Red tape - gives a broad sense of difference between countries

 

SEEMA SHAH

Europe must slash red tape if it wants its moment in the sun

Spain’s economy is shining and the Continent is wooing investors fleeing the US. But for this to be a true turning point, we need a bold regulatory reappraisal

Seema Shah

Sunday March 30 2025, 12.01am, The Sunday Times

With full hotels, busy shopping centres and bustling restaurants, my trip to meet investors in Madrid last week felt more buoyant on the streets than any other visit to Spain I’ve made in the past decade.

The Spanish economy is the fastest growing in Europe, and during my week-long trip to the capital, there was a tangible sense of consumer confidence. The country’s new-found mojo reflects Europe’s recent “glow-up”, which has been given greater momentum by investors taking fright at the US administration’s scorched-earth approach to international trade and diplomacy.

According to the data firm Morningstar Direct, European exchange-traded funds have enjoyed an 18 per cent jump in inflows. With President Trump’s efforts to Make America Great Again having the opposite effect on domestic stocks, Europe appears to be the main beneficiary of capital leaving the US.

• Booming Spain is on track to a new age of prosperity

With this and Spain’s hot growth streak in mind, you might have thought the investors I met in Madrid would be especially bullish. But this wasn’t the case. The sense of economic optimism I detected on the streets didn’t extend to the meeting rooms of the city’s financial district.

It wasn’t that the investors I spoke to were entirely downbeat. They acknowledged there had been a “vibe shift” in European markets, and Germany’s scrapping of the “debt brake” — its longstanding, Scrooge-like rules on government borrowing — was hailed as highly significant. The rationale for this reform is to fund a massive increase in defence spending, but it’s assumed that the ripple effect across both Germany itself and Europe as a whole will extend far beyond tanks, planes and cybersecurity.

Investors are betting on a substantial increase in public investment, and particularly an overhaul of Germany’s creaking public infrastructure.

• Merz wins vote to ditch decades of German caution and rearm

Yet the consensus was that easing the debt brake, even with the mammoth investment it will unlock, isn’t enough to Make Europe Great Again over the long term. True growth needs accompanying reforms to Europe’s over-burdensome regulation.

Between 2019 and 2024, the EU produced 13,942 legal acts, while the US produced just 3,725 pieces of legislation and passed 2,202 resolutions. The Madrid-based investors I spoke to fret that German fiscal stimulus will be ineffective at breathing new life into Europe’s ailing economy because it is simultaneously being strangled by red tape. Given Donald Trump’s zeal for deregulation, the transatlantic divide in bureaucracy will only widen.

Parts of the EU’s statute book read as though they were dreamt up by a whimsical toddler — such as the laws governing the curvature of bananas and cucumbers. These oddities may be fairly innocuous in themselves but speak to an endemic and economically unhealthy obsession with rules. When this is applied to labour laws or the burdens placed on the Continent’s banks, which constrict their ability to lend, investors really begin to despair.

Germany has a particular issue with sick days, with the average worker there taking 15 days a year, almost double the US average of eight and (a little surprisingly) three times the UK average of five. You don’t need to be Elon Musk to see the issue here.

The EU’s stringent capital requirements for its banks (known as CRD IV) are generally loathed by investors and blamed for limiting lending to small businesses and stymieing innovation. Critics point out that the US has about 550 more “unicorns” — start-up companies valued at more than $1 billion — than the entire EU, and that, as of last week, European stocks trade at 17 times earnings, compared with the US’s multiple of 26.

Last year Mario Draghi, the former Italian prime minister and European Central Bank president, wrote a 400-page tome of recommendations to boost the EU’s moribund growth, with deregulation as a key component. Most dismissed it as a pipe dream, with European countries seen as too stuck in their ways.

Germany’s recent constitutional reforms would have been considered unthinkable at the time, but the result of them is that investors are now piling into European companies. For this to be a true turning point rather than just short-term respite — as the investors I met in Madrid feared — the radical fiscal rethinking we are seeing in Europe needs to be matched with an equally bold regulatory reappraisal.

