkshire, the east Midlands and the north-east of England. In the north-east, over 6,000 jobs are at stake in the absence of any information on the remaining sites—none of which will be key sites with the implication of good jobs going there. This means that no BT key site is planned anywhere on the eastern side of England between the Scottish border and London, other than Ipswich. I ask the Minister specifically what discussions Her Majesty’s Government have had with BT and what impact assessments have been done, by anyone, on communities that may see large-scale job losses proposed.
My Lords, I can understand why the noble Lord welcomes these figures. We all do; we have the highest number of people in work since records began and the lowest level of unemployment since December 1974. So I congratulate the noble Lord on moving this debate. However, I do not agree with him about what lies behind these figures. He spoke of a high rate of jobs for women. The Office for National Statistics tells us that this is due to the change in women’s state pension age, since fewer women are retiring because their pension age has been increased. There has been a significant rise in the number of self-employed from 4.75 million to 4.93 million, raising concerns that more people are in insecure self-employment in the so-called gig economy.
However, those are not my major concerns. My major concern, as the noble Lord intimated, is that employment is increasing while productivity remains virtually static and investment is declining. That can only mean one thing: companies prefer to hire expendable workers rather than raising productivity by investing in machinery and new technology. The noble Lord seems to agree with me, and he seems to want to solve the productivity puzzle by manipulating the numbers. I suggest that instead he addresses himself to the overstrong financial sector, which seems reluctant to support the intangible investments that he is calling for, especially in the service sector. He should also ask his own Government what is happening to the industrial strategy, which is meant to help provide this support and encourage the necessary innovation.
Workers are not being displaced by the new technology that the noble Lord spoke about. This explains the research from the Joseph Rowntree Foundation, which shows that 4 million UK workers are in poverty, roughly 12% of the people in work. Its research also shows that the number of people with a job but living in poverty has risen faster than employment.
It is this picture which is reflected in the report from the United Nations Human Rights Council on poverty in Britain, to which the noble Lord referred. The Department for Work and Pensions has called this report “barely believable” and “completely inaccurate”. But it is believable. It is believable because the employment figures deal with individuals, but most of us live in households. It is the household that is the significant economic unit for receiving income and making expenditure. This explains why the Government’s claim that jobs are a route out of poverty is just not true. It is a productive job, plus social housing, training and a safety net, that is the route out of poverty. Society and the economy have to go together, but that is just not happening in the noble Lord’s scenario.
My Lords, I congratulate my noble friend Lord Leigh on obtaining this debate. I would like to make some observations on the role of the changes to the welfare system in the record levels of employment. I acknowledge that any such impact has taken place in the context of various other levers, such as a flexible labour market and a healthy economy.
In 2007, I wrote a report for the Government on the welfare to work system which endorsed an “aspiration” to achieve an 80% employment rate, compared to the contemporaneous level of 72.7%. The financial crisis of 2008 meant that the 72.7% level proved a high point and the rate collapsed to little more than 70%. From there, employment has clawed its way back to above 76% in 2019—the highest level on record. The various changes in the structure of employment in the UK, such as the increase in the female working age and the greater number of students, mean that this figure is now probably more or less equivalent to the original 80% aspiration.
The welfare system must perform a difficult balancing act between providing an adequate safety net while giving an incentive for people to take economic control of their lives. In particular, it should be designed in a way that does not trap people in inactivity—and the legacy system does have the effect of trapping people in this way. Employment increased in the first decade of this century, but the bulk of the gains derived from people born abroad. It is remarkable how little the number of inactive people living in social housing changed, for instance, through a full economic cycle.
Perhaps the most important piece of work underlying the reform programme was Waddell and Burton’s summary of research published in 2006, entitled Is Work Good for Your Health and Well-being?. I know that it was a major influence on my own report. The positive response to the question meant that the state could pursue work for citizens as an unequivocal goal.
