Whitehall to review shrinking labour market as record sickness rates hit workforce

BRITAIN’S shrinking labour force is to be reviewed in Whitehall after more than 600,000 people dropped out of work amid a surge in long-term sickness and early retirement since 2019.

Jeremy Hunt, the Chancellor, said he was concerned about the “sharp increase in economically inactive working-age adults”.

The UK’S employment rate is 1.1 per cent lower than before the pandemic, making it an outlier among developed nations.

About 630,000 more people have been classed as neither working nor looking for a job since the Covid crisis, according to the Government. Mr Hunt said: “Employment levels have yet to return to pre-pandemic levels, which is bad for businesses who cannot fill vacancies and bad for people missing out on the opportunity to do well for themselves and their families.”

The Department for Work and Pensions will be expected to produce its review on how to address the problem at the start of the new year.

Labour shortages are believed to be adding to inflation and dragging down productivity.

Much will hinge on bringing down unprecedented NHS backlogs.

Between June and August a record 2.5 million people reported long-term sickness as the main reason for economic inactivity, up from about 2million in 2019.

Mr Hunt said the Government would ask about 600,000 people on Universal Credit to meet a work coach to discuss how to increase their hours or income.

Experts say the announcements are a positive development as they show the Government is taking the issue seriously. Tony Wilson of the Institute for Employment Studies, said: “I think we’re at the point where we need to do something about this. This has been a pretty clear and growing problem over a year now. We need to make sure that we’re actually reaching and talking to people outside the labour force.

“Often that means reaching them through the services they use. And that tends not to be Jobcentre Plus, but that might be through health services, schools, local councils.”

Mr Wilson said the Government’s plans to make more Universal Credit recipients talk to a coach could backfire as many people are unable to work longer hours because of high child care costs or health issues. He said: “A lot of times, people’s interactions with Jobcentre Plus can be quite negative.

“We need to be careful that we’re not threatening to cut people’s benefits if they don’t take some extra hours.”

The Office for Budget Responsibility (OBR) revised down the UK’S labour force participation trend rate by 0.3 percentage points on average, bringing it down to 63 per cent.

The downward trend also adds to the pressure on public finances as the OBR said that the rise in inactivity from longterm sickness echoed the increase in new claims for disability benefits.

It said: “That has led us to revise up our forecast for spending on those benefits significantly.”

Backlogs at the NHS reached a record seven million in August. Many experts say this is linked to the shrinking workforce.

World Bank estimates show that many developed countries will soon have fewer working age people. The UK will see a 3.1 per cent decline in the decade to 2036, which is similar to that of the United States and Canada.

Germany is likely to see a 7.2 per cent reduction and France 3.8 per cent.

Mr Thomas said: “The UK either has to find new workers, bring people back into the workforce or find new ways of becoming more productive.”