THE BLOG

If We Want More Employment, Why Just Favour the Youth?

11/12/2013 11:16 GMT | Updated 09/02/2014 10:59 GMT

Let's be clear. Like companies, governments are employers and facilitators of employment. Unlike companies, they do not earn income. When ministers talk about tax revenue, what they mean is the money the state obliges us to contribute.

Companies do the actual earning of income, providing goods and services we choose to buy. Their workforce is a function of how successful they are. They operate within the constraints of tax and regulatory frameworks. Governments do the taking of income, telling us what goods and services we will receive. They set the tax and regulatory frameworks. We give governments the mandate to do this because we put them in office.

To be sure, most of us benefit from the government's role, even as many of us grumble. The Centre for Policy Studies has estimated that more than half of British households take more in state benefits and services than they pay in taxes. That means, if we're in this majority, we're being financed by our neighbours who aren't. The truth is that we all could benefit even more.

Which brings us to George Osborne and his announcement that the government will abolish the jobs tax, or national insurance contributions, for young people, those under 21, and fund jobcentres to help teenagers find an apprenticeship or traineeship.

The idea is to get more young people into work by reducing the tax burden on employers. A reasonable plan, on the face of it. This initiative theoretically might reduce government spending -- and therefore cost us all less -- because, so the thinking goes, the tax income the state will cease to get from those national insurance payments will be more than outweighed by the savings on state benefits related to youth unemployment.

But why just favour those under the age of 21? Do older people not need, just as urgently, to work and should employers not be incentivised to provide opportunities? Should the government leave these people out just because they're not 'young'? We're living longer than ever. The notions of 'young' and 'employable' are subjective, and not just a function of the date one was born.

A bigger idea, in an era when companies want to limit the fixed costs of full-time headcount and as freelance services are exploding, could be to stimulate employment on a wider scale, across every age group. Why not reduce the VAT on services of independent contractors? Currently charged at 20 percent, this tax burdens buyers and sellers.

Our world is a place where knowledge can be accumulated, marketed and distributed as quickly as it takes to make an Internet connection. It's also a place where non-variable costs of any kind are onerous and often unnecessary. A start-up online retail company in Liverpool that requires an analysis of its competitive environment could find a management consultant in Manchester. A developing FMCG business in Edinburgh needing supply chain advice could locate an independent contractor in London. A portfolio company backed by private equity or a fledgling venture capital business could identify consultants in just about every category imaginable.

Reducing the VAT on these transactions would stimulate demand. If we accept the ideas that the tradition of full-time jobs for life is evaporating; that our workforce is disparate and mobile; and that we should be facilitating the employment of people, whatever their age, and giving companies the benefit of their knowledge and experience, let's make it all less costly.

On the same basis that fuller youth employment will, at least theoretically, diminish the burden on the taxpayer, so would wider employment of independent individuals in every demographic.

Employment is the most serious gauge of a country's economic health. While a primary function of government is to take our tax contributions and spend them to the national benefit, the best outcome is to provide the framework for a nation's success.

Stimulating the employment market among the vast and growing cloud of people who're not in the old-fashioned, full-time job market, and might never be, is a good way to do so.