My Lords, I too thank my noble friend Lord Leigh for holding this debate. We should all take at least some cheer from the recent employment figures, which show that employment rates are at a record high and unemployment is at a record low. Signs that demand for labour is finally working to help drive up wages is particularly welcome. There is all this good news despite the chronic uncertainty facing our country as we continue to an ever-more polarised debate about our nation’s future.
As with most good news, it does not come without complications and challenges, not least the huge questions around low productivity and inherent inequalities, which I shall return to. Before I do, I will cast our minds back to a decade when the financial crisis and the following recession started, because we would be wise to remember the long and painful journey to restoring our public finances, not as an exercise in self-congratulation—however tempting—but so that we should not forget away our hard-fought victories.
In 2010 the coalition Government inherited one of the biggest deficits in the western world. We were hurtling towards economic disaster. If we ask ourselves what that actually means in terms of people’s lives, we had only to switch on the television and the answer was right in front of us: images of riots in the street of Greece, hard-working families queuing at soup kitchens, lives ruined thanks to mismanagement of the economy. An unstable economy means failing businesses, high unemployment, high interest rates putting stress on mortgages, and money that could be spent on a hospital or a school being spent on servicing our debt.
Sound finance is not just some accountant’s dream; it protects people’s lives and futures and it should be the first call of any competent and responsible Government, which it was under the Cameron-led coalition. How was this achieved? First, it was by cutting the deficit, which we did by two-thirds so that we returned to living within our means, not maxing out our nation’s credit card and passing debt down to our children. By 2014 we were one of the fastest-growing economies in the western world. We also started a national conversation about welfare. We were clear that we must help those who cannot support themselves, but for those who can we should help them stand on their own two feet. It was a conversation about what was fair—fair to the people who needed support, but also fair to those who paid for it.
My Lords, I too congratulate the noble Lord, Lord Leigh, on securing this debate on employment. It is certainly understandable that he has focused on the good news. The headline job figures have been impressive. That is what Governments do though, is it not—accentuate the positive? The employment figures have certainly held up well since the 2008 crisis, perhaps surprisingly so to many of us who have been through other recessionary periods. But it is also understandable, as my noble friend Lord Haskel pointed out, that others of us should peer under this sunny side up approach and look at the more negative features of the world of work in Britain. The noble Baroness, Lady Fall, touched on those in her contribution. On a day when we commemorate the heroic D-day landings—a period when the country came together impressively—it is particularly disturbing to see the current divisive state of the UK.
A central problem is that wage rises have been traded for jobs. The share of earnings in the UK national income has fallen markedly, and within the earnings figures, the share of pay going to high earners has risen at the expense of the lower paid. In 2017, the CEO of a FTSE 100 company earned 145 times the salary of the average worker—up 47 times from just 20 years earlier. As the noble Lord, Lord Shipley, said, we were one of the most equal societies in the world in the 1970s. We have become one of the most unequal nations, with one of the worst records in the world. Those on the lowest incomes, despite the work done on the national minimum wage and the national living wage, earn little more in real terms than they did in the mid-1990s.
There are some dire consequences of these figures. The suicide rate has grown. Drug and alcohol abuse are on the rise. A bigger proportion of jobs are classed as precarious. We used to think of them as atypical, but now they are the norm in many parts of the country, particularly in those regions to which the prosperity of the south-east has not really spread. More families are increasingly chaotic and insecure in our society today—it is not a happy story. The only plausible defence of this would be that economic performance has improved, but in important respects it has not. Growth, productivity, investment, innovation and the trade balance show clearly that there is a huge amount of work to be done, and huge challenges. We are in a low-growth, low-productivity, low-investment, low-innovation economy in many parts of Britain, where people work long hours to compensate for nugatory pay levels. The prospect of Brexit is resulting in the loss of some good jobs already. I shall not labour the Brexit debate—we have debated it many times in this House—but today’s tragic news about the closure of the Ford plant in Bridgend is an indicator of what we might be looking at in the car industry and other key industries.