Seema Shah is chief global strategist at Principal Asset Management

De-industrialisation and the UK

 

ROBERT COLVILE

We can barely make steel any more, so extra weapons might be a stretch

To be a ‘defence industrial superpower’, you don’t just need a defence industry — you need industry, full stop

Robert Colvile

Sunday March 30 2025, 12.01am, The Sunday Times

Somewhere in the Treasury, there is a civil servant whose job is to produce Britain’s growth plans. To generate PDF after PDF featuring stylised maps of the country, haloed with neon light, suggestive of energy, vigour and dynamism. To that nameless graphic designer, Rachel Reeves’s promise to make Britain a “defence industrial superpower” will have resounded like a bugle call. The rest of us may be a tad more sceptical.

It’s not just that the government’s mission until only a few days ago was to make us a clean energy superpower instead (pinky-purple wireframe wind turbine, very tasteful). It’s that, increasingly, the only thing Britain leads the world at is saying we’ll lead the world. In fact, “world-leading” has been used in 2,386 prime ministerial announcements and press releases in recent years. Not least by Boris Johnson.

Of course, it’s a good and necessary thing that the government is spending more on defence. But that extra £25.3 billion, spread over five years, represents only 0.35 per cent of Britain’s projected £7.2 trillion outlay over that period. So, while it will certainly sustain the defence sector, it is unlikely to move the economic needle.

But there’s another problem. To be a “defence industrial superpower”, you don’t just need a defence industry — you need industry, full stop. China’s naval shipbuilding capability is estimated to be 232 times that of the United States largely because it dominates civilian shipbuilding too.

Without that industrial base, there is the risk that most of the parts for those fancy jets, tanks and drones, and even more of the raw materials, are coming from states that are not 100 per cent on your side. So how’s that going? Well, last week British Steel — already Chinese-owned — announced that it might have to close its remaining blast furnaces at Scunthorpe, which would make us the only G7 country that cannot produce virgin steel.

It’s not alone. Car production in the UK, traditionally a key strength and key export, has halved over the past six years, even before Trump’s tariffs. North Sea oil and gas is collapsing. Refineries are closing: Sir Jim Ratcliffe, whose firm Ineos is closing the oil refinery and ethanol plant at its Grangemouth site, says we are “witnessing the extinction” of the chemicals sector. The ceramics industry recently announced a “rescue plan” to address “unprecedented challenges”. Britain’s foundries, whose output has already fallen by 85 per cent since 2000, face further closures.

In this environment, press releases from industry groups drip with desperation. Make UK, the umbrella body for manufacturing, complains that “manufacturers feel like they are currently wading through treacle, facing barriers and increased costs being imposed on them at every turn”. The chemicals industry warns of energy bills that are 400 per cent higher than in America, “unsustainable costs” and a “hostile policy agenda”, asking — as Ratcliffe did — whether the country wants it to exist at all.

A large part of the problem is, as the above suggests, energy prices and charges — which are being made worse by Ed Miliband’s desperate dash to decarbonise the grid by 2030, irrespective of the costs.
But as I’ve pointed out before, we’ve also designed our entire net-zero system to count emissions in the UK only. So if that British Steel plant shuts down, and we start importing from China or India, it counts as a carbon win even if their steel is produced using the dirtiest coal on the planet and with none of the green levies we apply here.

In recent decades the proportion of our carbon emissions incurred through imports has duly been rising. In the process, as Kemi Badenoch pointed out recently, we have become overwhelmingly dependent on China to reach net zero — and, increasingly, to keep the lights on — since it dominates the production of solar panels, wind turbines, electric cars and more besides.

But it’s not just about energy or climate. Britain has displayed a slapdash indifference to its manufacturing sector. We permitted the ridiculous ossification of the planning system, making it hard to build not only houses but factories, laboratories and the roads to connect them. George Osborne funded his corporate tax cuts by slashing the capital allowances that manufacturers relied on to invest.

