Youth unemployment heads for a million

There are now 991,000 young people out of work, the highest level since records began in 1992.

Today's employment figures make grim reading for the government. Total unemployment now stands at 2.57m, the highest level since 1994, while the unemployment rate is now 8.1 per cent, the highest level since 1996. Worse, youth unemployment rose by 74,000 to 991,000 (21.3 per cent), just short of the symbolic million mark and the highest level since comparable records began in 1992. The danger of a lost generation is increasing every month. Since it came to power, the coalition has scrapped the Future Jobs Fund (described by Frank Field, the government's poverty adviser, as "one of the most precious things the last government was involved in"), abolished the Education Maintenance Allowance (EMA) and announced that it will offer 10,000 fewer university places next year. All measures that have exacerbated the jobs crisis.

And worse could be to come. George Osborne promised that private-sector job creation would "far outweigh" the job losses in the public-sector but few now believe him. Earlier this week, the Chartered Institute of Personnel and Development [CIPD] warned that 610,000 public-sector jobs would be lost by 2016 (200,000 more than forecast by the Office for Budget Responsibility) and urged the government to call a halt to its job cuts.

The ONS didn't publish new figures on public and private sector employment this month but last month's bulletin showed that while 264,000 private-sector jobs have been created over the last year, 240,000 public-sector jobs have been lost, a net gain of just 24,000 jobs. Worse, over the quarter, 111,000 public-sector jobs were lost, while just 41,000 private-sector jobs were created, suggesting that the labour market is beginning to stagnate.

The CIPD estimates that every public-sector job that is lost costs the state around £8,000-£10,000 in benefits and taxes forgone. Osborne, who has already been forced to announce an extra £44.4bn of borrowing due to lower tax revenues and higher welfare payments, will find it ever harder to reduce the deficit as unemployment continues to rise. As the self-defeating nature of austerity becomes clear, the pressure for a change of course will become even greater.

George Eaton is political editor of the New Statesman.

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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR