Until a few months ago, business was booming at Mindon Tiling, a 26-year-old
family business that Mark Pugh started with his wife at Stourbridge in the
West Midlands. Thanks to the housing boom of the past decade, the company, a
contractor to homebuilders, was very busy.
Then everything changed when the housing market shuddered to an abrupt halt
this year.
“We were aware from January and February that there was a downturn and it
continued to worsen into late spring and early summer,” said Pugh. The
tipping point came last month when one of his biggest clients defaulted on a
£30,000 payment.
“We had an account with a housebuilder who could not pay, so we were faced
with a large cashflow problem. We had discussions with our bank but they did
not consider it a good market in which to attempt to save the business.”
There was no alternative to shutting down the company after more than a
quarter of a century, which Pugh did with a heavy heart. “We entered
receivership and made all our employees redundant on July 31,” he said.
None of the firm’s 21 workers has found permanent work since. Pugh took out a
personal guarantee against the company so, if he is unable to recover the
cash owed, it could obliterate his personal wealth as well. Getting the
money will be a difficult task. The housebuilder he accuses of not paying
him entered receivership nine days after Mindon did.
“Our capital and personal asset base has been devastated,” said Pugh.
He and his 21 former workers at Mindon Tiling are typical victims of a
downturn that has spread like wildfire through the building and construction
sector. Worryingly, there is now evidence that the economic slowdown is
hitting jobs across the board. For the first time since Labour gained power
11 years ago, unemployment is in danger of rising significantly.
Gordon Brown’s proud boast, that he has presided over record levels of people
in work and the lowest rate of unemployment since the mid1970s, is about to
be tested by what Mervyn King, the Bank of England governor, described last
week as “the difficult and painful adjustment” the economy is going through.
King and his colleagues at the Bank say that Britain faces at best a period of
stagnation over the next 12 months and this will open up a “margin of spare
capacity” in the economy – code for a significant rise in unemployment.
In the 1970s the Tories targeted the government’s economic record with their
iconic poster of an ever-lengthing dole queue, under the slogan “Labour
isn’t working”. Trends in the job market suggest that the Tories may be
tempted to dust down that campaign and use it again. THE signs of a shift
are already there in the official jobless statistics. Last month the
unemployment claimant count increased by 20,100 to 864,700. The rise in the
number of people claiming Jobseeker’s Allowance was the biggest since late
1992, at the tail-end of the last recession, and represented the sixth
successive monthly increase. The unemployment rate ticked up from 2.6% to
2.7% of the workforce.
There was also a strong rise, of 60,000, in the broader Labour Force Survey
jobless measure, this time for the March to May period. Unemployment on this
definition rose to 1.67m and the jobless rate moved up from 5.2% to 5.4%.
One of the luckless is Lily Chichester, 32, a design consultant. In June she
arrived for work one morning to be greeted by a P45 and a one-month
redundancy package. “It was a surprise,” she said. She was one of three – a
third of her former employer’s nine London staff – to be given walking
papers that day. “We were busy, but we weren’t winning any pitches [for new
business]. Some companies just decided to put their plans on hold,” said
Chichester. She has spent her payoff but has yet to find employment.
Jobs are certainly harder to find. The number of unfilled vacancies in the
three months to July fell to 634,900, 47,000 down on the previous three
months. Not so long ago there were as many vacancies as there were people
claiming the jobseeker’s benefit. Formal redundancies are also rising,
climbing by 14,000 to 126,000 in the three months to June.
One of the apparent curiosities of recent months, that rising unemployment has
gone hand in hand with continued increases in employment, appears to be on
the point of being resolved. While the number of people in employment rose
to a record 29.56m in the March to May period, job creation has slowed to a
crawl, up by a mere 20,000 over the latest three months.
“This was the weakest set of labour-market data since the economic slowdown
began,” said John Philpott, chief economist at the Chartered Institute of
Personnel and Development (CIPD).
“Employment growth has ebbed to a trickle – indeed, employment has fallen in
several regions of the country – while the rise in unemployment is gaining
worrying momentum. The number of unemployed people claiming the Jobseeker’s
Allowance has risen in every month since January – with each monthly
increase greater than the last – and there are now more people in receipt of
this welfare benefit than a year ago,” he said.
“The impact of the economic slowdown is also becoming more widespread. Nearly
every sector of the economy posted fewer job vacancies in the three months
to June. This is particularly evident in those parts of the private sector
that until recently were big engines of job creation, such as shops, hotels
and restaurants, finance and business services, and construction.
“Moreover, for the first time since the credit crunch emerged there is a clear
sign that redundancies are on the rise.”
September is normally a strong month for recruitment, as employers take on new
graduates, and retailers and others gear up for the autumn and winter. The
CIPD’s latest survey suggests, however, that this year firms will be much
more cautious.
Only 29% of employer organisations plan to recruit this autumn, down from 38%
a year ago. In strong years, 50% to 60% of employers typically plan to hire
more staff going into the autumn. On the other side of the coin there has
also been a rise, from 22% to 27%, in the number of employers that are
planning redundancies.
