New ONS figures reveal that unemployment has risen faster than City economists had forecast to 5% in the third quarter of the year, up from 4.8% in the last quarter. This means that there are now 1.8 million people unemployed across Britain. The overall rate of unemployment is the highest it has been for nearly five years. Most worryingly, there are now an additional 110,000 people who have been unemployed for over 12 months. The country has had the joint-fastest increase in unemployment in the G7 over the past year, tied with Canada.
Economists observe that the increase in national insurance contributions and speculation over future tax increases has reduced hiring. Whether Chancellor Rachel Reeves intended it or not, tax rises combined with the Employment Rights Bill are squeezing the labour market and reversing decades of policy that sought to create jobs regardless of quality.
This shift is undoubtedly the right one. The “British jobs miracle” of the 2010s was not a miracle at all. Employment rose, but in low-productivity areas. Since 2010, for example, the country has created over 750,000 jobs in the hospitality sector and lost 15,000 jobs in manufacturing. One out of every five jobs created since 2010 has been in health or social work. Worse still, since the pandemic, hospitality and health jobs have actually become less productive. These jobs are also not cost-free for the state. Spending on in-work benefits has increased by billions over the past decade, and is set to rise further.
While a transition towards more productive, higher-paid jobs is essential, the lesson from the Eighties is that destroying jobs does not necessarily create new ones. The mass unemployment of that decade stemmed not just from the failed monetarist policies crushing domestic industry, but also from the ideological belief that new jobs would appear if space was cleared. Public investment programmes fell dramatically, and a lack of state support meant that new industrial jobs did not come to replace the old.
Fast forward to 2010, and George Osborne had the same belief, which economists called “expansionary fiscal contraction”. Like Margaret Thatcher, they believed that the state had to get out of the way of the private sector; accordingly, public investment fell sharply again. However, whereas Thatcher’s monetarism kept interest rates high, Osborne was helped by ultra-low interest rates and quantitative easing that pumped money into the economy. Productivity and pay did not significantly increase, but at least jobs were created.
Reeves knows that the era of cheap money is over, so an Osborne-style jobs boom is not on the table. A private-sector investment boom also seems unlikely. There is actually less lending to businesses today than there was in 2010, according to the Bank of England, despite the economy being 60% bigger in cash terms. Weak domestic growth combined with global geopolitical instability means that private-sector investment has been flat in recent years.
The Government has an industrial strategy, but the financial firepower to deliver it is still not on the table. Adding up all the policies promised so far, spending is around £20 billion a year, or just under 2% of the UK’s total budget and less than 1% of GDP. The only area which seems to be receiving significant investment, the low carbon economy, has been flatlining. Britain needs a broader strategy than just low-carbon jobs. It also needs levels of state investment in regional and industrial policies to be five or six times higher than planned. This will be tough, and it means channelling any extra tax revenue into regeneration programmes rather than giveaways.
One danger is that the UK slips into a second Eighties-style unemployment slump, where existing jobs are made unviable due to tax rises and tighter monetary conditions. This yielded a social and cultural legacy. Communities which had been the bedrock of the country’s industrial power were left behind, and many have struggled to recover since then. The latest Index of Multiple Deprivation shows that the places which were deindustrialised are still trapped in cycles of deprivation.
The difference between now and the Eighties is that we know what happens if the state retreats from the jobs market. No jobs or low-quality jobs are the result. The Chancellor has overturned the post-Thatcher consensus, but she needs to be much bolder if she wants to reap the rewards. The economy does not stand still and the longer she waits, the bigger the shadow of structural unemployment grows.