Britain | The missing million
Britain’s worklessness disaster
Can the government get more people working without exposing the vulnerable?
For Sarah, the trouble started with a fracture in her back. She’d worked in a warehouse for years. Now she’s “too old to lug boxes” and her back still aches when it’s cold. Poundland, a budget retailer, rejected her job application. Others didn’t reply. For Mandy, it was losing her job. Without that structure, she felt anxious and depressed. Michael hurt his back in 2022, but is still waiting for surgery. He’s only done part-time Christmas work since.
All three live in Barnsley, in northern England. Ill health pushed them into the ranks of what statisticians drily call the working-age economically inactive: people with no job who have stopped looking. Nearly 3m Britons aged between 16 and 64 are not working because of poor health, up from just over 2m in 2019. That is a misery for them and a mystery to economists. No other rich country has seen a similar rise.
Worklessness is a headache for the government, too. Since 2019 annual spending on health-related benefits for those of working age is up by £19bn ($25bn, 0.7% of GDP) in inflation-adjusted terms (see chart 1). The government has forecast a further £13bn rise by 2029. It is spending more on both incapacity benefits, for people unable to work, and disability benefits like the Personal Independence Payment (PIP), which cover the cost of disability whether the recipient works or not. In England and Wales 4m people, or one in ten of working age, now claim one or both. In 2019, only 2.8m did. And losing so many from the jobs market has compounded wider economic woes, pushing up inflation and pulling down growth.
Have Britons really got so much sicker, so quickly? The evidence is mixed and messy. Official labour-force figures show a particular deterioration in mental health among the young, alongside bone and muscle trouble in the middle-aged (see chart 2). But nearly all sickness is up. And since the pandemic, the data have become ever less reliable, as fewer people respond to surveys.
Over a wider set of measures, the Institute for Fiscal Studies (IFS), a think-tank, found no consistent picture (see chart 3). “Some surveys suggest long-term ill health has grown, while others suggest it has remained unchanged,” says Eduin Latimer of the IFS. “There is much clearer evidence on mental-health conditions. All surveys suggest that more people are reporting mental-health problems now than before the pandemic.”
What, then, is going on? Health-service waiting lists get blamed, but probably unfairly. A study by the Office for Budget Responsibility (OBR), the fiscal watchdog, found that most people on them were working or past retirement age, and that even halving the lists would get only 25,000 of the long-term sick back to work.
A more plausible culprit is the welfare system. Britain is spending a record 4.3% of GDP on benefits for working-age people. But most benefits that are not related to health, such as unemployment support, have been squeezed. (The state pension is a marked exception.) That decline has probably shunted more people into health benefits. Court rulings also forced Theresa May’s government to widen eligibility for people with mental-health problems.
A technological shift has also added to the bill. During the pandemic, phone and video interviews replaced face-to-face assessments for disability and incapacity benefits. TikTok is full of tutorials walking would-be applicants through PIP interviews, listing key things to mention—struggling with cooking, forgetting to take medication—to maximise the likely award.
Once the welfare system has deemed someone ill, the label tends to stick. Sir Steve Houghton, leader of Barnsley council, says post-industrial areas like his have long experience of this. “If they’re in the benefits system for over three years, it’s not easy to get people back out,” he says. “They fear if they come out and work doesn’t work out, going back in will be difficult.” Research by the Resolution Foundation, another think-tank, also found that the newest PIP recipients are less likely than previous cohorts to move off the benefit (see chart 4).
Worklessness frustrated the previous government, too. Rishi Sunak tightened eligibility for incapacity benefits in 2023, but was challenged in court over the length of consultation. The government lost in January (after winning last year’s election, Labour kept fighting the case). Now fiscal necessity has jolted Sir Keir Starmer into action. New OBR forecasts, due on March 26th, are expected to show that the government’s already slim room for manoeuvre has been squeezed to nothing by weak growth and the gilt market. The newly urgent need for rearmament spending has made things tighter still. After the overseas-aid budget, now stripped almost bare, benefits are the next least-popular bit of public expenditure.
Leaks to ITV, a broadcaster, suggest the government is eyeing cuts of around £6bn a year. That will be controversial within Labour. At a meeting of the party’s National Executive Committee in January, Sir Keir was warned that “the disabled community were deeply alarmed”. Measures to raise the bar for disability and incapacity benefits are a necessary stopgap. But Britain’s recent history of welfare changes is littered with the unforeseen consequences of misbegotten schemes, and suffering for society’s poorest as a result. PIP, rolled out in the 2010s, was intended to make disability benefits harder to get, and to save £1.4bn a year. The latest estimates suggest it saves only £100m or so.
So reform is needed too. That means somehow framing eligibility in a way that does not penalise people’s efforts to start working, without hurting those who cannot. At least Labour has electoral time and a huge parliamentary majority on its side.
Barnsley is running a pilot scheme, starting in April, to better tie together the 70-odd training and support programmes for jobless people and collaborate with employers to find them work. The Treasury is watching. If the scheme succeeds—its designers expect four-to-one returns—it could be rolled out nationally.
But the government’s own policies are an obstacle to improvement. Most people don’t fall out of work instantly. Like Sarah, they first look and then, after enough disheartening rejections, stop trying. It would therefore be wise to make it cheaper and less risky for employers to take a punt on someone with a thin CV and poor health.
Sadly, the rest of Labour’s jobs agenda is rowing in the opposite direction. Increases in employers’ national insurance, a payroll tax, and the minimum wage will make hiring the low-paid costlier. The Employment Rights Bill will probably block up the job market more. Progress will be hard without a change of course. ■
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