The New Deal of Labour Government

The New Deal is a new policy that the government implemented in 1998 in an attempt to reduce the levels of unemployment. It aimed to do that by increasing the skill levels of the workforce. It aimed to do this by providing intensive help about looking for work. This is available to those who have been on Job Seekers Allowance (JSA) for more than 6 months. The worker then either goes into full time education, a work placement or self employment.

New Deal Success - read more here.

By giving the workers these new skills it allows them more mobility within the labour market and will reduce the effect of structural unemployment. This should boost make the economy more productive and so it has done for the first years of its introduction with 100,000 more workers employed. And in 1998 it is claimed to have put 40% of those younger unemployed workers into employment. Despite this it is costing the government £1000 to get each worker into that job. In 2000 Blair announced that the scheme had been successful in getting 250,000 young workers into a job and pledged £3.5 million.

Can Labour claim New Deal success?

"The New Deal is a promise made and it is now a promise kept" - Tony Blair

"The New Deal has cost the nation as much as the Millennium Dome" - Graham Brady

Read the full article here.

Market or Government Failure?

This government intervention has corrected the market failure of unemployment and with more people in jobs aims to increase the consumption level within the economy and thus affecting the Aggregate Demand curve.

In more recent times the unemployment rate has once again soared. From August to October in 2008 more than 180,000 people have been made redundant. With this large raise being twinned with normally large sectors cutting back on workers it leaves a hole in the job market. There are too many people and too few jobs.

Gordon Brown has been quoted in saying that he will be able to ‘create 100,000 jobs’ and although this will have some impact it is unlikely to make a large enough impact in the 2million workers unemployed, a figure that rises on a daily basis. It is expected to reach 3 million by 2010.

A Policy of the Past?

The scheme was originally designed for dealing with unemployment in a growing market. Thus it could be suggested that the scheme is out dated. More innovative ways are therefore needed to stem the level of unemployment as the market is contracting rather than expanding.

Thus, can one can argue that "High unemployment is here to stay?"

- for full article click here.

Exam Tips

You will need to be able to evaluate to what extent the New Deal, as a government policy, improved the competitiveness of the labour market.

Exam Questions

TBC


-JBB-

Welfare and the Benefit System

The benefits system provides practical help and financial support if you are unemployed and looking for work. It also provides you with additional income when your earnings are low, if you are bringing up children, are retired, care for someone, are ill or have a disability.

Policy options to change the distribution of income and wealth

There are many policy options available to a government if it wants to change the final distribution of income and wealth in a country. The main strategies that the Labour government has chosen to reduce poverty since it was elected in May 1997.

• The introduction of a National Minimum Wage and a series of increases in its value.
  

• The launch of the Working Tax Credit and Child Tax Credit – designed to boost work. incentives for low-income households who opt to work full-time or part-time.
  

• Provision of a Minimum Income Guarantee for Pensioners and increases in the real value of Winter Fuel Payments – designed to alleviate “fuel poverty” among old people.
  

• Active employment policies such as the introduction of New Deals for young people, the long-term unemployed, lone parents and disabled people – a long-term strategy designed to increase employment opportunities.

In addition the government already has in place a progressive system of income tax and welfare benefits that helps to reduce the huge differences between original and final disposable incomes between different groups of the population.

(click on the image above for indepth analysis of Tax Credits & Benefits)

Tax credits are payments from the government. If you're responsible for at least one child or young person who normally lives with you, you may qualify for Child Tax Credit. If you work, but earn low wages, you may qualify for Working Tax Credit. These benefits and income boosters are potentially very influential incentives to work. The idea behind the tax benefits is that the government wants to reward those who are working even if it is at low level wages and incomes.

Which policies are most effective in reducing poverty?
A government truly committed to making a serious dent in relative poverty would:

• Invest more resources in skills training and life-long education for all households – particularly those of low income families in a bid to make a real effect on child poverty.
  

• Making the tax system more progressive – for example raising the higher rate of tax from 40% for the top-earning households.
  

• Analysing carefully the effects of changes in indirect taxes such as VAT and excise duty in case they have a regressive effect on the overall distribution of income.
  

• Focus more on targeting benefits by means-testing them according to financial need.
  

• Increase the value of welfare benefits / tax credits in line with the annual percentage growth in median earnings so that the relative value of these benefits does not decline

For Q&A: Tax credits - click here.

Exam Questions

ECN5 - June 2003 (4b)

Evaluate the view that the most effective way to tackle problem of relative poverty is to increase the level of welfare benefits paid to the poor. (30 marks)

ECN5 - January 2003 (1d)
Identify and evaluate the policies a government might use to reduce or eliminate the problem of poverty trap derscribed in Extract C. (30 marks)

For more past papers visit the department's intranet pages.

-TAC-