The jobs motor refuses to turn

The Government believed that the private sector would compensate for public-sector job cuts. It has not happened yet

The private sector is not creating a sufficient number of jobs to offset the tens of thousands of posts that are being shed each month by the public sector, the latest official unemployment figures from the Office for National Statistics (ONS) show.

Public-sector employment fell to 5.99 million in the three months to October, the lowest level in eight years. Over the quarter, 67,000 public-sector jobs disappeared.

During those three months the number of people employed in the private sector increased by just 5,000. Since the third quarter of 2010, the public sector has shed 276,000 jobs. The private sector, on the other hand, has created just 262,000 new positions since last year. The result has been a jump in the number of unemployed to 2.64 million, the highest since 1994.

There was something of a puzzle in the ONS report. While it showed a drop in total employment by 63,000, it also suggested that there was an increase in jobs over the three months of 150,000. Two different things are being measured, of course: job numbers and people in work.

It is possible that the discrepancy can be explained, to some degree, by more Britons taking part-time jobs to make ends meet in addition to their regular employment. But it is rare for these indicators to point in such radically different directions.

"Although we have become used to inconsistencies in the ONS data, it's really difficult to know what to make of the labour market figures," said Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club.

"On balance, we're more inclined to believe the weak data [showing a drop in employment], which is consistent with a weak economy suppressing private-sector job creation and the public sector continuing to cut back."

Whatever the cause of the discrepancy, the broader picture is not encouraging for the Government. Chancellor George Osborne's plan when he delivered his emergency budget in June 2010 was for the public sector to shrink and for the private sector to expand. At the moment, only the first part of that plan is delivering. And the public-sector employment cuts thus far are only just the beginning. The Office for Budget Responsibility (OBR) estimates that 710,000 public-sector jobs will go in total by 2017. If David Cameron is to have a hope of election victory in 2015, the private sector job creation motor urgently needs to begin turning.

It is not just the Chancellor who overestimated the capacity of British businesses to create jobs and reduce unemployment over the past 18 months. In June 2010, the OBR forecast that the unemployment rate would, by now, have fallen to 8 per cent of the total workforce, despite Mr Osborne's record cuts to public spending. It estimated that 1.5 million people would be claiming jobseekers' allowance. Instead, the unemployment rate is now 8.3 per cent and 1.6 million are claiming the dole.

So how likely are things to improve? In its latest report, delivered last month, the OBR said its central forecast is for unemployment to rise to8.7 per cent next year, before falling steadily to 6 per cent by 2016-17. It expects the claimant count to peak at 1.77 million in 2013. But the OBR also included a less optimistic forecast in which unemployment rises to 9.6 per cent next year and 9.7 per cent the year after. That would imply a dole count approaching 2 million and, since a higher welfare bill would mean more public borrowing, a lethal blow to the Chancellor's deficit reduction schedule.

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