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Chancellor Jeremy Hunt faces an uphill task to get Britain’s battalions of economically inactive people off the welfare rolls and back to work.
The latest newly released official data shows that the inactivity rate among people aged 16 to 64 increased to 21.8 percent of the workforce or 9.2 million citizens in the last year.
Some 700,000 more people receive benefits than before Covid-19. This at a time when employers are complaining bitterly about labor shortages and vacancies have reached record levels.
Hunt is deploying a range of weapons to try to get Britain working again.
He wants standards for access to health benefits (more generous than unemployment payments) to be tightened and is establishing a series of pathways designed to make it easier for those who are economically inactive to re-enter the workforce.
Expanding benefits: Shadow chancellor Rachel Reeves says she wants to put people back to work
Britain has become an economic outlier in the effort to get its citizens back to work after the pandemic, even though on several measures the economy has performed better than its counterparts except the United States.
The fastest-growing cohort of inactive people, according to the Office for Budget Responsibility (OBR), are those suffering from mental health problems, accounting for around half of the increase in numbers since the pandemic.
At the Treasury select committee yesterday, OBR chairman Richard Hughes described “persistently high levels of inactivity” as a “feature of the post-pandemic environment” and suggested it was worrying from both “a human wellbeing view” and of fiscal sustainability”.
The growing benefits crisis is as big a problem for the Labor Party as it is for the Conservatives.
In post-budget comments to the BBC, shadow chancellor Rachel Reeves caused consternation in the welfare lobby by arguing that her party’s job would be to get people back to work.
“There are 700,000 more people who will receive sickness benefits,” he said.
As disability campaigner Frances Ryan argued in The Guardian this week, it was as if Reeves agreed that “the last decade of Conservative government has been too soft on benefit claimants”.
Whether the Conservatives have been too lenient on benefits is a matter of opinion. But in the fiscal risks report published in July, the OBR was absolutely clear that the path to claiming sickness benefits had become easier since the pandemic, with mental illness being one of the main reasons.
Contrary to some left-wing critics, such as Labor MP Angela Eagle, very little of this can be attributed to the length of NHS waiting lists. There is a habit among critics of the Conservatives of hitting them with the OBR weapon.
A week ago, on budget day, Hunt came under attack for manipulating the limits of so-called ‘headroom’ – additional fiscal space – to deliver his second cut to national insurance contributions in four months.
Remain supporters in the 2016 EU referendum also use a now-outdated OBR assessment to suggest that Brexit will rob the UK of between 4 and 5 per cent of national output over time. When it comes to the unemployment crisis, they seek some distance from the OBR.
In particular, the budget watchdog argues that the growing choice of the economically inactive to claim health benefits is as much due to relatively easy access, less conditionality and “more generous benefits” as anything else.
The costs of economic inactivity and the pressure it is putting on welfare budgets are a huge problem for the Treasury and future fiscal policy.
When discussing the magnitude of public debt, much attention is paid to the interest rate bill on the national debt.
The positive headline is that as inflation falls (it is expected to reach 2.2 percent in 2024), so will the cost of borrowing and the size of the deficit in public finances.
The most permanent obstacle to improving public services and reducing taxes is the enormous number of people who do not work and who demand more and more resources from the national budget.
In the worst case scenario, which gets closer and closer with each revision of idleness figures, there is a budget triple whammy.
Tax revenue is £10.9 billion lower because people are not working, the social care bill is £7.6 billion higher (largely due to disability benefits) and departmental spending is £1.3 billion higher.
As a result of the extra spending, debt interest payments would likely be £1.5 billion higher than otherwise by 2027-28.
No one on benefits lives a life of luxury and there must be compassion for those still suffering the after-effects of the pandemic.
However, the growing legion of those who have withdrawn from the workforce is among the main factors driving ever-higher taxes and below-average productivity, growth and prosperity.