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Coffee House Specdata

It’s official: smaller state and welfare reform leads to jobs record

16 April 2014

9:53 AM

16 April 2014

9:53 AM

The British jobs miracle continues, with unemployment now down below 7 per cent and employment at an all-time high of 30.4 million. This is the level that Bank of England Governor Mark Carney said he’d consider raising interest rates – a milestone chosen because, only recently, it seemed as if we’d take years to reach this point. Now we’re past it.

It’s a reminder: economics is a very blunt art, and economists are often no better than the Met Office. They can be surprised when the economy goes right, as well as it goes wrong. It was the failed, Keynesian, stimlus-worshiping economic model that led Ed Balls to declare accuse George Osborne of entertaining a ‘fantasy’ when the Chancellor said total jobs would rise even after he’d cut 300,000 public sector jobs.

As it turns out, Osborne was underestimating. The below graph shows how Osborne kept getting his forecasts wrong on jobs – each Budget, he underestimated just how well the British economy was doing. Jobs upgrades

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And the graph at the very top shows a basic conservative truth: smaller state means more jobs, more prosperity, more social cohesiveness, greater fairness and a stronger country. But this doesn’t happen automatically. The UK jobs miracle is happening mainly due to radical welfare reform – the type Labour ducked in office. Iain Duncan Smith decided to assess the two million incapacity claimants, to see what type of work they were capable of going. The number in IB (or equivalent) now stands at a 20-year low.

When the Bank of England was trying to work out why it underestimated the strength of the jobs recovery, the Monetary Policy Committee identified welfare reform. The minutes from its January meeting show:

‘A tightening in the eligibility requirements for some state benefits might also have led to an intensification of job search.’

It’s the missing link. Under Labour, record numbers of people in work were celebrate as an end in itself – but most of the increase was accounted for by immigration. So more jobs did not mean less poverty – not if a quarter of Glasgow and Liverpool were still languishing on the dole at the peak of a boom. This time, it’s different. The welfare reforms are restoring the see saw link between jobs and dole queues. The below is, perhaps, the most graph in which the coalition government should take the most pride:

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