What is causing the UK jobs gloom and how will voters respond?
On the other hand, the labour market is showing signs of weakening, with fewer people in work and vacancies down – though unemployment is steady, at 4.7 per cent. We also know that the public finances are under pressure as we approach the Budget. Still, it's not all bad news…
Why is the jobs market weakening?
It is especially weak in more labour -intensive areas where the effects of the hike in employers' national insurance contributions and the higher minimum wage are being most keenly felt: pubs, restaurants, leisure and hotels. Smaller and medium-sized businesses are nervous about investing while larger players have been badly affected by Trump tariffs and a generally more unsettled world. Global pressure on costs has also stopped the Bank of England cutting interest rates as quickly as once hoped.
Behind all this is the more fundamental fact that the UK economy is still stuck in a post-Brexit, low-investment rut. It cannot grow rapidly enough to sustainably satisfy popular demands for improved living standards and better public services without higher taxes. Despite current trends, Britain didn't have either the quality or quantity of workers in the right places. These stubborn shortages push wages up and thus help to keep inflation high. This all means that wages, and demand in the economy generally, need to be suppressed to get inflation back to the two per cent target, even by 2027. In effect, taxes and interest rates have to be high enough to bear down on wage growth, given that there'll be no influx of immigrants to plug the gaps.
Not if you're looking for work, but if it shows inflation is coming down then that would be encouraging for the longer term.
Is it all down to Brexit?
Of course not, but, as in so many ways, it doesn't help being cut off from a ready and flexible supply of variously skilled, semi-skilled and unskilled labour, sensitive to movements in the labour market and without a clunky visa bureaucracy.
Why else are the jobs drying up?
Well, those employer NICs didn't help; and neither did the long-term British failure to train its workers. Looking forward, the pressures in the UK's economy will grow with an ageing population and unfavourable dependency ratio – fewer workers paying for the state pensions and care of the older generations. Thus in, say, 1971 only about one in eight of the population was over 65 – about 7.5 million. By 2022, even with a rising overall population, the over-65s comprised 27 per cent of the population, at around 22 million. So we now have fewer workers and more dependents – an even bigger problem if productivity isn't accelerating.
What could save us?
We could be rescued if cheap artificial intelligence and robotics live up to the hype; they could be transformative. And rejoining the EU would also help.
What are the politics of this?
Tricky. Britain's recent appetite for cakeism makes it hard for voters to face up to hard choices driven by iron factors such as population movement. Indeed, the distaste for immigration makes the economics of an ageing nation even harder to manage. Assuming the population continues to age, there is a certain built-in trade towards increased support for Reform UK and the Conservatives, at the expense of Labour, the Liberal Democrats and Greens. Introducing votes for the (relatively few) 16- and 17-year-olds won't make much difference to this. In such a dynamic, things such as the 'triple lock' on the state pension and paying for social care tend to work in favour of the older cohorts, at the expense of housing and education.
Much depends on whether the traditional rule that people tend to drift to the right in their politics as they age will still hold; some have suggested that this behaviour might have weakened. And at any time, an inspirational leader on the centre-left could make old folk vote Labour again.
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