A Budget for young people

by Mark Corney

The pressure on the Chancellor to deliver a ‘budget for growth’ is matched only by the need to craft a ‘budget for young people’.

Across the UK, 731,000 16-24 year olds are unemployed and ‘not in full-time education’. Another 713,000 are economically inactive and ‘not in full-time education’.

Compared to the autumn statement the fiscal outlook for the March budget is more positive. The deficit for 2012/13 could be £3bn lower than predicted.

Decisions to tax ‘wealth’ instead of’ income’ could also be good news for young people. For instance, ending higher rate tax relief to private pension contributions could save £7bn per year. 

What better message could the Chancellor give on the 21st March than abolishing higher rate tax relief to private pensions to fund new opportunities for unemployed young people?

Certainly, the budget must introduce new policies to help young people get jobs.

One of the more sensible ideas to emerge from the Right is a permanent cut in employers’ national insurance contributions for 18-24 year olds.

One of the more sensible ideas from the progressive Left is the need for a new ‘offer’ after 3 months claiming Jobseekers’ Allowance, including work experience placements with sanctions or taking part-time work without losing benefit for up to twelve months.

By the same token, the Budget must help young people from age 16 to stay-on in full-time education. And helping young people from 16 to stay-on in full-time education is as much about maintenance support as it is tuition fees. 

In England, at least, there is a clear dividing line between measures to reduce unemployment and inactivity before 18 and after 18.

The Coalition Government is committed to raising the participation age (RPA) to 17 in 2013 and to the 18th birthday in 2015. On turning 18, all young people are able to claim Jobseekers’ Allowance (JSA).

Although new money will be needed to expand full-time education, the Chancellor should look again at how existing expenditure is being used. For instance, from an ‘education policy’ perspective, the present position on child benefit is simply untenable.

In England, non-means tested child benefit costs about £11bn per year, with £9.5bn paid to parents on behalf of children up to 16 and £1.5bn paid for those aged 16-19. But whereas parents receive child benefit for all children up to age 16 they only receive it for 16-19 year in full-time further education.

The Chancellor should use Budget 2012 to classify 16-19 child benefit as financial support rather than welfare.

Such a change would help to dismiss outlandish arguments made by the Department for Eductation to support the abolition of means-tested Education Maintenance Allowances of £0.6bn per year as well as crystalise the debate about how best to deploy 16-19 child benefit (£1.5bn), 16-19 child tax credit (£2.3bn) and the new 16-19 bursary grants (£0.2bn) to support participation in full-time further education and reduce youth unemployment.

An excellent report by Barnardo’s* shows how the move from 16-19 EMAs to the much smaller 16-19 Bursary Fund is already undermining participation in full-time further education. In response, a DfE spokesperson speaking to the BBC** said “The Education Maintenance Allowance was wasteful and poorly targeted. Some 45% of all 16-19 year olds received it, including many private school pupils.”

But 16-19 child benefit is non-means tested. 16-19 year olds from higher income households in receipt of child benefit will stay-on in full-time further education anyway. And although a handful of former EMA recipients attended private schools, child benefit is being shelled out to parents on behalf of 86,000 16-18 year olds in private education.

The Coalition Government cannot go on wasting resources in this way. 16-19 child benefit and 16-19 child tax credit must be organised in such a way as to support participation in full-time further education at a time of massive crisis in the youth labour market.

Child benefit and child tax credit for 16-19 year olds must be separated from 0-16 year olds. At the same time, 16-19 child benefit and child tax credit needs to be separated between 16-17 year olds and 18-19 year olds.

The separation between 16 to 17, and 18 to 19, derives from the introduction of the RPA and the availability of JSA from 18.

Currently, the Coalition Government has no credible 16-17 financial support policy to underpin the raising of the participation age. The RPA might place a duty on young people to participate in full-time further education of potentially 534 directed learning hours per year – up from 450 guided learning hours – but if financial support is inadequate they simply will not attend.

Truancy will be a massive problem under the RPA if the Department for Education is not careful. The way to prevent this scenario is to merge 16-17 child benefit and 16-17 child tax credit into a means-tested 16-17 financial support allowance paid either to parents or students.

By contrast, the issue of 18-19 child benefit and child tax credit linked to participation in full-time further education is more appropriately considered in the context of access to JSA from 18, maintenance loans and grants for full-time HE students from 18 and the lack of a comprehensive system of financial support for full-time further education students aged 18-24.

A rough estimate is that £0.2bn of child benefit is paid to parents with 18-19 year olds in full-time further education. A further £0.2bn might be paid in the form of means-tested child tax credit. At the same time, about £0.9bn is spent on unemployed 18-24 year olds claiming JSA and rising, with a further £5.5bn for maintenance grants and loans to students in full-time HE, the majority of who are 18-24 year olds.

Surely, it cannot be beyond the wit of DfE, BIS, DWP and the Treasury to deploy £6.8bn in a more effective way to support participation in full-time education and employment programmes.

Thankfully, however, the budget is not the time to re-cast departmental responsibilities.

Speculation has been rife over the transfer of higher education to DfE, the creation of the old Department for Employment with the Work Programme transferred from DWP and employment rights transferred from what would be a moribund Department for Business, Skills and Innovation.

Preventing a lost generation of 18-24 year olds, however, requires BIS to be expanded not extinguished.

Full-time HE makes a massive contribution to reducing youth unemployment amongst 18-24 year olds and responsibility already rests with BIS. Transferring the Youth Contract and the Work Programme over to BIS would achieve greater co-ordination between 18-24 apprenticeship and employment policies. And BIS is already responsible for maintenance support for 18-24 year olds in full-time FE even though funding is limited.

All in all, the case for a new Department for Business, Innovation, Skills and Employment (BISE) looks compelling. But this will be down to the Prime Minister in the early autumn.

Mark Corney is policy adviser to the Campaign for Learning and writes in a personal capacity

*Staying the course: Disadvantaged young people’s experience in the first term of the 16-19 Bursary Fund (February 2012)

**EMA replacement ‘failing young poor students’, BBC website, 6th February 2012