LONDON — It’s a mystery testing the finest minds in Whitehall.
What exactly has happened to more than half a million British workers who have vanished from the U.K. workforce since the outbreak of COVID-19?
U.K. Treasury officials have been left scratching their heads by statistics showing that while unemployment is at a historic low, there are 516,000 more working-age Brits classed as “economically inactive” than there were before the pandemic.
The collapse in productivity has served a crippling blow to the already-struggling British economy, which the IMF predicts will be the only major Western economy to shrink in 2023.
The scale of the problem is such that U.K. Chancellor Jeremy Hunt now plans to make tackling economic inactivity one of the centerpieces of his first budget statement next week.
“The U.K. is really quite unique among rich countries in having had a persistent fall in the size of its workforce after the pandemic,” said Xiaowei Xu, senior research economist at the Institute for Fiscal Studies think tank.
Numerous theories abound for what has happened to the half a million missing workers.
Attention has focused on the fact that more than half — around 317,000 — are aged 50 to 64.
Factors are believed to include a wave of early retirements post-pandemic; a rise in long-term sickness; and issues caused by patchy U.K. health services — whether it’s long waits for essential surgery, or lack of access to vital mental health support.
Andrew Phillips, senior researcher at center-left think tank Demos, said in the course of recent research, “people we spoke to told us they didn’t have support to keep working with a health condition.”
As for early retirees, there’s some evidence that higher rates of home ownership and greater financial security in Britain have played a role, as set out in findings by the Phoenix Group.
It’s highly concerning for a government seeking to fight its way out of recession and bring down inflation, and particularly for a ruling Conservative Party which likes to speak about the importance of hard work.
“There’s a strong business reason to tackle this,” said Chloe Smith, who served as U.K. work and pensions secretary under Liz Truss. “And there’s a human reason — you can’t have that many people written off, not supported to lead the lives they want.”
After months of debate among academics and experts, the problem is now attracting serious political firepower for the first time.
Treasury takes charge
After gaining attention under Truss’s brief premiership, economic inactivity was singled out for closer scrutiny by Hunt when he became chancellor last fall.
He announced in his last fiscal statement in November that Work and Pensions Secretary Mel Stride would review the issue. His findings are expected to be woven into the budget rather than published as a separate document.
The Treasury has made reviving the U.K. workforce a central target for the budget — an unusual statement of intent by the all-powerful finance ministry, which often regards such questions as the domain of the welfare department. PM Rishi Sunak is taking a keen interest.
The opposition Labour Party is also making a big play of the issue, with Shadow Work and Pensions Secretary Jon Ashworth promising that job centers will “broker” work for the over-50s if Labour come to power.
Among the measures expected to appear in Hunt’s budget are new health checks and occupational health subsidies for smaller businesses, as reported by the Sunday Times and backed up by two government officials speaking to POLITICO.
Ministers are also considering moves to get doctors to work more closely with unemployed people, particularly in helping those with mental health conditions to seek employment support at an earlier stage.
A Treasury official said the focus will be to “stem the tide” by stopping more people from slipping out of the workforce.
Yet some fear this places too great an emphasis on retention and ignores those already out of work.
“Even [for people] on benefits, the type of support you get access to isn’t great,” said Demos’ Phillips. “People have described it to us as primarily about ticking boxes. They could be doing more to match people with an employer or relevant charities.”
An industry figure involved in talks on the issue between ministers and business — which have been led by Exchequer Secretary James Cartlidge — added: “Government needs to do a lot better with people out of work for a long time.
“At the moment they just give CV-writing classes, which is no good if you’ve got big gaps in your CV.”
“Rishi needs to be pulling all the levers he has available,” said Tory MP and former homelessness minister Eddie Hughes. “Health checks and a more responsive NHS is one thing, but we also must ensure people can easily access opportunities to retrain if necessary.”
An end to the trend?
Broader efforts are underway to tackle Britain’s notoriously poor productivity, including steps to tackle the sky-high cost of childcare — even if they don’t go as far as some are calling for.
“There are serious issues about childcare,” Smith warned. “This comes back to the point that you need a range of policies working together to shift the dial.”
Options under discussion include making it easier for people to become childminders, and reviving a signature Truss promise to increase the permitted ratio of children to childminder.
“There’s a view that radical action is more something for a [general election] manifesto,” said the same industry figure quoted above.
Department for Work and Pensions officials have also considered raising the £646-a-month Universal Credit childcare allowance, claimed by 145,000 benefit recipients, as part of Stride’s review of inactivity. A final decision on any changes would be made by the Treasury.
But the uncomfortable quandary lurking beneath the surface is that government officials remain unclear exactly who all the missing workers are; the manifold reasons they’re out of work; or what exactly they need to fix it.
In the meantime, there are at least some tentative signs that the trend may be slowing. There was an uptick in 50- to 64-year-olds moving back into the workforce in the last quarter, according to IFS analysis of the latest Labour Force Survey.
The good news, says the IFS’ Xu, is this return to work appears to be “statistically significant.” The less good news is “it’s very likely that this is something that’s driven by the cost of living prices.”
In the end it may be rampant inflation, rather than work coaches or health checks, that gets older Britons working again.