Macroeconomic News

£2bn Kickstart or false-start?

As part of his £30bn summer statement to avert mass unemployment, Rishi Sunak announced a £2bn Kickstart Scheme to try and reduce unemployment in minimum wage jobs. The scheme, which started on September 2nd, will cover the cost of any minimum wage jobs being taken on by young people (aged 16-24) who are currently receiving universal credit. The government will cover the cost of employment for six months. This will cover the wages of up to 350,000 young people, those with a higher risk of facing unemployment due to a COVID-induced recession. 

Scheme overview 

The government will pay 100% of the age-relevant National Minimum Wage, National Insurance, and pension contributions for 25 hours a week; the employer can then top up this wage. Employers will also be paid £1500 to set up support and training for people on a Kickstart placement, as well as helping to pay for uniforms and other set up costs. There is no cap on the number of places one employer can claim. The first “Kickstarters” are expected to begin at the start of November, with companies such as Tesco already signed up to the scheme. Mr Sunak has said the scheme will potentially help hundreds of thousands, but employers would have to prove the jobs were additional, not just replacing existing workers, and that they are providing training and support to find a permanent job. 

The Chancellor has said “this isn’t just about kick-starting our country’s economy — it is an opportunity to kick-start the careers of thousands of young people who could otherwise be left behind as a result of the pandemic.” The government has successfully recognised the pandemic is disproportionately affecting low-skilled jobs, mainly those taken on by young people. Consequently, 16-24 year-olds are at risk of becoming a blighted “COVID generation” if the government does not act. About 15% of adults are functionally illiterate and 20% are functionally innumerate and more than half of young people do not take on a degree. Before COVID hit, many of these people jumped between low-paid, insecure jobs in sectors such as retail and hospitality, but with the decline of these areas they no longer have the same opportunities to find this type of work. 

Similar scheme, different recession

The Kickstart Scheme has to a large extent been based on the Future Jobs Fund introduced by Gordon Brown’s government following the 2008 Financial Crisis. From research into the impact of this previous programme, it was seen that two years after starting the programme, participants were 11 percentage points more likely to be in unsubsidised employment. This is considered to be a very positive result, especially considering two years is long after the programme ended, therefore participants were back in the open labour market and were no longer being supported by the fund. Also, at the end of the two-year period from the start of the programme, benefit receipts had reduced by 7 percentage points among participants, dismissing the idea the scheme is likely to cause any sort of dependence. 

Image from the National Institute of Economic and Social Research.

A cost-benefit analysis by the Department for Work and Pensions shows a net benefit to the participant of approximately £4000 per participant, a net benefit to employers of approximately £6850 per participant, and a net cost to the Exchequer of approximately £3100 per participant. Therefore, the Future Jobs Fund had an overall net benefit to society of approximately £7750 per participant. 

However, Tony Wilson, Director of the Institute for Employment Studies, said the value of the Kickstart subsidy was a third lower than that offered under the Future Jobs Fund, yet the new scheme is intended to create four times as many jobs. 

Kickstart or false-start?

The City and Guilds Group has said that the Kickstart Scheme would only help tackle long-term unemployment if those gaining employment through the scheme were coming out of it with skills and a qualification to help them secure more permanent employment. Kristie Donnelly, chief executive, has stated, “If this is not the case it’s just a sticking plaster solution, or even a ‘revolving door’ back to the unemployment queue”. Inevitably, the success of the scheme really boils down to the effort put in by employers, if they simply use it to cut costs it is unlikely to really benefit the young people participating in it once the six months comes to an end. 

Also, the careers young people want to build are unlikely to be in the low-skilled, minimum wage roles the scheme mostly covers; for example, most people may not see the job in Tesco they may gain from the scheme as something they want to do long term. Jobs in stores such as Tesco are likely to survive the COVID recession anyway, so it may do very little spending taxpayer money to prevent unemployment that probably wouldn’t have occurred anytime soon. Therefore, the scheme is unlikely to create the skills, jobs, and businesses that Britain needs to stay competitive, nor will it nurture industries that will become more important in the future. The money would be better spent on upskilling young people to work in highly-skilled industries that will last into the future, rather than propping up jobs on the dying high street. Skills such as coding, digital marketing, and ecommerce are much more likely to do more for the employability of young people and improve national competitiveness.

The UK is lagging behind in this respect. In Estonia, a leader in tech and e-governance, children have been taught how to code in primary schools since the 1990s. In Israel — often called the “start-up nation” — there is a much more rigorous computer science syllabus than in other nations, meaning this small country has the highest number of high-tech companies and start-ups per capita in the world. Britain still doesn’t have its own Silicon Valley, but it is time it gets one, particularly after leaving the EU. Instead of pushing money into creating and protecting minimum wage jobs, it seems more logical to put money into getting people the skills they need for the future and targeting businesses started by young entrepreneurs that are likely to be more long-term. 

Rishi to the rescue

Only time will tell us if the scheme was a wise decision, as is always the case with government policy. Hopefully, since the policy is based on the Future Jobs Fund, there is a good chance we will see a similar success — but perhaps more money needs to be put into the scheme if it wants to create the amount of jobs it is promising. However, it seems the scheme is ultimately a short-term fix rather than a longer-term plan to take Britain forward into the future and provide young people with a long-term career. At this point, anything that can keep the economy propped up and unemployment low seems worth giving a shot; particularly with the huge amount of cheap borrowing available to the government. But trying to improve the skills of the nation is likely a problem that will have to be faced in the future and it may have been more logical, and cheaper, to incorporate this into the scheme. 


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