Treasury hasn’t done its maths on filling the jobs gap

Our guest writer is Dr Faiza Shaheen, researcher on economic inequality at nef (the new economics foundation) and author of Filling the Jobs Gap

The employment figures released today show a small decline in the number of people unemployed in the UK from just over 2.5 million to 2.46 million. However, looking forward six months from now, when spending cuts are felt in local communities, unemployment figures are likely to be on the rise again, especially in the most deprived areas.

The government is banking on the growth of the private sector to offset the expected decline in the public sector. To help encourage this growth and boost jobs, the Chancellor, George Osborne, introduced an employers’ National Insurance contributions (NICs) waiver for new businesses in regions outside London, the south east and the East of England in his recent Budget.

Our new report, Filling the Jobs Gap, however, reveals that the Treasury hasn’t done its maths. The likely job creation to be created from such a tax break is not even close to the size of the current jobs gap – that is, the difference between the size of the working age population and the number of jobs – which was already 5 million at the end of 2008.

Our research found that for every 100 people able to work in the North East, there are only 72 jobs. Whereas in the South East, there are 86 jobs per 100 people able to work. In Birmingham alone, an extra 124,000 jobs are needed – even before we take into account the job losses from cuts to public services.

Trends show that new enterprises are much less likely to succeed in the most deprived areas, and where they do stay open they are likely to be micro businesses – employing less than ten people, and more often only one or two.  Relying on these companies to absorb both those already out of work, and those likely to fall out of the public sector is unrealistic.

Instead, what is needed to rejuvenate some of these economies is a major investment in new green collar jobs. An investment of £550 billion is needed to ensure we reach our carbon reduction targets by 2020. Government can be smart in how it spends this much-needed investment to maximise the number of jobs and rebalance the economy to regions outside London and the South East.

In a recent report questioning the value of huge public spending cuts, nef calculated the potential environment and employment outcomes of a £10 billion investment. It found an investment of £10 billion could re-skill 1.5 million people, bringing 120,000 people back into the workforce, and increasing the earnings of those with a low income by a total of £15.4 billion.

In the short term, the Government must at least consider the spatial impacts of any austerity measures, protecting jobs in those areas where a private sector is unlikely to emerge. If they fail to do this, cuts now are likely to be counterproductive. A loss of jobs in the public sector without any to replace them will undoubtedly result in increased welfare bills, a demise of already deprived areas and may also contribute to a double dip recession.

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