In today’s newsletter:
The UK’s youth unemployment problem
Vape shops face an £872 million bill
Britain’s tax burden nears a post-war high
Professor Len Shackleton is the Editorial and Research Fellow at the Institute of Economic Affairs
This week’s labour market statistics were disappointing, with unemployment stuck at 4.9% for April-June rather than falling, as some pundits had hoped. Payrolled employment in this period was 86,000 down on a year ago, with early indications that it fell again in July. Job vacancies have fallen too. So it’s all rather gloomy.
Unemployment is always the headline figure. It’s worth bearing in mind that there are considerable variations between the rates in different parts of the UK, something politicians such as Andy Burnham are much concerned about. As with many labour market statistics, however, things aren’t always quite what they appear. The lowest unemployment rate is for Northern Ireland at 2%, which looks great. But look more closely and this is largely explained by the very high inactivity rate (26.4%) in the province, an arguably more worrying statistic. The highest regional unemployment rate is London, on 6.5%. But this is misleading. There are plenty of jobs in London, but many are taken by commuters residing in the South East, where unemployment is much lower at 4.1%. London also has a much higher proportion of young people than the rest of the country, which helps explain the high figure.
It is the UK’s high youth unemployment rate – 16.2%, up from 14.3% in the same period last year, that is the biggest worry. Most commentators think that Labour’s policies – big increases in the minimum wage, the increase in employer national insurance contributions and the extension of regulation in the Employment Rights Act – have a lot to do with this. The government is in denial about the results of its policies, but is instead seeking a sticking-plaster solution with a temporary offer to employers of a £3000 bonus for taking on young workers. No space to discuss this here, but such policies are not novel and are rarely effective. There is much ‘deadweight’, with those taken on being youngsters who would probably have got jobs anyway, while more difficult cases languish ‘on the social’.
Reform is offering its own proposal, tax rebates for small and medium employers who take on 16-18 year old apprentices. There could be some upskilling benefits, as well as job creation, from such a scheme - though it would need watching. Apprenticeships created with subsidies have in the past tended to be in low-level functions rather than the German-style high-skill roles. And again, there will probably be deadweight problems.
If ill-advised government meddling in the labour market is creating unemployment, the answer is probably not to add further intervention.
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IEA Podcast: Director General Lord Hannan is joined by Editorial Director Dr Kristian Niemietz and Dr Christopher Snowdon to discuss the widening pay gap between the public and private sectors, the hidden cost of net zero on household energy bills, and the economics of gambling sponsorship in football, IEA YouTube
This week on Economic Affairs
News and Views from the IEA
Tax
Britain’s tax burden is heading for a post-war high, among the highest levels seen since the Second World War
The UK raises more in property taxes as a share of GDP than any other developed country, yet does so in one of the most economically damaging ways possible
Since 2000, around 5.5 million extra workers have been pulled into paying higher and additional rate income tax
Britain’s tax burden is on course to hit 38.5% of GDP by the end of the decade
New briefing from the IEA by Tom Clougherty sets out how tax policy has driven Britain’s Great Stagnation
At last there’s talk of slashing welfare. Lord Hannan, the IEA’s Director General, writes in the Daily Mail on the sudden cross-party consensus on cutting the welfare budget.
Hannan sets out the numbers driving the shift: the Conservatives have proposed £23 billion in savings, Reform UK has gone further with a £50 billion figure, and he expects Andy Burnham’s Labour to follow, even if less radically. He traces the change to a shift in public mood since the pandemic, with sympathy for claimants giving way to scepticism as long-term sickness benefit costs head towards £110 billion by the end of the decade. He points to Iain Duncan Smith’s post-2010 reforms, which cut long-term unemployment by more than 600,000, as the last successful overhaul, and notes the gains reversed once Duncan Smith left office. Hannan questions whether Burnham, constrained by Labour’s reliance on benefits-heavy constituencies, will act before the next election or leave reform to his rivals.
Lord Hannan writes: “thank heaven we recognise the urgency of the problem. It’s later than we think.”
Why Are Britain's Most Damaging Taxes Also Its Most Popular? Daniel Freeman interviews Tom Clougherty on his Great Stagnation chapter on Britain's tax system, IEA YouTube
Hey, politicians, leave our vapes, heated tobacco, and pouches alone. Dr Christopher Snowdon, the IEA’s Head of Lifestyle Economics, writes in Artillery Row on the Government’s fresh round of anti-vaping regulation.
Snowdon examines the Department of Health and Social Care’s ongoing consultation on new restrictions covering vapes, heated tobacco and nicotine pouches, including a display ban that would force these products behind shop shutters and into plain packaging with minimal branding. He sets out the Government’s own Impact Assessment figures: £872.5 million in total costs from the display ban alone, made up of staff familiarisation, new price lists, display cabinets, longer transaction times and lost profits, largely falling on independent retailers and specialist vape shops. Plain packaging is costed at £641.1 million, extending the smoking ban to e-cigarettes at £531.8 million, and a requirement for “opaque matt achromatic” devices at £330.9 million.
He argues the predicted health gains are vanishingly small and rest on shaky evidence, including a reduction in the adult vaping rate from 8.36% to 7.8% by 2029, and a Canadian estimate (from an unpublished 2017 report) that vaping carries 20% of the risk of smoking, against British experts’ figure of under 5%. Snowdon warns the likelier outcome is that many vapers, pouch users and heated tobacco users return to smoking, while independent retailers absorb most of the cost.
Dr Christopher Snowdon writes: “The corner shops of the future will be inconvenience stores.”
Why Is One in Four Britons Now Claiming to Be Disabled? Lord Hannan interviews James Bartholomew on Britain's welfare crisis, sanctions, and the incentives driving the benefits bill out of control, IEA YouTube
The £110 billion figure needs considerably more qualification. It is the OBR’s nominal 2030–31 forecast for a broad category covering children, pensioners, carers and working-age adults, including disability benefits that can be received while employed. Only £81.5 billion is classified as working-age spending, and that is still not synonymous with long-term worklessness. The health and employment problem is real, but calling the entire total a “sickness bill” obscures more than it explains.