Fairly quick look at economic inactivity and moves to tackle it

 

• Liam Halligan

Britain’s worklessness crisis is rapidly spiralling out of control

The UK’s benefits system is pushing millions out of our shrinking labour force

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Liam Halligan

08 December 2024 8:00am GMT

Britain’s unemployment rate rose to 4.3pc during the three months to September, up from 4pc the previous quarter. But joblessness remains low by historic standards.

Back in the 1980s, the number out of work hit 3m – a shocking 11pc of the workforce. The impact was huge, as the jobless crisis rocked politics, threatening to bring down the government.

Yet Britain is now in the midst of a human tragedy every bit as stark, and perhaps just as economically damaging, as that ghastly 1980s unemployment spike.

Up to 3,000 people per day are being signed off work and approved for sickness benefits, indicative of a welfare system that is spiralling out of control. And once the long-term jobless are categorised as sick they’re no longer counted in the unemployment figures.

Data from the Department for Work and Pensions (DWP) shows around a quarter of working-age adults in the UK currently don’t have a job, some 11m people. Of those aged 16 to 64, almost 1.5m are unemployed – the 4.3pc headline unemployment rate.

The number who are officially unemployed is dwarfed by those who are economically inactive, currently more than 9m. This presents a huge challenge to both the Treasury and the DWP – both of which are determined, where appropriate, to get people with long-term health conditions and disabilities back into the workforce.

Around 3.2m people currently claim disability and incapacity benefits across the UK, sharply up from 2.2m back in 2019, just before the government responded to the Covid pandemic with stringent lockdown measures. DWP estimates suggest this figure will reach a staggering 3.9m by the end of this parliament.

So around one in 12 working-age Britons are expected to be claiming sickness benefits by the end of the decade, fuelled by a surge in mental health conditions.

The Office for Budget Responsibility (OBR) has highlighted the “rapid increase” in sickness benefit claims since lockdown. Expenditure on incapacity and disability benefits is set to hit £87.2bn this year – roughly what the state spends on education and some £20.8bn higher than was forecast just three years ago.

The Institute for Fiscal Studies has meanwhile warned of an “extraordinary” rise in spending on incapacity benefits, with the bill heading for well over £100bn by 2030.

Liz Kendall, Work and Pensions Secretary, is putting forward plans for overhauling the welfare system in the spring. Tory analysis suggests the sickness benefits bill is set to rise by another £1.3bn before Kendall launches that welfare review, as both mental health problems and obesity fuel a worklessness crisis that leaves countless employers unable to find sufficient staff.

The Conservatives, though, oversaw a huge rise in welfare spending over the last decade, not least since the pandemic.

Former Tory leader Iain Duncan Smith contained unemployment by rationalising a range of welfare payments into universal credit, which withdraws benefits gradually as claimants increase working hours.

Such “tapering” allows a return to work without fear of losing everything. The same kind of mechanism is needed for sickness benefits because claimants can currently lose their entire benefits package even if they simply train for a new job, let alone earn money.

These issues were brilliantly explained in a film for Channel Four’s Dispatches broadcast last week, by former Spectator editor Fraser Nelson. The film showed that, while 7pc of the UK working-age people are on sickness benefits, in Glasgow and Grimsby, for instance, it’s almost a third.

Nelson explained that while the surge in post-lockdown sickness benefit payments has cost around £10bn in extra government spending, the true bill for the surge in sickness benefit claimants from 2.2m to 3.2m since before the pandemic is much higher.

He presented research by the Centre for Economic and Business Research suggesting that the UK’s GDP would be 3.1pc (£84bn) larger by the end of this parliament had the “missing million” remained in the workforce, bringing in £30bn in extra tax revenue. And, of course, with claimant numbers rising to 3.9m by 2029 on official estimates, the actual cost is set to be even more.

There are, of course, many people receiving disability benefits who do work, and others on sickness benefits who are genuinely unable to hold down a job. No one is disputing that for one moment.

But there is a growing realisation that the current situation is entirely unsustainable. “Many people are working with a health condition and I think many more could, with the right help and support,” Ms Kendall told Dispatches, risking the wrath of Labour Left-wingers.

The reality is that no less than 69pc of sickness benefit claimants now cite “mental and behavioural disorders” in their sickness benefit applications.

Mel Stride, who oversaw the DWP for the last two years of Tory rule, tells Nelson how easy it is to access a sickness benefit package that can pay more than a full-time job on the national minimum wage, with claimants then largely abandoned in terms of the non-financial help they need to get their lives back on track.

