Unemployment soars – how much will it hit Labour at the polls?

News from Britain’s labour market looks grim: the worst unemployment rate for five years, with youth unemployment running at its highest since 2015. Wage growth is also slowing, although at 4.2 per cent, average earnings are still ahead of inflation and thus real incomes are growing.

It’s a gloomy scene and some aspects are even worse than at first glance. On the other hand, it could be worse…

Across most advanced economies, figures on unemployment, job creation and working hours have become less reliable since the pandemic disrupted working patterns and methods of data collection. It makes life harder for policymakers. In the United States, President Donald Trump even fired a top statistician – albeit mainly because he didn’t like the numbers anyway. But the broad picture is consistent with other economic data, including the slow progress to lower inflation.

In the background are the same factors that have continuously constrained the economy in recent years. Brexit continues to exert a malign influence on exporters, geopolitical turbulence adds to uncertainty – and Trump’s trade wars have made that difficult situation much wider and much worse. Slow growth has made it harder to manage the public finances so that tax hikes have hit growth and disappointed voters.

So far as jobs are concerned, yes. The unemployment rate for 18- to 24-year-olds is up to 14 per cent, an 11-year high (aside from the pandemic), while joblessness for 16- and 17-year-olds runs at 34.2 per cent, a little down on the last quarter. Numbers on “neets” – young people not in education, employment or training – will be released later this month and are unlikely to cheer anyone up.

Alan Milburn, former Labour cabinet minister, says young people are on a “downward escalator" of poor health, poor education, and graduating "into the benefit system" as adults. Thanks to student debt, unaffordable housing and the spectre of AI eliminating even more jobs, they compare their plight with the experience of previous generations, and draw their own conclusions.

In tough times, less experienced or established members of the workforce tend to do less well – last in, first out. But in recent times there are some special factors that have squeezed sectors of the economy where many young people have looked for their first jobs: notably, the labour-intensive leisure and hospitality sectors. Recent changes, under various parties, have made employers more reluctant to hire, including: hikes in employers’ national insurance contributions; increases in the minimum wage; enhanced employment rights; and changes to business rates on high street premises.

History tells us governments can still win general elections even in times of chronic unemployment, as the Conservatives did throughout the 1930s and early 1980s. The brutal calculation is that there will always be more people in work than out of it and much of the electorate doesn’t care about the problem sufficiently to punish a government that is delivering higher living standards for those in work. But unemployment isn’t at those historic levels, and it may well come down in the coming years as inflation returns to target and the Bank of England cuts interest rates. For those with a job and a mortgage things will be a little easier, even with tax thresholds frozen.

London, surprisingly, but that’s largely down to a more transient population. Otherwise, it’s the North East of England. A striking feature, in historical terms, is that unemployment in England (5.5 per cent) is nowadays higher than in Scotland (3.8 per cent), Wales (4.5 per cent) and Northern Ireland (2.2 per cent).

At the next general election, for the first time, 16- and 17-year-olds will have the vote and they’re not going to reward a government that they think is neglecting them. At present, the Greens, Liberal Democrats and Scottish and Welsh nationalists look to be the beneficiaries of this youthful disaffection.

However, this cohort’s electoral influence is far outweighed by that of their grandparents, larger in number and rather more likely to turn out to vote. It’s difficult to see the outlook for the rising generation improving much for some years to come.