The missing millions – where have Britain’s workers gone?
Workforces across Europe bounced back after the pandemic but not in the UK, where Covid exacerbated underlying problems with pension rules and health.
When Carrie Davies was a child, all she wanted to do was drive a train. She first got into the cab in 1998, thinking she’d do it for a year to get it out of her system. Twenty-two years later she was still driving.
Long Covid, which she contracted in 2020, stopped her. She has a range of symptoms, including lung problems and dysautonomia, a disorder of the nervous system that makes it hard to stand up. “I couldn’t even walk the length of my train, let alone drive it,” she says.
Davies is part of an alarming trend – people of prime working age dropping out of the workforce. She doesn’t show up in the unemployment rate, which stands at a mere 3.6 per cent, because she’s not looking for work, but she’s there in two much more alarming sets of figures.
The number of people who are out of work but claiming benefits has risen sharply since the pandemic. The largest rise is among people on universal credit who have “no work requirements”.
People such as Davies who are either ill themselves or caring for a dependent can claim benefits without being expected to work. There’s another, even more depressing set of data: inactivity figures. People count as inactive if they are neither in work nor unemployed. They’ve dropped out of the system.
The inactivity data overlaps with benefits figures – Davies is in both – but not perfectly. You could be inactive and not claiming benefits, if you’ve taken early retirement, or you could be on benefits but active because you’re looking for work.
From these slightly confusing figures, three facts emerge clearly: 5.2 million people, or 13 per cent of the adult population, are on benefits and not working; 9 million people, or 21.7 per cent of British working-age adults, are not working and not looking for work; and the numbers are going in the wrong direction.
This is troubling in three ways. First, it is normal for people to work. Earning money is how people sustain themselves and their families. Paying tax is the main way in which they contribute to society. And decent work promotes wellbeing. A society in which a lot of people are out of work is an unhealthy one.
Second, the economy is desperate for workers at the moment. Vacancies are running at record levels, the labour shortage is driving up inflation and business leaders are begging the government to loosen immigration rules to relieve it. Yet more than a fifth of British adults are not in the labour force.
Third, this trend threatens Britain’s long-term prosperity. Two factors lead economies to grow: rising productivity and an expanding workforce. For the past half century, excluding blips for recessions, the proportion of adults in Britain’s workforce has been increasing. First, that was because more women were going out to work, then it was because older people were working for longer.
With productivity stagnant for the past 15 years, Andy Haldane, former chief economist of the Bank of England, calls labour participation “the single cylinder of growth”. Now, he says, “that … cylinder has gone into reverse”.
So what’s driving the trend? Some of the rise in the number of benefits claimants may be a statistical artefact. Under the old system, if one spouse was working and claiming a tax credit, the other would not show up in the figures. Now, because both would claim universal credit, they would. Since the transition from the old system to the new is still under way, nobody is quite sure how many people have popped up as a result. But the inactivity figures would be unaffected by that change, and they are rising.
Suella Braverman blames malingerers. “There are too many people in this country,” the Home Secretary said in July, in the course of the Conservative Party leadership contest, “who are of working age, who are of good health, and who are choosing to rely on benefits, on taxpayers’ money, on your money, on my money, to get by.” A fifth of working-age people in Birmingham and Liverpool are on out-of-work benefits.
The level of malingering is hard to gauge. Certainly, if this were a poor country, fewer people would be paid by the state to do nothing, for they would either work, or be supported by their relations, or starve. Benefits create another option for those who can’t work or don’t want to.
They also discourage people from working, because when people start earning, their benefits are withdrawn, so claimants face a higher marginal tax rate – 55 per cent – than pretty much anybody except graduates earning over £50,000 ($90,000).
To counteract that effect and push people into work, successive governments have made it harder to get benefits. Work capability assessments are carried out to make sure those claiming sickness or disability really can’t work. Those came under criticism in 2015 for excluding legitimate claimants when they were linked to 600 suicides. Post-lockdown, Therese Coffey, then work and pensions secretary, tightened the rules further. According to the OECD, Britain now has the fourth-strictest system out of 29 countries.
The fact that the rise in the numbers out of work is sharp and recent suggests that malingering is not a significant explanation of the trend, for it seems unlikely that the British will to work has suddenly crumbled. Since most of the decline in activity appears to have happened in the past three years, it is likely that the pandemic changed something. One key factor seems to have been its effect on retirement, which the Institute for Fiscal Studies regards as the main driver of the withdrawal of labour.
During lockdown, people’s bonds to work loosened and they got a taste for leisure. Retirement not only looked attractive: it was also increasingly possible. This generation of pensioners enjoy more wealth and freedom to do what they like with savings than their predecessors. Booming stock markets made them rich.
Lockdown forced them to save more. And George Osborne’s pension reforms allowed them to cash in 25 per cent of their pension pots without any strings attached. This freedom, believes Tony Wilson of the Institute for Employment Studies, is a significant factor encouraging retirement. Since other nationalities are more constrained in the use of their pension pots, this may be in part why the British workforce is behaving differently to them.
The tax system, too, is doing its bit to discourage some groups from working. For highly paid public sector workers later in their careers, for instance, the way their tax liability on their pension is calculated combines with falling real wages (take-home pay for consultants has declined by a third in real terms since the financial crisis) to encourage them to resign.
According to a survey carried out by the British Medical Association this year, 44 per cent of hospital consultants are planning to leave the NHS or take a break from it in 2023 because of “pay erosion and punitive pension arrangements”.
Wayne Jaffe, a consultant plastic and reconstructive surgeon, retired from the University Hospitals of North Midlands NHS Trust at 60. “The stupid rules meant that it was no longer worth my while.” He’s still practising but part-time, and has plans to reduce his hours further.
