The Edge

Richard Northedge takes on corporate finance

Should we pay companies to employ the jobless?

Labour wants public money used to give jobs to the long-term unemployed. That’s a noble objective, but would private companies accept the cash to create jobs?

With 2.8m unemployed there is no shortage of labour for employers wanting to recruit. If the government is footing the bill, some firms may take on the jobless, but would those be new jobs – or would the subsidised staff replace employees whose wages currently come from profits? Are firms supposed to take on extra workers to sweep the floor or would they fill positions left by leavers?

This make-work scheme does nothing to increase demand, so companies have no need to produce more goods or services. Having more people produce the same output would further depress the UK’s low productivity without adding to gross domestic product.

Labour proposes financing the scheme by stopping 45 per cent taxpayers – ie, top earners – from offsetting pension contributions against anything other than the basic 20p income tax rate. Many will find that an attractive way to raise state revenue (high earners will probably still top up their pensions, and if they do spend their cash instead, that will boost economic consumption) but there are plenty of other calls on the sums raised – and Labour has already earmarked the pension proceeds for other purposes.

There will be considerable social benefits if the 129,000 adults who Labour says have been without work for two years are given jobs again, even for six months. But as they will be paid the minimum wage, this proposal is more a transfer from high-earners to employers than to the unemployed. The jobless get a pay packet but their employer gets cheap labour. (And surely public-sector employers would be barred from receiving this public cash?)

Even a lowly-paid temporary job should help these long-term jobless to re-enter the labour market though. And there are other positive aspects of this proposal, not least that Labour is putting forward serious economic solutions now that the general election is just two years away. We can quibble about the details of such a scheme but it’s objective is certainly noble.

Labour has proposed the plan to embarrass the government – that’s politics – but the gauntlet has been thrown down for the Conservatives to come up with their own plan for turning the long-term unemployed from benefits claimants into taxpayers.

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