Over the last five years, the number on out-of-work sickness benefits has risen from two to three million. We know the associated welfare cost from DWP figures: another £10 billion a year. But what’s the cost to the economy of losing all these workers? The OBR says growth is expected to be pretty sluggish in the next five years. But what if the number on sickness benefits had not risen five years ago and stayed the same? In other words, what if the ‘missing million’ were still in the labour force and we regained our control of sickness benefit numbers. How would things look then?
We asked the CEBR to model this scenario: sickness benefits levels bottoming out at two million five years ago, and those extra million of working-age people entering or staying in the workplace instead. Had this happened, the CEBR says, then GDP by 2028/29 would be 3.1 per cent (£84 billion) larger, bringing in £30 billion in extra tax revenue.
As the CEBR says: “the expanded labour force from a smaller inactive population could encourage firms to be more pro-labour in their input decisions, helping to absorb more previously inactive workers into employment while maintaining existing ones.”
For years, the UK government - and the OBR - operated on the assumption that sickness benefits would not rise. We seemed to have got on top of it as a country. Every year, the DWP produces forecasts for sickness benefit caseload and for years it envisaged it falling or, at worst, stagnating. The below graph shows previous DWP forecasts, which are always based on OBR assumptions.
And what if we recovered that ambition - and, indeed, wanted to get far more people back in work? In the landmark Pathways to Work report published by Barnsley Council (pdf), perhaps the most thorough look at this problem, Alan Milburn offers a figure of 4.5 million.
Here is the good news. This is a huge pool of unused talent. The research undertaken for this Report suggests that seven in ten people who are currently economically inactive would like to take a job that is aligned to their skills, interests and circumstances. If our research findings in Barnsley were applied nationally, it would suggest there may be over 4.5 million
economically inactive people who could be in the market for a job now or in the future. That is 3 million more than the numbers who ‘want a job’ according to official Labour Force Survey figures.
What would this 4.5m more workers mean in extra GDP and tax revenue by 2028/29? We asked the CEBR to quantify. Its response:-
Under the scenario in which 4.5 million currently inactive people obtain work, as per the Pathways To Work report, the boost increases to £229 billion or 8.4 per cent of annual GDP by 2028-29. The increase in tax revenue would be £82 billion.
Moving 4.5m into work is, of course, an implausibly large number for any timespan in the near future. It would be a remarkable feat for the UK to reverse the projected decline in economic activity rates, let alone move 4.5m into work. The stated ambition of Keir Starmer's government is to raise economic activity to 80 per cent.
This should be seen as an exciting opportunity, rather than a mission impossible. Reforming the labour market is tough, perhaps the toughest task in politics. But it could well be that Britain's only route to serious economic growth - and to a formula that can fund public services - is to find a way to bring the missing million back into the economy.
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