Report charts rising economic inactivity

The UK is slipping down the OECD employment ladder due to high rates of economic inactivity since Covid, according to a new report.

The Resolution Foundation think tank report found that the UK has fallen from having the second-highest employment rate in the G7 in the last quarter of 2019 to having the fourth-highest employment rate in the second quarter of 2023, with Germany and Canada rising into second and third place. Looking at the OECD more widely, the UK has slipped from an impressive sixth place down to thirteenth place.

The report says high economic inactivity – not high unemployment – is the reason.  The number of working-age people who are economically inactive in the UK increased from 8.6 million to 9.3 million between December-February 2020 and November-January 2024, a rise of 700,000 or 8 per cent.  On the other hand, the number of working-age people in employment and unemployment is near-identical to that on eve of the pandemic.

The oldest and youngest are behind the rise. While some of the economic inactivity among the young is due to them being in full-time education, but economic inactivity due to long-term sickness is a major cause of concern, says the report. There were 2.7 million working-age adults economically inactive due to long-term sickness in November-January 2024, peaking at a record-high of 2.8 million a couple of months earlier in September-November 2023. Economic inactivity due to long-term sickness has been rising consistently on an annual basis for the past four-and-a-half years since the summer of 2019 and this represents the second-longest sustained rise in sickness-related inactivity on record. 

When it comes to health, mental health and musculoskeletal problems are the biggest causes of long-term sickness. The Resolution Foundation says it is the rising number of new claims for PIP (Personal Independence Payment, the main non-means-tested benefit for those with health conditions or disabilities) that will cause policymakers the most concern. Among 16-64-year-olds in England and Wales, new claims for PIP increased by two-thirds (68 per cent) between November-January 2020 (on the eve of the pandemic) and November-January 2024 and the number is continuing to rise.

The report says benefits changes may be in part to blame and that toughening unemployment benefits criteria, for instance, by introducing more conditionality, may mean an increase in claims for health-related benefits. Rising NHS waiting lists are another cause of concern. The report cites increases in the 1990s when benefits changes were introduced, saying: “If we look back at the experience in the 1990s, we can see that the rise in economic inactivity due to long-term sickness was followed by significant changes to the benefits system (most notably the introduction of Incapacity Benefit in 1995), rather than significant action to improve the health of the population.”

It states: “Any spell out of work due to ill health can be damaging to an individual’s well-being and living standards, but the risks are even greater for young people at the start of their working lives. But we should also worry about older adults spending their later years in poor health and on a low income, particularly given the UK’s demographic profile. If we fail to address this problem soon, it is likely to result in even higher costs in the future.”

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