Why wage subsidies could shield us from the worst

Mar 9 2009 by Kevin Rowan, The Journal

THE Prime Minister’s speech to the US Congress last week continued to focus on the need for better, global regulation of the banks and finance sector and also emphasised the need to look to the future sources of prosperity, particularly focusing on ‘green’ manufacturing jobs – a sector in which the North East is especially well placed to capitalise on the potential investment.

The skills, location and industrial landscape base here all look very promising. However, we need to make sure we protect that industrial base in order to be able to make the most of the new opportunities, in green manufacturing, in future electric vehicle technology and production and, hopefully, with the Hitachi supertrains in Gateshead too.

With UK job losses growing twice as fast as the rest of Europe, there is a case for establishing a fund that could provide immediate support for companies that are moving to short-term working and temporary lay-offs as a result of the recession; the TUC estimates that this could help to keep up to 600,000 employees a year in work.

Such a fund should focus on time-limited wage subsidies, contingent on long-term business viability, with workers facing reductions in hours or temporary lay-offs being able to access relevant, Government-funded training opportunities.

Wage subsidies such as these, targeted where they can have the greatest impact, can help to prevent mass redundancies and the resulting loss of essential skills needed for future prosperity and economic growth.

Proposals based on these principles would cost the Government approximately £1.2bn a year; £3.3bn cost of wage subsidies, based on paying 600,000 workers 60% of median wages for three to six months, offset by savings of £1.2bn in reduced unemployment benefit and £850m in increased tax income, which would not be collected were these workers unemployed.

Short-term wage subsidies are already operating successfully across Europe in France, Germany, Italy and Spain. A subsidy scheme in Wales, agreed in November 2008 by the Welsh Assembly, has been fully operational since January, showing that short-term wage subsidies can provide support to businesses and workers very quickly.

While the North East hasn’t yet seen the high increases in unemployment experienced elsewhere, we already have the highest unemployment rate and lowest employment rate; any further job losses continue to make it harder for our region to continue to enjoy opportunities to grow our economy. We know how difficult it has been to catch up to other regions’ economies. Manufacturing has been a great driver of wealth in the North East and I am confident that it can be in the future.

In order for that to be the case, to be confident that we can capitalise on the emerging opportunities, in manufacturing goods that we need, every effort must be made to ensure that we maintain the manufacturing base and excellence the region is rightly proud of. That must mean short-term wage subsidies in this key sector, now.

Kevin Rowan is Regional Secretary of Northern TUC