Rachel Reeves is missing the blindingly obvious about UK economy

Rachel Reeves has announced a new Youth Guarantee employment scheme, in which paid work will be offered to young people that are not in education, training or work. Those who refuse the placement without a "reasonable excuse" could be stripped of their benefits after 18 months. The Chancellor is right to identify youth unemployment as an increasingly pressing issue. One-quarter of the working-age population are currently out of work.

Millions of people are signed off as long-term sick, and the chances of those people reentering employment within a year drops to just 3.8%. Why is this happening? According to the data, it's mental health. About 69% of those who apply for sickness benefits mention depression, anxiety, or some other kind of mental or behavioral disorder.

More worryingly, there are increasing numbers of young healthy people that are signing off as long-term sick. According to an NHS Confederation report, between 2021-22, 63,392 people went straight from being economically inactive because they were studying, to being inactive through long-term sickness. This had almost doubled since 2019-20.

What is moral about a system that consigns thousands of young people to a lifetime of worklessness? Where is the evidence that the best thing for someone with anxiety and depression is for them to be paid to stay at home?

Work gives people dignity. It gives you a structure. A reason to get up in the morning. Surely, the best thing for those people is for them to have a purpose through work.

So, youth unemployment is an issue that desperately needs to be addressed. However, the proposed scheme is unlikely to do much good. Firstly, eighteen months is far too long, especially if you are a young person that has gone straight from school to university to benefits. In most US states, unemployment benefits are available for up to 26 weeks.

The scheme itself will involve thousands of extra civil servants to roll it out. It will save some benefit money, but will tie up real resources that will undoubtedly cost a lot.

Part of the solution should obviously be to reduce the eligibility of benefits. However, we should be asking ourselves why it is so hard to get a job?

In the three months to July, we experienced 0.2% growth. In July, we experienced no growth. This is as a direct result of the Government's policies. If the economy isn't growing, businesses aren't growing.

In the labour market, things are pretty tough. According to the ONS, the estimated number of vacancies in the UK fell by 10,000 between June to August.

This is partly due to the Employer's National Insurance Contribution hike that we saw earlier this year, pushing up the cost of employment.

This should be blindingly obvious: if you make it more expensive to employ people, businesses will be less able to employ people. One Bank of England survey suggests that the policies enacted this year may have added 10% to some companies' wage bills.

Instead of placing a bandage over the youth unemployment problem, the Government should look in the mirror. We need a free, flexible and dynamic labour market. We need lower taxes. We need less employment regulation.

We do not need yet another Government-run employment scheme.

Reem Ibrahim is the Head of Media at the Institute of Economic Affairs