Unemployment Costs (Hansard, 26 February 1981)

§ 4. Mr. Leighton
asked the Chancellor of the Exchequer what is the cost to the Exchequer of 2,400,000 unemployed, taking into account the loss of revenue from direct and indirect taxation, national insurance contributions and supplementary and other benefits.

§ The Chief Secretary to the Treasury (Mr. Leon Brittan)
I refer the hon. Member to February's economic progress report article. That notes that each increase of 100,000 in the level of unemployment in the private sector costs the Exchequer some £340 million in terms of direct tax forgone and increased benefit payments. If unemployment occurs in the public sector, there could be savings rather than costs.
The hon. Member should also note the comment made in the article that such estimates cannot be grossed up to give an estimate for all those at present unemployed.

§ Mr. Leighton
Is the Minister aware that his misguided efforts to cut public expenditure, because they increase unemployment, are self-defeating? Is he aware that the research done for me by the Library, using the Treasury model and the survey to which he has referred, shows that the current cost of the unemployment queues is about £8½ million? Does he agree that if he were to increase demand in the economy and take steps to see that at the same time that did not slacken imports, it would put the country back to work, increase wealth and cut the public sector borrowing requirement?

§ Mr. Brittan
I am sure that the hon. Gentleman would not wish to ascribe to the Library the errors that he has made. The article made clear that it is utterly misleading to gross up the total and to arrive at the cost that way. Indeed, the reason is simply that the figure in question is that of a net addition to the total.
On the more general point, simply to spend the large sums of money advocated by the hon. Gentleman would lead to higher taxation, higher borrowing, higher interest rates and damage to the economy.

§ Mr. Haselhurst
Does my right hon. and learned Friend agree that it would make a difference to the question of these resources being used to ease unemployment among young people if 16 to 18-year-olds were taken out of the collective bargaining system and instead paid a standard allowance for whatever they were doing?

§ Mr. Brittan
It is true that 16 to 18-year-olds are often employed on the same collective bargaining conditions as the rest of the population. That often leads to firms being more reluctant to employ them.

§ Mr. Hardy
Does the Minister agree that while there may be enormous variations between different individuals who are unemployed, other research—the results of which are available in the Library—shows that the cost to the Exchequer of unemployment for an adult male is £4,500 a year? Is he aware that that does not allow for the enormous administrative costs nor for the recent increases in benefit or national insurance contributions? In view of that, is not the problem now so enormous that Government policy should be changed and earlier retirement for men introduced?

§ Mr. Brittan
On average, the cost to the Exchequer is £3,500 for every additional unemployed person coming from the private sector. I do not believe that earlier retirement would solve the problem in the way the hon. Gentleman suggests.

§ Dr. Adley
Has my right hon. and learned Friend estimated the cost to the Exchequer of each year's reduction in the age of early retirement, and the numbers of people presently unemployed who might gain employment if that were done? If he has not done that, will he do so and perhaps write to me?

§ Mr. Brittan
I am always happy to enter into correspondence with my hon. Friend. However, I do not have the specific figure available. The cost of reducing the retirement age in the sense of making retirement pensions available at an earlier age would be very considerable. I know that my hon. Friend appreciates that.

§ Mr. Shore
After all the obfuscation and stonewalling of recent weeks and months on this interesting question of 959 the cost of unemployment, is the Chief Secretary aware that we were glad to see the article in the economic progress report? Is that not patently an understatement of the true cost? Will the right hon. and learned Gentleman say why, for example, the cost to the Exchequer of the additional one-third who are unemployed for every 100,000 who are registered unemployed, is not added in terms of their failure to be able in future to contribute income tax payments? Is it not also true that indirect tax costs—certaintly those that are attributed to an inability to pay VAT and excise duties—could easily have been included in the figures? If the right hon. and learned Gentleman can produce figures for 100,000 unemployed, why cannot he give reasonable estimates for the total cost of the 2½ million unemployed?

§ Mr. Speaker
Order. Long questions only cut out other speakers.

§ Mr. Brittan
I shall give a short reply. The answer to the right hon. Gentleman would appear to be that when there is no estimate he complains, and when a serious article is published setting out the figures, he still complains.
Much depends on the cause of the unemployment. One cannot take those indirect factors into account. If, for example, the cause of unemployment were an increase in productivity, the effect would be quite different from where the cause was a different one.