RECENT economic news - a record £30.4-billion surplus, inflation down to three per cent, borrowing down 11.5 per cent on the previous period, fasting growing European G7 member, and retail sales up 1.8 per cent - shows that the economy is finally beginning to turn a corner. But we must also recognise the recent labour market figures – with unemployment at 5.2 per cent and 16.1 per cent amongst young people – which underscore a familiar and uncomfortable reality.

The Labour government’s fundamental diagnosis – that the UK must become a higher-wage, higher-productivity economy after years of stagnation – is completely correct. Investment in skills should raise productivity in a way that ensures pay growth is economically grounded – the cost of labour shouldn’t inhibit growth and output, otherwise workers will be priced out of jobs.

But whilst these intentions are the correct, they rest on a basic oversight: employment adjusts more readily than wages, and skills more slowly still. The UK’s economy is recovering – but government must be wary of a labour market trilemma. Labour markets are constrained by a hard trade-off between pay, productivity, and protections for workers, all of which cannot be simultaneously maximised – at least without sacrificing employment.

So, how should our government pull us out of this trilemma? The most direct way out is to lower the cost to businesses of employing lower-paid workers – not by suppressing wages, but by rebalancing non-wage labour costs. For many young people, these lower-paid entry-level jobs and apprenticeships are key to their start of their career, and critical to their future.

It was National Apprenticeship Week recently, and I had the opportunity to visit Cornwall College and see the next generation of carpenters, mechanics, and tradespeople. It’s more important than ever to equip young people with skills, but then jobs must be available to them. Reducing non-wage labour costs is not just the economically-sound thing to do, but also the Labour thing to do.

Much consternation was made of the rise in Employers’ National Insurance Contributions (NICs) despite it being a necessary move, following the Tories’ final act of economic sabotage by cutting Employees’ National Insurance – an electoral bung at a time of freefalling public finances. Rather than a wholesale reversal of the decision to raise employers’ NICs, a further increase in the threshold would be target those most precarious sections of the workforce.

We could further solve the trilemma by linking NIC reliefs to training, such as for older apprentices. There was little made - around our now infamous first Budget- of the inbuilt protections from rising labour costs afforded to young people via Employers’ NICs exemptions, nor the same proposed protection of a lower threshold rise already being inbuilt. These cushions are perhaps why, despite the deafening noise, Britain has maintained the second fastest growth in G7 behind a juiced up United States, and relatively high employment rate, versus conditions seen on the continent.

Recent employment figures show there is much more to be done.