My Lords, I too thank my noble friend Lord Leigh of Hurley for raising this important issue. It seems to be one of those issues which brings out both the best and some of the less attractive aspects of our British culture today: the best being a certain modesty and reserve in promoting what are good numbers; the less attractive being a reluctance to even report what is basically good news because it does not seem to sell newspapers, and a relentless pursuit of the tree in a wood on which you can notch a negative point. I am going to try and contradict myself on both counts, slightly overpromote the numbers and perhaps find one tree at the end I would like to put quite a large notch on.
In his opening speech, my noble friend Lord Leigh did not refer to what we inherited. In May 2010, when David Cameron stepped into No. 10, unemployment was, at 8%, just over 2.5 million. Things were so bad that John Philpott of the Chartered Institute of Personnel and Development, said:
“The big task for the government is trying to stimulate growth whilst also cutting the deficit. … There’s nothing to suggest that we’re going to get a return to anything approaching full employment anytime soon”.
How cruel hindsight can be, and how unwise forecasting like that can be. As my noble friend Lord Leigh has said, now we have unemployment at 3.8%, with 1.3 million unemployed. Both numbers are almost exactly half what we inherited in 2010. Unemployment for men is at its lowest since 1975, and for women, at 3.7%, is the lowest since records began in 1971.
The most remarkable statistic of all, which I do not think has been mentioned yet today, is that, since 2010, 3.6 million extra jobs in aggregate have been created over and above where we were in 2010, and so we are at 32.7 million people in work, as we speak. It is a remarkable number and testament to the effectiveness of government policy in a period of very difficult economic circumstance that started in 2010. They are truly extraordinary numbers. They evidence the Conservative belief in what Iain Duncan Smith called “the dignity of work”.
My Lords, I too congratulate my noble friend Lord Leigh on securing this debate and on leading us off today with such trenchant commentary. I echo much of his analysis when it comes to highlighting the Government's track record on supporting private sector job creation. While this month’s ONS statistics are cause for celebration—indeed, for optimism in this uncertain time—the narrative is a longer one and dates back to the formation of the coalition Government, as others have already mentioned. That act kicked off an extended period of private sector job growth, which we are still talking about today. At the time, the long-term economic plan spearheaded by George Osborne was criticised and many said that it would not work, but it did. For every public sector job cut, there were 11 private sector jobs created. What is more, the Government took steps, through the tax system and the national living wage, to make work pay. So jobs have not only been created but are paying more, allowing people to keep more of the money they earn.
But challenges remain, and it is to those that I now turn. I particularly want to focus on technology, its possible impact on the labour market and the opportunities it presents to give a much-needed boost to our productivity, which, as my noble friend Lord Leigh has pointed out, still languishes. I will highlight the important role that artificial intelligence might play in this, following the report of last year’s House of Lords Select Committee, of which I was fortunate to be a part. We heard evidence from a variety of sources that artificial intelligence could boost productivity but that we have work to do when it comes to adoption. Evidence from Sage said that,
“companies currently spend an average of 120 working-days per year on administrative tasks. This accounts for around 5% of the total manpower for the average Small & Medium Sized Business”.
The tools exist to change this, but they are not being deployed. Sage further suggested that if UK business was to become 5% more productive, GDP could increase by £33.9 billion a year. The committee proposed an enhanced role for government to support the uptake of AI solutions by businesses large and small.
20 of 39 shown
The shadow Secretary of State for Business recently described this as a “time of low wages”. I believe she could not be more wrong. That said, there are some underlying issues which we need to address to ensure that we drive up employment numbers and productivity, and that wages continue to grow. To their credit, the Government commissioned a review to look at the changing labour market. The Taylor review was quick to highlight the success of high employment and, as we have seen, that success continues apace. But it also concluded that there were:
“a number of persistent weaknesses in the UK labour market, particularly real wage growth and productivity performance”.
