This is an AAA disaster created by George Osborne

The Chancellor's incompetence is clear from the employment figures. Despite all the Coalition's claims to the contrary, young people in particular are suffering needlessly

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In February 2010, just before the general election, the then shadow Chancellor, George Osborne, gave a speech promising to implement a new economic model that would bring Britain “a bright future”.

He set out benchmarks for economic policy, the first of which was maintaining Britain’s credit rating. He said: “In order to bring some accountability to economic policy, I have set out eight benchmarks for the next Parliament against which you will be able to judge whether a Conservative government is delivering on this new economic model. So we will maintain Britain’s AAA credit rating.”

I bet he wishes he could have those words back! I intend to keep him to his word because on Friday, for the first time in our history, Moody’s downgraded that cherished top credit rating. They couldn’t even wait to hear what was in next month’s Budget.

Blame game

Now is not the time to blame Labour or the weather or the Jubilee. This is a disaster created by George Osborne at No 11 Downing Street. The scary thing is that the Chancellor looks like a deer in the headlights and has no idea what to do. My suspicion is that there may well be a further UK credit downgrade later in the year if growth disappoints and we enter a triple dip.

Before the AAA loss, the Coalition had been making great play of the strong employment figures. But let’s look at the nitty gritty. Though the UK has had twice as large a drop in output as the US, the fall in total employment and in the employment rate in the UK has been much smaller. Nobody really understands why.

The performance of countries in terms of changes in the employment rate is reported in the table below for 15 countries ranked by the change in the rate since the start of the recession in 2008Q1 as well as from 2010Q2 when the Coalition was formed. Germany, Switzerland and Japan are the only countries that have seen increases since 2008. Portugal, Ireland, Spain and Greece have seen a collapse in employment rates that shows no sign of stopping. The UK is in the middle of the pack and has seen some rise under the Coalition.

Yet despite all the claims from the Coalition about the numbers of jobs created, the proportion of adults aged 16-64 that are employed is 1.5 percentage points below the level at the start of the recession in 2008 as well as in every month for the previous decade. In fact the number of employed in December was down 21,000 compared with November (29,777,000 and 29,756,000 respectively). Since the start of 2008 the size of the population age 16 and over is up 3.6 per cent.

There is a big difference in the numbers employed based on national origin; there has been an increase in employment of nearly 600,000 since the spring of 2008 of people born outside the UK. Of special note is an increase of 200,000 workers from A8 countries – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. Since 2005 the number of workers from these countries is up by around 600,000. They came to the UK because they could; they were not allowed to go to the other EU countries and couldn’t claim benefits and so they came to work.

The number of employed born in the UK is down by nearly 350,000 over the same time period. Note that the employment rate of people from the A8 is 79.4, compared to 72.5 for the UK-born.

Part of the discussion at the Institute for Labor conference in Bonn that I attended last week was where the Bulgarians and Romanians are likely to go once restrictions are lifted on where they can locate in April. The analysis suggests that they will go to places where the opportunities are the greatest, so expect them to go to Germany, Austria and the Netherlands; not the UK. We found little or no evidence in any country of welfare benefit shopping; the Eastern Europeans want work.

There was some worrying evidence on the young in the latest ONS labour market release. The number of young unemployed increased again, and of particular concern was that the number of unemployed aged 16-17 increased by 8,000. In addition there was an increase of 15,000 in the 18-24 age group who had been unemployed for at least a year.

Idiots in charge

These are precisely the people the Work Programme (WP) was supposed to help. It was introduced in June 2011 to help long-term unemployed people move off benefits and into sustained employment. Its cost is estimated at £3bn to £5bn over five years. For its first 14 months of operation (to July 2012) it fell well short of expectations.

The Public Accounts Committee last week reported that only 3.6 per cent of claimants on WP moved off benefit and into sustained employment, less than a third of the 11.9 per cent the Department expected, and well below the Department’s own estimate of what would have happened if there had been no WP running at all.

Individual WP providers’ performance in helping claimants into employment varies widely, but not one of the 18 providers has met their contractual targets. The MPs warned that, given the poor performance, there was a high risk that one or more providers would fail and go out of business or have their contracts cancelled. Of 9,500 people moved off disability benefits and on to the flagship WP, just 20 have found a job lasting more than three months.

Margaret Hodge, chairwoman of the Public Accounts Committee, argued that the performance of the WP “has been extremely poor … The programme is particularly failing young people and the hardest-to-help”. Unlike the previous government’s Future Jobs Fund and the Educational Maintenance Allowance, which did work, the WP is not. Indeed, the WP may actually harm people.

The employer didn’t know the job applicants were long-term unemployed until the DWP told them. With idiots like the Coalition in charge, it’s no wonder young people are still getting a raw deal.

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