UK unemployment surges! – while IFS predicts debt to GDP of 110%

Tate galleries workers at a rally fighting 313 sackings

THE UK unemployment rate has surged to its highest level in over three years to 4.5% in the three months to August, compared with 4.1% in the previous quarter.

Redundancies rose to their highest level since 2009, the Office for National Statistics (ONS) said.

The bad news came as the Johnson government prepared to impose tough local lockdown rules that will force some businesses to close, potentially leading to more job losses.

According to the ONS, an estimated 1.5 million people were unemployed between June and August, while redundancies stood at 227,000.

Jonathan Athow, the ONS’s deputy national statistician for economic statistics, said there had been a ‘sharp increase’ in those out of work and job hunting since March.

‘Overall employment is down about half a million since the pandemic began and there are particular groups who seem to be most affected, young people in particular,’ he told the BBC’s Today programme.

Of those out of work, about 300,000 are aged 16-24, so about 60% of the fall in employment … that’s really disproportionate, said Athow.

The number claiming work-related benefits, meanwhile, hit 2.7 million in September – an increase of 1.5 million since the beginning of the crisis in March.

Meanwhile, The Institute for Fiscal Studies (IFS) has said that tax rises of more than £40bn a year are ‘all but inevitable’ to protect UK government debt from spinning out of control.

Borrowing this year will hit levels not seen in peacetime due to the pandemic the think tank warned.

The state has pumped an extra £200bn into the economy to support jobs, businesses and incomes this year.

This was necessary but would mean big tax hikes into the middle of the next decade, the IFS said.

To pay for the services it provides, the UK government borrows from pension funds, insurance companies and investors around the world, then tries to balance its books through taxes.

But in an update originally meant to accompany the Chancellor’s now scrapped Autumn Budget, the IFS said this would become harder as the crisis rolled on.

It said the economy was forecast to be 5% smaller in 2024-25 than was projected back in March, which would leave the country with a £100bn hit to its finances from lower tax revenues.

At the same time, it said ‘higher borrowing will be with us for some time to come.’

The government will not, as the Chancellor promised just a week ago, ‘always balance the books’ and the Conservative manifesto commitment on lower debt is impossible, says the IFS in its annual audit of the public finances.

Annual government borrowing this year will reach levels only previously reached during world wars, while the national debt will be bigger than the economy, reaching 110% of GDP by 2025.

Paul Johnson, director of the IFS, said the government had no choice but to ramp up spending in the short term, and there was little it could do ‘to fully protect the economy into the medium run.

‘We are heading for a significantly smaller economy than expected pre-Covid and probably higher spending too.’

The think tank said it expects debt will be just over 110% of national income by 2024-25. This would be up from 80% before the pandemic and 35% in the years leading up to the 2007-08 financial crisis.

It also warned any increase in rates could, if not accompanied by stronger growth, be ‘hugely problematic for the public finances’.

The forecast comes as the UK economy remains under stress. In an accompanying analysis, Citibank said every major economy bar China shrank in the first half of this year, mostly by historically large margins.