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People up and down the country are worried about their jobs and businesses, and they are worried about the future. The worry is that this Government have been complacent about unemployment. Again and again, as the economic storm clouds gathered, Ministers have sheltered behind optimistic claims about their record on employment as a justification for their belief that Britain is somehow better placed to deal with the economic challenges that we face. They have claimed that Britain had “record employment” and that long-term
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unemployment has been “virtually eradicated”. Only four weeks ago, the then Minister for Employment and Welfare Reform said:

That remark does not entirely reflect the reality behind the scenes in the small print.

Philip Davies (Shipley) (Con): My hon. Friend rightly said that people are concerned for their jobs, and nowhere is that more the case than in west Yorkshire. It faces the combined effects of what has happened to HBOS and Bradford & Bingley, which are based in my constituency. Does he agree that although the Government have been keen to safeguard Northern Rock jobs in Newcastle and jobs in Scotland—through the deal that they cobbled together with Lloyds TSB and HBOS—it is just as important to safeguard jobs in west Yorkshire? Does he also agree that everything should be done to try to help that local economy, which will be devastated by the combined effects of what is taking place?

Chris Grayling: My hon. Friend makes an important point, and he speaks out clearly in defence of the interests of the people of west Yorkshire. We should be concerned about employment in both Bradford and Halifax, given what has happened in the past few weeks.

After 10 years in power, Ministers need to spend a bit more time in the real world, because as always with this Government, when one reads the small print, one sees that there is a much more sober tale to tell. Ministers tell us that they have created 3 million more jobs, but they do not tell us that about 80 per cent. of them have gone to migrant workers. If one uses the International Labour Organisation measure of unemployment, which, in opposition, the Prime Minister used to prefer, one is told that the jobless total has fallen by only 300,000 over 10 years of continuous economic growth. Almost 5 million people in Britain are claiming out-of-work benefits. The rate of economic inactivity—one in five—is pretty much unchanged from 1997. Some 5 million people in Britain do not have any formal qualification, and the employment rate for those lower-skilled workers has fallen under Labour. Britain’s employment growth last year was among the lowest in Europe; it was higher only than in Hungary and Portugal.

Mr. Brian H. Donohoe (Central Ayrshire) (Lab): Does the hon. Gentleman really think that this debate is of value to the British people? Talking down the economy instead of talking it up is the poison that is bringing about the uncertainty in our constituencies. My constituency contains companies that are taking on apprentices for the first time in a generation and companies that are expanding by the day. I do not need to hear drivel being talked; the economy does not need to be talked down.

Chris Grayling: It is only understandable that Labour Members will not like being told the truth about the Government’s record on employment, but if we are to address the problem of rising unemployment, we should at least start by recognising the scale of the challenge.

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The reality should not be buried in the small print. A perfect example is the Government’s claim that long-term unemployment has been “virtually eradicated”. In fact, they have made it statistically impossible to be long-term unemployed. Young people who claim jobseeker’s allowance for six months and over-25s who claim for more than 18 months are automatically referred to the new deal, and if they fail to find a job initially on the new deal, they are referred to a period of mandatory training. At that point, claimants are moved off JSA and on to a training allowance, and are removed from the Government’s official claimant count. At any one time, about 40,000 people are hidden from the Government’s official claimant count in that way. About one in three people leaving the new deal return straight to benefits, at which point they rejoin the claimant count, their previous claim is wiped clean and they appear to have only just become unemployed. Under the Government’s current system, it is possible for people to be have been unemployed for more than two years, but for them to appear to have been on benefits for only two days.

Some of the other hidden statistics are equally worrying. According to official figures, 700,000 people who would like to work full-time are working part-time because they cannot find full-time work. Employment among British-born, British nationals is falling fast; 250,000 fewer UK nationals are in employment than two years ago. Until now, this Government have got away with their failure to address the underlying weakness in our labour market, but it is about time that they stopped denying that there is an unemployment problem in this country and started listening to those who are already struggling.

We know that the consequences of those employment failures are not just limited to adults; child poverty is up for the second year in a row. The UK has a higher proportion of its children living in workless households than any other EU country. Almost 1.3 million young people aged 16 to 24 are not in work or full-time education—that is a 19 per cent. increase on the 1997 figure.

How should we begin to tackle the problem? First, we must do everything possible to help those who are unfortunate enough to lose their jobs. An important first step would be to accelerate the process of welfare reform—to turn some of the things on which the Secretary of State and I have agreed into reality now, rather than in two years’ time or more. People think that talking about welfare reform at a time of rising unemployment is a contradiction in terms; how can one introduce big new changes to the welfare-to-work process when the number of jobs is falling? That is not the right view to take, because we know about the experience from the other side of the Atlantic. When I went to New York in January to look at welfare schemes, I asked people about coping during the recession of the early 2000s. I was told that the introduction of innovative employment programmes, which helped to match people and their skills with the opportunities that were available, helped to make a difference to the rise in the claimant count. The rise in the number of unemployed was less pronounced than it had been in previous recessions.

