Nick Clegg’s announcement of £1bn worth of programmes to help the young unemployed is more than welcome. I have made the point on this site several times that the government has to be on the front foot on the battle against unemployment. It is obviously (as Tim pointed out) unfortunate that the Lib Dems briefed that getting the Tories to agree to job subsidies for the young unemployed was like getting a vegetarian to eat a kebab. The leak was clearly aimed at making the Tories seem like the nasty party, but I suspect that many senior Tories did indeed have reservations about the scheme – not because they don’t support the principle of it, or don’t want to help the unemployed, but because they are worried about the effectiveness of it. When Labour introduced their Future Jobs Fund – paying the entire cost of giving unemployed people a job for six months in the public sector – many leading Conservatives (and indeed business groups) were scathing, because such job subsidy schemes have previously proved futile. Non-jobs are invented to put the jobless in, who are then back on the dole when the subsidy finishes. The coalition’s Youth Contract, by contrast, is far better designed, for two reasons – the government will only pay at most half the cost of giving someone a job, and it is in the private as well as public sector. Private companies are less inclined to invent non-jobs than the public sector, and if they are paying half the wages, they will certainly be keen to ensure the new workers are doing something worthwhile – which means they are more likely to want to keep them when the subsidy finishes.
But at a discussion I had with business people this morning, one immediately blurted out angrily: “why is the government giving handouts, rather than tax incentives to employ people?” This is the crucial difference between what Nick Clegg unveiled today, and the NI holiday for the unemployed that the government has also been considering (and I have been promoting). In many ways, it illustrates the difference between a left wing and a Conservative approach. First there is the general principle, that rather than the government giving handouts to companies (or people), it is generally best to let companies (or people) keep more of their own money in the first place. But there are also real practical considerations. Most companies don’t actually want to apply for handouts to the government, partly as a point of pride, but also as a point of bureaucracy-avoidance: they don’t want to have to fill out application forms to qualify for the payment, and give bank account details to the government in order to get the payment (even if the payment goes direct to the new employee themselves). Far simpler that they just tick a box and keep the national insurance payments they would otherwise be giving to the government. The new scheme handing out the £1bn to subsidise companies’ wages will necessitate a bureaucracy to handle the payments, which will be both costly but also probably frustrating to deal with. It is difficult to set up efficient new bureaucracies from scratch, and the fact that it is time limited (to three years) means that it is going to be particularly hard. If you doubt all this, look at the difficulty in handing out money to companies affected by the riots: the newly-established grant-giving bureaucracy has been inefficient, and companies have not generally wanted to get involved in it for the sake of comparatively small sums of money. The great thing about having NI holidays for giving a job to the jobless is that it doesn’t necessitate creating a new bureaucratic structure – it can be done through existing systems – and it would be a lot more straightforward to qualify for.
Some commentators have said that the relatively low take up of the government’s scheme of giving NI holidays for startups taking on workers (only 5,000 have done so) shows that there is little appetite for such NI holiday schemes. I don’t think that is the case. The NI holiday for startups is narrowly defined – it is obviously only for new companies (not all companies, or public sector employers) and doesn’t apply to London and the South East, the two regions with the greatest number of startups. The limited scope of it means that it has been difficult to give it wide publicity – ministers can’t loudly trumpet a policy that only applies to parts of the country. The result is low awareness of the scheme (as the government has admitted), which in turn has led to low take up. In contrast, a scheme that enabled all employers to get NI holidays for giving a job to the jobless could be very widely promoted – it would apply to all employers, public, private, small or big, in every area of the country. Furthermore, it would be pretty straightforward to introduce it not just as an emergency measure, but as a permanent feature of the labour market. There are strong arguments for giving incentives for employers to give jobs to the jobless in boom times as well as busts.