Year after year, the country that invented the Industrial Revolution sets new records for how small its manufacturing sector can shrink as a share of GDP. As of 2023, it was 8.3 per cent — half of the level in 1990. Of course, manufacturing is struggling across the West: just look at Germany. China is eating everyone’s lunch. But our sector is a smaller part of the economy than in any of our main competitors.

We are also well below our peers in R&D investment. A few years ago the analyst Rian Chad Whitton pointed out that only 121 British companies appeared in a list of the world’s top 2,500 spenders on R&D. In the 2024 edition of the same index, that had fallen to 63 out of the top 2,000. And many were firms such as AstraZeneca, GlaxoSmithKline or Rio Tinto, which have a corporate presence in the UK but operate and innovate across the globe.

Britain, in short, has been conducting a vast experiment to see how much a country can grow without making or building stuff — creating an economy that privileges not only services over manufacturing, but the intangible over the actual.

In a fascinating piece the other day, Whitton showed that between 2000 and 2023, Britain’s reliance on imports for basic materials grew hugely, even as our consumption of those materials shrank. We use much less cement than our neighbours, much less steel, much less tarmac, much less fuel, to the point where we look more like a Latin American than a western European country in the data.

Whitton concludes that “the British economy’s ability to actually process new material, from gravel to advanced machinery, is internationally substandard”, and that we are “the most un-automated major country in the developed world”.

I wish ministers well with their plans to make us a defence superpower. But it’s hard to reconcile that ambition with our status as a country in which making things is often viewed as a second-class activity, which relies on other nations for a striking proportion of the physical goods it consumes, and which has adopted policies on energy, climate and planning that are actively making those problems worse.

America, under both Biden and Trump, has belatedly become serious about reindustrialising, in particular its military production. Far from being a “superpower”, Britain is scrabbling to catch up in a world in which all too many of our supply chains, whether for energy, technology or industry, ultimately depend on the kindness of strangers.

What if the US does weaken the USD?

 

Will Undermining the Dollar Bring an American Industrial Renaissance?

Reviving manufacturing by beating down the dollar would necessitate a complete reorganization of the US economy .

Peter C. Earle

•

March 25, 2025

For decades, America’s manufacturing sector has seemingly eroded, with jobs and production shifting overseas in search of lower costs and fewer regulatory constraints. While many companies have relocated abroad, the reality is more nuanced than it appears. Certain industries have declined, but US manufacturing output has fluctuated rather than collapsed outright. By some measures, total output has remained stable or even grown. For instance, US manufacturing output in 2021 reached $2.5 trillion, an 11.55 percent increase from 2020. A more accurate depiction of manufacturing trends suggests that while employment in the sector has fallen, productivity gains and technological advancements have prevented an absolute decline in output.

Nevertheless, domestic manufacturing has been in relative decline for decades, making it a convenient political talking point. Recently, the concept of a “Mar-a-Lago Accord” has emerged — a theoretical framework aimed at restructuring the international financial system to benefit US interests.

Key proponents, including Treasury Secretary Scott Bessent and economic adviser Stephen Miran, suggest that such an accord could reduce US debt and revitalize domestic manufacturing by weakening the dollar, lowering borrowing costs, and attracting investment — all while maintaining dollar dominance. This plan would involve persuading foreign trade partners to cooperate, swapping US bonds for long-term, non-tradable debt, and potentially using US assets as collateral. However, securing such international cooperation could lead to unintended consequences, including rising domestic borrowing costs and higher consumer prices. But the lynchpin of all of that is purposeful, politically-motivated, dollar depreciation.

