UK Politics

Rising unemployment hits National Insurance reserves

Job Centre in Bristol Image copyright PA
Image caption The jobs market could be starting to improve according to one survey

Rising unemployment has cut the amount of money the government holds in reserve to pay out-of-work benefits, new figures reveal.

The National Insurance Fund lost £4.5bn in the year to March 2010 - the first time since 1993 it has gone down.

But it still stood at £48.5bn - well within what is considered prudent by government accountants.

All UK workers pay into the fund - sickness benefits and jobseekers allowance are paid from it if needed.

According to the fund's accounts for 2009/10, £4.9bn of the decrease was down to rising unemployment claims and a £663m reduction in National Insurance contributions.

Interest earned on the fund "also decreased significantly due to the historically low interest rates", the accounts say.

In 1992, the government actuary set a rate of 16.7% of annual expenditure on benefits as a prudent level for the fund to hold.

It currently stands at 64% of the annual welfare bill and is expected to remain at that level next year.

This suggests the government will have enough in reserve to carry on paying benefits if unemployment continues to rise as some economists have predicted.

According to figures released by the Office for Budget Responsibility at the end of last year, rising unemployment will cost the government £1.5bn more than expected in welfare benefits, over the next four years.

The OBR also calculates the government will have to pay out £700m more in unemployment benefit than previously forecast.

Official data showed 2.5 million people were unemployed last month - compared with 1.63 million in the same month in 2009.

But a survey released this week suggests the jobs market is "on the road to recovery", with a strong rise in demand for staff.

The survey of recruitment consultants and employers in December found permanent staff vacancies rising at their fastest level in four months.

But one of the reports sponsors, KPMG, warns the future of the recovery is uncertain, as the government's austerity measures take effect.

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