Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Last month, the UK’s government announced a series of proposals to “get Britain working”, premised on the claim that the country is facing “spiralling economic inactivity”, with “2.8mn people locked out of work due to long-term sickness”.
Regular readers of this column may recognise these themes from a series of articles I wrote in 2022 arguing that Britain was facing a unique crisis among developed countries. An enduring post-pandemic contraction of the labour force had been caused by a rapid rise in chronic health problems in the working-age population — including a mental health crisis in young people. But with the aid of more and better data, I now think both parts of that narrative were wrong or at best overstated.
First, and most glaringly, the apparent rise since 2019 in the share of working-age Britons neither in work nor looking for a job is now thought to have been illusory, caused by a cratering in the response rate to Britain’s beleaguered labour force survey which has distorted its results. My analysis of the UK Household Longitudinal Study, an alternative source of socio-economic data with a response rate that has remained much higher, finds the UK’s inactivity rate was slightly lower last year than before the pandemic. This is in line with an analysis of administrative data by the Resolution Foundation, which estimates inactivity is at roughly the same level today as in 2019.
But perhaps more important is that a close interrogation of multiple data sources suggests the apparently steep recent rise in worklessness due to long-term sickness among Britain’s working-age population is also not what it seems. An international comparison of the share of working-age adults who say long-term health problems are keeping them out of the workforce raises immediate suspicion. While the trend in most countries looks exactly as we would expect from a measure of chronic illness — a very gentle upward slope over the decades — Britain’s is a rollercoaster, climbing in the 1990s, falling in the 2010s and then surging again from 2019.
In fact, the peaks and troughs of the UK’s illness-related inactivity trend are an almost exact doppelgänger of an entirely different statistic: the share of working-age Britons in receipt of incapacity benefits. This matters because research has consistently found that, in country after country, the waxing and waning of health-related benefit caseloads is almost always driven primarily by changes to incentives and stringency in different parts of the benefit system, rather than by changes in people’s health.
Britain is no exception. In the 1980s, the Restart scheme made unemployment benefits relatively less attractive, incentivising the long-term workless to switch to invalidity benefits, which they did in droves. In the 1990s, the switch to incapacity benefits made the medical screening process more stringent, and the rise in caseloads came to an abrupt halt. In 2008, the switch to employment and support allowance saw existing benefit recipients reassessed under new tougher criteria, and sure enough caseloads shrank.
Crucially, with each tweak to the system, the share of Britons saying illness was keeping them from work rose or fell in lockstep with caseloads despite minimal change in self-reported underlying health. The ascents did not indicate alarming rises in rates of illness, and the descents did not reflect dramatic improvements in health.
The past five years fit the same pattern. The transition to universal credit and the shift from in-person to online assessments in a system where health-related payments were already more generous than unemployment benefits have tweaked the incentives once more, nudging the already long-term workless into the “for health reasons” box. Strict conditionality requirements that threaten to strip benefits away if someone wants to re-engage with the labour market effectively lock the door behind them.
Sure enough, if we look away from labour surveys that ask about the interplay of health, work and a constantly changing benefits landscape, and instead simply ask people whether they have a long-term illness, we see little change in working-age Britons’ health over recent years.
It turns out the apparent rise in Britain’s illness-related inactivity is mostly not about deteriorating health, but about incentives within the benefit system. Policies focused on the latter stand the best chance of getting Britons working.