Recent UK economic history has been characterised by high levels of unemployment, coupled with a high nominal Public Sector Borrowing Requirement (PSBR). It is no surprise that the two should coexist, and their inter-relationship is increasingly recognised. At least part of the current high level of PSBR is caused by the increased benefit payments to the unemployed and the reduced taxes they pay. It is the purpose of this article to examine the magnitude of this relationship. Previous estimates of the revenue cost of unemployment have been based either on aggregate macroeconomic relationships (HM Treasury (1981)) and therefore have not allowed for the actual characteristics of the unemployed, or on specific example households (Hansard (1981)) from which no aggregate information can be drawn.
