28 January 2022

Tougher sanctions won’t tackle the big issue in Britain’s labour market

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More than a million people have gone missing. Well, I exaggerate slightly – they’ve not vanished completely, but they have dropped out of the UK labour market. There’s no single reason for this (there are a number of factors in play), but it is the major change in the UK jobs market over the last couple of years. Based on the announcements made yesterday by the Government, it’s a problem which policymakers are yet to fully engage with.

On the face of it, the latest statistics show a truly remarkable jobs recovery since the darkest days of the pandemic. The unemployment rate is roughly where it was before Covid, at about 4%. However, that number only includes people who are out of work, actively seeking work, and available to start.

It therefore masks the fact that the number of economically inactive people over 16 is 700,000 higher than it was immediately prior to the pandemic. Around 300,000 of that increase is accounted for by people over 64, who seem to have opted for early retirement, and the rest is being driven by a mixture of trends, including a rise in sickness and ill health, and inactive young people not in full-time education.

These falls compare to a pre-pandemic trend of rising rates of employment and labour market participation, plus population growth – in total, the Institute for Employment Studies estimate that 1.1 million fewer people are in the labour force than we would expect based on pre-crisis trends.

With this is mind, the announcement yesterday of a ‘Way to Work’ campaign, specifically aimed at people claiming unemployment benefits, is not going to be enough to tackle the issues in our labour market. After being trailed by the Prime Minister in PMQs as a plan to get ‘half a million people off welfare and into work’, the Department for Work and Pensions revealed that it would change the conditionality rules for Universal Credit claimants. At the moments, for the first three months they are on UC, claimants can restrict their job-seeking efforts to the area they want to work in and have relevant skills for. This period will now be cut down to just four weeks. Alongside this, the DWP said it would increase the close contact support available from work coaches, which is very welcome. 

There are around 5.5 million people currently on Universal Credit, of whom only 433,000 have been claiming for less than three months. Within that group, 182,000 are actually in work, 61,000 are not subject to any work requirements, and others are categorised as ‘planning for work’ or ‘preparing for work’. Just 179,000 or so of those people who are in their first three months of claiming are actually out of work and subject to full work search conditionality. With this in mind, the Government’s stated goal for the ‘Way to Work’ campaign of getting 500,000 more people into work seems ambitious, to put it mildly.

There is a basic logic behind the new push to get people into a job – any job – as quickly as possible, which is that the longer you are out of work the harder it is to move back into it. A sustained period of unemployment can do real damage to someone’s long-term employment prospects, as they lose touch with the workplace and the labour market. But that also means that getting people into sustainable employment, which is right for them and where they can hold down a job over the long-term, is more important than just getting them over the line into any sort of work. 

There is, obviously, a balance to be struck between giving people time and space to find the right job for them, and stopping people from taking the mickey. But the new four-week period seems rather short, given that sometimes a single job application process can drag on for longer than that.

As I highlighted in a paper for the Centre for Policy Studies last year, if we had a more contributory welfare system which took into account years of working, then we could have a system where you are given more leeway based on your past record of work. That might be a better approach to this particular issue than pushing everyone, regardless of their work history, into finding any job they can, with the threat of sanctions if they don’t comply.

It is also understandable, as has been made clear in the announcement from the DWP, that ministers want to do something about the vast numbers of vacancies there are at the moment. It’s a major problem for our economy and it’s good that the Government seems to have recognised that, and wants to do take action. But, as the numbers I cited earlier make clear, the ranks of the officially ‘unemployed’ are only a small fraction of the overall picture. More than a million people are missing from the labour market entirely. 

The changes announced yesterday are not going to be enough to fix the problems in the UK labour market. That will require a much more comprehensive policy package. Whether or not the policy does lead to some people moving into work faster, the impact can only be marginal because of the numbers of people involved. It completely ignores all of those people who we would, in a pre-Covid world, have expected to be working or looking for work, but who currently aren’t. It’s a solution looking for a problem. Meanwhile, the real problems are still crying out for some solutions.

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James Heywood is Head of Welfare and Opportunity at the Centre for Policy Studies.