The US Dollar Index vs. the Trade-Weighted Dollar

To fully assess the dollar’s strength since the end of the Cold War, the most relevant metric is the trade-weighted US dollar (TWUSD), which considers exchange rates with a broader range of trading partners, including China and Mexico — two of the largest recipients of outsourced American manufacturing. In contrast, the more commonly cited US Dollar Index (DXY) primarily tracks the dollar against a limited basket of six currencies (euro, yen, British pound, Canadian dollar, Swedish krona, and Swiss franc) and fails to capture broader trade dynamics.

Trade-Weighted US Dollar (black) vs. the US Dollar Index (blue), 1990–present

(Source: Bloomberg Finance, LP)

Since the fall of the Soviet Union, the trade-weighted dollar index has risen over 110 percent, making US exports more expensive globally while making imports cheaper. As the financial sector has gained dominance, domestic industries competing with foreign firms have faced increasing pressure.

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Proponents of a weaker dollar argue that devaluation would make US exports more attractive while raising import costs, thereby incentivizing domestic production and consumption. However, currency devaluation alone does not enhance the quality or competitiveness of goods; it simply manipulates prices. As a National Bureau of Economic Research study notes, currency undervaluation can influence comparative advantage, but its impact varies widely depending on broader economic conditions.

Devaluing the Dollar: Shortsighted and Ineffectual

Even if America were to beat the dollar down as a first step toward embracing an all-out industrial policy aimed at reviving manufacturing, the transition would take decades — likely generations. And over the course of those years the economic landscape is likely to shift unpredictably multiple times: new technologies, global shifts in shifts, and financial crises, each of which inexorably alters the global landscape. At the same time, the successful accomplishment of the reshoring of manufacturing to the US would require an improbable number of other things – access to cheap and reliable energy and efficient raw mineral sources, for example – to remain the same or improve.

If the US dollar is to be the focus of policy, a more broadly beneficial approach would be to prioritize long-term stability over persistent inflationary pressures, ensuring a sound monetary foundation for both investment and economic growth. The Federal Reserve’s inflationary bias has played a pivotal role in facilitating the shift away from toward financialization. If the Fed were restricted to a single mandate of maintaining a stable dollar with a zero percent inflation/deflation target, it could reduce the outsized emphasis on financial markets. Curbing excessive liquidity-driven asset inflation and making financial markets less dependent on Fed intervention would tacitly encourage capital to flow into productive, long-term investments rather than speculative financial assets.

Politicians should attempt to be honest about the realities of reshoring. As difficult as it may be to accept, Americans may need to adapt to and navigate the realities of today’s economic landscape rather than attempting to recreate the unique, long-gone conditions of the 1960s. While browbeating the dollar might provide a temporary boost to exports, it is no silver bullet. Instead of looking for quick fixes and promising overnight rejuvenation of a bygone era, a more productive focus seeks market-based solutions that enhance innovation, investment, and global trade.

The Structural Challenges of a Weaker Dollar Strategy

For decades, America’s primary exports have been the dollar itself–actual dollars, US Treasury bonds, and dollar-denominated financial assets–rather than physical goods. China, Japan, Germany. Mexico, Canada, and other major trading partners have accepted dollars in exchange for their exports, fueling America’s consumption-driven economy. Those dollars have been invested in US Treasuries, enabling the massive pile of debt that now threatens America’s economic heath and national security. Undoing that long-established arrangement would require much more than just a weak dollar — it would necessitate a complete reorganization of the US economy away from financialization.

Even if the process of shifting resources away from financial products into brick and mortar goes smoothly, industrial power won’t return within one or two presidential terms; certainly not overnight. America has spent decades deindustrializing, and much of the required physical infrastructure, supply chain establishment, and cultivation of a skilled labor force essential for large-scale production will have to start anew. Reviving these components requires far more than currency manipulation.

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Peter C. Earle

Peter C. Earle, Ph.D, is a Senior Research Fellow who joined AIER in 2018. He holds a Ph.D in Economics from l’Universite d’Angers, an MA in Applied Economics from American University, an MBA (Finance), and a BS in Engineering from the United States Military Academy at West Point.