The Government have now responded, and I would be grateful if my noble friend the Minister could provide further updates in her remarks today. Since publishing the Good Work plan, the Government have moved to address wage growth and unfair working practices, to ensure in particular that agency workers receive the same wages as permanent staff doing equivalent jobs and more clarity from agencies on their entitlements. Indeed, the plan offers a comprehensive package to address unfairness, transparency and enforcement to help protect workers, and I commend it accordingly.
However, while the plan works to establish parity between agency workers in both pay and treatment, it says little about how we can drive wages up in the round while boosting productivity. The Chancellor, in his Spring Statement, referred to low wages and low productivity as “the twin demons”, as well he might. We are now seeing progress on low wages but can it be matched by progress in productivity? We now have a £37 billion national productivity investment fund, which I hope will go some way to address this. Investing in road, rail, airports and fibre-optic broadband must surely help with productivity. Upgrading our infrastructure is often overlooked and is overdue. Will the Minister offer a progress update on the deployment of this much-needed capital?
I would like briefly to return to a theme I have raised in this House before: whether our current measure of productivity has kept pace with the modernisation our economy has undergone. Services, not manufacturing, are now the mainstay of our economy, yet in my opinion they are still not properly accounted for in the metrics. We may be doing better than the headlines suggest. Also, as I have argued here before, full employment is bound to impact negatively on productivity as we employ the least productive people. I still do not like the measures used, particularly that of output per hour; it is misleading and bound to be an estimate, whereas the only hard figures that the Government publish, and which we can totally rely on—namely, tax receipts and employment rates—show a much better, if not rosy picture.
One thing we cannot do is punish and undermine those who do more than anyone to further the cause of employment: namely, businesses and entrepreneurs. Without a policy platform that supports business, we have no hope of sustaining near-full employment and continuing to drive up wages and productivity. Yet, strangely for an organisation that purports to care deeply about the least well off, Labour’s policy towards business would hurt those very people by killing jobs. I am talking about the policy of drastic hikes in corporation tax, a tax ultimately borne by workers through lower wages, and the leader of the Opposition’s pledge to reverse what he calls,
“tax giveaways on capital gains tax”.
It is telling that the Labour Party is often confused by tax, thinking of it as the Government’s money to give away when in fact, of course, it is individuals, entrepreneurs and businesses who create that wealth in the first place. Such tax hikes—that is what they are—would hurt investment and, through that, ultimately impair job creation and punish workers.
Likewise, the proposed hikes in income tax will, I am afraid, drive out employers, as will the reversal of two important measures: first, the changes made to allow employers to hire people knowing that, if it does not work out, they can be released; and, secondly, the changes to employment tribunal fees. I cannot overemphasise the importance of the first measure. As an employer myself, I can say that looking to increase our workforce is more likely to happen if we know that we can release employees in a downturn or if a new employee is not right for the job; this can take over a year. Change the time limit from the current two years, as Labour has indicated, and there will be a sharp fall in new employment; employers simply will not take the risk.
On the second measure, as noble Lords will be aware, the Supreme Court ruling that tribunal fees cannot be charged has led to a 165% increase in the number of single-claim cases in 2018 and a significant lengthening of the time these cases take to be resolved; this is in part because the judges who are specifically trained to sit in those tribunals were themselves let go. Will the Government commit to look again at this issue?
If we want full employment, high wages and high productivity, we have to combine smart labour market reform with comprehensive and consistent support for job creators. Broadly speaking, that is what the Government have done. In my opinion, the prospect of renationalisation—so that politicians of all people, not businessmen, will again run rail, energy and mail services—threatens failure and job losses. Today, we celebrate a record number of people in work and a record few out of it. This shows that, despite the present uncertainty, the fundamentals of the UK economy are strong. We need to ensure that everyone can secure not only a job, but a high-quality, higher-wage job that will bring prosperity to their family, their community and our country.
