(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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