Only an active welfare state can tackle the scourge of youth unemployment, argues James Purnell

Let’s go back to Tuesday 11 May 2010. Labour people were just coming to terms with having lost power for the first time in a generation. The feeling of relief at not having come third was giving way to that of grief at the prospect of a Conservative-Liberal Democrat coalition.

Meanwhile, in a room in the Cabinet Office at 70 Whitehall, the negotiators for this shotgun wedding were trying to put together their coalition agreement. In his diary of those 22 Days in May, David Laws tells us that ‘the draft document … had nothing whatsoever to say on major issues such as immigration, welfare policy, schools and higher education, and relations with the EU. We knew that we had only five hours at most to cover all of these issues.’

Many of this government’s difficulties spring out of those ‘nothings’. Politics starts with ideas, and where the coalition did not know at the start where it was heading it has since run into political difficulties – from tuition fees to the European veto. You cannot paper over the cracks of bad policy with good presentation, and this government has demonstrated this as much as the last Labour one.

There is a whole book to be written on the importance of governments knowing what they are going to do. However, this article is not about that. It is about one of those ‘nothings’ – welfare. Because, while the politicians were negotiating, the civil servants were preparing. They were printing out their ‘Conservative Election Victory’ briefing packs – and no doubt wishing they had spent a bit more time researching Liberal Democrat policy.

For months they had also been thinking about cuts. Civil servants knew that, whoever won, cuts would be necessary. So they had drawn up lists. Somewhere between that policy vacuum and the need for cuts, the Future Jobs Fund was killed off. I felt particular grief, as it had been one of my policies. We had had to do a lot of convincing. We had had to convince Department for Work and Pensions civil servants that the Treasury would give us the hundreds of millions of pounds it would cost and we had had to convince the Treasury that it would work. We were lucky, though, to have Alistair Darling and Yvette Cooper there, who were enthusiastic from the start.

Politics is very random: we were very lucky that Alistair Darling was the chancellor just as unemployment started rising. He had created JobCentre Plus, and so knew how important it was to have an active employment service, keeping the support and pressure up so that people kept on looking for work, even as jobs became harder to find. In the 1980s, partly out of a supposed kindness and partly because there was not sufficient money, the pressure had been relaxed, and the support cut. That meant that more people became long-term unemployed than necessary – and they often never got back to work.

The Future Jobs Fund was a £1bn programme to fund jobs with charities and local authorities. I can see how it was a candidate for cuts. The tap could be turned off straight away. It is a lot of money. Maybe it was a bit ‘statist’ for some tastes.

However, it was a mistake. The Future Jobs Fund was the final plank in creating a supportive but demanding welfare state. I first became attracted to the idea when doing a ‘back to the floor’ placement in a job centre (The only task I could be trusted with was meeting and greeting – and, yes, I did get my own badge). I remember sitting in on an interview with a young man who had been out of work for over two years. He had qualifications and a creditable prior job history. We had sent him on every employment programme available, arranged dozens of interviews for him. But he explained that it was a pointless merry-go-round. He struggled with a severe stutter; he felt that going to interviews was just a waste of his time.

For people like him, our employment system just does not work. We keep on sending him to interview for jobs that he does not get. We would be much better off designing a job around his skills and barriers, and he would have much preferred that.

The Future Jobs Fund was the answer – it would create jobs with prospects, paid at minimum wage. Our idea was that beneficiaries would then have a better chance of getting their next job, because they would have a real job to put on their CV. Given how quickly the scheme was abolished, it is impossible to be sure that this goal would have been achieved. But the select committee that looked into this did find positive signs from the early results.

The government said it thought the Future Jobs Fund was a more expensive way of getting people back in to work than the work programme, which places claimants with companies who give them intensive support. That approach will be right for many claimants – but I worry that it will not help the young man whom I met in the job centre.

And it also fails to deal with the employment system’s other biggest problem – people who are cheating the system, often by working and claiming. JobCentre Plus advisers were always telling me that there was a minority of their caseload who had no intention of taking a job, and who would deliberately mess up interviews.

The Future Jobs Fund solved this problem too: you cannot keep on driving an unlicensed minicab 40 hours a week if the government finds you another full-time job to do at the same time.

Our vision was that no one would have been long-term unemployed. Job centres would be in charge of helping people through their first few months of unemployment. Most people get back in to work under their own steam. Those that were still struggling after a few months would then be assigned to a specialist provider for intensive support. For the small minority for whom that failed, the government would find them a job. No one would be unemployed for more than a year or 18 months.

People often tell me this sounds very expensive. But the recent report from the Commission on Youth Unemployment, chaired by David Miliband, counters that argument. It calculated that the cost of today’s youth unemployment is nearly £3bn a year, for each of the next 10 years. Compared to that, the £1bn cost of the Future Jobs Fund is very good value for money.

It is easy to feel indignant about the fund having been cut. But we should ask ourselves a harder question: why was it possible to abolish it? After all, our pension reforms have not been.

I fear that we failed to win the argument for an active welfare state. The received wisdom among opinion formers is still that tough welfare states are the most effective. Those who disagree go to the other extreme – and worry that putting any conditions on welfare penalises the jobless. But countries that have undemanding welfare states and those with punitive ones share one outcome in common – high unemployment. The countries with the most effective welfare states are those like Denmark that demand that people look for work and take jobs, but also have job guarantees as a backstop.

In past recessions, governments did not do enough to react. As recessions hit, they failed to increase the support necessary. This time, in contrast, the Treasury found £5bn of extra investment. But that was good value for money, because it kept unemployment lower than in previous recessions, saving money and, more importantly, preventing hardship.

But we failed to win the intellectual argument for an active welfare state, combining demanding conditions and supportive interventions. David Miliband’s commission is an important contribution to winning that argument in the future.

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James Purnell is chair of IPPR and former secretary of state for work and pensions

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Photo: Marin Nikolov