We understand that times have changed and that Britain is facing a tougher economic climate. If anything, that makes the case stronger for a fairer, more active welfare system. With the publication of our green paper
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on welfare reform in January, and the Secretary of State’s subsequent decision to adopt both David Freud’s proposals and ours, there should be cross-party consensus on what needs to be done—so why the wait? The Government will have our backing if they accelerate the reform process, and now is not the time to be timid.

People who lose their jobs will need individualised support to reflect their needs. They will need tailored employment programmes that offer, among other things: job search facilities; specialised training to increase suitability for work; personalised career and recruitment advice; interview training with employers; and CV-writing techniques. The reforms that we have all discussed would lead to the creation of a world-leading back-to-work system, through centres all around the country delivering the necessary support.

We have some of those skills in Britain already, but as the Government’s amendment so clearly reveals, the programmes that are in place barely scratch the surface of the challenge we face. That is why we need to accept the accounting changes that allow the use of benefit savings to help pay for the programmes that get people back into work—the so-called DEL-AME, or departmental expenditure limits-annually managed expenditure, switch. It is no good piloting that change sometime after 2010, because it is needed now. Without it, we cannot build the scale of programmes needed to meet the nature of the challenge we face. The biggest problem with the Government’s Green Paper in the summer was that everything seemed to be timetabled for years down the track. I offer the Secretary of State our support in changing that and getting on with things now.

We need to do more to protect the jobs that we have. In the last recession, I worked for a small company in Winchester. Out of the blue, our biggest customer went bankrupt and we did not even have enough money to pay the salary bill at the end of the month. It would have been easy for the bank to pull the plug, but we were lucky and it did not. With a real team effort, the business pulled through, but many others in that position are not so lucky. Loans can be called in and businesses can collapse almost overnight. We need to take steps to protect good businesses that suffer a sudden problem of that kind.

David Wright (Telford) (Lab): The hon. Gentleman will know that local authorities provide a lot of employment. Can he predict what would happen to local authority jobs if there was a freeze on council tax?

Chris Grayling: I am sorry that the hon. Gentleman does not appear to believe that, given the financial and cost-of-living pressures on pensioners, freezing the council tax is a good idea. We happen to think that it is, and I would be delighted to argue the case with him on the doorsteps of pensioners in my constituency and elsewhere.

We need to take steps to protect small businesses that face a sudden problem, especially in the current climate of difficult times and in the months ahead. At the moment, our insolvency rules do not do enough to stop those firms going under. That needs to be changed as a matter of urgency. The United States has a special system for companies in that position, called chapter 11. The system allows companies in difficulties enough time and protection to sort things out. A similar system should be introduced in the UK. It would allow company directors the time to formulate a plan to rescue or
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restructure the company. It would not save lame ducks, but it would give good companies a breathing space when their financing was put under pressure by world events or a sudden, unexpected and unwanted hiccup, such as a supplier failing to supply or a customer going bankrupt.

The current insolvency system often means that the only option is to close down the business, destroying livelihoods and creating significant job losses. If we were to adopt the proposed reforms that we have set out, introducing a chapter 11-style system, it would create a breathing space that allowed company directors to formulate a plan to rescue or restructure a company.

Mr. Ian Taylor (Esher and Walton) (Con): My hon. Friend is making an important point, and I hope that it will not be lost in party political jibes from the Labour Benches. At the moment, many companies that are well run have severe credit problems because of the banking crisis, in which the banks are not lending to each other, let alone to companies. In these circumstances, well-run companies may be short of credit and in a situation in which they and their creditors do not have time to come to some arrangement, as they would in normal conditions. We are in a crisis, and we require crisis thinking on a collaborative basis, so I welcome my hon. Friend’s contribution.

Chris Grayling: My hon. Friend makes his point well. In the next few weeks, we must all be careful not to use rhetoric against the financial services sector and the banks that ends up being counter-productive. The reality is that our banks play a crucial role in the fabric of our economy. The disappearance of credit facilities affects individuals and small businesses and could, as my hon. Friend rightly says, force otherwise good businesses into receivership. We wish the Government well in their efforts to ensure stability for our banking system. We also need protection in place for businesses that run into unexpected difficulties that, given time, they might be able to trade through.

If the Government accept the principle behind our proposals, there are three elements to our plan. The first is to introduce an automatic stay of enforcement. That would prevent banks or other creditors from intervening immediately to enforce repayment of debt while the management stays in place and attempts to negotiate a restructuring. The second is to give a priority status for any financier willing to provide ongoing funding for the company post petition. Unlike in the UK, firms in chapter 11 in the US are able to raise finance even after they have petitioned for bankruptcy. Lenders will lend them money in exchange for “super-priority” over other unsecured creditors. In fact, there is a whole market for such rescue funding in the US. Introducing such a market in the UK could help to protect businesses and jobs.