Some people retire because the system encourages them to. Some retire to enjoy themselves. For others, the decision to stop working is less about finance or fun than sickness. The nation’s health is deteriorating, and pushing or keeping people out of work. In November, the number of people out of the labour force because of ill health rose above 2.5 million for the first time ever.
Like the overall shrinkage in the labour force, this deterioration is new and worrying. For two centuries, improving health has been a driver of growth (longer lives mean more labour, which increases output) and improved productivity (healthier people are better workers). For the first time in recorded history, that has gone into reverse.
Life expectancy in the UK had stopped rising, on average, before the pandemic. In some areas, it was falling. At the same time, worsening health is keeping people out of the workplace.
Long Covid is an important factor. About 2.2 million people, or 3.4 per cent of the population, are reckoned to have it. It contributes to cardiovascular problems and mental health problems – the two fastest-growing causes of long-term ill health that keeps people out of the workplace.
Yet according to the Health Foundation, Covid accounts for only 80,000-110,000 of the extra half-million or so who have become inactive since the pandemic. And while Britain’s epidemic was not, in the end, out of line with its peers’ experience, the increase in inactivity is unusual. In most countries, employment has returned to pre-pandemic levels.
Haldane believes that Britain is doing particularly badly because of “a long-standing, deep-seated secular trend towards ill-health … that has then been taken to its tipping point by the effects of Covid”.
Even before Covid hit, worrying trends were already visible. Long-term ill health – especially mental health problems – was creeping up among the young. According to Mind, the mental health charity, a quarter of 17 to 19-year-olds say they have a mental health problem.
Obesity underlies a lot of other health problems. The UK’s weight problem – a quarter of Britons are obese, more than in any other European country except Malta – exacerbates pretty much all health conditions, including Covid. It also poses mobility problems, which, in extremis, can keep people out of the workforce.
The pandemic placed an extraordinary strain on a health service that was already creaking. NHS waiting lists had risen from 3.3 million in 2015 to 4.4 million before the pandemic. Now, they’re above 7 million.
Money is at least part of the explanation. Britain spends four fifths on healthcare, per person, as France does; two thirds what Germany does; and less than half what America does. There is, in consequence, little slack in the system. Britain has 2.5 hospital beds per 1,000 people, compared with three in America, six in France and eight in Germany.
Long Covid puts new strains on an already stretched system because it is hard to treat. The symptoms are varied and the understanding of the disease still shaky. Some people respond to some treatments, some to none at all. Finding something that works for one person may require a lot of input from a health service already struggling to deal with more familiar conditions.
Not only is Britain getting sicker, but there’s a particular gap in the health system in this country that is likely to stop people from getting back to work.
In many rich countries, the law requires employers to provide occupational health – treatment specifically designed to stop people dropping out of work or to help them back into it – for their employees, or the system incentivises them to do so. In the Netherlands, for instance, employers pay the first two years of sick pay, so they have an interest in keeping workers healthy.
In Britain, some companies make generous provision for their workers. Jaguar Land Rover, for instance, has a team of more than 60 medical professionals at wellbeing centres on its sites, to take care of its workers’ physical and mental ills.
It’s not altruism but an investment, given the cost of losing an experienced worker and having to recruit new talent. The company worked out that it recouped the cost of its long Covid rehabilitation program, for instance, six times over.
But occupational health provision is confined to big employers and the public sector. Only about half the workforce benefits from it. The rest have to make do with what the NHS offers, which may just be a “fit note” (newspeak for the old sick note) from the doctor certifying that somebody is ill. That’s dangerous.
A third of fit notes sign people off for five weeks or longer, and a fifth of people who are off work that long never return to work. Ten years ago, there was an effort to nudge doctors towards keeping people in work, by including a section that allows doctors to say the holder should stay in work but receive help, such as physiotherapy or counselling; but that is used only in one in 20 fit notes.
Perhaps unsurprisingly, it’s low-paid people who suffer most from chronic ill health. According to research by Jonathan Haskel of Imperial College Business School and Josh Martin of the Bank of England, office professionals are less likely to be long-term sick than people who work in health and social care, and those who are employed by households – cleaners and carers. In other words, those who are most likely to need occupational health treatment are those least likely to get it.
If Braverman’s analysis held water, the problem of the shrinking workforce would be easier to deal with. Tighter benefits rules could shift malingerers from their sofas. The labour market would start working again and we would be set fair for another burst of economic growth. Regrettably, the problem is more complex than that.
The pensions issue is more susceptible to adjustment. Britain is unusual in giving generous tax breaks for retirement saving and yet allowing people to cash in some of their savings before the state retirement age.
The result is that the state forgoes tax revenue on the workers’ income and on the returns from the money invested, while the system incentivises people to retire early, which is a drain on the economy and thus on tax revenues. Preventing people from using their pensions before they are of pensionable age would solve that.
The main factor driving people out of the workforce – the nation’s deteriorating health – is the knottiest of all these problems. Separate but interlinked issues lie behind it. Poverty, inequality, falling living standards, rising anxiety, growing obesity and the breakdown of the health service are all contributing to the growth of long term ill health.
Reversing that is a tall order, but if we can at least stop the flow of people out of the workforce, both individuals and the economy would benefit. An occupational health system that covered the whole workforce, not just those in the public sector and big companies, would help. It could be delivered either by a health service whose job included making people fit for work, not just discharging them from hospital, or by the private sector.
In the meantime, an overstretched NHS is all that’s on offer for most of the long-term sick. Davies, the train driver, is hoping for respiratory physiotherapy, which might get her fit enough to work again. She’s 58, and desperate to get back on to the footplate before she reaches retirement. “I miss driving so much that I get a little thing in my tummy when I see a train.”
The Times
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