Unemployment is rising at its fastest level for two years, as the number of young people without jobs surges.
Figures from the Office for National Statistics indicate that the private sector is failing to create enough jobs to compensate for public sector job losses, a serious blow to the coalition government.
In a speech at the London School of Economics, Deputy Prime Minister Nick Clegg warned that the challenges facing Britain had “changed dramatically… worse, even, than just six months ago”.
The total number of jobless increased by 80,000 between May and June, the largest quarterly increase since the three months to August 2009. Economists had predicted a rise of around 70,000.
There are now 2.51 million people out of work (7.9 per cent of the economically active population). Unemployment among 18 to 24-year-olds has increased by 77,000 to 769,000.
The reality we face is stark. Deputy Prime Minister Nick Clegg
The number of people claiming jobseeker’s allowance in August increased by 20,300 to 1.58 million, the highest level since January 2010. Numbers in work fell between May and July by 69,000 to 29.17 million, the result of public sector job cuts.
Mr Clegg said the head of the International Monetary Fund, Christine Lagarde, was right to say last week that the global economy had entered a “dangerous new phase”, adding: “Far from a one-off shock, the banking crisis has set off a chain reaction that continues to reverberate around the globe.
“So the reality we face is stark; there is now little margin for error. But that does not mean we are helpless. It does not mean we intend to sit on our hands while the economy falters.” Mr Clegg said the government would back major infrastructure projects to stimulate the economy.
Employment in the public sector fell by 111,000 between March and June to reach 6.04 million, the largest fall since records began in 1999. In June, the public sector was responsible for 20.7 per cent of all people in employment, the lowest level since September 2008.
Average earnings rose by 2.8 per cent between May and July, up by 0.1 per cent over the previous month, with weekly wages now averaging £464. The increase was driven by higher bonuses in the financial sector.
The figures will worry the government, which is relying on the private sector to create jobs that the public sector is losing. In October 2010, 35 business leaders wrote to the Daily Telegraph giving their backing to Chancellor George Osborne’s spending cuts.
They wrote: “The private sector should be more than capable of generating additional jobs to replace those lost in the public sector, and the redeployment of people to more productive activities will improve economic performance, so generating more employment opportunities.”
A report from the think tank, the Institute for Public Policy Research (IPPR), says Britain faces a “long and difficult” path back to full employment, with up to two million jobs needed to return to pre-recession levels.
The report says that over the last 20 years, the public sector has been creating jobs because there were not enough opportunities in the private sector. It adds that this trend will now have to end because of government spending cuts.
We do not underestimate the scale of the challenge. Department for Work and Pensions
Tony Dolphin, from the IPPR, said: “Promoting a speedy return to full employment in the UK should be a priority for the government. There is little evidence to suggest the private sector will be able to meet the challenge over the next four years without help from government.
“The longer someone is unemployed, the less likely they are ever to return to work. If we are going to provide decent services for our ageing population and clear the deficit, we need as many people in work as possible to maximise tax revenues. We cannot afford to let people permanently drift away from the jobs market.”
A Department for Work and Pensions spokesman said: “We always said that the recovery would be choppy. We do not underestimate the scale of the challenge that we face to help people into employment.
“The government is committed to support the economy and encourage businesses to invest and create jobs. The new work programme is now up and running and will offer jobseekers flexible support tailored to their needs to help them into employment.”
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