Unemployment is about to rise – ministers must drop plans to cut Universal Credit

25 Sep 2021, 6:00

With the job retention scheme about to end, unemployment will increase, writes Duncan Melville

There is good news and bad news about unemployment from last week’s labour market numbers.   

The good news is that employment is growing strongly. The number of people in employment went up by 183,000 in the three months from May to July, according to the Labour Force Survey (LFS).  

That is the largest quarterly increase since November 2019 to January 2020.   

The timelier HMRC payroll numbers show an increase of 241,000 in the month to August – the largest increase ever on record.    

Vigorous employment growth can also be expected to continue. Job vacancies exceeded one million for the first time in June to August 2021, and data on job ads this month from ad-tracking website Adzuna indicate that vacancies remain high.   

Alongside this big demand for labour, both unemployment inactivity and working-age inactivity have dropped: down by 86,000 and 121,000 respectively in the three months May to July 2021.    

But although this is all very encouraging, we should not forget that employment remains much lower than it was before the pandemic.    

Admittedly, HMRC employee payroll numbers are back at pre-pandemic levels. But on the wider LFS and Office for National Statistics workforce jobs measures employment is down by over 700,000 and 800,000 respectively since the start of the pandemic. 

Full recovery will require supportive action from the government. Ministers need to develop a strong labour market policy to help individuals move back into work.

We also need a supportive macro-economic policy so the economy continues to grow.    

With interest rates at historically low levels, any efforts to reduce public debt levels also need to be for the future and not next month’s spending review.    

At the same time, the immediate outlook is highly uncertain because the Coronavirus Job Retention Scheme (CJRS) ends this month. We estimate about one million people will still be on the scheme when it closes.    

Many of these are likely to return to their existing roles. But some will inevitably lose their jobs, so a rise in unemployment seems highly likely.

The magnitude of this rise is uncertain, but some simple calculations suggest it could be in the range of 130,000 to 280,000 people.    

And whatever happens to overall unemployment, long-term unemployment has already risen substantially.

Many young people have drifted into long-term unemployment’

The number of young people aged 16-24 who have been unemployed for six months or longer is one-third higher than it was pre-pandemic.

Many young people were unable to find work in 2020 and so drifted into long-term unemployment.   

Meanwhile, for similar reasons, the number of people aged 25 and over who have been unemployed for a year or longer is up by nearly half since the start of the pandemic.    

FE colleges, alongside other employment and skills providers, can play an important role here.   

First off, college staff can support learners to develop their job search and interviewing skills as much as possible.   

Second, they can use their links with local employers to simulate employment opportunities for their learners, so learners are ready to hit the ground running.   

Third, colleges should ensure the range of provision they offer fits with the changing needs of local employers.   

Given this uncertain outlook, the government should also take note that now is not the time for the planned cut to the £20-a-week supplement to Universal Credit, which is due on October 6.  

Such a move would both increase poverty and unhelpfully reduce spending and demand in the economy.    

Government action in the form of the job retention scheme has prevented a catastrophe in the labour market. Much progress has been achieved in the past six months with substantial employment growth. But with employment levels still well below pre-pandemic levels, there is still much to do.   

To avoid undoing progress, ministers must provide the necessary employment support and not take premature actions to improve the public finances.

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