“When they go to the doctor for their six-minute appointment, 94pc of the time they are given a note saying you are not capable of any work, ever,” says Stride. “And then they drift into the incapacity benefit cohort – and are basically left alone.”

Welfare reform is a tough, intractable problem – but one that needs addressing for all kinds of economic, societal and human reasons. Amidst an overwhelming sense that our political and media class is failing, some are still willing to draw fire on themselves by grappling with difficult and serious issues the vast majority choose to ignore. I tip my hat to them.

You should ALL put this writer on your must-read list:

 

MATTHEW SYED

Old Europe is gripped by a delusion. Get real before it’s too late

The West is living in a fantasy land of free money. Our friends watch in horror, our enemies in delight

Matthew Syed

Sunday December 08 2024, 12.01am, The Sunday Times

What will perhaps confound future historians most is how loudly the alarm bells have been ringing. France, the UK and Germany — the great pillars of the old European order — are crumbling. The rest of the world (and I have family and friends in almost every corner, including some of the fastest-growing challenger economies) can see this, is talking about it and is, frankly, astonished by it.

After the collapse of the Scholz coalition, the defenestration of Michel Barnier and the absurdist relaunch of Sir Keir Starmer last week, I noted one wag on X posting: “It’s like witnessing the fall of Rome but with wifi.” Obviously that’s overegging it a bit, but what astounds this commentator observing from inside the edifice, as it were, is how incapable the peoples of old Europe are at even diagnosing the rot, let alone addressing it.

France is a chastening case in point. I listened to a debate featuring three pundits, including a journalist from Le Monde, as they sought to deconstruct the fall of the PM and possible demise of Emmanuel Macron, and it was like an excerpt from Alice’s Adventures in Wonderland. They calmly (and not unintelligently) talked about the constitutional order, polarisation and the rise of “extreme” parties but didn’t seem to grasp or even glimpse the underlying cause of the problems. This has nothing to do with left or right, Macron or Le Pen, the Fifth Republic or popular divisions. The problem is the French people — the demos, if you will.

• How France fell apart: bitter, bloated and blamed on Macron

France, you see, has had governments of left and right and everything in between while delivering policies of stunning consistency for five decades. Since 1974 the state has run fiscal deficits every year. And the reason for this is obvious to everyone except, seemingly, those living inside the dreamworld. It is the settled and immoveable will of the French people to live beyond their means; to enjoy ever-rising welfare, social spending and subsidies while balking at the higher taxes, longer working hours and delayed pensions required to pay for them. The sovereign debt now stands at 120 per cent of GDP.

There is a word for this, and it is what historians such as Spengler and Gibbon sought to convey in their depictions of the dynamics of civilisational decline: delusional. Barnier’s rather anaemic budget plan was merely to reduce this year’s overspend from 6 per cent to 5 per cent of GDP, but even that led to howls of outrage. Parliamentarians — ventriloquising for an electorate, every section of which has drifted into a state of endemic entitlement — offered a resounding “non!”. So the debt will keep rising, the population will keep ageing, the dependency ratio will keep narrowing and we will find out how deep the rabbit hole goes only when the inevitable bond crisis ignites, with potentially calamitous consequences for France, Europe and, if war by that stage is imminent with the revanchist powers, the world.

The UK electorate is, if anything, even more out to lunch. Not unlike the French, we like to blame “useless” politicians, the electoral system or being inside or outside certain trading blocs, but it’s largely a distraction from the fact that voters have become ever more detached from empirical reality; voters who (as polls consistently reveal) demand Scandinavian public services with American levels of taxation, gleaming new energy infrastructure but not in my backyard, new housing while retaining the local right to veto and triple-locked pensions but not the bill. Look at our anaemic growth, frighteningly expensive electricity and debt interest payments soaring above defence expenditure and behold the wonder of democracy. This is the logical consequence of electoral choices — a feature of our system, not a bug.

Germany has the same root problem, albeit with a Teutonic twist. The nation of Bismarckian realism has spent 30 years ripping off America, the nation on which it relies for its defence, while colluding with the nation that most threatens its security: Russia. Successive leaders have embraced this strategic Ponzi scheme because it enabled them to rig growth figures by outsourcing the costs of protection while embracing dependency on cheap Russian gas, which Putin pitilessly weaponised to weaken European resolve against ever more heinous acts of atrocity. The collapse of Scholz’s coalition is not the cause of the problem; it’s a symptom. Like France and the UK, Germany is an old nation (albeit not unified until the late 19th century) that has drifted into a dreamworld.

