The growth in economic inactivity is due to a rise in the number of people who have a long-term sickness, according to research by consultants LCP.
In his 2022 Autumn Statement speech, the chancellor drew attention to the fact there are 630,000 more people of working age who are “economically inactive” since the start of the pandemic.
Since then, work has been going on across government to understand the reasons for this phenomenon, and the March 2023 Budget is expected to include measures designed to get this number down.
Initial commentary on these figures dubbed it a ‘great retirement’, suggesting that large numbers of older workers have chosen to opt out of paid work and are living off their pensions, after they enjoyed a slower pace of life during the pandemic.
However, consultants LCP argued that early retirement is not the cause of this inactivity.
LCP said retirement explains none of the increase in inactivity since the start of the pandemic, stating there are actually fewer people of working age who are retired now than there were at the start of the pandemic.
Instead, it said there has instead been a big rise in the number of people who are long-term sick as the key factor, especially among the over 50s.
This is summarised in the chart below:
Source: ONS statistics for seasonally adjusted levels of economic inactivity. Base period is Dec 19 – Jan 20, latest data is for Oct 22 – Dec 22.
Steve Webb, partner at LCP, said: “There is a real risk of the government ‘barking up the wrong tree’ when it comes to the growth in economic inactivity.
“Policy solutions which aim to reduce early retirement or to encourage the retired out of retirement are likely to have only limited effect in reversing recent trends.
“Instead, the policy effort needs to be focused around understanding why flows into long-term sickness have grown and on early intervention to prevent people’s health from deteriorating.”
The research by the firm combines a range of data sources to understand what is going on - such as the ONS Labour Force Survey data (the same source as used for the chancellor’s figure), DWP benefits data and NHS waiting list data for England.
Key findings found that the growth in economic inactivity is not just about the over 50s with nearly half (45 per cent) of the chancellor’s 630,000 figure for the growth in inactivity relating to those aged under 50.
It said a large part of the growth among those under 50 is in the numbers in full-time education.
The paper also found that the increase in economic inactivity is now 516,000, but the number in the ‘retired’ category has actually fallen while the number of ‘long-term sick’ has risen by over a third of a million (353,000) since the start of the pandemic.
LCP said this accounts for more than half of the growth in inactivity over that period.
Webb said: “Without action there is a risk of a growing core of people stuck in long-term receipt of sickness benefits with limited prospect of returning to paid work and damaged prospects for retirement.
“Without urgent and targeted research and action we risk a generation of working age adults with poorer health, employment and productivity as a lasting legacy of the pandemic.”
LCP explained that the rise in long-term sickness seems to be because more people are ‘flowing on’ to long-term sickness, particularly those previously classed as ‘short-term sick’.
It argued this could reflect NHS pressures as those who would otherwise have been treated or had their chronic condition better managed and able to work now find themselves ‘long-term sick’ as they wait for treatment or live permanently in poorer health.
Numbers on sickness-related benefits have been rising steadily, with the growth pre-dating the pandemic, but now worsening.
Source: LCP
It said although employment and support allowance is being largely phased out now, the number of people in receipt for over five years has actually gone up in recent years and now stands at over 1mn.
Dr Jonathan Pearson-Suttard, head of health analytics at LCP, said: “The pandemic made clear the links between health and economic prosperity yet policy does not yet invest in health to keeping living in better health for longer.
“NHS pressures have led to disruption of patient care from increased waiting times for routine surgery to less regular checks for those living with chronic diseases –all likely to be impacting people’s ability to work now and in the future.”
The report proposes that the government should look at a local level at data on benefit receipt and on NHS pressures to see if bottlenecks mean that more people are getting stuck on sickness benefits and remain ‘economically inactive’ for longer.
It found that existing statistics on elective waiting lists provide little clarity as they include large numbers of those over pension age waiting for treatment, and this would not directly help to explain trends in working age inactivity.
It argued data on GP pressures capturing waiting times for people with chronic conditions such as back pain, depression and diabetes could provide greater insight.
Pearson-Suttard added: “Joined up and local health and employment data could identify the link between ill-health and sickness benefits in sufficient detail to drive meaningful intervention to prevent this downward spiral.
“Without urgent and targeted research and action we risk a generation of working age adults with poorer health, employment and productivity as a lasting legacy of the pandemic.”
A government spokesperson said: “We’re considering a range of factors to address inactivity, and further details on this will be set out in due course."
sonia.rach@ft.com
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