Britain risks ending the decade with the lowest rates of workforce participation in almost 30 years unless the government takes urgent action to reform childcare and help people with health conditions, according to a leading thinktank.
Calling on the chancellor, Jeremy Hunt, to act at next month’s budget, the Resolution Foundation said the government’s efforts to boost Britain’s workforce should focus on supporting parents to return to work, as well as ensuring sufficient help is available for older workers and those with health issues or a disability.
It urged the government to drop a focus on “unretiring” people who had left the workforce since the beginning of the Covid pandemic. This echoed an intervention on Monday by experts who said ministers were “barking up the wrong tree” with their hope that persuading the over-50s to return to work could solve Britain’s labour shortages.
Without a change of course from the government, the Resolution Foundation said the UK risked a continued increase in the rate of economic inactivity – when working-age adults are neither in a job or looking for one – adding to pressure on employers struggling to find staff.
It said the UK was on track for an economic inactivity rate among 15- to 75-year-olds of 30.8% by 2030, the highest level since 2001. The rate now stands at 29.5%.
The intervention came as ministers explored options for boosting workforce participation as a significant part in next month’s budget, with a review being undertaken by the work and pensions secretary, Mel Stride. The government has so far focused on addressing early retirement, with Hunt urging the over-50s to “get off the golf course”.
However, a report from the pensions consultancy LCP published on Monday showed rising rates of economic inactivity in the UK had been driven by long-term sickness, rather than early retirement.
“There is a real risk of the government barking up the wrong tree when it comes to the growth in economic inactivity,” it said.
Official figures published last week showed early retirement explained none of the increase in inactivity since the start of the pandemic. While the number of people who are economically inactive is more than 500,000 higher than in February 2020, the number who have quit the labour market due to retirement has fallen.
Sir Steve Webb, a former pensions minister who co-authored the LCP report, said rising long-term sickness was much more significant.
“We were gobsmacked by what we found. It turns out there are fewer earlier retired today than at the start of the pandemic. You wouldn’t believe that from ministers’ speeches and talk of getting people back off the golf course,” he said.
The Resolution Foundation said those retiring during the pandemic were disproportionately from higher-paid occupations, while flows from employment into retirement from many low-paying occupations were actually falling.
It said this would make it harder to persuade these retirees, two-thirds of whom already own their own home outright, to “unretire”.
Instead it said ministers should focus on closing a “maternal employment gap” between low- and higher-paid women. While workforce participation among women in the highest income brackets aged 25 to 54 stood at 94%, the proportion among those on the lowest incomes was as little as 50%.
The report urged the government to reform childcare support and work incentives for second earners on universal credit.
Hunt is understood to have been exploring ways to reduce childcare costs to support more parents back to work. However, an option of extending 30 hours of free childcare to one- and two-year-olds in England at the budget has been rejected on cost grounds.
The government could also help those with health conditions and disabilities by creating a new “right to return” so that workers who need to take time off because of ill health could remain attached to their employer and job.
Louise Murphy, an economist at the Resolution Foundation, said: “We need to reboot progress on getting people into work, but we’re not going to achieve it by persuading the recent Covid cohort of older workers to ‘unretire’.
“Taking the right approach to workforce participation would boost individuals’ living standards, and improve the wider health of our economy.”
A government spokesperson said it was looking at plans to improve support for disabled people and those with long-term health conditions. “We recognise one of our biggest challenges is how to support people to start or return to work, which is why the department is thoroughly reviewing workforce participation to understand what action should be taken on increased economic inactivity.”
