Will the real employment minister please stand up?

Today’s unemployment figures showed some rare good news. The headline measure of unemployment is down slightly, although the numbers claiming unemployment benefits picked up a little.

But everything is relative. And this is only relatively good news in an otherwise pretty bleak economic picture. Unemployment is still 170,000 higher than it was a year ago. And unfortunately, while the upward march in the figures has stopped, the Office for Budget Responsibility (and others) expect it to resume before the year is out.

Faced with this prognosis, the Employment Minister, Chris Grayling, is forced to point to the Government’s employment programmes – like the Work Programme and the Youth Contract – as the policy response. Now these are broadly good policies, although they could certainly be better, as the Social Market Foundation has argued before. But such measures are not, and never can be, a solution to the kind of unemployment problem the UK is experiencing. Despite his title, in current economic conditions, Chris Grayling isn’t the Government’s real employment minister.

The economy is in the doldrums, having flatlined for more than 18 months now. When there’s no economic growth, even the best micro-economic policies can do little more than redistribute the pain of unemployment from one group (e.g. the young) to another. This may be valuable in preventing long-term disengagement from the labour market by some, but it won’t solve the headline problem.

With the UK’s export markets in a pickle, businesses too uncertain about the future to invest, and households paying down debts, unemployment is set to remain high. That is unless the Chancellor of the Exchequer – the real employment minister – can engineer some economic growth.

That’s why those interested in tackling unemployment need to focus on yesterday’s hugely important intervention by the International Monetary Fund. In its World Economic Outlook, the IMF all but pointed to the UK as needing to implement a fiscal stimulus to kick-start growth. Endorsing the approach that the Social Market Foundation has championed, the IMF points out that it is possible to boost demand – and therefore employment – without deviating from Plan A for deficit reduction. This should be music to Mr Osborne’s ears: Plan A with hundreds of thousands taken out of the dole queue.

Such a ‘balanced-budget expansion’ would involve a bunch of temporary tax rises, the proceeds of which would then be spent on infrastructure investment. The IMF also suggest that the necessary cash could also be raised by cutting measures that do little to boost output, like cash benefits to the better-off (“low-multiplier spending” in the jargon) – a strategy also proposed in the SMF’s recent paper.

The point here is that contrary to received opinion, there is no limit to the government’s room for fiscal manoeuvre if any stimulus is funded by low-growth cuts or taxes. The only economic limit is that too big a demand boost might create inflationary pressure – but there are a lot of people to put back to work before that should be our dominant concern.

The Chancellor can retain his hard-won fiscal credibility and boost growth if he has the political will. It’s time we started to ask the Government’s real employment minister why he’s not doing it.


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