Imagine young James, out of work for a year, and almost giving up hope for the future. He applies for a job paying £15,000 a year at a small company, Smiths, that is just managing to tread water in these difficult times, and to his great joy gets it. This is economic motherhood and apple-pie, with everyone a winner: the company gets a new worker to help it survive, James get off the dole and gets a future, society gains from an alienated youth being turned into a productive worker, the government and taxpayers save thousands of pounds in benefits payments they no longer need to make to James. This is such good news all round, surely the government should encourage this sort of thing to ensure more of it happens. But no, the government actively discourages this: its response is not to help, or say thank you to Smiths for taking James off the dole and giving him hope, but to present them with a demand to pay £1,094 in employers' National Insurance contributions, on top of the thousands in tax and NI that James must pay himself. The economic laws of supply and demand mean that employers' NI – a tax on jobs – reduces the number of unemployed who are given jobs, even though it saves the government vast sums in benefits.
I recently urged on ConservativeHome that the government should introduce NI holidays (or a share of benefits saved) for companies that give jobs to people claiming Jobseeker's Allowance. The good news is that the government have been actively considering this policy; the bad news is that they have decided they can’t afford it. This is to misunderstand the policy. As I pointed out, it can be designed to reduce the deadweight costs (of giving NI holidays to people who would be getting jobs anyway). Designed right, it could save the government more in benefits than it would cost in tax breaks. If the government just wants to dip its toe in the water, it could give the NI holiday only for three months to companies that give a job to 18-24 year olds who have been unemployed for over two years. We know that those who have been unemployed for over two years are very unlikely to find a job without help, and so the deadweight cost would be little; limiting the holiday to three months will reduce its cost to the Treasury (but the Treasury still retains the entire benefits saved). The benefits saved are so much greater than the value of the tax break given, that I reckon that even if the deadweight was 80% (ie 4 out of 5 would have got jobs without the holiday anyway, and only 1 in 5 given a job because of the tax break) then this would still be a money-making policy for the government. The government should evaluate the policy after a year of operation, and gradually spread it out until the NI holiday is given for a year to companies that take on anyone who has been unemployed for more than three months.
The reason I push this is not just that it is good for the unemployed, society, business and the government. I explained previously on ConservativeHome the economic rationale for it, but it is also good politically. The government needs a really powerful message that it is giving special help to the unemployed. It would enable the government to say it has done its bit, and call on companies to do their bit – urging businesses to give jobs to the jobless. It could have an engagement programme with major employers such as Tescos, who would make extra efforts to team up with job centres to gives jobs to the jobless. It would help the unemployed compete in the labour market with those who already have jobs. It would give the UK unemployed, who get access to the benefits system, a distinct advantage in the labour market over foreign labour, who are less likely to be on benefits.
DWP love the policy, but it appears Treasury officials have been practicing their hundred different ways of saying “no”, and persuaded the government it can’t afford it. I think it can’t afford not to.