Britain’s worklessness is the result of years of poor political decisions

•  Economic inactivity was instrumental in pushing Britain into recession
•   Getting people into the labour market has proved an insurmountable ideological challenge
•   Successive governments have failed to make the tough reforms needed to get people into work

Source - Capx 16/02/24

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It’s rare at present for conservative commentators to agree with the Office for National Statistics. But its recent focus on the role of this country’s high level of worklessness – especially in response to yesterday’s news that the United Kingdom has entered a recession – is an exception.

The basic argument is perfectly orthodox economics: lower employment means lower earnings, which leads to lower consumption, which leads to less growth. Grant Fitzner, the ONS’ chief economist, put it thus:

‘If more people were in work, consuming, producing, we would have higher GDP numbers, so the fact that economic activity fell significantly post-pandemic and has only partly recovered is one of the factors underpinning weaker growth, and obviously that would also underpin weaker consumer spending, given there are fewer people in employment and spending money.’

This is of a piece with the Government’s recent focus on the so-called ‘economically inactive’ – people who aren’t in work for whatever reason. 

Policymakers are right to be giving this problem some attention – and not just for the slightly arcane implications for whether the overall economy grows or shrinks by a couple of fractions of a percentage point in a given quarter. At a time of high taxes and stretched budgets, it makes sense to see where more blood can be squeezed from the stone of the British economy. And of course it is better for people economically, psychologically and socially to have purposeful work rather than sitting around at home.

However, there are also real dangers to the politics of reasoning backwards from aggregate data. It’s perfectly understandable for the ONS to do it, that’s their job. But it risks a politics where people’s individual wants and needs are suborned to making this or that line go up.

Take a look under the bonnet of the term ‘economically inactive’, for example, and one soon learns that it isn’t a simple matter of getting people off the welfare rolls and back into work, however important that is.

Most obviously problematic are those not working for health-related reasons, given the huge NHS backlog and the Government’s ongoing stand-off with the British Medical Association. But other groups pose a trickier ideological challenge.

One is our ever-increasing number of students. This group is the product of years of policy to push more and more people into higher education – a pattern which shows no sign of abating.

Others, such as early retirees, have benefited from policies that enabled them to stop working. These are particular challenges for the Conservatives because (setting aside their endless agitation over the Triple Lock), they are very often living on their own resources rather than drawing from the state. 

As I’ve noted before, it is weirdly Stakhanovite for the Tories to argue that people have a higher duty to labour for the economy, even if they have provided enough for a comfortable life for themselves.

(It is also very obviously unjust to try and tempt older workers back with favourable tax policies, as has been suggested, when their younger colleagues are already paying usurious marginal rates on lower incomes.)

But it is entirely consistent with other policies – for example, a childcare system explicitly focused on getting parents back into work as soon as possible – that treats citizens as cogs in the GDP machine first, and people second

Placed in a broader context, however, the current focus on worklessness is somewhat dishonest – and not just because ministers remain happy to boast about low unemployment, despite the very logic of the ONS’ argument being that the headline unemployment rate is a bit of a fiction.

If juicing the economy were really a national priority, an obvious step would be to reform or scrap the pensions triple lock, which funnels an ever-growing share of government spending toward a generation which is not only wealthier than average but also spends less on consumption than younger cohorts.

Another way to boost consumption would be to tackle the housing crisis. This would not only provide a big stimulus from construction, but over time would also mean working-age people were no longer spending record shares of their post-tax income on rent, leaving more money in their pockets to spend. It would also improve labour mobility, a major drag on the economy. 

Investment in energy infrastructure would do the same thing, both slashing household builds (and government subsidies where bills do not reflect prices) and reducing operating costs for energy-intensive industries such as manufacturing. 

The list of possibilities goes on. Deregulating childcare would allow more people to work as childminders, as well as giving parents more flexibility in making their family arrangements. If government made a priority of in-work qualifications and non-academic pathways to employment, it could simultaneously slash the number of people ‘economically inactive’ as students and the share of younger workers having their incomes crushed by loan repayments. 

(Instead, Rishi Sunak used his conference speech in Manchester to announce the abolition of T Levels. In T Levels week. Without telling the Department for Education.)

Yet none of this is happening. Time and again, successive governments have shied away from making the case for long-term capital investment or structural reforms to education and training. The result instead is the worst of both worlds: a stagnant economy with no wage growth, and a policy mix aimed at chaining all available hands to the oars, just to try and keep the GDP figures on the right side of zero.