During recent periods in which private-sector employers have been cautious
about taking on staff, the expansion of the public sector has helped to fill
the gap. However, facing a squeeze on their budgets, public-sector employers
are in no position to take up the slack. Official figures now show that
public-sector employment has dropped by nearly 100,000 over the past two
years. BANKS, housebuilders, and financial institutions have so far borne
the brunt of the rapidly-slowing economy but economists are warning that job
losses are already spreading to other sectors as the slowdown bites. “The
labour market is only just starting to be hit from factors that began six or
nine months ago. There is going to be a much bigger rise in unemployment
ahead,” said Vicky Redwood, an economist at Capital Economics. “We have
already seen a sharp drop-off in hiring intentions.”
She predicts that over the next two years, 450,000 jobs will be lost in the
UK, equivalent to a 1.5% drop in employment.
Steve Turner of the Home Builders Federation, which is caught in the eye of
the storm, said: “If you look at previous recessions, the housebuilding
industry always goes first.”
His industry employs more than 300,000 workers throughout the country.
Building giants such as Barratt Developments, Taylor Wimpey and Persimmon
have already made deep cuts, announcing redundancies of between 20% and 40%
this year.
Because much of the industry consists of family-owned and mid-sized players,
it is difficult to get a concrete figure for job losses across the industry.
Insiders say, however, that it is safe to extrapolate losses of about a
third in employment across the industry’s 300,000-strong workforce.
William Braisby, who runs his 55-year-old family business, Braisby Roofing, in
Dunfermline, was forced to make 12 workers redundant last month – 10% of his
workforce – and said he might have to get rid of 30 more if the market does
not improve drastically, and quickly.
“Unless there is an upturn by the end of September more redundancies will
follow,” he said. “The private housebuilding market is basically
nonexistent. What is so surprising is the speed with which it has happened.”
Every week he receives calls from dismissed workers hoping in vain that
things may have picked up. “None of them is working,” said Braisby.
A reprieve is unlikely. The situation seems to be worsening. Alistair Leitch,
finance director of the homebuilder Bell-way, last week blamed an “avalanche
of cancellations” for a 45% slump in sales agreed in June and July alone.
Meanwhile, British Land said that it could delay building its huge
“Cheesegrater” skyscraper in the City of London by up to a year.
Financial services is the other sector that has taken a battering. The Centre
for Business and Economic Research predicted earlier this summer that as
many as 19,000 jobs in the City could go by the end of next year. Citigroup
is expected to shed up to 18,000 jobs globally. Significant losses are
expected among the 12,000 people at its UK headquarters in London’s Canary
Wharf.
Chris Hickey, managing director at the recruitment firm Robert Walters, said
that job losses in financial services have been concentrated in areas such
as property and credit. Just how bad it will get, he said, will become clear
over the next two months. That is when many of the big banks – already
hobbled by credit-crunch losses – sign off on their budgets for the rest of
this year and next.
“There is a lot more caution out there,” he said. “At the end of the summer we
are certainly looking for direction from clients on their plans for the rest
of this year and going into 2009. That’s when they will sign off on head
counts.”
So far, the first to get the chop have been less senior workers. Dean Ball,
regional managing director at white-collar recruiter Michael Page
International, said: “More people are staying put, and employers are
interviewing one more time before they make an offer. But the further away
you get from banking, the more cushioned it is. There is definitely a
slowdown, but it is not an absolute bloodbath.”
Some are bucking the trend. Financial auditors, and risk and compliance
officers – whose role is to help companies to avert or navigate crises – are
in high demand. Opportunities for temporary or contract workers are also
rising.
Nevertheless, other sectors are being dragged into the swirl of the economic
downturn. Manufacturing had been expected to be one of the economy’s bright
spots this year, helped by a lower pound and a still healthy global economy.
But Britain’s factories have been struggling, hit by the weakness of the
country’s main markets, notably in Europe. Figures last week showing that
eurozone gross domestic product fell by 0.2% in the second quarter were a
blow to export prospects.
The job news from manufacturing has also been gloomy. Jobs in that sector
dropped to 2.88m in the three months to June, down by 37,000 on a year
earlier and the lowest since comparable records began 30 years ago. HOW far
will unemployment climb? The British Chambers of Commerce, in a forecast to
be published this week, is expected to predict a rise of up to 300,000 in
the wider measure of unemployment over the next two to three years, taking
it close to 2m.
The CIPD, meanwhile, expects the claimant count to climb above 1m for the
first time since 2001. Gloomy though these projections are, they would
represent only a mild shock to the job market compared with past recessions.
“The thing that would really concern me is that there seems to be an
increasing mood of pessimism, which could have a serious confidence effect
on employers,” said Philpott at the CIPD. “The worry would be if managers
came back from their summer holidays and decided that they had to cut back
aggressively. That’s when you could get an avalanche effect.”
As it is, he thinks Britain is on the brink of the kind of job situation
America has endured recently, with seven or eight months of declining
employment.
