The Budget will include lots of rhetoric on all the “savings” Labour have made by keeping unemployment low.
Two caveats to remember:
1) savings just represent the need for the Treasury to borrow less than expected
2) they reflect revisions in the City’s average unemployment forecast, so it is basically a “bonanza” based on the confessed errors of City economists.
It is actually possible from the latest forecasts to come up with a rough estimate of what that “saving” will be this time around, as the average is the basis for the Treasury’s forecast spending on benefits.
Since the PBR in December the forecast for jobless benefit claimants has fallen from 1.9m to 1.72m for 2010 and 1.9m to 1.75m in 2011. In total between 2010 and 2015, the estimate has fallen by 700,000.
Using Yvette Cooper’s claim that reducing unemployment by 100,000 saves the exchequer £700m, this amounts to almost £5bn. This figure is on top of the £10bn she claimed was “saved” between the 2009 Budget and PBR (a saving which is already cooked into the books). In both cases, I expect the Treasury took a significantly less optimistic view.
Some of this “windfall” will no doubt be ploughed back into schemes to support employment. But, taken to an extreme, this political wheeze is unlikely to convince the markets. These savings after all just show that the government needs to borrow a bit less than it thought it had to.
Good news, but given the terrible state of the public finances, no license to rush out and spend the difference.
Jim Pickard
Kiran Stacey