With noble Lords’ permission, before I sit down, I would like to remind your Lordships that this is the last parliamentary day with the current leader of the Conservative Party. My nomen dignitatis relates to the village of Hurley, which is close to the town of Maidenhead where I have lived for some dozen years, so I am honoured to have known our Prime Minister well, personally, for many years. I hope noble Lords will allow me a brief moment to express my thanks to her for all that she has done and tried to do for our country, and to express my personal view that history will record that she was dealt an impossible deck of cards but no one could have devoted more selfless effort to public service than her. She leaves her post with nine years of continuous growth, with a first quarter of growth greater than France, Germany and Spain and indeed projected growth for the rest of the year likewise. No one loves her country as she does, and very few have given as much. She has of course given us record full employment, and I salute her publicly for that.
I very much look forward to the contributions from all noble Lords today.
In that context, I draw attention to two recent reports. The first is by the Institute for Fiscal Studies, which asked whether inequality was killing capitalism. It is a complex question, but there are signs that suggest it may be. The trickle-down effect to poorer people and places has proved largely ineffective. We used to be one of the most equal societies in the world, but we have moved to being one of the most unequal.
The second report—and I am very pleased to see the noble Lord, Lord Kerslake, in his place—was published a few days ago by the UK2070 Commission on regional inequality, which he chaired. It forecasts that half of all new jobs will go to London and the south-east. To tackle regional inequality, the commission proposes: four new super-regional economic development agencies; a spatial plan to guide the future development of the whole of the UK; action to harness new technologies and strengthen local economies; and, crucially, a national renewal fund that would rebalance the economy over a 25-year period. I find all those recommendations very positive; they would reduce pressures on the south-east and rebalance wealth. At present, in London the UK has the richest region in northern Europe. That helps the rest of the UK financially, but we also have six of the 10 poorest regions, making the UK the continent’s most geographically unbalanced economy.
I am arguing not that the Government should do the job of the private sector but that they should create the conditions to address spatial inequalities through their leadership and intervention, as occurs elsewhere in Europe. If this debate were taking place in Edinburgh, it would be about the third spatial strategy in Scotland. England does not have one at all. Perhaps the Minister could explain why the Government leave so much to the market in England.
In 2017, the Government rightly committed themselves to the industrial strategy, saying that they wanted:
“An economy and labour market which works for everyone”.
I concur with that, but you cannot simply run England out of London—it is too big. Devolution within England to date is half-baked, with nothing like the powers available to Wales and Scotland. We have local enterprise partnerships that are underpowered, Whitehall departments that are unco-ordinated at a regional level and only one local industrial strategy, published recently in the West Midlands. We need national and local industrial strategies, national and local spatial strategies and a private sector that understands its duties and obligations to specific communities when it restructures.
What is happening is that the number of poor people out of work has fallen, but the number of poor people in work has risen. This is why there are now 2,000 food banks in Britain. This is why the United Nations report is believable. And this is why the report speaks of inequality. Increased pay and increased productivity have to go together; otherwise, all it does is increase inequality, as the noble Lord, Lord Shipley, pointed out.
There is a brighter side. Poverty among pensioners has dropped. Certain measures of well-being are high, probably because of the number of people in work. The number of skilled vacancies is also high. This requires giving priority to non-university-based further education, which the Government seem to have accepted in the Augar report. At last, after two years, the Government have recognised that the apprentice levy scheme is a disaster which is failing young people and wasting money. Hopefully, this will now be reorganised.
With so much poverty in working families, calling the minimum wage the national living wage does not bear any relationship with reality. Fortunately, a report from the Resolution Foundation last week, to which the noble Lord referred, demonstrated that the minimum wage has not reduced employment. Both the Government and the Opposition seem keen to build on this. However, enforcement is essential. Too many employers in the UK are getting around minimum wage and labour standards by employing gig workers or operating so-called “dark” places of work. Better enforcement will encourage the investment, productivity and training. Labour’s plans for a £10 an hour minimum wage will end low pay and, together with the planned investment, bring most families out of poverty by raising both pay and productivity. Until this happens, full employment and family poverty will go hand in hand.
