The Green Agenda

19 July 2016

So after replacing the longest-serving Secretary of State for Work and Pensions, Stephen Crabb leaves office as its briefest incumbent.  It was only three months ago that we wrote about Crabb’s huge reform agenda and the challenges that he would face across Universal Credit, welfare cuts, work and health, low pay and much else.  Three months on and his successor will have to deal with all of this and more, with Brexit threatening to create early problems in the jobs market for Theresa May’s government.

So what does this mean for Damian Green, who we welcome, as Secretary of State?  In truth, what we set out in April still applies.  But we think that other things will also need to change.

Most importantly, the government must prepare for the inevitable impact of Brexit on the jobs market.  Estimates of the impact of leaving the EU vary, but our own initial analysis suggests that in the short term unemployment could increase by around 400,000 to 450,000 – leaving it around 2 million.  However, it is in our gift to do something about this.  The key lesson from the 2008 crash was that while fiscal policies can take a long time to get going, well-designed ‘active labour market policies’ can be quick, effective, and can reduce unemployment – as long as you don’t waste any time in getting started

So the government needs to dust down its playbook from 2008 and announce at the Autumn Statement a set of measures to prepare for, and deal with, any slowdown in the jobs market.  In particular, this means ensuring that the resources to provide support for the unemployed will increase if unemployment increases – all of the evidence shows that the best response to a weakening labour market is to give the unemployed more support to find, enter and keep work.  This shouldn’t just be about Jobcentre Plus, either – there is a wealth of capacity and expertise in the private, voluntary and community sectors that can be mobilised quickly.

We also need to understand what sort of labour market downturn we’ll have.  In all likelihood, any slowdown will be driven by low investor and consumer confidence – which means lower recruitment rather than mass lay-offs.  And when recruitment slows, it tends to be young people and the most disadvantaged who lose out the most (for example disabled people, the lowest qualified, lone parents, black and minority ethnic groups).  So in the short term at least, we need policies that keep people attached to work, give them experience of work and that incentivise employers to recruit these groups.  A good place to start would be to radically expand and strengthen the new ‘Youth Obligation’ due to begin in April 2017.

At the same time, a key lesson from 2008 was that if you only focus on the downturn, then the bigger structural challenges that we face just get kicked down the road – so the UK’s productivity problems, in-work poverty and the ‘gap’ in employment for disabled people were all huge challenges in 2008 and are arguably even more pressing now.  With Brexit it is even more important that we address these issues, not least to deliver on the Prime Minister’s ‘One Nation’ ambitions and to address the concerns of many of those who have felt left behind in the downturn and recovery.

So we would argue, as we set out last week, that we need urgently to revisit the funding of the new Work and Health Programme – to reach more disabled people than the 1% or so planned, to improve the support that will be available, and to remove the ‘cap’ on funding that will prevent any benefit savings from being reinvested in support.  We also need to go further on supporting those in low paid work – as we said in February, the government’s planned pilots are a good start but they can go much further.  There is scope through the new Devolution Deals, for example, to test an integrated progression and advancement service – building on work currently being trialled in cities from Glasgow to Plymouth and London.

Doing this will require investment.  So it is welcome to hear the Prime Minister signalling a new, and less dogmatic, approach on fiscal policy.  Most commentators now accept that unnecessary belt-tightening in the early part of the last Parliament contributed to slower growth and a weaker economy.  The early signs are that the new (and not so new) Ministers will be prepared to invest where there is a clear economic case.  And with government debt being bought more cheaply than ever, there’s not been a better time to do so.

This will mean some tough decisions for Damian Green and his colleagues.  It will likely mean extending the Work Programme by a further year, and taking more time to get the Work and Health Programme right.  It should mean taking a more ambitious approach to devolution – working with cities and areas to devolve policy and funding as well as narrow operational oversight (in our view, through new Local Labour Market Agreements).  And it would mean re-setting the dial with the Treasury – where relations have been strained.

For Damian Green, this will not all be new territory – in the late 1990s he covered the employment brief and wrote effectively (and presciently) on some of the problems with both how the benefit system and employment programmes supported those out of work.  And by now creating Ministers of State both for Employment and for Disability, Work and Health, he has also sent a clear signal that both full employment and disability employment will be his key priorities.  So the early signs are promising.  The challenge now for the Department will be to grasp these opportunities in the months ahead, while not losing its grip on Universal Credit and welfare reform.