Stewart Hosie (Dundee, East) (SNP): If companies had a stay of execution and the chance to seek private finance, would the hon. Gentleman envisage reversing the Government’s recent changes to the capital gains tax regime to make that an attractive proposition? If not, what changes would need to be made to capital gains tax?

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Chris Grayling: The experience in the US suggests that such tax changes might not be necessary. We are not in a position now to write the next Budget, but the opportunity to lend to a business that has the potential to recover and is otherwise fundamentally sound, in exchange for super-priority status, would be attractive to investors in any case.

Mr. Terry Rooney (Bradford, North) (Lab): I am sure that the hon. Gentleman does his homework, because he is quite bright. Does he not realise that most large US companies that go into chapter 11 dump their pension liabilities on the US equivalent of the Pension Protection Fund, and their employees suffer horrendously? That is how those companies get afloat again. For example, every major US airline has done that. What it means is that somebody somewhere suffers and pays for those companies to stay in business. It is not a no-risk proposition.

Chris Grayling: Right now the priority in this country should be to protect jobs. We are not talking about an exact replication of the US system, but about taking the best from it and applying it here. If a business is in difficulties, it may be better for change to be negotiated within the business, instead of seeing the kind of failure that faces Alitalia, with tens of thousands of jobs at risk in Italy because the unions and the management could not agree on a rescue package.

The point about the chapter 11 system is that it allows time for discussions on securing the future of the business. The hon. Gentleman may not appreciate the problem; at the moment, the banks can come in, literally overnight, and close a business down. The jobs go and the business is completely lost. We are arguing for a stay of execution, so that otherwise decent businesses that are experiencing hiccups have a chance to survive, especially at a time like this. Under the current regime, the danger is that that will not happen.

Mr. Ian Davidson (Glasgow, South-West) (Lab/Co-op): Is the hon. Gentleman aware that none of this would be necessary under the plans recently announced by the Scottish Executive, who have told us that all the money needed for every public and private scheme will be borrowed from the Government of Qatar? Does he believe that that is likely to happen?

Chris Grayling: It sounds a tad implausible, but I am sure that it will lead to lively debate in Scotland. Sadly, I fear that businesses in Scotland will not be immune to the present problems. The changes for which we are arguing tonight would also apply to businesses in Scotland, Wales, Northern Ireland—indeed, across the UK.

The third element of reform that is needed is to prevent unscrupulous creditors from vetoing desirable restructurings. Once a company had proposed a restructuring plan, it would be required to submit it to the court, along with any supporting evidence. Any creditor group that disputed the plan would also be able to submit evidence, but once the court and a majority of creditors had approved the plan, it would bind all of them.

Taken together, these reforms may provide the right framework to allow good companies to continue to trade during an economic downturn. I sincerely hope that the Government will adopt these proposals now. British business cannot afford to wait to the next election
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for a set of reforms like this. We face tough challenges today and I hope that the Government will accept the reforms in a good spirit and implement them as soon as possible.

Rob Marris (Wolverhampton, South-West) (Lab): The hon. Gentleman’s party has had a Damascene conversion on unemployment, and I welcome that. I also welcome his position that more regulation is appropriate, rather than a free-for-all. I shall try to tempt him a little further. Would he care to distance his party from hedge fund managers, spiv short-sellers and arbitrageurs, some of whom have been funding his party?

Chris Grayling: I am very surprised that any Labour MP would want to draw attention to that issue today given the fact that only last week the Prime Minister appointed the senior director of a City fund that has been involved in short trading to his Government to serve as City Minister. I am baffled by why any Labour MP would want to try to turn the mirror on the Opposition—Labour should be answering those questions, not anyone who sits on this side.

Mr. Ian Taylor: I apologise to my hon. Friend for intervening twice. The simple fact is that anyone who was selling short in the city was borrowing stock in order to do so. Guess who was lending the stock? It was the pension funds and other so-called Labour-approved reputable trading bodies. I think we need a little less sanctimonious crap from Members opposite.

Chris Grayling: My hon. Friend makes his point succinctly. There will come a time when all the events that have taken place in the financial markets in the past few weeks will of course need to be addressed, but right now our duty as a House of Commons and as a nation is to seek stability in our economy and to take the steps that we need to take to protect jobs, to protect businesses and to ensure that we can look after those who are unfortunate enough to lose their jobs. The other big step that the Government need to take to protect business and jobs is on tax. It cannot help employment prospects in this country if some of our biggest firms are transferring their headquarters and domiciles to other countries so that they can take advantage of favourable tax regimes in places such as Ireland. That cannot help the employment prospects of people in this country either. That is why we continue to argue that we need to cut the main rate of corporation tax from 28p to 25p and to reverse the Government’s planned increase in the small companies rate from 20p to 22p. The costs of such a reform can be met by dramatically reducing the complex structure of allowances that the Government have introduced for business. We need a simpler and more attractive tax regime in this country that makes it attractive to do business here, that protects jobs and that attracts employers to this country in the future.

I sincerely hope that unemployment does not rise as far and as fast as some are predicting.

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