2009 Budget Analysis

Introduction from James Reed - Chairman of Reed and founder of the Keep Britain Working campaign.

Last Wednesday’s (22nd April 2009) Budget was widely billed as a “Budget for jobs”. To help us dissect what the budget actually delivered and its potential future impact, I am delighted that David Smith, the Economics Editor at The Sunday Times, has agreed to share his views and insights with us.

On the same day as the budget was announced, the latest unemployment figures were also released. With these figures setting new records for the wrong reasons, it is widely agreed that we must now do all that we can to keep as many people as possible in work.

For this reason we have launched the Keep Britain Working Campaign, the aim of which is to help preserve as many jobs as possible and to help create new ones. The campaign is backed by a broad range of businesses, the Prime Minister, the Mayor of London, all three of the main political parties and the TUC, and allows organisations to share practical examples of how they are keeping people employed and how they are creating new jobs.

I encourage you to back the campaign and to get involved by showing your support and sharing your ideas at keepbritainworking.com

With good wishes, James Reed

So was it a true Budget for jobs? - asks David Smith, Economics Editor at The Sunday Times

There was a time when every Budget was a “Budget for jobs” and no Chancellor of the Exchequer could avoid unveiling new measures to support the labour market. Helping the unemployed was something that Budgets did, even if some of the individual measures failed to live up to the billing.

In the good times more recently, when the jobless total was falling and vacancy levels were high, Chancellors could get away with merely paying lip service to the problems of the unemployed, though none failed to do so.

This year was different. On the morning of Alistair Darling’s Budget on April 22, official figures painted a gloomy picture of the labour market. In the three months to February 270,000 people were made redundant, a record since the statistics were first compiled in this way in the mid-1990s.

Employment, while still high at 29.27 million, showed a drop of 223,000 in the 12 months to February. Unemployment rose by 177,000 to 2.1 million, or 6.7 per cent of the workforce, to its highest level since 1997. The claimant count increased by 73,700 to 1.46 million. Its increase over 12 months, 672,100, means it has almost doubled in a year.

So the backdrop was one of a recession hitting hard in the job market, though Darling claimed in his Budget speech that the actions of the Government and the Bank of England were “expected to protect up to half a million jobs”. This claim, which independent economists said was impossible to substantiate, was followed by more concrete proposals, with a financial commitment totalling some £3.1 billion.

Set alongside the huge numbers involved in the banking bailouts and the scale of the deterioration in the public finances, this sounds like small beer. In a budget that was highly restricted in its giveaways, however, it did take pride of place. The Chancellor said that he would provide a further £1.7 billion of funding for Job Centre Plus and the Flexible New Deal, on top of the £1.3 billion he had provided in his Pre-Budget Report in November. The Flexible New Deal, he said, would provide extra support for people who have been out of work for more than 12 months.

Reed In Partnership, which works to help the long-term unemployed make the transition from welfare into work by working closely with employers and local partners, is not alone in seeing the impact the recession is having on these groups, as highlighted by chief executive Chris Melvin: “With unemployment rising and predicted to rise even further, it was essential that the Government provided more investment to support people back into the labour market. The increased funding for Flexible New Deal will ensure that the programme can support the increased customer numbers whilst still providing a personal and tailored service.

“The proposals regarding unemployed young people will require some serious thought in terms of implementation – the last thing we want is a national scheme which results in young people being further disengaged from the world of work.”

Darling’s most eye-catching pledge, however, was to young people: “I am also determined that we do even more to protect young people from the damaging impact of long-term unemployment,” he said. “The alternative is a return to the days when a whole generation of young people found themselves abandoned to a future on the scrapheap.

“We will not repeat that mistake. So I want to offer a guarantee. From January, everyone under the age of 25, who has been out of work for 12 months, will be offered a job or place in training. Those in work will receive a wage. Those in training will receive additional money on top of their benefits.”

In a generally dour budget, that was one of the Chancellor’s most rousing passages. The Government, he said, was working with employers to create or support up to 250,000 jobs. Examples he provided included delivering local services, traineeships in social care “and other high demand sectors” and jobs for people of all ages in “particularly badly hit communities”.

