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By Abbas Panjwani
No-one in unemployment for less than a year. It’s sounds like a wonderful triumph for the potential Labour government of 2015. Emblazoned across posters up and down the country with Purnell as the new Beveridge (or so he would like to think). This is the plan for the reinvention of the welfare state which came out of the Labour-affiliated think tank, the Institute for Public Policy Research (IPPR) in July. The plan comprises of two main parts. Firstly an increase in benefit for those recently unemployed. Secondly, and most importantly, for those unemployed who do not find work within a year, a minimum wage job funded by the government.
The obvious question is that of cost. As the public sector is cut in places like health and social care the suggestion of such expansion to the welfare state or even, as Purnell puts it, a reinvention as the new “protection state” is problematic. The answer seems to be a cut to targeted benefits such as winter fuel allowance, free TV licenses, free bus passes and some parts of child benefit and whilst Purnell claims that it has been initially costed, the wider effects of job protection have been vastly under thought.
Firstly there’s the problem of what jobs will be created. Seeing as the plan is to provide jobs at minimum wage, holes created by public sector cuts will not be able to be patched up using these new opportunities. This is due to the fact that the majority of cuts involving job cuts came from halting ongoing projects (£1.7bn), cutting consultancy (£1.15bn), cutting quangos (£0.6bn) etc. of which minimum wage employment makes up a tiny if non-existent percentage. Realistically the jobs will probably come from new expansions by the government into the secondary sector rather than the tertiary sector from which the jobs were cut, much as the Labour government of 1974 did through the newly created National Enterprise Board (NEB). However unlike the actions of the NEB which nationalised existing business, thus retaining jobs, the creation of government-owned industry poses the threat of reducing the private sector. Whilst job creation sounds fine, if the private sector reduces and increases unemployment, the proposals become meaningless. There are also infrastructural expenses to consider. When the NEB part-nationalised British Leyland, for example, the infrastructure was already there, but the creation of new industrial projects signal new costs.
One potential way in which the private sector wouldn’t be cut was if exporting increased as a result of more industry. During the last election a call to get Britain manufacturing again was made strongly by the Conservatives as to increase export, yet whilst Britain can compete when it comes to products that require skill to make (i.e. jobs at higher than the minimum wage) it can’t compete with the unskilled workers of the developing world, even if it has workforces on minimum wage, and no fundamental concern about profit. After all whilst the minimum wage in the UK is currently £6.08 ($9.43) per hour the highest minimum wage in the BRIC economies lies at only $350 per month in Brazil. This equates to $2.19 per hour based on nine to five hours, five days a week (which many unskilled workers regularly exceed, thus further lowering the average minimum wage.) The minimum wage in countries such as Indonesia and Vietnam, to which primary and secondary work is already shifting to, away from China’s ever increasing manufacturing costs, is even lower.
Concerning the increase in benefit payment, the proposals are also not as attractive as they appear. The benefit takes not the form of actual money that the IPPR have budgeted in but rather a 0% interest loan to be paid back. As the government decided to make the student fee increase a cost to pay back over time rather than at the beginning of your degree it found it had underestimated how much money would be flowing out of the Treasury to fund places in the short term. The increase in benefit could potentially lead to similar credit difficulty.
So whilst the proposal is an interesting one it does appear to neglect the long-term effects to the country as a whole and one more for manifesto front pages and election posters than properly considered policy. The plans however do have some positive outcomes. For one, benefit cheats who hold down jobs whilst claiming Jobseeker’s allowance would be stopped after a year when the ultimatum came as whether to take the guaranteed minimum wage job or losing your benefits. However much refinement is necessary to ensure that job creation and benefit loans don’t cause a credit shortage, don’t result in harmful cuts to child benefits, and don’t increase unemployment through losses in the private sector.