By Mark Deen and Robert Hutton
Jan. 12 (Bloomberg) -- Prime Minister Gordon Brown pledged 500 million pounds ($758 million) over two years to encourage hiring and curb rising unemployment as the U.K. faces its deepest recession in almost three decades.
Meeting with business and union leaders today, Brown offered as part of the plan 2,500-pound payments to employers to recruit and train those who have been out of work for half a year or more.
“Because the risk of long-term unemployment increases as skills and confidence depreciate, we are today setting out a new guarantee of intensive support for anyone still unemployed after six months,” Brown told the meeting in London.
The proposal follows a 20 billion-pound package of mainly tax cuts he announced in November. It mirrors European counterparts in pushing new stimulus as the economic slump deepens. German Chancellor Angela Merkel is planning a 100 billion-euro ($135 billion) fund for companies after pushing a 50 billion-euro package of tax cuts and loans last year.
The meeting on tackling joblessness followed a discussion between Brown and Chancellor of the Exchequer Alistair Darling with top bankers about how to revive lending.
Barclays Plc Chairman Marcus Agius, Standard Chartered Plc Chairman Mervyn Davies and Lloyds TSB Group Plc Chief Executive Eric Daniels were among those who lunched with the two at Chequers, the prime minister’s country residence.
“The big issue at the moment is that they must ensure that lending gets to business,” John McFall, the Labour lawmaker who chairs Parliament’s Treasury Committee, said today on BBC television. “Let’s get that going.”
Economic Slump
The British economy may shrink by 2.9 percent this year, the steepest contraction since 1980, with as many as 2 million people claiming unemployment benefits, according to the Centre for Economics and Business Research. Joblessness rose at the fastest pace since 1991 in November to 1.86 million and banks, retailers and manufacturers across the U.K. have announced plans since then to reduce staff further.
Brown said he wants to help steer the British economy towards “smart investment” in environmental and other industries as part of the package. Funds will go to support “green jobs” and infrastructure, he said.
The plan comes two months after the Conservative opposition proposed payments of 2,500 pounds to employers that take on people unemployed for more than three months.
At the time, Labour’s pensions minister Tony McNulty described the idea as “desperate stuff” and argued “the incentive is too small, and many of these ‘new’ jobs will simply displace other people seeking work.”
Purnell’s Plan
Today, McNulty’s boss, James Purnell, said the government’s plans were better than the opposition’s because they would spend less money on people who would have found jobs anyway.
“We’re making sure that we reduce the deadweight costs precisely by targeting people who have been out of work for six months,” Purnell told BBC radio. “About 70 percent of people get back into work within six months. That’s the point at which people start to lose self-esteem and their skills get out of date.”
The British Chambers of Commerce said that training, wage subsidies should all be considered in its effort to reduce unemployment. It also criticized his plan to increase employer social charges, known as National Insurance contributions, starting in 2011.
“The government should abandon plans to tax job creation,” its director general, David Frost, said in a statement. “We must learn the lessons from previous recessions and ensure that new solutions are found to problems of large- scale unemployment.”
Cameron’s Criticism
In spite of the similarity between their plans, Brown argues he is showing the difference between his ruling Labour Party and the Conservatives, who are led by David Cameron. The Conservatives said last week they would trim government spending by 5 billion pounds and use the funds to finance reduced taxes if they won office.
With an election due within 18 months, Cameron is emphasizing the U.K.’s swelling budget deficit to attack Brown. Brown plans a deficit of 118 billion pounds in the year through March 2010, the most since World War II.
Conservative View
“The tragedy in Britain is that we have such a high deficit -- I don’t think we can afford it,” Cameron said yesterday. “The government has got to tighten its own belt.”
A YouGov Plc poll published last weeks showed the Conservatives with a seven-point lead, at the top end of the range shown in all surveys published in December. They have the backing of 41 percent of voters, compared with Labour’s 34 percent, the poll showed.
Brown must call an election by June 2010, though betters increasingly expect a vote in the second half of this year, according to bookmakers William Hill Plc. Cameron said yesterday that he would relish a contest.
“I will be ready at any time,” he said on BBC television. “The key thing missing in the economy is confidence and I think a new government would help with confidence because a new government would wipe the slate clean.”
To contact the reporters on this story: Mark Deen in London at markdeen@bloomberg.netRobert Hutton in London at rhutton1@bloomberg.net.
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