Of course, employment figures are backward-looking, telling us what happened several months ago. As the noble Lord, Lord Shipley, told us, quite a lot of job losses have been announced recently, so I agree with him that high employment may not go on. What plans do the Government have to make work pay, so that all families are lifted out of poverty? Experience over the last 20 years has taught us that the market-based economics that the noble Lord, Lord Leigh, seems to favour just will not do the job. All it seems to do is generate even more inequality, and we all know where that is leading us.
To what extent do the record employment figures we are now seeing reflect the reform programme that was set in train after 2007? The most radical elements were introduced under the coalition Government, but there were major steps under the previous Labour Government, too. Moreover, in parallel with the reform programme, led by the DWP, there was a series of rounds of cuts to benefit payments, led by the Treasury. At this stage, it is much too early to reach a definitive conclusion. There is hard evidence on three of the reforms, and I am indebted to Robert Joyce of the Institute for Fiscal Studies for steering me to them.
The change to lone parent obligations recommended in my original report for the Labour Government boosted the work rate by around 7 percentage points. According to the research, changing the requirement for lone parents to find work when their youngest was five years old rather than 16, has had,
“a much greater impact on moving lone parents into work than other previous programmes and initiatives aimed at this group of claimants”.
The impact of raising the female state pension age was bigger still. This was a reform legislated for in 1995, but accelerated under the coalition. Research by Carl Emmerson of the Institute for Fiscal Studies and Jonathan Cribb of University College London found that the proportion of affected women in work increased by about 10 percentage points.
The reform introduced by George Osborne to cap benefit levels also had a positive effect. The IFS estimated that about 5% of those affected responded by moving into work within a 12-month period, when they would otherwise not have done so. Although that is a fairly sizeable effect by the standard of most benefit reforms, its narrow focus meant that it did not have a notable impact on overall employment numbers.
However, there is as yet little definitive work on the employment impact of the two major changes in the years between 2010 and 2016: the cuts programme pushed through by George Osborne and the introduction of universal credit. It is worth pointing out that the cuts programme itself would tend to encourage people into work, as the relative advantage of work and benefits changes.
The latest official estimate for the impact of universal credit, made in 2018, estimated that it would increase employment, when fully rolled out, by about 200,000 people. The early research showed that recipients spent less time out of work than if they were on JSA. There are still only 1.8 million people on universal credit, compared with the 11 million or so when it is fully rolled out. However, it is a well-known phenomenon that people anticipate changes, so that often up to two-thirds of the impact of a new benefit regime can be observed before it is in effect. That phenomenon may well have been amplified by the consistent message that the Government have applied for the past decade or more about the importance and value of work.
There are a number of specific impacts of universal credit quite apart from the financial incentives. There are structural changes, such as the changes to mixed pension and non-pension households. There are two areas of enhanced simplicity. The single taper means that people can straightforwardly forecast their earnings when they work more. At the same time, the combination of tax credits and benefits under one umbrella gets rid of the discontinuities involved in moving between two systems.
We will not obtain a full measure of the impact of these changes for many years. However, as the country faces the new challenges ahead, it may not be a coincidence that the starting point is the highest level of employment on record.
We also asked ourselves: was it fair to entrench worklessness by making it pay not to work? That was the simple but strong idea behind many of our welfare changes and the introduction of universal credit. It is worth remembering that after the 2015 election the then acting leader of the Opposition, Harriet Harman, urged Labour to support our welfare Bill and to listen to what people were saying.
Changes to welfare, however, involve difficult and highly emotive judgment calls. We got some things right, but not everything. These are adjustments that should be made carefully, with Ministers in listening mode as they go. I welcome signs that our Secretary of State, Amber Rudd, is mindful of this as she rolls out universal credit to some of the most vulnerable in society.