Prior to joining AIER, Dr. Earle spent over 20 years as a trader and analyst at a number of securities firms and hedge funds in the New York metropolitan area as well as engaging in extensive consulting within the cryptocurrency and gaming sectors. His research focuses on financial markets, monetary policy, macroeconomic forecasting, and problems in economic measurement. He has been quoted by the Wall Street Journal, the Financial Times, Barron’s, Bloomberg, Reuters, CNBC, Grant’s Interest Rate Observer, NPR, and in numerous other media outlets and publications.

Slowbalisation - Economist article on international trade from 1st Trump term:

 

The steam has gone out of globalisation Jan 24th 2019 

NB Some of the material is already out of date; we have had Covid since – but analysis is excellent and trends are clear:

When America took a protectionist turn two years ago, it provoked dark warnings about the miseries of the 1930s. Today those ominous predictions look misplaced. Yes, China is slowing. And, yes, Western firms exposed to China, such as Apple, have been clobbered. But in 2018 global growth was decent, unemployment fell and profits rose. In November President Donald Trump signed a trade pact with Mexico and Canada. If talks over the next month lead to a deal with Xi Jinping, relieved markets will conclude that the trade war is about political theatre and squeezing a few concessions from China, not detonating global commerce.

Such complacency is mistaken. Today’s trade tensions are compounding a shift that has been under way since the financial crisis in 2008-09. As we explain, cross-border investment, trade, bank loans and supply chains have all been shrinking or stagnating relative to world GDP (see Briefing). Globalisation has given way to a new era of sluggishness. Adapting a term coined by a Dutch writer, we call it “slowbalisation”.

The golden age of globalisation, in 1990-2010, was something to behold. Commerce soared as the cost of shifting goods in ships and planes fell, phone calls got cheaper, tariffs were cut and the financial system liberalised. International activity went gangbusters, as firms set up around the world, investors roamed and consumers shopped in supermarkets with enough choice to impress Phileas Fogg.

Globalisation has slowed from light speed to a snail’s pace in the past decade for several reasons. The cost of moving goods has stopped falling. Multinational firms have found that global sprawl burns money and that local rivals often eat them alive. Activity is shifting towards services, which are harder to sell across borders: scissors can be exported in 20ft-containers, hair stylists cannot. And Chinese manufacturing has become more self-reliant, so needs to import fewer parts.

This is the fragile backdrop to Mr Trump’s trade war. Tariffs tend to get the most attention. If America ratchets up duties on China in March, as it has threatened, the average tariff rate on all American imports will rise to 3.4%, its highest for 40 years. (Most firms plan to pass the cost on to customers.) Less glaring, but just as pernicious, is that rules of commerce are being rewritten around the world. The principle that investors and firms should be treated equally regardless of their nationality is being ditched.

Evidence for this is everywhere. Geopolitical rivalry is gripping the tech industry, which accounts for about 20% of world stockmarkets. Rules on privacy, data and espionage are splintering. Tax systems are being bent to patriotic ends—in America to prod firms to repatriate capital, in Europe to target Silicon Valley. America and the EU have new regimes for vetting foreign investment, while China, despite its bluster, has no intention of giving foreign firms a level playing-field. America has weaponised the power it gets from running the world’s dollar-payments system, to punish foreigners such as Huawei. Even humdrum areas such as accounting and antitrust are fragmenting.

Trade is suffering as firms use up the inventories they had stocked in anticipation of higher tariffs. Expect more of this in 2019. But what really matters is firms’ long-term investment plans, as they begin to lower their exposure to countries and industries that carry high geopolitical risk or face unstable rules. There are now signs that an adjustment is beginning. Chinese investment into Europe and America fell by 73% in 2018. The global value of cross-border investment by multinational companies sank by about 20% in 2018.

