(from the observer Sunday November 13, 2005)
People living in the depressed regions of Britain want work more than
incapacity help, says John Grieve-Smith
The government's proposals to reform incapacity benefit tacitly assume that
driving people off benefit will increase the total number of people at work.
But it will not do so unless there are sufficient jobs available.
The problem is that the rise in numbers on the benefit in the past two
decades has been largely concentrated in the older industrial areas, which
have been suffering from a chronic shortage of jobs following the decline in
coal, steel, shipbuilding and other manufacturing industries.
The total number of people on incapacity benefits has risen from 700,000 in
1979 to 2.7 million - more than 7 per cent of the population of working age.
The regional distribution is strikingly uneven. In the south east the
proportion is typically 3-4 per cent. But in many parts of the older
industrial north (and Scotland and Wales) the proportion is well over 10 per
cent.
In Glasgow, for example, it is 16 per cent, and in Liverpool and
Barrow-in-Furness (constituency of John Hutton, the new Work and Pensions
Secretary) 15 per cent. At the extremes, it ranges from 20 per cent in
Easington, Co Durham, to 2 per cent in Hart in Hampshire. Of the 30 worst
affected districts, about half are former coal mining areas. Another 10 are
steel or shipbuilding towns.
The difficulty is to get more jobs to these areas. Only a quarter of men on
incapacity benefit say they cannot work at all; around half say they would
like a full-time job. These are not people deliberately shirking work and
sponging off the state. Penal measures to force people off benefit are not
the answer. Practical measures to help people into work must be accompanied
by more effective job creation measures in the badly affected areas.
It is time for a review of the government's regional policies. This will be
necessary in any event, because revisions to EU policies are under
discussion to take account of the accession of new, poorer member states
from eastern Europe.
The UK receives just over £1 billion a year in EU regional aid for
infrastructure investment and business support. This could be halved to make
more funds available for new members. The government must make this up if
there is not to be a serious shortfall in funds for investment in these
areas. It is essential that the government actively discriminates in favour
of these regions when allocating funds for public investment.
A related set of proposals would restrict the areas of the country in which
our own government can make regional investment grants to industry and
reduce the maximum grants payable. The maximum rate for large firms now
eligible for grants of 35 per cent of the investment cost would be reduced
to 30 per cent, and in Merseyside and South Yorkshire, for example, the top
rate would be reduced in stages to 15 per cent.
In some areas it would as low as 10 per cent. This would seriously damage
the effectiveness of the existing grant system. It is essential that the
government exploits to the full the remaining potential for providing
incentives to firms to invest in areas where the new EU rules permit it to
do so.
At present, such grants are discretionary and the consequent uncertainty and
bureaucracy involved can deter firms from applying. They also have no
guarantee that if they establish a new plant in one these areas, subsequent
investment in that plant will attract further grants. There is a strong case
for making such grants automatic, rather than discretionary, as they were
for much of the post-war period.
The argument against this is that there would be a certain amount of
'deadweight' - expenditure on projects that would take place in any event;
but that applies to most tax concessions for specific purposes.
Recent expenditure on investment grants in the UK has been running at around
£300 million a year, compared with more than £1.5bn a year (at today's
prices between the mid-1960s and mid 1980s). Such expenditure can be well
worthwhile. It has been estimated that the saving to the Exchequer of every
extra 100 people at work and off benefit is £1m a year: £300,000 lower
expenditure on benefits and £700,000 extra revenue from direct and indirect
taxation.
The potential benefits to the economy of successful job creation in these
areas are immense. Stronger demand for labour in the North would help to
stabilise the distribution of labour across the country and ease the
pressure on transport and housing in the South. A more even spread of jobs
across the country would avoid the need for interest rate increases to curb
inflation in parts of the South, while other areas are still far from full
employment.
Increasing the proportion of people at work would also make a major
contribution to the long-term pension problem by improving the ratio of the
number of workers to pensioners.
If the same proportion of people of working age were in employment in the
north as in the south, total employment would be 1.5 million higher. Even
closing part of this gap could have immense advantages. But to do so would
require substantial changes in the government's approach. It must recognise
the need for strengthening regional policies to create more jobs in these
key areas and provide those on incapacity benefit a better chance of
returning to work.
· John Grieve-Smith is co-author with Stephen Fothergill of the Catalyst
Pamphlet 'Mobilising Britain's Missing Workforce: Unemployment, Incapacity
Benefit and the Regions'.
Guardian Unlimited © Guardian Newspapers Limited 2005
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