Spending Review 2020: Good marks on support to find work, more to do on raising demand

There were two big labour market priorities for the Chancellor today: how to get employment growing again next year, and how to help the unemployed to fill those jobs. Today’s announcements deserve good marks for the latter, but there are still big questions on whether we are doing enough on the former – with the Treasury continuing to gamble on a strong, private sector-led recovery in the new year.

On the good news first, the £3 billion commitment for a new ‘Restart’ programme for the long-term unemployed is very welcome. The scale of the funding is higher than we had anticipated and if it can be commissioned quickly then it will arrive just in time – with our estimates suggesting that around 200 thousand people who started claiming benefit during the pandemic likely to reach long-term unemployment by next summer. Delivering this quickly and well however will be a huge challenge. As we said last night, Restart will need to build on the evidence of what has worked well in the past, and will need to work far better with local services, colleges and training providers, and the voluntary and community sector.

However, while there were billions available for the long-term unemployed today, funding to support other disadvantaged groups in the labour market was noticeable by its absence. Before this crisis began there were over three million people out of work who wanted to work; the number of people not working due to long-term ill health had risen above two million; and nearly a million young people were outside full-time education or training. In a weaker labour market and with more competition for jobs, those furthest from work will fall further behind – so we need to see more investment in specialist support to address this, not the same or less.

Of particular concern was the news that the Shared Prosperity Fund will be just £200 million next year, and will peak at around £1.5 billion a year – barely half the size that we had been expecting. This funding will replace European Structural Funds after Brexit, and is specifically intended to support disadvantaged areas and groups. The government had committed to match previous funding, which averaged just over £2 billion a year between 2014 and 2020. However, we have only managed to spend about half of that, and government has chosen to match this level – rather than the full allocation – in the new Fund.

On the second big challenge, of boosting jobs growth next year, the Treasury is continuing to bank on a strong recovery in hiring as economic growth returns. This isn’t entirely unreasonable – as household and company finances have been supported to a far greater extent in this crisis than previous ones, and the good news on vaccines can give us some hope of a bounce back next year. But as with the summer Plan for Jobs, this is a risky approach to take. As I’ve written before, spare capacity in firms plus continued economic uncertainty means that the biggest risk that we’re now facing in the labour market is weak hiring – with new job starts lower over the summer than they were during the full lockdown in the spring. A slow recovery in hiring will mean continued rises in unemployment next year, and higher long-term unemployment.

The big jobs announcements today – on infrastructure, housing and the green economy – are welcome, but will take years rather than months to come on stream. In the shorter term, we missed an opportunity to create stronger incentives for firms to create new jobs, or for a temporary boost in employment in public services to help compensate for temporary weak demand in the private sector (which would have helped with ‘levelling up’ too). That being said, it is welcome that the Chancellor has protected day-to-day Departmental budgets to a far greater extent than happened in 2010.

Finally, there was welcome news on further education today, with a £300 million boost to help maintain funding levels as more 16-19 year olds stay on in education. The government has also committed more of the National Skills Fund, and made some tweaks to apprenticeship rules particularly around unspent levy funds. However, with workplace training falling and the need for retraining increasing, it again felt like a missed opportunity today to do more on careers advice, training and skills.

Overall then, there was a lot to welcome in today’s announcements. However, there remains a lot more to do to support a strong recovery.

Tony Wilson FIEP, Director, Institute for Employment Studies