The new world will work differently. Slowbalisation will lead to deeper links within regional blocs. Supply chains in North America, Europe and Asia are sourcing more from closer to home. In Asia and Europe most trade is already intra-regional, and the share has risen since 2011. Asian firms made more foreign sales within Asia than in America in 2017. As global rules decay, a fluid patchwork of regional deals and spheres of influence is asserting control over trade and investment. The European Union is stamping its authority on banking, tech and foreign investment, for example. China hopes to agree on a regional trade deal this year, even as its tech firms expand across Asia. Companies have $30trn of cross-border investment in the ground, some of which may need to be shifted, sold or shut.

Fortunately, this need not be a disaster for living standards. Continental-sized markets are large enough to prosper. Some 1.2bn people have been lifted out of extreme poverty since 1990, and there is no reason to think that the proportion of paupers will rise again. Western consumers will continue to reap large net benefits from trade. In some cases, deeper integration will take place at a regional level than could have happened at a global one.

Yet slowbalisation has two big disadvantages. First, it creates new difficulties. In 1990-2010 most emerging countries were able to close some of the gap with developed ones. Now more will struggle to trade their way to riches. And there is a tension between a more regional trading pattern and a global financial system in which Wall Street and the Federal Reserve set the pulse for markets everywhere. Most countries’ interest rates will still be affected by America’s even as their trade patterns become less linked to it, leading to financial turbulence. The Fed is less likely to rescue foreigners by acting as a global lender of last resort, as it did a decade ago.

Second, slowbalisation will not fix the problems that globalisation created. Automation means there will be no renaissance of blue-collar jobs in the West. Firms will hire unskilled workers in the cheapest places in each region. Climate change, migration and tax-dodging will be even harder to solve without global co-operation. And far from moderating and containing China, slowbalisation will help it secure regional hegemony yet faster.

Globalisation made the world a better place for almost everyone. But too little was done to mitigate its costs. The integrated world’s neglected problems have now grown in the eyes of the public to the point where the benefits of the global order are easily forgotten. Yet the solution on offer is not really a fix at all. Slowbalisation will be meaner and less stable than its predecessor. In the end it will only feed the discontent.

This article appeared in the Leaders section of the print edition under the headline "Slowbalisation"

Economic inactivity - again

 Britain | The missing million

Britain’s worklessness disaster

Can the government get more people working without exposing the vulnerable?

Illustration: Mariaelena Caputi

Mar 13th 2025|Barnsley

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For Sarah, the trouble started with a fracture in her back. She’d worked in a warehouse for years. Now she’s “too old to lug boxes” and her back still aches when it’s cold. Poundland, a budget retailer, rejected her job application. Others didn’t reply. For Mandy, it was losing her job. Without that structure, she felt anxious and depressed. Michael hurt his back in 2022, but is still waiting for surgery. He’s only done part-time Christmas work since.

All three live in Barnsley, in northern England. Ill health pushed them into the ranks of what statisticians drily call the working-age economically inactive: people with no job who have stopped looking. Nearly 3m Britons aged between 16 and 64 are not working because of poor health, up from just over 2m in 2019. That is a misery for them and a mystery to economists. No other rich country has seen a similar rise.

Chart: The Economist

Worklessness is a headache for the government, too. Since 2019 annual spending on health-related benefits for those of working age is up by £19bn ($25bn, 0.7% of GDP) in inflation-adjusted terms (see chart 1). The government has forecast a further £13bn rise by 2029. It is spending more on both incapacity benefits, for people unable to work, and disability benefits like the Personal Independence Payment (PIP), which cover the cost of disability whether the recipient works or not. In England and Wales 4m people, or one in ten of working age, now claim one or both. In 2019, only 2.8m did. And losing so many from the jobs market has compounded wider economic woes, pushing up inflation and pulling down growth.

Chart: The Economist

Have Britons really got so much sicker, so quickly? The evidence is mixed and messy. Official labour-force figures show a particular deterioration in mental health among the young, alongside bone and muscle trouble in the middle-aged (see chart 2). But nearly all sickness is up. And since the pandemic, the data have become ever less reliable, as fewer people respond to surveys.

