Ministers fear recovery will fail to reduce unemployment

Government draws up plans to try to stave off 'job-lite' return to growth
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Indy Politics

Ministers are urgently drawing up measures to try to prevent a "job-lite recovery" in which unemployment continues to rise even when the economy starts to grow again.

Official figures due out today are expected to show that unemployment has risen to about 2.5 million. There are growing fears that it will remain above two million by the end of 2010.

A Back to Work White Paper will be published alongside the pre-Budget report in November. Although the Chancellor, Alistair Darling, will spell out the first of the spending cuts promised yesterday by Gordon Brown, he is also expected to expand programmes to combat unemployment.

The White Paper will include new opportunities for the young jobless, to prevent the recession creating a "lost generation", help for older people who have been out of work for more than six months, those on long-term sickness benefits and the mentally ill, and a boost for childcare to enable more mothers to return to work.

Ministers hope the measures will prevent a short-term economic crisis from leaving "long-term scars", as it did in the downturns of the 1980s and 1990s. Yvette Cooper, the Secretary of State for Work and Pensions, told The Independent yesterday: "Unemployment in the 1980s was over two million for most of the decade. In the 1990s, the Tories pushed over a million more on to long-term sickness benefit. Both cost billions of pounds."

The most effective way to reduce the deficit in public finances would be to reduce unemployment "further and faster" than in previous recessions, Ms Cooper argued, saying: "Almost £700m is saved for every 100,000 people who come off the dole. Labour believes that investing now to prevent long-term unemployment will save more money once the economy is growing strongly again."

Ministers will contrast their new "investment" in jobs with Tory plans to cut spending immediately, warning this would put recovery at risk. In another reminder that job losses will continue, the defence contractor BAe Systems announced the loss of 1,100 jobs.

Meanwhile, central bankers on both sides of the Atlantic tempered optimistic remarks about a return to growth with warnings that unemployment would carry on rising.

Ben Bernanke, the chairman of the US Federal Reserve, said the worst American recession since the Great Depression was probably over, but the recovery would be slow and it would take time to create new jobs. "Even though from a technical perspective the recession is very likely over at this point, it's still going to feel like a very weak economy for some time," he said.

Mervyn King, the Governor of the Bank of England, told the Treasury Select Committee that, even though Britain's recession might soon be technically at an end, unemployment would continue to climb.

Mr King said falls in output had mostly come to an end and the UK was "beginning to see some very small signs of positive growth". However, he cautioned that there was a long way to go before production returned to where it had been before the crisis. The strength and sustainability of the recovery were still "highly uncertain", he added.