Leading article: The pain is only beginning

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The Independent Online

Perhaps the cruellest aspect of any recession is the toll it takes on ordinary workers and households. And the pain, it would appear, is already beginning. Official figures yesterday revealed that unemployment has registered its biggest rise for 17 years. And some economists estimate that the jobless figure could be as high as 2 million by the end of the year.

The first thing to note is that this is going to be expensive for all of us. Welfare payments already eat up a good proportion of government spending. Now they are going to have to rise merely to keep the newly unemployed from destitution. The public sector balance sheet, already ravaged by a colossal banking rescue, is not going to feel any respite soon.

The second thing to note is that the Government seems rather ill-prepared to deal with rising joblessness. Its present unemployment reduction policies are based on an assumption of strong economic growth. The focus has been on cajoling the long-term workless back into a booming job market. Now the job market is not booming, but contracting. Productive people will be out of work because their companies have had no choice but to lay them off. The challenge for ministers is how quickly they can adapt to these new circumstances.

There is some small comfort available. The increasing departure of workers from eastern and central Europe, as the job opportunities here in the UK diminish, will ease job market pressures. It also seems unlikely that there will be significant pressure for private sector wage rises in the present precarious economic circumstances. People will be more concerned with keeping their job than pushing for a pay rise.

But expect the Government to be called upon to pull some large economic levers in the months to come. There will be demands for ministers to lean on the Bank of England to cut interest rates; to use the newly nationalised high-street banks to support jobs; to roll out capital spending projects. The Government would be wise to keep these options open. This is no time for economic dogma.

Equally, we should not be under any illusions. This process is going to be painful no matter what ministers do. In the end, the best most of us can hope is that the recession will not be too deep and that the labour market reforms of the past two decades will help to propel us into better times.

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