Are Brown’s ideas just the job?

Britain's employers have given Gordon Brown's job ideas a muted welcome, amid calls for other types of help, says Sean O'Grady

Should we say a "Golden Hello" to the Government's Golden Hello? The apparently additional £500m for a scheme to reduce the numbers of long-term unemployed by paying companies bonuses to recruit them sound impressive, and the aim of preventing people languishing on the dole is also a laudable one.

It has received a warm welcome in some quarters. John Atkinson, associate director of the Institute for Employment Studies at the University of Sussex, said that "it shows a considerable degree of seriousness and intent to stem the flow of long-term unemployment – it is very well thought out".

The key point about the new scheme is that most of the help is triggered at six months on the dole. Researchers in this field say that the chances of someone out of work getting back into the labour market begins to diminish around the half-year mark, as demoralisation and sometimes health problems begin to kick in. Keeping people "in touch" with the working world is regarded as crucial.

Apart from the human cost and family poverty that stems from a lengthy spell on the dole, six months is also the sort of timeframe that banks and building societies might give an individual before they embark on moves to repossess a home – with all the misery that that implies.

A wave of homelessness on top of a wave of joblessness will load a heavy burden on to taxpayers, with the additional costs involved when families have to be rehomed in bed and breakfast accommodation. The additional damage to the banks' balance sheets from bad dents are also likely to exacerbate the credit crunch; unlike the last two recessions in the early 1990s and early 1980s, the banks are less likely now to lend or extend overdrafts to customers to tide them over. The logic behind the new policy was almost acknowledged by Gordon Brown when he said yesterday "we will do everything we can to prevent the global recession turning into a global depression; prevent short-term unemployment turning into long-term unemployment; and to prevent losing your job meaning losing your home".

However, there are doubts as to how much of this £500m is truly "new", and how much would have to be spent in any case on existing employment schemes, their budgets rising inevitably with the toll of the jobless.

Some economists say that that total will rise from 1.8 million now to close to 3 million by Christmas. The latest news from the jobs market suggests things could be even worse. Long-term unemployment is also on an upward trend. The total number of those unemployed for six months or longer stands at 726,000, an eight-year high. It is not inconceivable that that total could swell to a peak of 1 million – where it stood when Labour took power in 1997.

To see joblessness back there would be humiliating for Mr Brown. Some 136,000 people aged 50 have been out of work for more than six months, and they are traditionally the most difficult to retrain.

During the last two recessions many workers made redundant in older declining industries in areas of high unemployment simply shuffled from unemployment benefit to incapacity benefit and then the retirement pension, their working lives cruelly cut short.

Such a turn of events would be a severe embarrassment for a Labour government that made so much political capital from "Tory waste" – hence the flurry of activity. However, many large employers are still unclear about precisely how the initiative will work.

McDonald's for example, which employs some 71,000 people in the UK, said yesterday that it is "too early to know" if they would be able to take advantage of it and offer Golden Hellos under the Golden Arches.

At the moment the fast food chain is expanding its recruitment in any case, and, like others, even now it receives £1,500 from the Government to employ someone and train them to educational Level 2 (equivalent to five GCSEs), and they can receive £1,000 from the Local Employment Partnership if they train workers in less formal, generic, skills such as communications.

Given that the long-term unemployed tend to be those with few qualifications, some at least of the Government's "new" money seems to be already accounted for by current arrangements – the only thing that is "new" about it is the scale, which has to rise anyway.

It is one of the "automatic stabilisers" that operate during a recession, rather than a discretionary item, no matter what the Government's announcement might suggest. The second potential problem with the new policy is what economists call "deadweight": the cost of supplying subsidies to employers who are happily recruiting in any case, plus the cost of training people who would have got a job anyway. Rebecca Riley, a research fellow at the National Institute of Economic and Social Research, says: "In general with employment subsidies and training schemes, there is little evidence that they provide a cure for unemployment and are typically associated with quite significant deadweight". However, she adds, such schemes can have some hidden long-term upside as well, such as making it less likely that a retrained employee will be made redundant again.

Analysts differ on whether Mr Brown's Golden Hello is superior to David Cameron's previously floated idea of a £2,500 discount on National Insurance levies for companies to retain workers due for lay-off.

Mr Brown's scheme is better on cash flow, as it offers cash up-front to firms willing to hire those who have been out of work for an extended period, but the Conservative policy "cuts employers' employment costs – without incurring the risk (and cost) of taking any new person on, especially when you don't necessarily wish to take a new person on", according to Ruth Lea, of Arbuthnot Economics.

But the sharpest point of criticism for the Government's schemes is the most obvious: that they are insignificant in the context of a global credit crisis that threatens to wipe out the best part of 1 million British jobs in the next year or so.

Vicky Redwood, UK economist at Capital Economics, reflects the consensus that the credit crisis is the single biggest threat to the economy: "It might do some good at the margin. Normally these schemes end up subsiding jobs that would be created anyway. Really, it all comes down to the banks."

Even John Cridland, CBI deputy director-general and one of Mr Brown's Downing Street jobs summiteers, admitted as much yesterday.

"These measures are welcome and important, but we also need initiatives that will stop people being made unemployed in the first place," Mr Cridland said.

"We believe that the best way to protect jobs is to target the credit crunch. If we do not get credit flowing through the economy again, good businesses will fail, causing more job losses and lasting damage to the economy."

Government loan guarantees, so-called "quantitative easing" and wider fiscal boosts here and abroad are bound to matter more than yesterday's modest jobs package; but for anyone who finds work and keeps a roof over their heads as a result of Mr Brown's little subsidy, such wider considerations will be a golden irrelevance.