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Benefits system facing a further squeeze

While the revelation that headline unemployment fell in the final quarter of 2009 was well received by investment markets, under the surface there are many other issues to consider.

We saw an increase in the number of long-term unemployed, an increase in those receiving jobseekers allowance and concerns about the future.
This increase in long-term unemployed and those receiving jobseekers allowance has further squeezed the UK benefit system at a time when tax income is still well below traditional levels.

The benefit system in the UK is starting to creek under the weight of expectation and demand and the UK government will need to realign public-sector spending to ensure there is sufficient funding available for the benefit system. This is a very difficult time for the Chancellor of the Exchequer, Alistair Darling, to rebalance the UK books and he will eventually need to take some very difficult and potentially unpopular decisions.

Despite politicians seemingly optimistic regarding income in the short, medium and longer term there is growing concern about the state of the UK finances. Government borrowings of £1 trillion are more than matched by personal debts of over £1 trillion which will cause a significant drag on any future UK economic revival.

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