Good economic story

To listen to the exchanges in the House of Commons at Prime Minister’s Question Time yesterday you could have been forgiven for thinking the economy was on its knees. Jeremy Corbyn, the Labour leader, whose Marxist nostrums would wreck the country if ever put into practice, was judged by the Left’s cheerleaders to have won the day with an attack on the Government’s competence. This was followed up by an Opposition attempt to derail the roll-out of the new Universal Credit system.

The fact is, as even Mr Corbyn conceded, that unemployment is now at its lowest level for 40 years, with a further drop of 52,000 in the second quarter of the year. This is an extraordinary testament to the flexibility of the British labour market and compares more than favourably with job creation in much of the eurozone, where youth unemployment in particular remains high.

It is true that the encouraging jobs figures mask a problem of low productivity and falling real wages, contrary to the received laws of economics, which would normally expect a shortage of labour to lead to higher pay. One explanation is that this is a trade-off that workers are prepared to make to keep a job.

One of the purposes of Universal Credit is to encourage work by making it easier for people to move in and out of a job without losing access to benefits. This must be a good thing, even if its introduction has been marked out by problems with implementation. The Government needs to address those to ensure that UC works and to avert a backlash on its own backbenches. But it has a good economic story to tell and should stick to its guns in pursuing welfare reform.