If you want to know what really needs fixing in the UK it is this. According to data released by the Office of National Statistics this week, there are no less than 3.06 million working age households in which no one over the age of 16 is working.

Okay, this is better than last year – 0.2 percentage points or 15,000 better than 2007, but then again five years ago there were 43,000 less households falling into that category.

Drill down a little and the picture looks like this:

During the period April to June 2008 there were 19.36 million working age households in the UK. Of this number, 11.07 million saw all people over 16 working, 5.23 million contained both working and workless members, and 3.06 million had no people of working age actually working.

The proportion of children living in workless households was 15.4 per cent in the three months to June 2008, down 0.3 percentage points from the previous year and down 0.6 percentage points from five years earlier. This translates to 1.77 million children living in workless households.

Ultimately, the big challenge facing future government is to break the habit of not working. Presumably children brought up in workless households are less likely to work themselves.

Some will argue the solution is simple – cut benefits. But that could have very unpalatable results.

Instead, the government needs to increase the incentives to work. Too many people are caught in a poverty trap, in which they are barely better off if they work. Benefit calculations can also be highly complex, and some people on benefit are just not sure what would happen if they started to work, and are simply too afraid to rock the boat.

The government needs to introduce some kind of scheme in which the long term unemployed can still receive benefits for a period of time after they start work.

Ultimately, the solution to the current economic crisis surely lies with tax cuts – especially for lower paid workers – and maybe increasing personal allowances. It is true that government borrowing on an annual basis is too high but the UK’s total net debt as a percentage of GDP is still quite modest compared to other G7 members. The government needs to use this to its advantage, and spend money – which in the time of a recession is precisely what is required anyway, but to spend this money to fix the structural problems with the UK – and get workless households, working. This can be done via simple cuts in income tax, not through Gordon’s horrendously complex tweaking.

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© Investment & Business News 2013