Chris Grayling on the need to reform welfare and bankrupty laws

Opening Tuesday's Opposition Day debate, Chris Grayling argued that in the context of the ongoing financial crisis, more attention must be paid to unemployment, and to fighting it through reforming welfare and relaxing the laws on bankruptcy. The video and the speech are below.

"Much of the media attention in the past couple of weeks has rightly been on the crisis in the financial markets, which was the subject of the earlier debate this afternoon.

In the second part of today’s debate I want to turn the attention of this House to the issue that is becoming a bigger and bigger concern for people around the country. Unemployment.

"None of us wants to see unemployment rise. We hope that the gloomier forecasts about unemployment prove to be over pessimistic. But the truth is that things are getting worse. One thousand people a day are joining the dole queue; Unemployment is up by more than forty per cent in some areas; Employment is falling; Vacancies are down by sixty thousand; and youth unemployment is more than one and a quarter million. People up and down the country are worried about their jobs and businesses and about the future. And the worry is that this Government has been complacent about unemployment.

"Again and again as the economic storm clouds gathered, Ministers have sheltered behind optimistic claims about their record on employment as a justification for the belief that Britain is somehow better placed to weather a difficult period. They have claimed that Britain had “record employment” and that “long-term unemployment has been virtually eradicated”. Only four weeks ago the former Employment Minister said: “And we have grasped the opportunity to lift the rate of employment to a historically high level, with more people in work in Britain today than ever before in our history, and to reduce unemployment to levels not seen since the 1970s”

"I think that after ten years in power Ministers need to spend a bit more time in the real world. Because as always with this Government, when you read the small print there is a much more sober tale to tell. 

"Ministers tell us that they have created 3 million more jobs, without telling us that up to 80% of them have gone to migrant workers. If you use the ILO measure of unemployment which the Prime Minister preferred in opposition, the jobless total has only fallen by 300,000 in ten years of growth. There are almost 5 million people claiming out of work benefits in Britain today.  Economic inactivity rates are not much different to 1997 - at 1 in 5. There are 5 million people in Britain without any formal qualification. And the employment rate for those lower skilled workers has actually fallen under Labour. Employment growth in Britain last year was among the lowest in Europe, higher than only Hungary and Portugal.

"If we’re going to address the problem of rising unemployment, let’s at least start by recognising the scale of the challenge.  And not burying the reality in the small print. A perfect example of this is the Government’s claim that “long-term unemployment has been virtually eradicated”. In fact, what the Government has done is to make it statistically impossible for someone to be long-term unemployed.

"Young people claiming Jobseekers Allowance for 6 months and over 25s claiming for more than 18 months are automatically referred to the Government’s New Deals. If they fail to find a job initially on the New Deal they are referred to a period of mandatory activity. At this point claimants are moved off Jobseekers Allowance onto a ‘training allowance’ and are removed from the Government’s official claimant count. At any one time around 40,000 people are hidden from the Government’s official claimant count in this way.

"Around one in three people leaving the New Deal return straight to benefits. At this point they rejoin the claimant count, their previous claim is wiped clean and they appear to have only just become unemployed. It is possible under the Government’s current system to have been unemployed for over two years, but for it to appear as if a claimant has only been on benefits for two days.

"Equally worrying are some of the other hidden statistics.  According to official figures there are 700,000 people working part time who would like full time work but cannot find it. Employment among British born British nationals is falling fast - there are 250,000 fewer UK nationals in employment than there were two years ago. Until now this Government has got away with its failure to address the underlying weaknesses in our labour market.  It’s about time the Government stopped denying that there is a problem with unemployment in this country and started to listen to families up and down the country who are struggling.

"The consequences of Labour’s employment failures are, of course, not just limited to adults. Child poverty is up for the second year in a row. The UK has a higher proportion of its children living in workless households than any other EU country. Almost 1.3 million young people aged 16-24 are not in work or full-time education – 19 per cent more than in 1997.

"So what do we do to begin to tackle the problem? Firstly, we have to do everything possible to help those who do lose their jobs. An important first step would be to accelerate the process of welfare reform – to turn some of the things both the Secretary of State and I have agreed on into reality now, not in two years time.  Now when I talk about welfare reform at a time of rising unemployment, people immediately think that it’s a contradiction in terms. How can you introduce big new changes to the welfare to work process at a time when the number of jobs is falling? It’s all well and good talking about tackling worklessness when times are good – not when things are getting more difficult.

"But that’s not right. When I went to New York in January to look at their welfare schemes I asked them how they coped in the recession of the early 2000s. They told me that their innovative employment programmes had helped to match people and their skills with the opportunities that were available. So the rise in unemployment was less pronounced than it had been in the past.

