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SACCELERATION. Slippery. Idler. Loafer. The English language has many memorable words for those who see them as work. British politicians have made great use of them in discussing economic inactivity. Economists, however, used to point out that Britain had a good record on this score. For two decades to 2019 its inactivity rate (the share of people of working age not working or looking for work) was among the lowest of any rich country. Then something went wrong. Pandemic lockdowns crippled economic activity everywhere. But while other economies have bounced back – since 2020 the unemployment rate has fallen, on average, by 0.4 percentage points across the country. OECD, a club of rich countries – in Britain, uniquely, it continues to climb, and is up 0.5 points. What’s going on?
The reason is not immediately debatable: more Britons than ever are classified as ill. Data released this week showed that a record 2.6m people are economically inactive due to long-term illness – an increase of 476,000 since early 2020. And there is a big bill. The Office for Budget Responsibility, the fiscal watchdog, says more long-term illnesses have added £15.7bn ($19.6bn), or 0.6% of GDPto the government’s annual borrowing due to the loss of tax receipts and higher welfare costs.
It is more difficult to find the cause of the sickly swelling rolls. Could covid, its long-mysterious cousin covid, or more murky post-pandemic mental health be to blame? Almost. These are not specific to Britain. Are the days of the National Health Service to blame? Waiting lists for elective treatment have grown significantly: from 4.6m in February 2020 to 7.6m this summer. But look closely, and this is not the answer either. More than half of those waiting for care are not of working age. And the biggest drivers of higher waiting lists by type of treatment (for example, musculoskeletal issues) are not according to the reported conditions of long-term sick people (which are often related to mental health).
Instead, the main reason is in the welfare system. The previous Labor government, and the Tory-led ones since 2010, gradually made it more difficult for claimants to get incapacity benefits. That helped protect against fraud and kept levels of economic inactivity low. But some people with real needs have been wrongly denied benefits. In 2019, after several high-profile cases of people being declared fit for work and then dying, the government reversed course and made it much easier to get benefits. More than 80% of applications submitted in the 2019-20 fiscal year were successful, up from just 35% in the previous decade.
At the same time, false incentives were added. The old system did a good job of getting those who were temporarily incapacitated to return to work as quickly as possible. The new one has greatly increased the benefits associated with claiming to be permanently disabled. Those who are deemed unable to return to work now will receive twice as much as expected to return to work one day. This gives people a strong incentive to exaggerate their illnesses, and not look for work anymore.
Policymakers should find ways to tighten. While they are careful not to penalize those who are seriously ill, they should encourage those who are able to go back to work, even part-time. This means providing temporary disability benefits, and regularly reassessing recipients to see if their health has improved, which is rarely the case. – today. Politicians are no doubt keen to reopen the welfare debate as an electoral tool. But avoiding it comes with a huge and growing cost. Their job is to capitalize the safety net wisely. They must not stray, avoid or push. ■
