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The deliberate impotence of active labour market policy

Hyper-Anglicisation typifies the supply-side agenda for employment – and renders it increasingly irrelevant

Craig Berry, Deputy Director at SPERI

The UK is rightly understood as a pioneer of ‘active labour market policy’ (ALMP). The interventions encapsulated by this framing have long existed in some form, but became more central to economic statecraft in the UK in the 1990s as part of the ‘supply-side revolution’.

Yet the coalition government’s changes to ALMP – which I characterise, in a SPERI paper launched today, as ‘hyper-Anglicisation’ – have emptied the notion of a supply-side employment strategy of virtually all meaning. Yet although the coalition regularly condemns the programmes it inherited from Labour, there is no doubt that the hyper-Anglicisation process was under way before 2010.

This hollowing out of policy is best detailed in comparative context, and with reference to some little-known facts about UK active labour market policy in this regard. At the most basic level, despite its status as ALMP pioneer, the UK spends remarkably little on this policy area.

The UK spends significantly less on ALMP programmes than most of its closest neighbours, but generally slightly more than other Anglosphere countries. The UK spent around 0.4 per cent of GDP on this policy area in 2009, compared to 1.4 per cent in Belgium, 1 per cent in France, 1 per cent in Germany, 0.9 per cent in Sweden, 0.8 per cent in Spain, 1.5 per cent in Denmark, and 1.2 per cent in the Netherlands.

Furthermore, what little the UK does spend is overwhelmingly concentrated on one particular form of ALMP intervention. What the European Commission defines as ‘labour market services’ consists primarily of support for individuals in searching for a job, and related services such as job-matching programmes, job-acquisition training (interview skills, CV-writing, etc.), basic literacy and IT education, and in some cases work-related counselling.

The UK commits 90 per cent of its total ALMP spending to labour market services. Germany and the Netherlands both spend more than the UK on this type, but this spending represents only, respectively, 38 per cent and 32 per cent of their total expenditure. Belgium, Denmark and France spend around the same as the UK on this type of intervention, but this spending represents only, respectively, 16 per cent, 21 per cent and 26 per cent of total expenditure. This accounts for the UK’s low-spending profile, because such services are relatively inexpensive.

It is worth noting that these figures relate to 2009, the latest point at which comparable data for the UK is available – through establishing the Work Programme and abandoning virtually all of Labour’s (limited) initiatives in this area, the coalition has intensified this unbalanced picture.

Although ALMP is conventionally understood as geared towards increasing the ‘employability’ of individuals, in practice it is primarily designed to smooth the function of the labour market. Frequent news stories about unfilled vacancies, or the failings of the Work Programme to place participants into work, highlight understandable concerns, but actually reinforce the notion that this is all ALMP is for.

The notion that improving the stock of human capital should be the main aim of any supply-side employment strategy has been effectively marginalised. Not so in other European countries: compared to only 4 per cent of total expenditure for the UK, several European countries spend a significant portion on training programmes, including 60 per cent in Austria, 45 per cent in Italy, 37 per cent in France and 36 per cent in Germany. Crucially, however, in these countries ALMP exists within a strong tradition of industrial policy. High levels of long-term public and private investment are necessary to create the jobs for which training is required.

Another thing we are constantly told in the media is that the UK has a ‘skills shortage’. This may be true in relation to some industries, but overall, the UK has a significant over-supply of skills. Our flawed economic model means further investment in ‘upskilling’ the workforce brings little benefit.

It is also worth noting that the vast majority of unemployed people will never call upon ALMP services. Firstly, many recipients of out-of-work benefits experience work/welfare cycling: the UK’s highly unregulated labour market makes work easy to find, but easy to lose. Coupled with strong conditionality in the benefits regime, the likelihood of unemployed people ending up on the Work Programme are fairly small, and as such it tends to cater for very disadvantaged groups (helping to explain its dreadful performance figures).

Secondly, the majority of unemployed people in the UK do not even claim out-of-work benefits. The table below details how the UK’s non-claimant rate compares to similar European countries, by age and duration of unemployment.

This is the perfect riposte to the notion the unemployed people are scroungers and spongers. It is also a telling indication of the very limited ambitions of ALMP.

The impotence of ALMP in the UK is the end result not of a supply-side employment agenda, but rather the notion that only the supply-side of the labour market matters. In that sense ALMP represents laissez-faire writ large, as government largely abdicates any responsibility for creating jobs – let alone decent jobs.

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