Full employment by 2001 is on the cards

The Chancellor of the Exchequer last week promised a return to full employment. A new report claims this point could be reached by 2001, thanks to Conservative economic reforms.

"Full employment is not yet in the bag," said Douglas McWilliams, of the Centre for Economics and Business Research (CEBR). But his consultancy's latest forecast predicts that joblessness will fall to 1.1 million, or 3.9 per cent of the labour force, by the end of 2001.

Given the usual margins of error, that implies a fair chance of unemployment falling below the 1 million mark for the first time since 1975.

The centre has become more optimistic about the level of unemployment that can be achieved without kindling inflation, which is how economists define "full" employment. Professor McWilliams says: "The UK's economic structure has improved and the labour market has become more flexible in the past 20 years."

Figures due next week are expected to show a further drop in the headline number of people claiming unemployment benefit in September. The total declined for the 18th month running in August, dropping by 48,600 to just under 1.5 million. Yet the latest earnings figures show pay growing at a modest annual rate of 4.5 per cent in July, having drifted upwards only gently during the past two years.

The CEBR forecasts a drop of 400,000 in the number of people without work during the next four years. But this optimistic outlook assumes the Government continues to be lucky in facing no external inflationary pressures.

Gordon Brown deserves praise for not only sticking to the previous government's anti-inflationary policy but also enhancing it by making the Bank of England independent, the report says. On the other hand, it claims Labour's new policies, including the windfall tax-funded welfare-to-work schemes, signing the European Social Chapter and national minimum wage, will tend to raise rather than reduce joblessness.

According to Professor McWilliams, if Mr Brown does claim the credit for full employment, "in his heart he will know that his predecessors have been largely responsible".

-Diane Coyle