LEADING ARTICLE: The Tories should be worried about job insecurity

At last there is something tangible to celebrate from the upturn in the economy. With yesterday's fall in interest rates - the third cut in four months - most people, not just shareholders and fat-cat executives, are beginning to feel better off. Mortgages will cheaper after yesterday's news - by up to pounds 20 a month on an average mortgage. Retail sales, reflecting consumer confidence, are well up. House prices have now been rising steadily since the summer, chipping away at negative equity. Meanwhile, income tax cuts due in April, windfall gains from building societies turning into banks and the release of funds from maturing Tessas are all leading to an increased sense of wellbeing. There are some losers. Savers, notably elderly people, may be worried by the decline in interest rates, but many continue to benefit from a low-inflation economy.

All this fresh confidence means that the 3 per cent growth sought by Kenneth Clarke but generally thought unachievable a few months ago might just be attainable. It may not be the balanced growth - divided between exports and domestic demand - that the Chancellor has proclaimed so proudly. Expansion is shifting more toward a conventional type of British growth, fuelled by consumer spending - export performance has deteriorated and with it prospects for manufacturing. In short, the economy is behaving as it typically does during the year before a general election.

Nevertheless, inflation remains a distant fear. Mr Clarke can reasonably expect to meet his inflation targets; hence the Bank of England's willingness to cut interest rates again. And the unexpectedly lengthy period - 29 months on the run - in which unemployment has fallen demonstrates that growth has yet to create the wage pressures which traditionally price people out of work.

All of this augurs well for a government that hopes to hang on to its wafer-thin parliamentary majority for long enough to reap the political dividend of economic growth. As Lord Desai, the Labour peer, said yesterday: "The economy will not be the weak spot of the Tories that we thought it could be." In the short term, at least, the "feelgood factor", that elusive elixir of the Eighties, may be about to return.

But it would be a mistake to think that this pleasant stage in the economic cycle is an answer to the more long-term, structural difficulties that will still be with us long after the mortgage-rate cutting party has ended.

Job insecurity is, and will continue to be, a dominant feature of British life. There is, behind the economic upturn, a change going on in the structure of our working lives that is comparable with the Industrial Revolution. A report published yesterday by Business Strategies, a leading consultancy, tells the story - within 10 years, it expects nearly half the workforce to be covered by "flexible" arrangements such as temporary contracts, self-employment and part-time jobs.

This is a huge change compared with a couple of decades ago, when most people were sheltered from the effect of economic cycles by permanent jobs. In today's more flexible world, firms can push the impact of a business downturn on to workers by ending contracts or cutting part-time hours. Flexible workers often have to meet the costs of their pensions, sick pay and their own training. They may, as now, enjoy the party when the economy is growing, but they will be on their own for the subsequent hangover, when the economy falters. Yesterday's drop in the stock market offered a fleeting image of how boom can turn to bust.

It is generally accepted that greater job insecurity is one of the prices we pay for lower unemployment. The availability of a more flexible workforce, easier to hire and fire, encourages employers to take on more staff. This is one reason why Britain, along with the United States, enjoys lower unemployment than European competitors. At 7.9 per cent, the rate here compares favourably with 11.3 per cent in Germany (more than 4 million people) and 11.8 in France.

But there is an economic - and a political - question as to how far this insecurity should be allowed to develop. Insecurity can do great damage, leaving people constantly on edge about where or whether they will still have a job on Monday morning. Planning for the future becomes difficult. Insecurity can make people work harder than is good either for themselves or their families. The social consequences are illustrated by plans by the pressure group Parents at Work to hold a "National Go Home On Time Day" on Midsummer's Day.

The Government, however, has still not properly woken up to this issue, hoping that economic growth will be sufficient to calm fears and assuage popular anger about job insecurity. The insensitivity of ministers was demonstrated this week when it emerged that Michael Heseltine wants to scrap the unfair-dismissal rights of millions of workers in small firms. The Deputy Prime Minister would like to remove the entitlement of up to 10 million workers to appeal to an industrial tribunal if they are sacked.

Mr Heseltine, as a businessman, is understandably attracted to this idea. It would free up many small businesses from obligations they regard as burdensome. Their sector is the engine of growth, producing more new jobs than any other part of the economy. There is plenty of anecdotal evidence that such firms feel frustrated by the employment legislation protecting their staff.

But none of this offers a good enough reason to scrap employment protection rules which may be the only line of defence for staff who are unlikely to be unionised. Mr Heseltine has produced no concrete evidence that access to industrial tribunals is damaging job creation by small companies. Indeed, the rapid expansion of this sector suggests that business people, though occasionally irritated by the law, do not regard it as a real impediment to their ambitions. Talk to any small businessman and you are likely to be told that their real enemies are not industrial tribunals but red tape governing their products, health and safety legislation and the failure of customers to pay their bills on time.

Some ministers have recognised that insecurity must be minimised where economically prudent: Kenneth Clarke has highlighted the role that the welfare state must play in underpinning confidence within the workforce. But more of Mr Clarke's colleagues must recognise that job insecurity is the key threat to their own survival if this week's welcome economic good news is to be translated into a general election victory for the Tories.