Last updated: March 31, 2014 9:29 pm

George Osborne shifts Tory focus to ‘full employment’ in UK

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George Osborne speaking in Tilbury, Essex, on Monday©PA

George Osborne speaking in Tilbury, Essex, on Monday

George Osborne has targeted “full employment” as the goal of a future Conservative government, as he attempts to redirect his party’s core message away from the focus on deficit reduction.

The chancellor told an audience in Tilbury, Essex, on Monday that “it’s all about jobs”, in an upbeat speech on the economy targeted at working class voters who will help to determine the next election.

Although Mr Osborne insists that eliminating the deficit remains a top priority, he wants to broaden the Tory economic message to cover jobs, welfare reforms, tax cuts and immigration control.

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What is full employment?

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George Osborne has made a pledge to restore Britain to ‘full employment’, but what does he think that constitutes?

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The Bank of England and the Office for Budget Responsibility, Mr Osborne’s independent forecasters, both deem “full employment” to be when the jobless rate is at about 5 per cent. The rate in Britain this month was 7.2 per cent.

The chancellor, however, redefined the target as meaning that Britain would “have more people working than any of the other countries in the G7 group”.

Mr Osborne argues the 5 per cent target is vulnerable to cyclical variations and that an employment comparator with other rich countries was a better measure. “Unlike Gordon Brown, we don’t claim to have abolished boom and bust,” said one aide.

While the chancellor hopes to beat other G7 countries in terms of getting people into jobs, Britain’s workers have a woeful productivity record compared with those in other rich countries.

International comparisons released by the Office for National Statistics show that output per hour worked in the UK is 21 per cent lower than the average for the other six members of the G7 – the US, Germany, France, Italy, Japan and Canada.

Output per hour worked in the UK – the standard definition of productivity – has fallen at an annual rate of 0.8 per cent since 2008, having risen every year at rates close to 2.5 per cent over the previous 40 years.

While some other countries, notably Germany, have also experienced faster employment than productivity growth, none has seen output per hour fall as in the UK; nor have other authorities been confounded so often with incorrect forecasts that productivity growth was about to bounce back.

The rapid rise in employment with jobs at a record level and participation in the labour market rising has had economists stumped for a clear answer because output, tax revenues and living standards have not followed where jobs have led.

Such has been the disconnect between the buoyant labour market and the slow recovery since 2010 that the Bank of England stopped assuming a rapid bounce back in productivity growth in its February forecasts.

Nevertheless, Germany has shown that the rise in employment rates can be substantial, with the proportion of Germans in work increasing from 65.5 per cent in 2005 to the top of the league position of 73.3 per cent in 2013, not far ahead of the UK rate of 71.2 per cent. Mr Osborne’s speech, delivered before the start of a new tax year on April 6, claimed that he was introducing “the biggest reduction of business and personal tax in two decades”.

Ed Balls, shadow chancellor, will on Tuesday proclaim that Labour is “pro-business but anti-business as usual” in a speech to the British Chambers of Commerce, intended to address claims the party is turning against enterprise.

He said Labour would not put Britain’s EU membership at risk on an “arbitrary timetable for a referendum” and said the party would “back enterprise, support innovation and ensure great ideas and risk taking are valued and rewarded”.

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Ambitions echo postwar policy

Placing full employment at the centre the a Conservative chancellor’s ambitions rekindles memories of the end of the second world war, writes Chris Giles.

Politicians of all parties then accepted that a primary responsibility of government was “a high and stable level of employment after the war” through the maintenance of strong demand for goods and services. Postwar full employment was initially so successful that the state did not collect proper data on unemployment rates. The proportion of people out of work in the 1950s and 1960s has subsequently been estimated at 1-2 per cent and the shock was palpable in the late 1960s when rates began to rise.

The inability of the state to maintain full employment without inflation in the 1970s led to the ditching of the commitment.

Economists came up with a new definition of full employment – the non-accelerating inflation rate of unemployment, or the natural rate – that cautioned against overuse of stimulus policies for fear of stoking inflation. The Bank of England and Office for Budget Responsibility estimate these rates to be about 5 per cent, compared with the current rate of 7.2 per cent.

But George Osborne is pioneering his own definition and wants the rate of employment in the UK to be more than in other members of th G7 group of leading economies for all people aged 15 to 64.

This is a challenging target as Britain currently lies fourth – behind Germany, Canada and Japan with the US, France and Italy trailing – with a rate of 71.2 per cent, according to the OECD the Paris based group of countries that aims to promote sustainable growth.

When Gordon Brown was chancellor, Britain was close to top of this league.

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