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
Show Hide image

The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

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