Unemployment will peak at 2.8 million in 2010, according to the latest forecast from the Chartered Institute of Personnel and Development.
The business group said unemployment would continue to rise for the first six months of the new year, despite the recovery in the UK economy.
The forecast is more optimistic than previous predictions.
Indeed. Let us, for a moment, ignore the fact that the true number of unemployed in Britain is about double that number and consider the government's response to unemployment worries.
The 2009 Pre-Budget Report announces:
- an additional(1) 0.5% increase in the employee, employer and self-employed rates of National Insurance contributions from April 2011. However, the Government will also ensure that the 15 million people on income below £20,000 will not pay any extra National Insurance contributions.
Erm... Right, so the government's response to job losses is to tax jobs even further. Nice one. That section of the PBR website is entitled Helping People Fairly: hmmmm...
The median weekly wage up till April 2009 was £489, which is £25,428 per annum. So, helping people fairly is, in NuLabour's definition, raising taxes on those who are earning below the median wage. Nice.
Interestingly, the median wage in the public sector was £539 per week (£28,028 pa), widening the gap between the public and the private sector—in which the median wage was £465 per week (£24,180 pa).
Still, back to the PBR site and we find a nice little graph showing government spending for 2009–2010.
Wow! £676 billion—that's some pretty hefty spending. More than this last year at any rate. I guess that the government must be able to fund this lot, because they wouldn't want to increase the national debt anymore than they already have, would they?
So, tax receipts are projected to be £498 billion, which leaves a shortfall—or "deficit"—of £178 billion.
And this isn't due to get much better: the "structural deficit"—that bit that won't sort itself out as the recession ends—is, as Wat Tyler points out, now predicted to run at about 10% of GDP or about £150 billion per annum.
Not good: not good at all.
What this means is that our government needs to cut spending by £150 billion per year before we even begin to pay down the national debt. Or, of course, they could raise taxes by £150 billion per year (a pretty tall order) or meet somewhere in the middle.
Of course, a AAA-rated government can always borrow money, but it may not be at favourable rates. Right now, with interest on government-issued gilts and bonds paid at around 4%, debt repayments are around £35 billion per annum.
If the markets lose confidence that the debt will be repaid (if, for instance, the state lost its AAA rating) or they believe that the interest payments will not be sufficient to cover costs (if, for instance, inflation rises considerably) then we will find that interest needs to be paid out at more than 4%. In the 80s, interest on government-issued debt rose as high as 16%.
The situation because even worse when you consider the problems of borrowing from foreign depositors.