The House Article | Solving our jobs crisis will require a deep policy reset

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New statistics show that there are still not enough vacancies for those looking for work, and employment rates have not returned to pre-pandemic levels. Our new Prime Minister’s early pronouncements suggest he recognises the need for a fundamental change to our education, employment and skills policy, especially for the youngest generations.

Andy Burnham recently called for a “complete rethink of how we support the next generation to succeed.” A rethink is exactly what we need.

Britain’s post-pandemic labour market sets us apart from our international peers. The UK has seen a rise in health-related inactivity not seen in other countries, and the proportion of young people who are NEET (Not in Education, Employment, or Training) is set to rise to over 16 per cent by the end of the decade.

More fundamentally, work has not truly delivered for working people for decades – one reason why Burnham’s diagnosis of the UK being “forty years on the wrong path” has cut through to the public. Despite improvements in minimum wages, in-work poverty has not budged because there aren’t the good-quality jobs, at the hours needed, to give people enough earnings to enjoy a decent living standard from work.

Solving these problems will take a three-pronged approach.

First, Burnham and the Department for Work and Pensions (DWP) should follow an investment-led approach, increasing work opportunities for the people and places who need them most.

For too long, the UK’s labour market policy has focussed on a very narrow range of interventions, founded on the myth that those who are out of work are simply not willing to find a job. This has clearly not worked. Upcoming research from the New Economics Foundation (NEF) will show how the rise of precarious and insecure work is helping drive people out of the workforce.

We invest far too little in re-training and skills for those out of work, with countries like Denmark putting us to shame. And we have done too little to address the systemic and place-based barriers to work – such as a lack of local vacancies in the most deprived job markets.

This needs to change. As a start, there should be a major expansion to the Youth Jobs Guarantee, a state-funded wage subsidy to support employers to place young people furthest from the labour market into work. Delivery of new placements should be devolved locally, as they were with the previous government’s Future Jobs Fund.

Second, investment in skills and training, especially vocational and technical education, needs to be significantly upgraded.

We have fallen backwards on apprenticeship starts since 2010, with those in deprived communities losing out the most. A modest increase in employer Growth and Skills Levy contributions – perhaps as a quid pro quo for lowering firms’ overheads and hiring costs – could reverse this trend. A portion of this funding could then be devolved to councils and integrated within Burnham’s planned local Good Growth Funds.

Firm training investment is much lower than in other advanced economies, and young people are unable to up-skill or retrain due to high up-front costs – making them vulnerable to AI-driven change. Introducing a Skills Tax Credit for firms, or even elements of a ‘Skilling Wage’, could deliver a major upgrade in firm-level investment.

Like France and Singapore, we should give every young person access to their own Individual Learning Account to spend on education and training. This fund could be added to by employee contributions and targeted state top-ups at particular ages.

Finally, the new government should rethink how the state engages with people who are out of work, to re-focus priorities on delivering higher-quality employment opportunities.

The welfare bill is a symptom, and not the cause, of an underlying lack of good work, training and support.

Burnham has signalled a shift towards devolved employment services in trusted grassroots-level settings. This would be a welcome change from the rigid, inflexible and rules-based way that the DWP engages with those out of work – and a nod to the promising outcomes seen in more hyper-local and voluntary council-led engagement, including in Greater Manchester.

To build on this, young people on out-of-work benefits should be assisted in community-based settings outside of Jobcentres, with Youth Hubs devolved to councils.

To rebuild the job market, the self-employed should receive better job security and in-work pensions, and there should be a presumption in favour of worker status for gig economy workers, as the European Union has done.

This change of PM comes at a time of heightened anxieties about the future of work, which goes beyond just the immediate NEETs crisis: the vast majority of people report little confidence in the ability of new technologies to benefit workers.

This presents an immediate challenge, but also – if harnessed effectively, and with the right policy – a major opportunity for the Burnham government.

Dr Tom Stephens is a Senior Fellow at the New Economics Foundation think tank and a Fellow of the LSE School of Public Policy