UK unemployment will get worse before it gets better

Without targeted action, the UK will suffer.

Everyone knows it is tough to get a job right now. But it’s going to get worse, before it gets better. That’s the judgement of the Office for Budget Responsibility. Their latest forecast, published by George Osborne alongside the Budget, shows that unemployment will peak at 8.7 per cent and it will not fall until quarter three 2013, next September at the earliest.

The UK’s unemployment rate (8.4 per cent) is the worst for 17 years, since 1995. But the OBR’s forecast suggests that another hundred thousand more people in Britain will be without a job before the end of the summer. IPPR analysis – based on the pattern of the increase in 2011 – shows that 50,000 more men and more 50,000 women will become unemployed this year, with 100,000 public sector jobs lost and the 200,000 new jobs created in the private sector being matched by the increase in the number of people looking for work in the UK.

Young people will continue to bear the brunt of unemployment, with an extra 41,000 young people aged under 25 joining those already unemployed breaking a new record, since records began in 1992. At the other end of the age scale, an extra 7,000 people aged over 50 will become unemployed, who will find it very tough to find work again.

Overall, unemployment will not "peak" until at least September and if unemployment rises again this month, as the OBR predicts, it will be the tenth month in a row. In America, unemployment is falling and the economy growing. Last year, the US economy grew by 1.7 per cent versus 0.8 per cent in Britain. US employment grew 1.2 per cent while Britain lagged at 0.7 per cent. And US growth appears to be accelerating: it was 0.7 per cent in the final quarter of 2011 compared with a decline of 0.2 per cent for Britain.

An important reason why America is stronger is that President Obama has maintained his commitment to fiscal stimulus while the UK has focused on austerity. The biggest danger in the UK is not Greek-style default but Japanese-style stagnation. But even if the government won’t change its fiscal stance, there is something to learn from America.

The primary tool for US stimulus has been a payroll tax cut introduced in 2010 and recently extended with cross-party support through 2012. The cut reduced the rate of an employee’s contribution to social security from 6.2 to 4.2 per cent, putting $1,000 per year into families’ pockets. This has injected $92 billion a year of stimulus into the economy and US consumer spending increased by 2.2 per cent last year while it shrank by 0.8 per cent in Britain. One might think this extra spending was at the expense of debt reduction, but the reverse is true — US households have reduced debts by 11 per cent since the bubble burst as against only 5 per cent for Britain.

This combination of increasing consumption and reducing debt is the key to recovery. Businesses in Britain and around the world are sitting on record piles of cash: $2 trillion globally. But they won’t invest that cash and create jobs until they see the demand for their products and services rising. And squeezed consumers won’t create that demand until they have confidence they can spend a bit more and manage their debts.

This has been the longest recession and the slowest recovery that Britain has ever experienced. The personal tragedy of the slow economic recovery is the way unemployment will continue to rise, even once the economy begins to grow. The risk is that high unemployment becomes a permanent feature of the UK economy, as it did in the 1980s. Even within the context of the Government’s deficit reduction plan, it is short-sighted of the not to do more to get people back into jobs.

People queue outside a jobcentre at the height of the recession. Credit: Getty

Richard Darlington is Head of News at IPPR. Follow him on Twitter @RDarlo.

Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.