This programme, backed up with £1 billion of spending, in addition to the £1.7 billion for Job Centre Plus and the New Deal, brought powerful echoes to those with long memories. Councils and voluntary groups will be able to bid for £6,700 a head to employ young people in tasks ranging from gardening and road maintenance to insulation and social care.

It sounds like a revival of the Thatcher Government’s Community Programme of the 1980’s, which also employed almost a quarter of a million young people at its peak. These things come full circle. Inevitably, schemes like this are stop-gap measures, useful for papering over the cracks of a sharp downturn in the economy and the labour market, but unless properly managed, no more than that.

“Although the Chancellor was not in a position to do much the package aimed at the under 25’s offers a good ‘bang for its buck’ in creating opportunities for work and training,” said John Philpott, chief economist at the Chartered Institute of Personnel and Development.

“The experience of past schemes is that they provide short-term relief to the young jobless but do little to enhance their long-term employability. Providing support which is more than simply ‘make work’ will be the acid test of this new initiative.”

Ian Mulheirn, director of the Social Market Foundation, sounded an even more critical note. “A successful employment scheme equips people to get jobs when the economy picks up but the history of such council-run schemes is that they don’t achieve this,” he said. “Lagging lofts is great if you want a career in loft lagging, but not much use for a future job in computers.”

In the end, though, the main influence on the employment outlook is the state of the economy and the flexibility of the labour market. Research published by Reed on behalf of the Keep Britain Working Campaign had some encouraging findings on the latter, with a remarkable 95 per cent of people in a survey of 2,500 workers saying they would be prepared to adapt their working arrangements if it meant keeping others in jobs. The sacrifices that workers were prepared to make on behalf of colleagues included a willingness to move to short-time working, pay cuts, loss of benefits and unpaid sabbaticals.

The findings chime in with other evidence pointing to much greater flexibility in this recession compared with its predecessors, including widespread pay freezes and voluntary short-time working. This is backed up by official figures, which show that pay growth – including bonuses – has slowed to zero. For all the criticism of bonuses, indeed, they are an important element in wage flexibility.

Did the budget offer encouragement in terms of future employment growth? As Nigel Meager, director of the Institute of Employment Studies, put it: “This budget will ultimately help jobs only if it hastens the economy’s return to strong, sustained growth. Even then, the experience of past recessions indicates that employment may continue to fall for over a year. In this interval, average spells in unemployment will get longer.”

As is customary, the Treasury did not publish its own forecasts of employment and unemployment, merely accepting the independent consensus, which is for a rise in the claimant count from its current 1.46 million to 2.09 million at the end of 2009 and 2.44 million at the end of 2010.

The Chancellor’s new economic forecasts are consistent with that kind of rise in the jobless total. After a deep recession this year, with the economy contracting by 3.5 per cent, its worst since post-war demobilisation in 1946, recovery takes hold in 2010, with a modest rise in GDP of about 1.25 per cent – too weak to make a dent in unemployment. After that, things get better, with the Treasury expecting above-trend growth rates of 3.5 per cent annually from 2011 onwards. If achieved, those would make big inroads in the unemployment numbers.

One of the big questions for any Chancellor, of course, is where the new jobs will come from. In the depths of a recession that is harder to answer than usual, though Darling offered some clues.

“In future, the sources of our growth will be more varied – and we need to ensure we play to our country’s strengths,” he said. “It will increasingly come from an expansion in investment by businesses in the industries of the future, such as low-carbon, advanced manufacturing and communications. These industries, together, are as important to the British economy as the financial services sector.”

They are indeed important, so are business services, the creative industries and a variety of other sectors which have perhaps had less attention than they deserved in recent years. The Government, through Gordon Brown and Lord Mandelson, as well as the Chancellor, are determined to show that there is much more to the UK economy than financial services. They are right, of course; it accounted for less than a tenth of GDP and an even smaller proportion of employment.

One of the problems about “jobs for the future”, particularly those related to new and emerging technologies, is that they are hard to identify in advance. It is sobering to recall that at the end of the last recession in 1992, very few of us had even thought about e-mail and the internet, let alone encountered it.

So there will be change, and the hope has to be that Britain is well-placed to benefit from it. The big story of the Budget, of course, was the extent of public borrowing and the measures that have been taken, and will need to be taken in future, to bring it under control. It is essential that these measures do not get in the way of job creation, and the emergence of new and exciting job-generating sectors of the economy.

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