John Hutton – 2006 Speech at ILO 2006 Global Compact Policy Dialogue

Below is the text of the speech made by John Hutton, the then Secretary of State for Work and Pensions, to the ILO 2006 Global Compact Policy Dialogue on 6th October 2006.

This conference comes at a critical time in the development of the global economy. All of us are confronted by unparalleled demographic and economic change. Change that is testing the capacity of traditional political, economic and social systems to respond and adapt.

The demographic challenge is immense. In the UK there will soon be more people over 80 than under 5. Over the next 25 years the working age population of the EU will fall by 7% while the population aged 65 and over will increase by over 50%.

The economic challenge is greater than at any time since the industrial revolution. In 2005, the new emerging economies accounted for well over half the increase in global output. As China, India and Russia move towards market capitalism, the global labour force is in effect doubling.

And one of the effects of this shift in demography and global labour market pressures is to create a new phenomenon: ‘transient’ mass migration.

‘Transient’ in the critical sense that compared with previous large scale migration to America at the beginning of the 20th century or the UK in the middle of the 20th century, this early 21st century migration is often characterised by temporary economic opportunism. Yesterday, new official figures found that 2005 saw the largest ever entry of foreign workers to the UK since records began. Since 2004, around 450,000 people have come from A8 accession countries to work in the UK. But rather than bringing their families to settle as many as half of those economic migrants did not stay. They came to work and save money for themselves and their families.

This transient mass migration is also different in a second way – around four-fifths of A8 migrants are coming to the UK to work in relatively low-skilled occupations.

We know that recent migration has had a positive impact on our economy – increasing growth rates by between 0.5% and 1%. And with independent research showing that migrants are contributing more than their share of taxes, migrant workers are making a net contribution to the exchequer.

This transient mass migration partly reflects the strength of the UK economy, the diversity of our labour markets, proximity, cheap travel and critically, the differential in economic opportunity between the countries emerging from the shadow of communism and democratic capitalist economies.

But it brings real challenges too. For active labour market policies and welfare systems. For communities that are experiencing immigration for the first time and encounter new pressures on local services.

So managing this shift in the pattern of migration is one of the most important challenges facing our country as a by-product of the globalisation of the economy and the labour market.

For the indigenous population the impact of this migration can provoke uncertainty and sometimes fear. People are anxious about what this means for their way of life, their future. The fear of losing, of falling behind, is not felt just by those with low skills or no skills. It is felt equally by people who have been through university and gained professional qualifications.

People want security – rightly so. But they know too that our future as a successful economy will depend on our ability to work through these changes, not turn away from them.

In the short term the UK faces important decisions about how to manage this transition within Europe following the granting of accession to two new member states, Bulgaria and Romania.

We will decide our approach to labour market access for these countries soon but it must be based on the principle of managed migration.

Overall, the new level of mass transient migration creates a new challenge for our welfare system and active labour market policies. Over the past two years 13 million people have moved into a new job. 450,000 of these vacancies have been taken up by economic migrants from Eastern Europe. And yet we still have 5 million people on benefits in the UK. My response is not to say we should pull up the drawbridge but it is to ask the question, ‘how can our welfare system become more effective at helping UK citizens to compete in today’s labour market?’

In the UK we’ve set ourselves the long-term aim of an 80% employment rate. As we build on our record investment in the New Deal employment programmes and Jobcentre Plus offices around the country, I believe that our system of support will need to radically adapt to meet the challenges of the modern labour market. Support must become more tailored to individual and local labour market needs. Rights must be matched by new expectations and responsibilities on those who are out of work. This will need to happen if we are to realise our ambition to get a million people off incapacity benefit, one million older people and 300,000 more lone parents into work.

In less than a decade in office we’ve already made real progress. More people in work than ever before. We have reduced the time that the unemployed are spending without work. And the biggest improvements have been in neighbourhoods and cities that started from the poorest position. For the first time in 50 years, we’ve achieved the best combination of high employment, low unemployment and low inactivity anywhere in the G8.

But we have much further to go. We know from the impact of A8 migration that the UK economy is able to create and support increasing numbers of low-skilled jobs. The vast majority of A8 migrants are young, single and working full time – mostly in administration, hospitality, agriculture, manufacturing and food processing – many are in what are seen as traditionally “hard to fill” jobs. The key question remains: Why are these jobs so hard to fill? What are the barriers that mean some UK nationals are on benefits rather than taking-up low-skill jobs?

Let me just touch on two things.

Firstly, inactivity. We know that far too many people on benefits have been inactive and detached from the labour market for some time. For too long society asked little of them and offered even less in support. We have to challenge and break the cycle of dependency and despondency by spreading opportunity and aspiration to the millions left behind. That’s why we are investing hundreds of millions of pounds in a new tailored support programme called ‘Pathways to Work’ for the 2.7 million people who still claim incapacity benefit in the UK. It is about renewing a sense of hope and opportunity for those who have been written off by the welfare system for years.

Secondly, in-work support. Not withstanding levels of inactivity or geographical immobility, it is clear that there are some low-skilled jobs at the minimum wage which UK nationals are simply not prepared to do – even when the rewards of work are financially greater than the benefits they otherwise receive.

A low-skilled job with no prospect of training or support offers little hope for that individual to develop. It’s clear that for many this isn’t enough. That other non-financial factors are also important. The attractiveness of the job; the duration of the work or the opportunities that might follow from it.

Through Jobcentre Plus and our wider welfare to work strategy – we have invested heavily in helping people find work. But it’s clear that our future success will hinge not just on getting people into work – but on supporting them to stay in work and to acquire the skills, confidence and ambition to progress though the workplace. This is the new challenge for welfare. Getting people into work is only the start. Keeping them in work and helping them to progress through the labour market must be our objectives.

I said at the start that the global forces of economic and demographic change are creating great challenges for our societies. But they also bring the promise of great opportunity.

As Employment Ministers gather for the G8 in Russia next week, there is a clear path that we must follow. We can not retreat from these global forces; look backwards; try to preserve the status quo; or close our minds to change. We must instead look forwards, embrace these changes and with it lay the foundations for ever greater prosperity. I believe our policy objectives should be clear – decent work for all and an end to poverty. Both are possible. But they will only happen if we embrace these changes. It won’t happen simply if we leave it all to chance.

If we can rise to this challenge; if we can embrace the strong product market competition that will open new and better jobs; if we can break down the barriers that prevent people from participating in the labour market; and support people to progress through the workplace; Then I truly believe we can transform employment opportunities for many who were previously excluded and take a major step towards our ultimate ambition of true social justice for our people.