First came the growth and then came the jobs— 2.5 million of them by the following election—but it remained a great concern to us that wages were so sluggish for so long. There was also an uncomfortable feeling among some that those who had caused the financial crisis had got away scot free, while those who had not took too long to feel the benefits of the recovery. As a Government, we have tried to mitigate this with the increase in the minimum wage and then the introduction of the national living wage, which was a big step in the right direction. Last week a report for the Resolution Foundation said that the national living wage had had a beneficial knock-on effect for low-paid workers—welcome news.
Taken together, there is much in this success story to celebrate, but also much to mull over. At the core of our democracy lies a fragile commitment to respect the will and authority of the Government—whether we voted for them or not—to live by the rule of law and to play our part in society. That is what some like to call the social contract. But it can feel stretched to breaking point if majorities take a winner takes all attitude to governance; if people feel alienated and that they have no voice; if inequalities are so large that it feels as though people live in parallel worlds; if businesses disregard pay restraint on boards and do not care or think about the relationship with their employees; if we allow women to do the same work but not be paid the same as men; if we ignore the challenges of other generations, with young people burdened by debt from their university and with little hope of being able to buy their own homes; and if, as a Government, we do not face up to difficult choices and are straight with the electorate about what they are.
While we move away from austerity, we should not lose sight of the need to deliver a stable economy. If you spend more money, ultimately you need to make a choice of how that is paid for. Is it by borrowing more, taxing more or making other cuts? There is no magic wand, only hard choices. We should not forget that it was through tough decisions and the hard work of the citizens of our country, who are responsible for the figures we celebrate today—figures that translate into hope and opportunity for people and families—and remember that our economy is built on competent governance and that we face many challenges ahead. Yes, we should pause and for a moment smile, and then reflect on all that we must do next.
Apart from Brexit, how did we allow the UK labour market to unbalance itself in this way? It is true that more insecurity and more inequality in labour markets is an international phenomenon, but it has gone further and faster in the UK and the USA than in most other advanced economies. That is not a natural phenomenon; it is because of successive Governments’ policies of deregulation of business and encouragement of the flexible labour market, and the Conservative Government’s strict regulation of trade unions. As the recent IFS report, which will be debated fully next Thursday, shows, all this insecurity and inequality has coincided with a decline in trade union membership and the coverage of collective bargaining. Collective bargaining now covers only about 30% of the workforce, mainly in the public sector, and outside important sectors in the private sector—I would pick out engineering, construction and steel—industry-wide agreements have largely disappeared. What bargaining does take place, takes place at the plant and the enterprise level, and is often vulnerable to changes in management styles and policies.
What can we do about this? This is an opportunity to share some ideas. The dark side of the British labour market needs urgent addressing. I pay tribute to Greg Clark, who has made a start on all this with his response to the Matthew Taylor review on good work. I hope that will not be held against him when the Cabinet is being considered by a new Prime Minister. However, we need more ambitious plans than those announced so far—on productivity, on performance and on promoting longer-term business perspectives, which distribute the benefits of growth more fairly. A more collaborative approach to work cultures, greater emphasis on skills and respect for workers and, indeed, for trade unions, seems to me very important.
Finally, central to this should be a reform of government departmental responsibilities. Stanley Baldwin knew that the Ministry of Labour was important to promote collective bargaining and to tackle inequality and overmighty employers. We should take a leaf out of his book and return to a department charged with tackling many of the problems that have already featured in this debate.
What the noble Lord, Lord Leigh, said, in his spirited, optimistic presentation earlier, is important. I acknowledge that. In turn, I hope he will acknowledge that the dark side of the UK’s labour market also needs attention and acknowledgement.
For the first time in my life, I almost feel sorry for the Labour Party. Labour is the party whose Government have never left office with unemployment lower than when they came into office. Perhaps we should both rebrand? Both parties seem in a bit of turmoil at the moment. Perhaps Labour can become “the Labourless Party”, and this side can become “the Working Class Party”.
