George Osborne entered the meeting arguing for a freeze in some benefits (not pensions or disability living allowance) to pay for a package of other measures, including tax cuts and action on youth unemployment. But he was met with stiff resistance from Nick Clegg in particular, who didn’t want to punish the poorest by giving them a sub-inflation rise in benefits.
In the end, as we revealed this morning, they agreed that benefits would go up with CPI, as would normally be the case. But the chancellor insisted that money had to be saved somewhere, and the surprising compromise reached would be that it would come from tax credits instead. Treasury officials are now working on how exactly that money will be saved.
Clegg also won his argument that some of the money (£1bn to be precise) should be used to fund a short-term work placement scheme for young people to get access to the jobs market.
That scheme is likely to use third party recruitment companies to place young people in temporary jobs. They will then be paid largely by results – when the person finds longer term employment – to avoid it having little long-term benefit.
The plan bears strong similarities to Labour’s Future Jobs Fund (which David Cameron said on Wednesday “put a lot of graduates into public sector jobs and was five times more expensive than the alternative”).
It also looks a lot like one that has been touted in recent days by the Centre for Economic and Social Inclusion think tank.
The CESI has calculated that each job would cost the government around £3,000. If that seems low, it is because wages and other costs are offset by the savings from having that young person enter long-term employment further down the line.
Tony Wilson, the CESI’s director of policy, told me:
Programmmes like this can make a real impact, as long as they’re well targeted and they focus on getting people into sustained jobs. Which means going with the grain of the Work Programme, and wherever possible creating the jobs in the private sector.
Wilson has also been showing policy makers a rather scary chart, which may have been the thing that persuaded the sceptics in the government that something big had to be done on youth unemployment.
The chart (below) shows a sudden spike in the number of 16-24 year-olds out of work since March this year, while unemployment among older adults has levelled off. While ministers are correct to say that youth unemployment began rising in 2004, it may be this more recent phenomenon that has prompted them to act.