Chart: The Economist

Over a wider set of measures, the Institute for Fiscal Studies (IFS), a think-tank, found no consistent picture (see chart 3). “Some surveys suggest long-term ill health has grown, while others suggest it has remained unchanged,” says Eduin Latimer of the IFS. “There is much clearer evidence on mental-health conditions. All surveys suggest that more people are reporting mental-health problems now than before the pandemic.”

What, then, is going on? Health-service waiting lists get blamed, but probably unfairly. A study by the Office for Budget Responsibility (OBR), the fiscal watchdog, found that most people on them were working or past retirement age, and that even halving the lists would get only 25,000 of the long-term sick back to work.

A more plausible culprit is the welfare system. Britain is spending a record 4.3% of GDP on benefits for working-age people. But most benefits that are not related to health, such as unemployment support, have been squeezed. (The state pension is a marked exception.) That decline has probably shunted more people into health benefits. Court rulings also forced Theresa May’s government to widen eligibility for people with mental-health problems.

A technological shift has also added to the bill. During the pandemic, phone and video interviews replaced face-to-face assessments for disability and incapacity benefits. TikTok is full of tutorials walking would-be applicants through PIP interviews, listing key things to mention—struggling with cooking, forgetting to take medication—to maximise the likely award.

Chart: The Economist

Once the welfare system has deemed someone ill, the label tends to stick. Sir Steve Houghton, leader of Barnsley council, says post-industrial areas like his have long experience of this. “If they’re in the benefits system for over three years, it’s not easy to get people back out,” he says. “They fear if they come out and work doesn’t work out, going back in will be difficult.” Research by the Resolution Foundation, another think-tank, also found that the newest PIP recipients are less likely than previous cohorts to move off the benefit (see chart 4).

Worklessness frustrated the previous government, too. Rishi Sunak tightened eligibility for incapacity benefits in 2023, but was challenged in court over the length of consultation. The government lost in January (after winning last year’s election, Labour kept fighting the case). Now fiscal necessity has jolted Sir Keir Starmer into action. New OBR forecasts, due on March 26th, are expected to show that the government’s already slim room for manoeuvre has been squeezed to nothing by weak growth and the gilt market. The newly urgent need for rearmament spending has made things tighter still. After the overseas-aid budget, now stripped almost bare, benefits are the next least-popular bit of public expenditure.

Leaks to ITV, a broadcaster, suggest the government is eyeing cuts of around £6bn a year. That will be controversial within Labour. At a meeting of the party’s National Executive Committee in January, Sir Keir was warned that “the disabled community were deeply alarmed”. Measures to raise the bar for disability and incapacity benefits are a necessary stopgap. But Britain’s recent history of welfare changes is littered with the unforeseen consequences of misbegotten schemes, and suffering for society’s poorest as a result. PIP, rolled out in the 2010s, was intended to make disability benefits harder to get, and to save £1.4bn a year. The latest estimates suggest it saves only £100m or so.

So reform is needed too. That means somehow framing eligibility in a way that does not penalise people’s efforts to start working, without hurting those who cannot. At least Labour has electoral time and a huge parliamentary majority on its side.

Barnsley is running a pilot scheme, starting in April, to better tie together the 70-odd training and support programmes for jobless people and collaborate with employers to find them work. The Treasury is watching. If the scheme succeeds—its designers expect four-to-one returns—it could be rolled out nationally.

But the government’s own policies are an obstacle to improvement. Most people don’t fall out of work instantly. Like Sarah, they first look and then, after enough disheartening rejections, stop trying. It would therefore be wise to make it cheaper and less risky for employers to take a punt on someone with a thin CV and poor health.

Sadly, the rest of Labour’s jobs agenda is rowing in the opposite direction. Increases in employers’ national insurance, a payroll tax, and the minimum wage will make hiring the low-paid costlier. The Employment Rights Bill will probably block up the job market more. Progress will be hard without a change of course. ■