And this is what the world sees when looking at us: a civilisation that has lost the very qualities that fuelled its rise. Work ethic. Realism. An inspirational future orientation. Today the UK presides over ever-rising numbers of people on incapacity benefit while scarcely debating the (un)affordability of it. Stats from the World Bank a few years ago (albeit disputed) suggest Europe has 10 per cent of the world’s population, 30 per cent of its economy and 58 per cent of social protection spending.

When reading recently about public sector unions proclaiming the “right” to a four-day week despite collapsing productivity (and our enemies working harder and longer), I couldn’t help reflecting on the work of the historian and general Sir John Glubb. In The Fate of Empires, he noted that it was at the moment of peak vulnerability for the Abbasid caliphate in 9th-century Baghdad — after military takeover and looming bankruptcy — that the people demanded a shorter working week.

Looking around the world merely amplifies one’s sense of the creeping unrealism in old Europe. India may be poor and hamstrung by the iniquitous caste system but it is building like crazy and determined to become a dominant power. Vietnam is a one-party state but securing huge inward tech investment and growing faster than England in the 19th century. Poland and Romania have been backwaters for centuries, but they feel their time is coming. You go to these nations and hear people talking not about rights and entitlements but responsibilities and duties — and defence. They are not looking in the rear-view mirror or cowering in simpering guilt about histories long gone but reaching into the future with courage so palpable you can touch it.

I should note three additional points, which space prevents a fuller examination of. Uncontrolled immigration — legal and illegal — has compounded Europe’s problems, but this policy was emphatically not the will of the people. The utter failure to control borders was not an expression of democracy but its greatest modern betrayal — and it will reverberate decades into the future. One also notes the bureaucratic overreach of EU institutions and ever more visible signs of corruption — this, too, cannot be omitted from any analysis of Europe’s travails. Neither can the increasingly brazen offshoring of the super-rich, who leverage the institutional collateral of Europe to secure vast wealth while siphoning off their tax liabilities.

But I hope it’s possible to be aware of those problems, and to think deeply about how to tackle them, while recognising this column’s takeaway point. Old Europe remains a great power and (to my mind) the best place in the world to live, but its people have drifted into a fantasy land from which they — we — must awake or the world will race ahead of us. And we will be left — with our guilt, culture wars and cat videos — wondering how on earth we let it happen.

Have a look at the options for France:

 

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• Ambrose Evans-Pritchard

For his next stunt, will Emmanuel Macron invoke emergency powers?

The impact of the French president’s dangerous pyrotechnics is making it easier for him to justify recourse to Article 16

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Macron could reasonably argue that failure to pass a budget prevents the country from fulfilling its EU treaty commitments Credit: Ludovic Marin/POOL AFP

Ambrose Evans-Pritchard

05 December 2024 5:51pm GMT

France will have to face the discipline of the global debt markets on its own. The European Central Bank (ECB) cannot legitimately intervene to hold down French borrowing costs unless, and until, the country faces a full-blown financial crisis.

If the ECB were to abuse its legal powers to let France off the hook, it would set off a political and legal storm, and further erode German confidence in the management of the euro.

“France will have to face fiscal reality and dig itself out of the hole that it has dug itself into,” said Holger Schmieding, chief economist at Germany’s Berenberg Bank.

“Nobody on the governing council wants to get mixed up in a French problem. The ECB will intervene only if there is contagion to other countries, or if the spreads reach ludicrous levels,” he said.

That point has not been reached. There is no contagion. Risk spreads on 10-year French bonds over German Bunds have settled at around 80 basis points, and have not risen further since the collapse of the Barnier government.

The market reaction is so far surprisingly gentle, given the dangerous pyrotechnics of Emmanuel Macron over the last two and a half years – which have rendered France literally ungovernable with a fiscal deficit heading towards 7pc of GDP next year.

Some suspect that he would prefer a harsh verdict from the bond vigilantes. The worse the spread, the easier it is for him to justify recourse to Article 16 – the constitutional clause that allows him to assume emergency powers. The “Korean” solution, without the added touch of stormtroopers.

Agnès Verdier-Molinié, the director of French Institute of Public Administration and Politics (IFRAP), says the sorcerer’s apprentices who blocked the budget and defenestrated Barnier on Wednesday have set off a chain of events that they may regret. She thinks Macron will up the ante, invoking the fiscal crisis to pull the trigger on Article 16.

The powers can be invoked if there is a threat to the “execution of France’s international obligations”. Benjamin Morel, a political scientist at Paris-Panthéon, said Macron could reasonably argue that failure to pass a budget prevents the country from fulfilling its EU treaty commitments.

