Leading Article: Something can be done

UNEMPLOYMENT is the most visible sign of our economic failure. For the unemployed, it is demoralising. For their dependants, it means hardship. For policy-makers, it is a reproach. More than one in ten people in the labour force are now unemployed. If they were in work, living standards would be higher not merely for them but for all of us. Public spending on benefits would be lower, and so would taxation. For both economic and social reasons, unemployment must be put at the top of the Government's priorities.

There are, however, no easy answers. Unemployment is a complex problem. Part of the unemployment total - perhaps 750,000, and soon to be more - is due to the severity and duration of this recession. The first part of any strategy to reduce unemployment must therefore be to stabilise and then to revive output. The second element must address the longer-run problems that blight Britain with a persistent unemployment total of more than 2 million even in good years.

The Government has repeatedly underestimated the strength of the depressive forces at work in the British economy. The legacy of the Eighties boom is an unprecedented level of debt for both people and companies. No one can be sure when consumers will feel comfortable about spending freely again rather than paying off their debts. The sharp 1.6 per cent rise in retail sales in January is not necessarily a sign of a sustained increase, since it was stimulated by retailers at the expense of dramatic and painfuETHER write errorl price cuts.

A central problem for confidence is the continuing fall in house prices. It is bad enough that consumers have been unable to reduce their debt to any substantial degree, but it is even more serious when that debt has risen compared with the value of people's assets. Falling house prices erode the confidence even of those who have a comfortable amount of equity in their homes. For those 1.5 million householders who once aspired to the home-owning democracy but are now merely a part of the debt-owing one, the experience is altogether more chastening.

One test for the Budget will be whether it extends the modest measures the Chancellor has already announced to underpin the housing market. By far the most effective scheme would be a temporary tax rebate for first- time buyers, which would be withdrawn as soon as the market revived. But the Chancellor should also cut interest rates again, and avoid any net increase in taxation. There is not yet incontrovertible evidence that the recovery is under way, and it is certainly too fragile to withstand even a small reduction in the purchasing power of consumers, whether administered through income taxes or increased prices due to VAT. The task of reducing the budget deficit is vital, but it will only be imperilled if the recovery aborts.

Even a convincing expansion, though, will not be enough to tackle the bulk of Britain's unemployment. The nub of the problem is that those in work press for unsustainably high pay rises when the labour market tightens. This in turn adds to costs and stokes inflation. In this sense, a large part of the unemployed are a 'reserve army' which stops the economy from spiralling towards accelerating inflation. The solution must be to make the unemployed a more potent threat to the anti-social behaviour of those in work.

Even if the unemployed have skills, they tend to become less attractive to employers the longer they are out of work. One of the most worrying aspects of the present rise in unemployment is therefore the renewed increase in long-term unemployment. A long spell on the dole is particularly demoralising. Like flowers that are moved ever further back in the shop each day they are unsold, the long-term unemployed have less chance of finding jobs the longer they are out of work. As a result, they are not much threat to those in work.

The most effective way of reintegrating them into the labour force is the sort of active labour market policy pursued in Sweden, and championed here by the Employment Policy Institute. There should be a high quality of placement services to ensure that the long- term unemployed are given real encouragement to find work. There must be a high degree of investment in training towards recognised qualifications - more than half the unemployed have no qualifications whatever. To the Government's shame, it dismantled many of its training efforts of the mid- Eighties. There should also be recruitment incentives for private sector employers to take the long-term unemployed, and there should be a long-stop of temporary work programmes to absorb those who remain.

The other strand of any serious policy towards unemployment must be skills training for those in work. One reason for wage pressure during upturns is that skills are in short supply. Because inflationary pressure builds up rapidly, British recoveries are often stunted. Our lack of skills also locks our businesses into older and simpler technologies, which in turn are unable to provide the increase in living standards to which those in work aspire. This is an old problem, but a fundamental one. The Government must address it with a conviction it has thus far lacked.

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