- Tomorrow’s Budget is widely expected to focus on economic inactivity, which is now one of Britain’s biggest economic challenges
- The UK has 516,000 more economically inactive people aged 16-64 than pre-pandemic. Only three OECD countries have seen inactivity increase more than the UK
- A new Centre for Policy Studies report tempers two common explanations for this rise – that it is overwhelmingly about the elderly, and/or the strains on the NHS
- The report finds that inactivity among the elderly appears to be driven more by finances than by health. It argues that raising or scrapping the pension lifetime allowance, whose value has more than halved in real terms since 2010, would keep more people in the workforce – including in the NHS
- But it also shows that economic inactivity has risen most sharply among the young, with mental health playing a major role
- It also reveals how changes to the benefit system have increased inactivity, and the extraordinary gender divide among those leaving the workforce, with men outnumbering women by more than 3:1
Economic inactivity has become a huge issue in politics – and is expected to be a key area of focus in this week’s Budget. But many of the most common claims about inactivity turn out to be mistaken, or capture only part of a more complex picture.
‘Where are the Workers? A new diagnosis of economic inactivity in Britain’ by CPS Senior Researcher Karl Williams examines the rise in inactivity post-pandemic. He finds that the largest number of inactive workers are aged 50-64 – but shows that this is probably driven more by early retirement than ill health. However, he also shows how changes to disability benefits have increased inactivity; an alarming rise in inactivity among those aged 18-24, in particular due to mental health issues; and a very significant gender imbalance among those no longer looking for work.
While many have linked the rise in long-term sickness to the NHS’ ability to cope with demand, 77.3% of those economically inactive due to long-term sickness did not want a job and 69% who were newly classified as long-term sick were already out of the labour market for another reason. The rise in economic inactivity due to long-term sickness also began prior to the pandemic, with figures tracking up since the start of 2019.
The report also shows that despite high childcare costs placing an undoubted burden on families, especially as the cost of living increases, it is probably not behind a spike in economic inactivity. Women aged 25-34 are actually entering the workforce in greater numbers, not leaving it, which we would expect to see if rising childcare costs were forcing women to stay at home.
The increase in economically inactive younger people, with the number of 18-24 year olds out of work up 2.5%, is particularly concerning as economic inactivity at this stage can seriously affect lifetime earnings. Despite this age group seeing a net increase in inactivity of 105,000 people, they are often overlooked in favour of focusing on older people leaving the workforce. It is commonly claimed that heightened inactivity among the young is largely driven by more people staying in education for longer during Covid, and that these people will soon return to the workforce. However, a surge in unemployed ‘not in education, employment or training’ (NEETs) suggests this complacency is unwarranted.
The report also shows how the Cameron Government’s reforms to the Personal Independence Payment (PIP), intended to encourage those with disabilities back into employment, in fact led to a significant increase in the number declaring themselves unable to work.
The report argues that this decision should be re-evaluated, and that the Government needs to urgently investigate the causes of mental health problems among the young, and the reasons for the gender imbalance in inactivity.
It also argues that the lifetime limit of £1 million on tax-free pension savings should be raised or scrapped, pointing out that its real-terms value has fallen by more than half since 2010/11 (when the allowance would have been worth £2.4 million in today’s money). This would help significantly with the NHS’s retention issues.
Karl Williams, CPS Senior Researcher and report author, said:
‘The causes of increased economic inactivity post-pandemic are complex but we need to stop feeding the idea that it is being driven by the collapse of the NHS or spiralling childcare costs as the data simply does not reflect this. We have found that the 50-64 age cohort amounted to 60% of the increase in economic inactivity – but that this is driven more by affluence than ill health. There is also a clear and alarming gender divide, with a 3:1 split in favour of men dropping out of the workforce.
‘Policy solutions to economic inactivity are as varied as the reasons behind it, but the government should, as a priority, act to remove financial penalties which incentivise early retirement and seek to reform the PIP assessment to allow those who are unwell or living with disabilities to access work with fewer risks if they relapse.’
NOTES TO EDITORS
- ‘Where are the Workers? A new diagnosis of inactivity in the UK’ is available to download here.
- Karl Williams is the Senior Researcher at the Centre for Policy Studies.
- For further information and media requests, please contact Emma Revell on 07931 698246 and [email protected] or Josh Coupland on 07912 485655 and [email protected]
- The Centre for Policy Studies is one of the oldest and most influential think tanks in Westminster. With a focus on taxation, economic growth, business, welfare, education, housing and green growth, its goal is to develop policies that widen enterprise, ownership and opportunity.
Date Added: Tuesday 14th March 2023