Monday, November 14, 2011

Opportunity Credit vouchers

I've made further progress on how to deal with long term unemployment (see earlier posts). This is much more damaging than short-term. I think we should give everyone who has been unemployed and claiming benefits for 6 months or more a £6k voucher which they could take to an employer and which would cover:
  • £1k/month or 100% of their first two month’s wages (whichever is lower)
  • £500/month or 50% of their wages for the next 4 months, and 
  • up to £1,800 of training costs. 
The money would be deducted from Employers NI so it would be in effect a tax cut.  Note that:
  1. The net cost to the exchequer would be much less than £6k per person, allowing for benefits savings, taxes paid and (sadly) less than 100% takeup.
  2. The psychological impact for someone getting such a voucher would be a great plus.
  3. By restricting it to people on benefits for 6 months or more it would avoid the problem that most new jobs in the UK go to people born outside the UK. Employment can go up without unemployment coming down.
  4. Even if some of the jobs created were “at the expense” of not hiring someone who had only been unemployed for say 3 months it would still be well worth doing economically. After more than 6 months people tend to become unemployable.
  5. This will reduce the output gap and hence the structural deficit.
  6. This is simple and straightforward and big enough for small business owners to act. There are 4.5M small businesses and if even 20% of them use the opportunity to take someone on risk free for a couple of months you would eliminate long-term unemployment.
  7. Obviously there need to be some safeguards but almost anything is better than the present situation of people being left to rot.
  8. You will have spotted that there is £200 left over from the £6k voucher. This will pay for two entries for the employer in an Opportunity Credit Award Draw, one after month 2 and one after month 6. This would give them a chance to win £1M at fair odds (1 winner per 10k entries) with 50% going to charities of the employer’s choice and the other 50% tax free to the employer. This means that a business owner would be “mad” not to take someone on: it costs them nothing and they have a chance of winning £1M which is vastly better than the National Lottery. 
The cost of this to the exchequer should ideally be met by freezing all the other benefits except the State Pension. However since the net cost would be vastly less than the £5bn pa that would be saved by such a freeze it might be possible to temper this, or even to cover the cost by freezing benefits the following year.

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