Budget boosts for the labour market, but will they cut unemployment?

Press Releases

20 Mar 2013

A number of measures in today's Budget are likely to further boost employment growth, particularly in the private sector. However, it is unclear whether they will have a significant effect on economic growth and therefore lead to sustained falls in unemployment particularly among young people.

Commenting on the implications of today's Budget for the labour market, Jim Hillage, Director of Research at the Institute for Employment Studies says:

‘Employing people is made cheaper through a number of measures in the Budget, including:

• A new Employment Allowance that will reduce employers' National Insurance payments by up to £2,000 per employee from April 2014;
• A new Tax-Free Childcare scheme worth 20 per cent of childcare costs up to £6,000 per child per year to be introduced from April 2015.

‘These measures are likely to further contribute to the continuing growth of employment, particularly in the private sector. Figures announced today show that over the last year, private sector employment has risen by over 700,000 in both services and manufacturing, while public sector employment has fallen by over 110,000. Looking ahead, the latest Economic Outlook from the Office of Budget Responsibility forecasts that employment will continue to rise steadily to 30.5 million by 2017.

‘However, unemployment is also expected to continue to rise over the next year and the budget contained little to directly reduce rates of youth unemployment in particular, which returned to a worryingly upward trend in today's labour market figures.

‘Unless specific measures are taken, youth unemployment will not start to fall significantly until growth returns to the economy. A fiscally neutral budget is unlikely to alter the overall economic outlook. In these circumstances, the Chancellor may have missed a trick by not targeting the new Employment Allowance at the under 25's.’

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The Institute for Employment Studies is the UK’s leading independent, not-for-profit centre for research and evidence-based consultancy on employment, the labour market, and HR policy and practice.