Why rising unemployment is bad news for us all
By
Associate Editor
David Stevenson Mar 19, 2009
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It was "the worst jobs report in history", as The Telegraph puts it. February's British jobless numbers were always going to be grim - the City was expecting to see more than 80,000 more people out of work. But what emerged yesterday was truly shocking.
Britain's dole queues grew at the fastest pace since records began, taking the headline total to over two million for the first time in 12 years.
That's terrible for those who've just lost their jobs of course. But bad news for everyone else too. It means less money being spent in the shops, more forced house sales and another surge in benefit costs. So that means even greater government borrowing, or even larger tax rises ahead. Or both...
Unemployment will continue to rise
Unemployment rose by 138,400 last month - 60% higher than the City had forecast. That's like the entire population of Cambridge (and more) being laid off. It was the fastest rise in jobless claims since official records began back in 1971.
Even worse, January's number was revised upwards by another 20,000, lifting the number of Britons out of work above two million for the first time since Labour took power in 1997.
And somehow, I don't think that Gordon Brown's protestations that he doesn't "regard unemployment as a statistic – it's a matter of personal regret for me and for the entire government" will cut much ice with those who no longer have a job. Their prospects of getting another one soon are receding by the day. Because sadly, two million is just the latest milestone on a very long downhill slide. The fire that started in the financial markets is now burning through the rest of the economy.
These were the "most doleful set of jobs figures since the start of the recession", says John Philpott at the Chartered Institute of Personnel and Development. "Not only is unemployment back to where it was in 1997, but it now looks as though we're heading towards the worst outlook for jobs in the UK's postwar history. Full employment isn't just slipping away, it's sinking without trace".
Banking and retail are wrecked, and industrial production is collapsing, down 11.4% year-on-year - the biggest drop since the 1981 recession. And that's despite the huge fall in the pound over the last nine months, which is supposed to be making life easier for UK exporters. Yet the most recent trade figures showed our January deficit in goods and services climbing to its highest since last September as international sales dried up.
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So British firms will have to shed workers even quicker. Another million British workers at least will lose their jobs over the next two years as the slump "takes an unexpected turn" northwards, said Oxford Economics this week. The West Midlands, Wales and the North of England could take more than a decade to recover from job losses which will rival those in London.
And if you think that's bad, ex-PricewaterhouseCoopers partner David Waller, now non-executive chairman of recruiter Network Group, reckons the UK jobless total could double from here, i.e. to four million, in just 12 months: "I've seen tough times before but this time we've really driven ourselves into the worst recession and downturn I've ever seen".
More government borrowing and bigger tax bills are set to come
What does it mean overall? With up to two million households hit by a big income loss, much less will be spent in the shops - which are already suffering badly. And the housing market could implode. Repossessions have already soared, by 68% last year, but by the end of 2008, 377,000 homeowners had fallen behind with their mortgage payments, nearly a third more than at the end of 2007.
As my colleague Dominic Frisby pointed out yesterday: How far do house prices have to fall?, UK house prices are set to fall much further. This jobless surge can only provoke more forced selling, adding extra supply – just at the wrong moment – and intensifying a vicious downward spiral.
And what about the public purse? It's already full of holes, now that the government has bailed out brainless banks and lumbered British taxpayers with staggering levels of debt. Even officialdom admits that we're in for several annual government deficits of £150bn-plus, and a total public debt mountain well over £1 trillion – both by far the biggest ever. Capital Economics reckons next year's shortfall could be £200bn. Factor in the lost tax and National Insurance 'take' due to job losses, as well as all the extra welfare benefits that will have to be paid, and at least another annual £20bn will have to be found from somewhere.
Of course, that's just a fraction of what's been wasted on saving RBS and the Lloyds Banking Group. It would have been much better used in cutting taxes, and saving jobs in British industry. But now it's far too late for that. Sadly, all we can now look forward to in Britain is ever-higher government borrowing – and much bigger tax bills in the years ahead for those lucky enough to still have a job.
This week the Institute for Fiscal Studies warned that that public debt had already risen by £10,000 for every family in the country, and that it will take more than 20 years to pay off the debts being run up by the Government during the current crisis.
The value of the pound is collapsing yet again
And that was before the jobless figures. No wonder that the value of the pound – which shows what the world really thinks of this country – is collapsing yet again.
With the news that the US Treasury is now embarking on hardcore quantitative easing too (we'll have more on this on the website later), it looks like we're facing a race to the bottom in the currency markets. We can't be sure who'll get there first, but sterling certainly has to be a candidate. Gold has rarely looked like a more desirable asset to hold – just in case of emergencies, (read more on investing in gold here).
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