Recession blues

Both Labour and Tories have yet to confront the realities of the downturn - least of the full horror

Anyone who has ever experienced the misery of unemployment will have felt a chill on hearing this week's labour market statistics. It is a truth universally acknowledged that rates of alcoholism, drug abuse and depression rocket in times of recession. Joblessness has a devastating effect on people's health, physically and mentally, and the full social consequences of an economic crisis are felt in the criminal justice and education systems for years afterwards.

This is the week Britain finally woke up to the reality of the economic downturn, with levels of unemployment not seen since 1997. The latest job cuts, at Virgin Media, Yell, builders Taylor Wimpey and pharmaceuticals giant GlaxoSmithKline - more than 4,000 in total - show how widespread the downturn is likely to be. The number of people claiming Jobseeker's Allowance has nearly reached a million and could soon top the million mark for the first time this century. But most news organisations focus on the globally recognised International Labour Organisation (ILO) figure for all people without work. This figure is now 1.82 million and could hit the symbolically significant two-million mark by Christmas.

The two divergent figures are hugely confusing for the general public. One helpful adviser at the Department for Work and Pensions (DWP) explained it to me this way: "The ILO figure would include the middle-class journalist who loses his job or the lone parent on income support." Neither would show up as "claimants", but they would still be out of work.

For millions of people, this is new psychological territory. Anyone under 30 would struggle to remember the last recession, when unemployment reached three million. The Blair generation, which grew to adulthood under new Labour, has enjoyed a uniquely blessed period of economic prosperity. Whatever the truth of the claim that Gordon Brown failed to mend the roof while the sun shone, there's no doubt it was a balmy decade compared to what came before and what is likely to follow.

But for the "fortysomething" generation that now dominates British politics, the recession of the early 1990s remains etched on its psyche. This is certainly true of David Cameron, who worked in the Treasury for Norman Lamont during the darkest days of Tory economic mismanagement. Nick Clegg, David Miliband and Ed Balls all cut their political teeth in the 1990s recession, and their essential cautiousness as politicians is partly explained by this.

But it also means that younger politicians of all parties do not accept the old Thatcher-Major orthodoxy that unemployment is acceptable, or even necessary, if the alternative is rampant inflation. No Conservative today could get away with saying, as John Major did during the last recession: "If it's not hurting, it's not working." Cameron's mentor, Norman Lamont, put it still more brutally: "If higher unemployment is the price we have to pay in order to bring inflation down, then it is a price worth paying." Any senior Conservative who uttered such words now would be instantly dismissed. Tory plans to cut National Insurance to create jobs, when once they would have done so for its own sake, mark a sea-change in Conservative thinking.

The government will argue that this recession is different and that the job market still shows signs of good health. Although there was a net rise of 30,000 claimants in September, for instance, this was as a result of 260,000 coming into the system but 230,000 leaving it. The same is likely to be true for the October rise. Ministers are cheered by the fact that there are still around 600,000 job vacancies. But the November Labour Market Outlook, a survey of over 700 businesses carried out by Ipsos/MORI, revealed a significant degree of pessimism about the future. Over 80 per cent of employers thought the economic situation would worsen over the next three months. The number of companies planning to recruit in the near future had fallen and those preparing for redundancies had risen.

If you ask ministers how they are preparing for the consequences of the recession, they will tell you that the DWP is working closely with the Department for Business, Enterprise and Regulatory Reform and the Department for Innovation, Universities and Skills, to put in place early-intervention packages for companies which find themselves in trouble. The new regional ministers will also be expected to pick up specific problems around the country.

This is all to be applauded. But none of the major parties has yet found the language to describe the full horror of the return of mass unemployment. For Labour, employment has become a fetish and if we begin to witness large-scale redundancies it will be seen to have let down the very people it was elected to protect. The Conservative Party will have to show that it genuinely cares about a group of people it has previously seen either as collateral damage in the war on inflation or has blamed for their own predicament. In the end, the electorate will have to decide which party has its best interests at heart. Labour still has the most convincing story. Employment minister Tony McNulty spent almost two years on the dole in the 1980s and even the Work and Pensions Secretary James Purnell signed on for a short period. This is something George Osborne and Cameron have never had to experience. It is not in the interests of any politician to indicate just how serious the situation might get - they would be accused of defeatism and panic. But it is now certain that the next election will be fought over who can be trusted with people's livelihoods in potentially devastating economic times.

This article first appeared in the 17 November 2008 issue of the New Statesman, Obamania

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.