The Conservatives must not let Britain’s jobs miracle turn sour

We have close to full employment, but the Tories should beware complacency

There was a time, not that long ago, when unemployment was a constant terror. Millions were thrown on to the scrapheap, unable to get any kind of work; at its peak in 1984, the official rate of unemployment was just shy of 12 per cent. The real scale of the disaster was even greater.

Yet the free-market, supply-side medicine served up first by Margaret Thatcher and then by John Major quietly worked its magic. Taxes were slashed, barriers to enterprise and competition were torn down, capital was reallocated to better uses, thanks to privatisation and globalisation, and new industries sprung up. The British economy began to outperform its European neighbours, and the workforce went through a remarkable reformation. Trade union membership collapsed and a new, can-do, flexible attitude became the norm, helped by an influx of hard-working migrants.

Today, more than three decades after that annus horribilis on the dole queues, the free-market agenda has paid off beyond its architects’ wildest dreams. The economy has changed drastically, and with it our political landscape. Astonishingly, unemployment has been cured – at least for now. There is no longer much call for politicians promising to create jobs; in that respect, Britain is almost unique among rich nations.

As we await the Tory manifesto today, this is the single, great fact to understand – one that explains and underwrites its policies, tone and message: Theresa May does not need to worry about creating jobs. Her predecessor, David Cameron, may have inherited an economy on the brink of collapse. But not her. She is the first full-employment Tory prime minister since Harold Macmillan and Alec Douglas-home. And, as a result, her policies look very much like a modernised, provincial variant of their patrician, paternalist approach.

This is the key to her unfortunate dalliance with interventionist policies. Just look at the latest figures from the Office for National Statistics, which explain (though don’t justify) Mrs May’s emphasis on “fairness” as opposed to growth and aspiration.

Our employment rate has hit 74.8 per cent, the highest since records began in 1971; unemployment is down another 152,000 over the past year: at just 4.6 per cent, it’s the lowest since 1975. For the first time I can remember, a few voices are even beginning to ask whether “too many” people may now have jobs, and whether this is adversely impacting the care of older relatives, among other things.

This jobs explosion is an extraordinary achievement, and one which, tragically, the Tories now take for granted. Their policies are no longer geared towards job creation – yesterday’s issue, they clearly think – but towards “improving” the labour market and making it “work” for more people.

The trouble is that while one problem – unemployment – has been solved, a new one has emerged. Pay remains weak: it is up by just 2.1 per cent in cash terms, and with inflation temporarily on the rise again at 2.7 per cent, real incomes are therefore falling again. There are a number of reasons for this: productivity is weak, partly because ultra-expansionary monetary policy has misallocated resources and partly because so much effort is now sucked into bureaucratic and regulatory requirements. Another cause of weak pay growth is that the Government has saddled firms with non-wage costs, such as the apprenticeship levy and autoenrolment pension contributions, putting pressure on wages. But the reality is that many “experts” are baffled by the extent of the wages and productivity crisis. Nobody has a full solution.

Mrs May is a brilliant political entrepreneur who doesn’t believe in grand theories of the sorts espoused by the libertarian Right (people such as me) or the socialist Left. She merely observes, and responds. Unlike previous generations, today’s young people – the millennials – are not worried that they won’t find a job. They are concerned instead that the work they do get won’t pay enough. The “Just About Managing” lower-middle classes – the Jams who are flocking to Mrs May from Ukip and Labour – face the same predicament: their problem is lack of disposable income and purchasing power. They are worried about their essential expenses, which seem to be increasing in price faster than their wages. That, and access to the housing market, is what they mean when they tell pollsters that they are concerned about the economy.

The free-market solution to this crisis would be to make much more land available for housing; to remove costly green rules and increase competition in the energy market; to eliminate the regulations that keep childcare costs artificially elevated; to push for total free trade after Brexit; to cut taxes to turbocharge the demand for labour and eventually push up its price.

The answers from Mayonomics are much more simplistic. There is a demand for lower energy prices, so she will simply deliver them by fiat. The jobs market will be fine, regardless of how much more red tape is thrown at it, the new doctrine asserts – after all, the minimum wage keeps going up and the roof hasn’t fallen in. The existence of invisible side-effects, or the fact that we may well be nearing a tipping point, doesn’t enter the calculation. Mayonomics advocates blaming business for “not doing enough for their workers”, but hitting them with yet more non-wage costs will merely put further downwards pressure on wages, in a dangerous vicious circle.

The jobs numbers also explain the Tory position on migration. The number of Uk-born people in employment has barely gone up over the past year; by contrast, the number of non-uk-born people working in the UK increased by 388,000 to 5.64 million. The Government clearly believes that reducing this second figure would push up wages for the first; it also believes that any reduction in the economy’s job-creation rate wouldn’t particularly matter as it would just mean fewer foreigners moving here. I disagree with these assumptions, but they appear central to the new thinking.

May’s gamble is working: the Tories have become a quasi-national party, a party of national unity even, reconciling prosperous middle classes with poorer workers. Next month’s triumph will be historic, even if it falls slightly short of Macmillan’s 49.7 per cent share of the vote in 1959, and will ensure that we will finally leave the European Union.

But at some point piling on red tape will begin to kill Britain’s jobs miracle, and everything else will then quickly unravel.

To make the most of Brexit, the UK needs to embrace free markets, not retreat to the quiet economic certainties of the Sixties. The Tories will eventually come to realise this, of course, but not before they squander an immense opportunity to retool this country into a 21st-century trading superpower.