If anything good can come out of Osborne purloining the wickedness of Philpott to make political capital of the most contemptible kind, it is that Labour seems now to be recognising, rightly, that the welfare furore cannot be resolved simply by changing benefit provision, but only by fundamental reform of economic policy. As long as employment levels are regarded purely as the residual variable, with other economic objectives such as control of inflation and prioritising the interests of finance automatically superimposed, joblessness will soar – stuck at 2-3 million or more – and the benefit costs of operating the ‘automatic stabilisers’ will remain colossal (it costs £7-10bn annually to keep a million persons on the dole). As long as low pay, low skills, low productivity remains the mechanism to fight off international competition, wages will be pushed down so low that high benefit expenditure is necessary to supplement them simply to reach subsistence level. And it’s not a policy that even succeeds economically: last year the UK deficit on traded goods reached an unprecedented £112bn.
So it seems refreshing and hopeful that Labour is now pledging to deal with unemployment head-on. Its commitment is that no-one would remain unemployed for more than 2 years, 1 year in the case of young people, since after that they would be offered a real job with appropriate training funded out of taxation, on the sensible grounds that it is far better to pay for someone to work (and thus produce an economic benefit for the country, plus pay tax and insurance contributions to swell Treasury coffers) than to pay for them to languish on the scrapheap. The only problem with this is that Labour is claiming that it can be funded by taxing bankers’ bonuses (raising £2-3bn a year) and restructuring pension tax relief for the wealthiest (i.e. reducing the tax relief granted from the higher income tax rate to the standard rate, which might raise £7-8bn). This is inadequate both in policy coverage and financial capacity.
It requires much more than this simple redistribution. It needs a far-reaching industrial strategy, with a National Infrastructure Bank to direct large-scale investment into priority areas for industrial revival (particularly digital and low-carbon technologies) as well as replacing and upgrading clapped-out public infrastructure, especially in energy and transport. Only that will shift up to 2 million persons from the dole into long-term viable employment over a 2-3 year period. And that must be accompanied too by a massive uplift in skills training and productivity to match our competitors, notably the Germans. But with those economic fundamentals in place, the issues over benefits will rapidly subside, though that is not to say that some reforms are not necessary, only that Labour should not repeat with the Tories in a race to the benefits basement.