He told Ouest-France, the French newspaper, that France is the only country in Europe where the president can assume these pleins pouvoirs at his own discretion. “Everywhere else it is a separate body that authorises them,” he said.

Charles de Gaulle invoked Article 16 in 1961 following the Algiers putsch by retired army officers. It gave him the temporary powers of a Roman dictator, which he rolled over for almost six months, spicing it up with eyewash about a Communist “revolution from the inside”.

Activation of the clause requires both a “grave and immediate” threat, and a breakdown in the regular functioning of the state. The Constitutional Council can issue an opinion after 60 days. “It remains only an opinion. It does not oblige the president to change tack,” said Mr Morel.

Would Macron really pull such a stunt? Perhaps, if his next premier faces instant dismissal. He might calculate that his enemies could never command the two-thirds majority in both the assembly and the senate necessary to impeach him. But if he did take this fateful step, the nation would erupt. He raised the spectre of “civil war” in June. Article 16 almost invites it.

France risks slow ruin – as does Britain – but it does not face an imminent financial crisis. French spreads approached Greek levels last week but that is a nonsense story, promoted by Barnier himself in a catastrophist effort to sell his rejected budget. Greece is shielded from market forces. Most of its bonds are held by bail-out bodies.

French debt has an average maturity of 8.6 years. It takes a long time for higher borrowing costs to feed through. The growth rate of nominal GDP is still above the average interest rate. Debt dynamics have not yet succumbed to a snowball effect, though that safety margin could vanish if the eurozone core relapses into recession, which may already be happening.

Nevertheless, French yields have been higher than Spanish or Portuguese yields for months. This is an extraordinary development and a warning to the French political class that their country no longer enjoys an exorbitant privilege as co-anchor of monetary union.

The ECB cannot salve French amour propre. It was able to prop up high-debt countries during the deflation years by purchasing €5 trillions (£4.1 trillions) of bonds under the cover of quantitative easing. That is no longer impossible.

The bank has since invented an anti-spread shield (TPI) but has never dared to use it, and for good reason – it is highly contentious and a flaming violation of the no-bail clause in the Lisbon Treaty.

The ECB arrogated to itself the power to buy distressed bonds as it sees fit, but only on behalf of countries that pursue a) “sound fiscal and macroeconomic policies”; b) are not “subject to an excessive deficit procedure”; c) do not have “severe macroeconomic imbalances”; d) where the “trajectory of public debt is sustainable”; and e) where stress is “not warranted by country-specific fundamentals”.

France is in breach of every one.

Markets are betting that the ECB will find some way around this. No doubt it will, in extremis. But Isabel Schnabel, Germany’s enforcer on the governing council, has a message for them. The TPI can only be used to “tackle disorderly dynamics” and to “prevent destabilising interest rate spirals, which might otherwise drag the euro area into a severe crisis”.

Any sustained help would require a “macroeconomic adjustment programme”, which means an austerity package by the EU bail-out fund (ESM) – and probably an IMF regime, given the scale of France’s €3.3 trillion debt.

This would come with tough conditions and require a vote in the German and Dutch parliaments. There is zero possibility that Left-wing Popular Front or Marine Le Pen’s Eurosceptic nationalists would accept such terms, or any terms at all.

Macron is back at square one, but in an even weaker position, amid mounting calls for his own resignation. “No confidence, no government, no budget, no solution,” was the pithy verdict of Arnaud Marès, chief European economist at Citigroup.

The idea of a technocrat coalition is a fool’s illusion in a great political nation like France. There are only two permutations that can plausibly deliver a government. Both are explosive.

Either Macron swallows his pride, lets the Left take charge as the largest bloc, throws what remains of his inglorious party behind it in cohabitation, and accepts that much of his seven-year edifice will be torn down.

Or, he eats his rhetoric, lifts the cynical cordon sanitaire that is so corrupting French politics, accepts that Le Pen’s 11m voters are a legitimate political community, and reaches a pact with her National Rally, ministers and all.

That is to say, he must do overtly what he has been trying to do on the sly whilst hiding behind Barnier. This would lead to a general strike and mass demonstrations, but it would lance the boil.

Macron caused this crisis by systematically destroying the centre-Left and the centre-Right, aiming to construct a nouvel ordre in the centre for his own Jupiterian glorification.

He succeeded in the first part, even if in nothing else. He refused to back down when this blew up in his face in 2022, opting ever since to ram through his agenda against popular and parliamentary will by executive decree.

Nothing can be resolved until Macron either falls on his sword or learns the meaning of democracy and falls on his knees at Canossa.