Growing uemployment will create a budget shortfall of €5.4bn by the end of this year, the state-run benefits agency UWV said on Monday.

The UWV is forecasting a growth in unemployment from 340,000 at the beginning of the year to a record 440,000 by the end of 2014, it said in its June report.

This will push unemployment benefits up to €1.4bn this year and add a further €900m to next year’s payments.

The increase is ‘surprising’ because the government recently lowered the time people can spend on unemployment benefit from five to three years, the UWV said.

The agency emphasises that it has lowered administration costs and is working more efficiently. It is also scrapping 4,000 jobs over the coming years as the service is digitalised.