"We understand that times have changed. That Britain is facing a tougher economic climate. If anything this makes the case stronger for a fairer, more active welfare system. With the publication of our green paper on Welfare Reform in January, and the Secretary of State’s subsequent decision to adopt both David Freud’s proposals and ours, there should be cross party consensus on what needs to be done. 

"So what’s the reason for waiting? The Government will have our backing if they do accelerate the reform process. Now is not the time to be timid. People who lose their jobs will need individualised support to reflect their needs.  They will need tailored employment programmes that offer among other things, Job search facilities; specialised training to increase suitability for work; Personalised career and recruitment advice; Interview-training with real employers and CV writing techniques.

"The reforms which we have all discussed would lead to the creation of a network of world leading back to work centres to deliver this support. We have some of those skills in Britain already, but as the Government’s motion so clearly reveals, the programmes that are already in place are barely scratching the surface of the challenge we face.

"That’s why we need to accept the accounting changes that allow the use of benefit savings to help pay for the programmes that get people back into work – to so-called DEL-AME switch. It’s no good piloting that change sometime after 2010. It’s needed now. Without it we cannot build the scale of programmes needed to meet the scale of challenge we face. 

"The biggest problem with the Government’s green paper in the summer was that everything seemed to be timetabled for years down the track. I urge the Secretary of State to change that – and to get on with things now. 

"The other big area of change we need is to do more to protect the jobs we have. In the last recession I worked for a small company in Winchester. Out of the blue our biggest customer went bankrupt. We didn’t even have enough cash to pay the salary bill at the end of the month. It would have been easy for the Bank to pull the plug. They didn’t, and with a real team effort the business pulled through. But many others aren’t so lucky. Loans are called in – the business collapses. We need to take steps to protect good businesses that suffer a sudden problem. At the moment our insolvency rules don’t do enough to stop those firms from going under. That needs to be changed as a matter of urgency.

"In the United States, there’s a special system for companies in this position. It’s called Chapter 11. It allows companies in difficulties enough time and protection to sort things out. We believe that a similar system should be introduced to the United Kingdom. It would allow company directors the time to build a plan to rescue or restructure the company. It wouldn’t save lame ducks but it would give good companies a breathing space when their financing is put under pressure because of world events.

"The current insolvency system often means the only option is for the business to be closed down, destroying livelihoods and giving rise to significant job losses. Our proposed approach would create a breathing space to allow company directors to formulate a plan to rescue or restructure the company. 

"If the Government accepts our proposals, there would be three elements to the plan. 

"The first is to introduce an automatic stay of enforcement. That would prevent Banks or other creditors intervening immediately to enforce repayment of debt while the management stays in place and attempts to negotiate a restructuring. 

"The second is to give a priority status for any financier willing to provide ongoing funding for the company post-petition. Unlike in the UK, firms in Chapter 11 in the US are able to raise finance even after they have petitioned for bankruptcy. Lenders will lend them money in exchange for “super-priority” over other unsecured creditors. In fact, there is a whole market for this type of rescue” funding in the US, which does not exist in the UK. Introducing such a market in the UK could again save businesses and jobs. 

"The third element of reform that is needed is to prevent unscrupulous creditors from vetoing desirable restructurings. Once a company has proposed a restructuring plan, it will be required to submit it to the court, along with any supporting evidence. Any creditor group who disputes the plan will also be able to submit evidence. But once the court and a certain majority of creditors have approved the plan, it will bind all creditors and shareholders. 

"Taken together, these reforms may provide the right framework to allow good companies to continue to trade during an economic downturn. I sincerely hope that the Government will adopt these proposals now. Britain’s business cannot afford to wait to the next election for a set of reforms that could help make a real difference now. 

"The other big step that the Government needs to take to protect business and jobs is on tax. It cannot help employment prospects in this country if some of our biggest firms are transferring their headquarters and their domicile overseas because the corporation tax regime in countries like Ireland is more favourable. 

"That’s why we continue to argue that we need to cut the main rate of corporation tax from 28p to 25p and reverse the Government’s planned increase in the small companies’ rate from 20p to 22p. The cost of such a reform can be met by dramatically reducing the complex structure of allowances which this Government has introduced for business – leaving a simpler and more attractive tax regime in Britian. 

"I sincerely hope that unemployment doesn’t rise as far or as fast as some are predicting. But we need to be ready if it does, and we will not help tackle the problem if the Government continues to bury its head in the sand about the true scale of worklessness in the UK.

"We need measures to protect small business and then to help it grow. We need better support for those who do lose their jobs so that we can get them back into work as quickly as possible. 

"We have heard boast after boast about the Government’s record on employment in the past few months. Boasts which don’t pass muster under scrutiny. So enough of the complacency. Enough of the empty rhetoric about a record on employment that just doesn’t reflect the reality. And let’s seem some real action before things can get any worse."