Even if the jobless rise is more contained than in the past, the labour market
will look very different from what we have become used to recently. For
three years from 2004, employers turned to migrant workers to fill the job
gaps. Now, according to research by the Bank of England, organisations have
cut back sharply in their recruitment of migrant staff.
In the first three months of the year the number of migrant workers
registering for employment in Britain, or being given National Insurance
numbers, was down by more than 10% on a year earlier. The Bank said the flow
of migrant workers had “started to ebb”, reflecting better job prospects in
migrants’ home countries, such as Poland, and sterling’s fall against the
euro.
That could be an indication that the flexibility of Britain’s job market will
cushion the effect of the economic downturn on unemployment. The effects
could be long-lasting, however. After the recession of the early 1990s it
took years before economic migration into Britain picked up.
For people like Mark Pugh, who have seen their businesses fold, the immediate
future looks tough. “Do I have a plan B?” he said. “Yeah, get a job.” It may
be much harder than he thinks.
What the past teaches us about unemployment
WHEN Norman Lamont took over as chancellor in November1990,Britain was already
inrecessionand prevented by membership of the European exchange-rate
mechanism from the aggressive cuts in interest rates neededto get out
ofitspeedily.The unemploymentclaimant count, which had fallen into disrepute
during the 1980s because of so many definitional changes, was already high
at just under 1.6m when the economy started contracting in mid1990.
Theeffectof thethedownturn was dramatic.By Christmas the claimant count had
risen by 250,000 to just below 1.85m but there was worse to come. It rose by
500,000 in the first half of 1991, eventually peaking in December 1992 at
just under 3m. It was, if anything, a surprise it did not go up further.
Gordon Brown, then a shadow minister, confidently predicted the jobless
total would rise well above 3m. The surprise was that the Conservatives were
reelected in 1992 even as unemployment was climbing sharply. During 1993,
however, unemployment fell rapidly, dropping by 200,000 – more than had been
expected.
The broader measure of unemployment, based on the Labour Force Survey, and
including people available for work but not entitled to benefit, did rise
above 3m, from a low of 2m at the outbreak of reces-sionin 1990.The jobless
rateonthismeas-ure rose to a peak of 10.7% of the workforce. It, too, began
falling in 1993, almost as soon as the recovery had begun.
One theory is that firms cut back on jobs too much in anticipation of a long
downturn, in what was christened at the time “oversacking”. Normally,
employers are guilty of the opposite, “hoarding” labour in the hope that any
recession will be brief and they will avoid the cost and inconvenience of
recruiting and training workers when the upturn comes.
The recession of the early 1990s saw employment drop from a peak of nearly 27m
to 25.3m. Since then the number of people in work has risen almost
continuously to the present level of 29.6m.
While the rise in unemployment in the early 1990s was sharp and painful,
contributing to a surge in home repossessions and a sharp drop in consumer
spending, it was short-lived. By the time the Conservatives sought
reelection in May 1997, the jobless total on both measures had come down by
1m and employment was rising strongly. But the damage had been done, and
consumers were wary of a renewed surge in unemployment for years after the
numbers started falling.
Compared with the recession of the early 1990s, the recessions of the 1970s
and early 1980s had a rather different character. There was no sudden
bounce-back in the job market but, rather, an extended period of pain. So
the recession of 1974-75 saw unemployment on the Labour Force Survey measure
rise from a low of just under 900,000 in December 1973 to more than 1.4m by
the spring of 1976. But, rather than coming down again when the economy
recovered, the jobless total initially held at the new higher level before
climbing sharply in the recession of the early 1990s.
Unemployment was just over 1.4m when Margaret Thatcher was elected in May
1979. Two years later it was up to 2.6m, with worse to come. The recovery of
the first half of the 1980s generated jobs, but not enough to stop
unemployment continuing to rise, because the baby boomers of the 1960s were
entering the workforce, expanding it sharply.
On the Labour Force Survey measure, it took three years after the end of the
recession, until the spring of 1984, before unemployment peaked at nearly
3.3m. The claimant count took even longer. It did not peak until the summer
of 1986, and there were fears among ministers thatunemploymentwould
neverstop rising. Youthunem-ployment was a huge and divisive political
issue, as was the level of unemployment in general. For the first time since
the depression of the 1930s, marches and other demonstrations were held to
protest against the number of people on the dole.
Worries about permanently high unemployment contributed to some of the policy
errors of the late 1980s. So determined was the Conservative government to
get the jobless total down that it believed it was safe to run the economyat
very high speed – butinflation and thesubse-quent recession were the result.
To the chagrin of Tory ministers, unemployment began to rise again before
they had gained any political credit for its fall.
It is hard to judge what will happen in the next recovery. Unemployment can be
expected to fall when growth in the economy exceeds the rate at which
productivity is expanding – just over 2% a year. However, the picture has
been complicated in recent years by migrant workers. If there is a
corresponding reduction in the rate of growth of the workforce as a result
of the economic downturn, the rise in unemployment could be limited and its
subsequent fall reasonably rapid.
