The claim
“Labour’s plan would mean a £2bn tax on bank bonuses that will both support the construction industry through the building of 25,000 more affordable homes, and guarantee a job for 100,000 young people.”
Rachel Reeves, November 16 2011
The background
Ed Miliband is urging David Cameron to “change course now” on austerity.
The coalition’s programme of spending cuts is “hurting but not working”, the Labour leader repeated in a speech to the Social Market Foundation on Thursday.
His speech came as Rachel Reeves, the shadow chief secretary to the Treasury, gave the latest plug to Labour’s five-point “plan for jobs and growth”.
The opposition say they want to bring forward long-term investment, cut VAT temporarily, give small firms a national insurance holiday, and use a £2bn tax on bank bonuses to build new homes and “guarantee a job for 100,000 young people”.
With the news this week that youth unemployment has risen above 1 million, it’s the last of those points which is likely to attract the most attention, certainly amongst younger voters. But is Labour’s plan a credible strategy for getting Britain’s youth back to work?
The analysis
The plan was immediately criticised by the Coalition for lacking detail, with some justification.
In one of the few press releases that went into any specifics, it was made clear that Labour’s strategy hinges on staging a repeat of the windfall tax on bank bonuses that raised £2bn for the Treasury under Gordon Brown.
Labour want to spend £1.2bn building 25,000 affordable homes across the country, generating “more than 20,000 jobs and several times more in the supply chain”.
They would also “establish a £600m fund for youth jobs” and put the remaining £200m into regional development, reversing coalition cuts. Sounds good on paper, but what are the potential pitfalls?
Alistair Darling announced a one-off 50 per cent tax on bonuses over £25,000 at 26 City institutions in 2009. The coalition scrapped the bonus tax and introduced a permanent bank levy instead. Labour now want the Darling tax to be repeated on top of that.
The fact that the Treasury managed to rake in as much as £2bn in 2009 surprised many commentators, as there were several loopholes that appeared to make it easy to avoid: banks could simply raise salaries instead, defer bonuses, pay out shares instead of cash and so on.
There are serious doubts about whether City accountants would get caught out again, one of the biggest sceptics being the former chancellor himself.
Mr Darling said last year: “It will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and…will find all sorts of imaginative ways of avoiding it in future.”
Labour appear to be on surer ground when they predict that directly funding house-building will create employment. The Home Builders Federation said they backed Labour’s numbers on the potential for job creation – although they pointed out that those people would only be in work until the 25,000 houses were built.
The “jobs” for young people would be similarly temporary in nature, FactCheck has learned.
Although it sounds like a new idea, Labour aides told us that the £600m youth jobs fund will basically be a re-run of a highly controversial old policy, the Future Jobs Fund (FJF).
Under that scheme, firms in unemployment hotspots around the country were given up to £6,500 of government money to create six-month paid work placements for young people who had been unemployed for at least nine months.
The costings for the new proposal – £600m divided between around 90,000 people – are exactly the same as under the old fund, which was scrapped by the Coalition after David Cameron called it “one of the most ineffective job schemes there’s been”.
While the FJF has passionate supporters as well as detractors, there is indeed little evidence yet that the scheme helped boost employment in the long term.
A Department for Work and Pensions study found that 50 per cent of the first group of young people who participated in Labour’s scheme just were back on benefits just one month after the end of the six-month stint in employment. The rate climbed to 57 per cent two months after that before starting to fall gradually.
In a comparison group of young people who found work outside the FJF, only around 35 per cent were back on the dole six to nine months after starting a job.
That may not be an entirely fair comparison, as the FJF participants were more disadvantaged than the average job seeker. And an independent evaluation by the Centre for Social Inclusion was more positive about the FJF. But we don’t have enough evidence yet to declare the project a success or failure.
What’s not disputed is that the “jobs” would only last for up to six months, and again, £600m would only pay for one year’s worth of entrants.
Labour told us: “Once people have been on a placement it’s more likely they will be able to move on to get permanent jobs elsewhere”, adding: “That’s why it needs to be seen alongside other measures in the plan.”
As far as those other measures – VAT cuts, NI holidays, more investment in infrastructure – Labour has been heavily criticised for failing to produce estimates for the overall cost.
George Osborne purported to do it for them when he quoted HMRC figures suggesting the five-point plan would add about £20bn to the deficit. Labour may well dispute that, but they haven’t published their own costings.
Of course, what the Coalition critics fail to mention is that there would be benefits to the economy as well as costs if Labour’s plan did start to cut unemployment and stimulate growth. But that remains a gamble.
The verdict
Unless Mr Miliband wins a snap general election some time soon, we won’t know whether the positive effects of Labour’s alternative economic strategy will outweigh the undoubted cost to the taxpayer.
What we can say is that Labour’s policy on youth unemployment is far from new, it hasn’t been proven to work, and its effects on unemployment would probably be temporary.
By Patrick Worrall
