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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
At times, watching chancellor Jeremy Hunt deliver his Autumn Statement felt like witnessing a gladiatorial contest between a plucky contender and a many-headed hydra. Chop at one head — inflation — and another springs up — lacklustre productivity. Slay a headline tax, and a stealthier one looms. But the ugliest monster of all, the scourge of lives and the economy, is worklessness.
A quarter of all working-age adults in Blackpool, Birmingham and Liverpool are neither in work nor seeking work. A fifth of those in Warwick, East Staffordshire and many other places. Promises to level up the country are empty against this growing stack of wasted lives.
Hunt deserves credit for trying to tackle this. Curbing the welfare bill is the most thankless task in government, as decades of both Labour and Conservative ministers have discovered. Yet not only does the way welfare is dispensed have a huge impact on people’s lives, it is also the most significant area of government spending. At £300bn, over 40 per cent of which is the state pension, it dwarfs even the budget for the NHS (less than £200bn in England). Even with Hunt’s proposed reforms, which aim to help nearly 700,000 people back into work, the bill for incapacity benefits — already up from £15.9bn to £25.9bn in the past decade — is set to climb to £29.3bn by 2027-28.
Until the pandemic, efforts to make work pay had made Britain one of the best performers in the G7. Between 2010 and 2020, the number of economically inactive people of working age fell from 9.5mn to 8.4mn. This meant fewer children growing up in workless households, and more people finding hope. This would have pleased William Beveridge, who never intended that the postwar welfare state he helped design should create permanent dependency. “A person who cannot sell his labour is in effect told he is of no use,” he wrote. “Idleness even on an income corrupts; the feeling of not being wanted demoralises.” The past decades have shown how right he was: the longer someone is out of work, the more likely they are to become depressed and anxious, and the less likely ever to get another job.
When it first became apparent that something had gone wrong after the pandemic, that the UK was alone among rich countries in seeing an increase in post-Covid economic inactivity, one assumption was that many were trapped on NHS waiting lists, or caring for someone who was. But that wasn’t quite right. Only a quarter of the long-term sick are waiting for treatment. And the biggest relative jump in economic inactivity due to long-term sickness is in the under-35s, whose main complaints are depression, bad nerves or anxiety: not the main treatment areas on the NHS waiting list.
The welfare system itself is partly to blame, according to the Office for Budget Responsibility. In the pandemic, requirements to look for a job were largely waived, and people were allowed to self-certify to get statutory sick pay, rather than see a doctor. But previous changes had already made long-term sickness payments easier to get — and more generous than for people who were deemed temporarily unable to work. Had the criteria for receiving incapacity benefits remained the same after 2016, the OBR says there would have been 670,000 fewer approved claims by now. Its analysis suggests that claims tend to mirror changes in criteria. In the late 1980s, for example, tighter criteria for unemployment benefit were followed by a fall in the unemployment caseload and a rise in that for incapacity. The situation reversed in the 2000s, when rules were tightened.
This doesn’t mean many mental health problems aren’t genuine. We still do not know the total, grim toll of the national lockdowns. But depression and anxiety do not have to be permanent.
The government is spending an extra £2.5bn to help people with health conditions back into work, including on talking therapies. Hunt has threatened “consequences” for people who refuse help, tracking whether people deemed fit to work are actually job hunting and reintroducing mandatory work placements for those who do not find a job within 18 months. These amount to a return to the tougher, pre-pandemic regime.
Labour will be grateful that Hunt has done some of the heavy lifting. Rachel Reeves, his shadow, has accepted the chancellor’s proposals on the work capability assessment, which are bound to be challenged by charities. She also emphasised the need to improve the NHS, but that’s only part of the puzzle. Disentangling those who are too ill to work and in dire need of support from those who could hold down a job is a tortuous enterprise. But politicians should not be shamed for trying to do so. If incapacity benefits outpace unemployment benefits, that is also unfair.
Will it be enough? In Beveridge’s time, the labour market was in a transition to mass production. Now, we see something different: the erosion of the dignity of work, with many low-paid jobs both demoralising and insecure. Hilary Cottam, the social entrepreneur, says that most people don’t want handouts. But they do want autonomy and work that involves some kind of meaningful relationship with an employer. That is a challenge for the whole of society and cannot just be left to the state.
When Hunt announced that the country had “turned a corner”, he was laying the turf on which the next election will be fought. But when it comes to economic inactivity, Britain is stuck in a hole. Digging ourselves out will be a generational exercise.