That’s what many economists believe might happen if the UK’s rate of GDP growth continues to slow. A full blown recession is defined as three successive quarterly periods in which economic growth turns negative. Although this seems unlikely, a weak level of GDP growth might not be sufficient to keep job creation going.
The melt-down in the Far East has caused the value of many tiger economies’ currencies to halve. It may reduce the cost of imported consumer goods. But it could also bring inward investment into the UK to a shuddering halt.
Meanwhile, Ministers have warned that a rise in earnings might undermine continued recovery. At 4.75%, average wage rises are plainly higher than inflation, but improvements in unit labour costs mean that productivity gains are still outstripping wage rises.
This possible weakening of the economy compounds the effects of a key Government decision taken just days after the election. At the time, handing the operational control of interest rates to a more independent Bank of England was a masterly stroke. It reassured the markets to an extent that will have been the envy of Labour Chancellors from previous generations. But the Bank’s deflationist hawks have hiked up interest rates and boosted Sterling to levels that make exporters wince. And these are just the conditions that plunged Britain into deep, "home-made" recessions in 1980 and 1990.
The signs are a little ominous. Business confidence has been falling sharply in recent months according to the CBI. Confidence is a fickle commodity and businesses claim they are facing a cocktail of fears: higher commercial taxes, the national minimum wage, interest rate rises, an overvalued pound and even the millenium bug.
Smaller firms are the gloomiest. And this could be a serious problem for the Government’s welfare to work ambitions.
By the end of this year, we estimate that private sector employers will need to supply at least 30,000 vacancies for New Deal jobs. And because these jobs are meant to last, employers may well have to come up with another 30,000 or so within another 6 months. This may not happen if the economy turns downwards. It certainly will not happen if a recession makes firms start laying off workers. As the "Employer Agreements" between companies and the Employment Service make clear, the Government subsidy will be clawed back if a company is found to have substituted regular employees with New Dealers.
Welfare to work is plainly the Government’s flagship policy. Its modernist mix of self help and State support defines the New Labour project. And to make Gordon Brown’s economic theory a reality, there has to be a substantial shift from "remedial" spending, like social security, to "renewal" spending like education, infrastructure investment or even preventative medicine. If the economy turns sour, welfare to work will fail. Either it will have to fall back on make-work (the Australian experience) or because, in a deteriorating economy, it will become a deeply punatitive, US style workfare regime, rather than a social democratic rescue strategy for Britain’s poor.
Unemployment Unit & Youthaid
We are pleased to anounce that the Unemployment Unit and Youthaid have amalgamated. Although previously two separate legal entities, both organisations have worked in continuous, close cooperation since 1989. Indeed, the Unit was founded in 1981 by Clare Short as a spin-off from Youthaid when she was its Director. So the historical provenance of merger is good. And like any commercially driven merger, this combination yields obvious logistical, business, financial and fundraising benefits.
But there is a stronger logic behind the merger. It is an understanding of the political situation.
The election of a new Government has transformed the political scene and placed labour market exclusion at the forefront of policy debate. Of Labour’s key election pledges, "welfare to work" has rapidly emerged as one of its absolute flagship policies. But the new Government makes no categoric distinctions between youth and adult labour market exclusion. Instead it has a strategy which views the labour market in a holistic way and treats the different types of exclusion or disadvantage as symptoms of market failure, Government mistakes or individual dysfunction.
So, our new organisation will capitalise on strong technical expertise and our extensive networks of connections - particularly at the local level. We propose to build a new organisation which adopts a comprehensive and single minded purpose to tackling both youth and adult labour market exclusion.