Others will no doubt talk about the stubbornly recurring issues of poor productivity—the noble Lord, Lord Haskel, has already done so—and slow real wage growth. I will say only that, while wages are now rising at a faster rate than inflation, and in particular the minimum wage is rising considerably ahead of inflation, there is still a lot of work to do to improve the hardship of those who work hard but earn less than 60% of the adjusted median income per household.
But this is not just a numbers game. For the United Kingdom to flourish and prosper harmoniously, employers have to get a lot better at providing emotionally satisfying work. They have to offer variety, not permanent routine, as well as offering flexibility, training, mentoring and physical and mental health support at work. They need to give employees a route to progress as an individual and good reasons to have ambition to improve themselves and receive pay which creates some feeling of satisfaction rather than envy. Get those right and you create a vibrant 21st-century model for capitalism with true pride in, and dignity of, work. The Taylor review highlighted many of these features in its report in July 2017, and the Government were right to accept the vast majority of the recommendations.
Western capitalism faces a technology-led inflection point. We have to seek, and find, a way of narrowing the divide, which is at present increasing, between flat-lining, low-paid and often poorly skilled hard-working people and the premier league. Whether we like it or not, we need to achieve a better economic balance within what I describe as the working class—by which I mean everyone in gainful employment, from the FTSE 100 chief executive to poorly paid service workers. The huge upsurge of entrepreneurialism in the UK, which has been the main driver behind the success in creating jobs, has in my opinion been a triumph of economic policy since 2010. I love reading about hard-working risk-takers staking all and making fortunes through their own hard work and ambition, and their ownership of that most capricious class of risk capital—equity.
However, to echo comments made by my noble friend Lady Fall and the noble Lord, Lord Monks, senior business leaders must set the example for rebalancing the divide that I refer to—this is why I am putting a notch on the tree. They need to grasp the dangers of increasing social division through the relentless and excessive chasing-up of senior executive pay in major established companies. Leaders in these companies are, in most cases, highly competent and ethical stewards of capitalism, but they should not fool themselves that they thereby are the creative risk-takers who have a right to enormous rewards whether or not they succeed. The dining rooms of commerce are, believe me, full of concerned, even nervous, discussion on this point. We know that there is an international problem, but we cannot quite muster the courage to face up to it and, in any event, unenlightened self-interest gets in the way. Business must grapple with this as a matter of urgency, failing which it may find the issue being taken out of its hands.
The committee also found that one of the central challenges to realising this opportunity was access to skills. Balderton Capital, a venture capital firm, told us:
“The skills required to build competitive … start-ups today are relatively rare, and as a result the costs for starting a company in”,
the artificial intelligence space,
“are higher than other areas of technology”.
The committee worked through some possible solutions, focusing on the number and nature of degree, postgrad and PhD places available in the field of AI, and what the Alan Turing Institute could do to support this.
But one area we also looked at was more obvious yet more profound still—the lack of women working in technology. The ONS statistics we are debating today show female employment is at 72%, the joint highest on record. This is a milestone to be celebrated, but few of these women are working in technology. If we want to build a pipeline of talent to support industries such as AI, we cannot do so by working with only half the labour force.
PwC research has found that only 27% of female students said they would consider a career in technology, compared to 61% of males, and only 3% of females said it would be their first choice. This needs to change. The PwC research underpins an important initiative called “Tech She Can”, a charter for companies to sign up to, which sets out commitments they will take to increase the number of women working in technology. Importantly, this involves a strand on creating role models. Too many girls in school think technology is not for them, because of the lack of visible successful women working there. This too must change.
Similarly, organisations such as the Return Hub enable women to relaunch a career after an extended break. We need to do more to promote women returners, capitalise on the talent that already exists in our labour market and better connect it to the industries of the future. If we can achieve this, sectors such as AI may access the talent they need to realise the potential of the technology and, importantly, deliver productivity gains for the whole of the UK. More women in work is a good thing. More women working in our productive cutting-edge technology-driven industries is better still.