Pre-Budget Report may not be enough to save jobs

The government’s Pre-Budget Report may not save any jobs in the long run, an expert has warned.

Chancellor Alistair Darling yesterday announced a £1bn Small Business Finance Scheme to ease the effects of the credit crunch on employers and safeguard jobs, and reduced VAT from 17.5% to 15% from next week.

But John Philpott, economist at the Chartered Institute of Personnel and Development, said that there is a danger the package wouldn’t be able to stem the flow of current job losses, and may hinder job growth when the economy eventually picks up again.

“Even if the Chancellor’s slightly optimistic growth forecasts are correct, his own expectations of a slowdown means job losses are certain to mount next year,” said Philpott.

“With the bill so clearly in the post, including a hike in national insurance contributions for employers and employees just as the economy is expected to be recovering, there is also a real danger that this budget may do as much to slow medium-term jobs growth as it does to slow short-term job cuts,” he said.

The Report said an announcement will be made “shortly” by the department of Business, Enterprise and Regulatory Reform, the Department for Work and Pensions, and the Department for Innovation, Universities and Skills that will offer greater support for those facing redundancy.

More than £225m will be made available for training and advice services, including nearly £80m through programmes like Train to Gain.

Brendan Barber, TUC general secretary, said:

“We welcome the significant extra cash that Alastair Campbell has put into the pockets of low and medium paid workers, and the extra help for pensioners. Business has also received real assistance through investment in infrastructure, new credit for smaller firms and help for housing which will bring some relief to the heavily depressed construction sector.”

“However, we are disappointed that the government has still not met its manifesto commitment to increase redundancy pay, and that the two-year time limit for help with mortgage payments remains.”

“And at a time when there is going to be more demand on public services, we do not accept that there are easy efficiency savings that can be achieved without damaging public services.”

Martin Temple, chairman of EEF, said:

“The government had to meet three criteria with this statement in terms of being temporary, targeted and timely. It has gone some way towards meeting the first two of these with a range of measures to help business cashflow.”

“It is essential that government takes action to ensure that the acceleration of capital spending is carried out quickly and is directed towards ensuring that UK based companies benefit. It is also vital that pressure is maintained on the banks to deliver support for lending. But business will be asking if this goes far enough and if it can be delivered in a timely fashion.”

Andrew Smith, KPMG’s chief economist, said:

“The Chancellor hopes the package will ensure a relatively shallow and short-lived recession. However, the economy still faces powerful contractionary forces in the shape of widespread recession abroad, and at home falling house prices and stock markets, blunted monetary policy as banks constrain lending and rock-bottom business and consumer confidence.”

“If this package fails to kick-start the economy, further expansionary measures can be expected in next year’s budget proper.”

Gary Harley, indirect tax partner at KPMG UK, said:

“On the face of it, the proposals look good for the consumer and certain organisations, but overall business will carry much of the burden of dealing with this change in rates. This is good news for businesses that can’t recover VAT such as universities, charities, housing associations, nursing homes, banks and insurance companies as it represents an overall reduction in costs.”

“For businesses generally, they will have to bear two sets of systems changes, when the rate goes down and then returns to 17.5% in January 2010. These changes are expensive, time consuming and are coming at most businesses’ busiest time of year.”

Stephen Robertson, director general of the British Retail Consortium, said:

“Businesses require certainty. It makes me nervous that the Chancellor has announced several major changes which are only temporary but these are unusual times. With inflation under control, the Chancellor is right to seek to help customers and put the economy back on course to stability.”

“Retail employs nearly three million people, 11% of the workforce. In 2011 the Chancellor believes we will just be emerging from recession [but will raise national insurance contributions]. This seems an extraordinary time to be increasing this tax on jobs.”

David Coats, associate director of policy at The Work Foundation, said:

“This was an emphatically business-friendly package of measures, but one which contained some more modest good news for those of us urging the Chancellor to take decisive action over the worrying recent rise in unemployment.”

“The £3bn capital spending on housing, schools and so on is very welcome and is likely to create jobs. The £1.3bn going to JobCentre Plus, the New Deal, and schemes such as train to gain, are essential in configuring the system for a period of higher unemployment.”

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