Tackling economic inactivity amongst the UK’s working age adults

Social security was central to two major policy launches that Policy in Practice was involved in last week.

The first is a new report on improvements to the welfare system by Bright Blue , covered by the BBC, which calls for the introduction of a minimum income as well as a new digital platform for Universal Credit claimants which would process all benefits and grants available to low-income working-age adults. We'll be writing more about this in the coming weeks, and are speaking about the report in Parliament and an event in early February.

The second is the respective policy announcements by the government and opposition to tackle rising economic inactivity, which this article focuses on.

Economic inactivity is a priority issue

Statistics from the Office for National Statistics (ONS) show that there were half a million more people out of the labour force due to long-term sickness between spring 2019 and summer 2022. This economic inactivity has grown considerably since the start of the pandemic. More than half (55%) of those out of the labour force are aged between 50 and 64, whilst the proportion of 25-34 year olds out of the labour force rose by 42%.

In a bid to combat the number of people who are economically inactive, the Shadow Secretary of State for Work and Pensions, Jonathan Ashworth MP, gave a speech at the Centre for Social Justice last week on Labour’s plans to support people into work. The following day, the government shared its plans to allow people to continue claiming sickness benefits after returning to work to be featured in the forthcoming Health and Disability White Paper.

The government seeks to ‘de-risk’ the journey into work

The government’s plans involve overhauling or scrapping work capability assessments, which Mel Stride, the Secretary of State for Work and Pensions, described as containing a “pervasive incentive to prove how sick you are.”

The Out of work disability benefit reform report from the Social Security Advisory Committee (SSAC), published in November 2022, highlighted the need to 'de-risk' the journey into work for people with long-term sickness or disabilities. This would involve removing the worry for claimants that trying a job would lead to the loss of Limited Capability for Work (LCW) or Limited Capability for Work Related Activity (LCWRA) status, which can be a lengthy and arduous process to obtain.

The Work Capability Assessment (WCA) is stressful for people, and the risk of losing the additional support, and protection from conditionality and sanctions. This makes taking work, with the associated risk of losing the protections from the LCW if they lose their job, a barrier to moving into work.

The government has yet to set out exactly how disability and sickness benefits would interact with work under the new proposals. However, we know that people on Employment and Support Allowance (ESA) in the support group can currently work up to 16 hours and earn up to ￡150 (16 hours x minimum wage) and people on the Personal Independence Payment (PIP) and Disability Living Allowance (DLA) can claim whilst working. Employment and Support Allowance (ESA) recipients can work for 16 hours per week without loss of benefit.

It is therefore likely that the policy will focus on the LCW/LCWRA elements of Universal Credit, which The Times suggests could be subject to a tapered reduction, with support gradually withdrawn as earnings grow.

The same article also reports that the Treasury is also considering tax breaks to incentivise economically inactive people to return to the workforce, including exempting over-50s returning to work from income tax for up to a year.

The Labour Party plans to devolve employment and skills support to local areas

Policy in Practice was invited to The Centre for Social Justice last week where The Labour Party also outlined its plans to reform the journey into work for long-term economically inactive people. The proposals announced in a speech by Shadow Work and Pensions Secretary Jonathan Ashworth include devolving employment support to local authorities and making Jobcentres hubs for skills training and employment advice.

It was described as a personal mission for Jonathan, whose parents worked multiple jobs. “Work meant the world to them,” he said, acknowledging that our economy and society depend on an effective social security system and supporting people into work

This policy approach aims to better use knowledge of local economies and job markets to tailor employment support to people. Jobcentres would also be expected to broker flexible work options for those with barriers to work such as chronic conditions or caring responsibilities.

Jonathan Ashworth spoke of the need to end the era of nationally imposed programmes that lead to a “bewildering spaghetti junction of a fragmented system (...) failing to achieve the promises ministers make.” He said that Labour would pool ￡20 billion of employment and skills support, and devolve these funds to local areas.

In addition, he said that a Labour government would reform access-to-work funding to enable ‘in principle’ decisions without a job offer, so that people and their potential employers would know what support was available if they find a job.

Mr Ashworth described the tripling of the assessment waiting lists for the access-to-work scheme, where employers can access funding to help support disabled workers, as shameful and said that these waiting times are preventing people from taking jobs. He outlined that Labour would also ensure that people claiming sickness benefits could take a job and return to the benefits they were on if they subsequently lose it.

Common ground on tackling economic inactivity

Both the government and Labour supported ideas to ensure that people with Limited Capability for Work who returned to work would not have to undergo a new work capability assessment if they moved out of work again within a year.

In response to a question from the BBC’s political correspondent Jonathan Blake asking whether Labour would scrap Universal Credit, Mr Ashworth said very clearly that he would keep it, but would tackle issues of adequacy and complexity which had bad outcomes for larger families. These objectives obviously come with a price tag, which would be detailed alongside all of Labour’s proposals ahead of a general election campaign.

Policy in Practice’s view on tackling economic inactivity

We welcome a return to focus on sensible, evidence-based policies where there is some common ground between the government and the opposition.

It is right that economic inactivity is a priority issue; the labour force is smaller than it was before the pandemic, making growth incredibly difficult to achieve. However, whilst these policy announcements are promising, it is action that matters.

We need to hear more about the government’s plans, but we believe that Labour’s proposals to devolve employment support to a local level could work. Local authorities are well placed to work with DWP, charities and local employers to deliver employment support.

Our Low Income Family Tracker (LIFT) platform is used by councils to accurately target support where it is most needed, using insights gained by analysing their administrative data. In this way, councils are supporting the financial resilience of residents and helping them to tackle the wider issues of debt, poor mental or physical health, housing issues and other challenges that can be crucial barriers to work. LIFT also offers an accountability mechanism for central government to ensure local delivery is effective.

To learn more about how councils use data to identify vulnerability and target support join our free webinar, How to prevent the long term impacts of short term debt, on Wednesday 25 January from 10.30 to 11.45. See details and register here.