hi-ho, hi-ho, it’s off to work we go…
Immigration, both legal and illegal, has long been an issue within ol’ Blighty, often appearing centre-stage. But if immigration is red hot then what this feeds into, the actual composition of the workforce, is viewed as being luke warm at best. The issue, again highlighted in last week’s budget, detailed that the large number of people opting out of work is a significant factor within the UK economy, termed the de facto great resignation.
A rise in economic inactivity obviously reduces growth and makes it harder for the economy to expand. It reduces tax revenues available to fund public services, contracts the available workforce and limits labour supply in certain sectors. Every politician, of every hue, tells us that boosting the workforce and positively growing our productivity are essential in raising our economic prospects but who and where are the missing workers?
Since the pandemic, Britain’s official unemployment, at 1.3 million people, has been at its lowest point since the early 70s. This would usually be a sign of strong economic health, yet, at the same time, our workforce has dramatically shrunk. There are estimated to be a further nine million working-aged individuals who are deemed ‘economically inactive’ and are neither employed nor looking to be so. A large number of these are students, carers, housewives/house husbands or retirees but many are thought to be ‘hidden unemployed’ – those who’d like to work but can’t. Latest government figures state 1.8 million who would like to work, 600,000 whom can’t do so due to long-term sickness.
The current crop of retirees, predominantly baby boomers, are obviously a large proportion of the economically inactive and represent a generation that, in many cases, had generous pension plans, benefited from accrued property wealth and consequently have been able to retire early. This was exacerbated by the pandemic where many reassessed their priorities and cashed-out early. Others, including 43,000 women who dropped out in 2022 alone, are leaving the workforce due to taking on childcare responsibilities.
Exactly a year ago, in his first budget, the Chancellor Jeremy Hunt, published what he called his ‘back to work’ budget. Featuring a series of reforms costing #7bn, designed to increase workforce participation these included allowing people to save more in private pensions without facing tax penalties, offering more support to help the less-abled find gainful employment, and extending free childcare to thirty hours for every child over nine months old. Sadly, the effect was minimal and at a cost determined by the Institute of Financial Studies of a staggering #70,000 per job! His latest budget measures will likely tell a similar story this time next year.
The two elements of this Supply/Demand equation are entirely predicated by how difficult the incumbent administration wants to make the option of staying out of employment and how attractive they wish to make the appeal of returning to work. The current cost of living crisis is doing its bit on the former but it’s not enough to balance the books. As a society we have to accept that we are a relatively low-wage/low productivity economy which needs a healthy dose of immigration to allow it to continue to function. Furthermore, the stark reality is we’ll need to encourage more to have a hope of developing a more buoyant growth-oriented society sometime in the future. Now, if we could only kind such an available and supportive workforce, one which may also prove to be from our largest commercial marketplace, and perhaps even be on our doorstep…
