March's labour market statistics suggested a slow-down in the performance of the labour market. Therefore, the onus was on the Chancellor to provide measures to ensure the recovery in employment continued.
The most eye catching measure was a new Employment Allowance which will reduce firms National Insurance bills by up to £2,000. This applies to all firms rather than just those creating jobs - this makes it very costly. The problem with this type of policy is that much of it is ‘deadweight’, with employers being subsidised for things that they would have done (or have already done) anyway. Much of the Employment Allowance is a subsidy for jobs which have already been created.
The OBR’s measured assessment of the policy is that it ‘could marginally boost labour demand’. This hardly sounds like a ringing endorsement of the extent to which it will support labour market progress.
Yet there are real concerns about a potential downturn in the labour market. The forecasts from the Office for Budget Responsibility (OBR) which accompanied the Budget do not make for happy reading. Unemployment numbers are predicted to rise through 2013 and 2014, and real wage growth is predicted to be negative in 2013. Youth unemployment also remains a major concern and has been rising again in recent months. Set against this context, it is difficult to escape the conclusion that more targeted measures on employment would have been a better option to the blanket National Insurance cut for firms.
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