There’s a racehorse called Sick Note Britain, and appropriately enough it doesn’t make a lot of money. The animal’s best result last year was in the Fillies’ Restricted Novice Stakes at Wolverhampton; she ran in second place for a while before falling back to eighth out of ten. In her other two outings she placed dead last, the bookies dismissing her chances with odds of 300 to one.
When Sick Note Britain was named two years ago the term was becoming a headline, and a widely held suspicion. During the Covid-19 pandemic, the government had spent almost £100bn – more than three times the defence budget – on the furlough scheme, which paid nearly 12 million people not to go to work. Half the country’s remaining employees had moved to working from home. As vaccines arrived and the economy was restarted, politicians became worried that the nation was taking it easy. In March 2021 the then prime minister, Boris Johnson, described the long hours people had spent keeping the economy afloat from kitchen tables and spare bedrooms as “days off”, an arrangement that in his opinion “didn’t work”.
The idea that Britain’s economy is held back by the laziness of its workers has long been a tenet of the political right. The modern Conservative Party has held to its core the idea that some people deserve to be poor, not because they don’t work, but because they don’t work hard enough. The most famous passage of Britannia Unchained, the Brexiteer testament published in 2012 by four of Johnson’s future cabinet ministers, declared that “once they enter the workplace”, British people are “among the worst idlers in the world”.
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In a sense this was true. British workers are “among” the worst idlers in the world in that they share a country with three million landlords and the Royal Family. But in another, much more important sense, it was rubbish. British workers put in longer hours in their main jobs than the Germans, Swiss, Italians, Norwegians, Irish, French, Italians, Danish, Dutch and others. Britain is by no means a low-hours country. The great joke of Britannia Unchained is that the authors couldn’t be bothered to look into how workshy the British really were.
The Work and Pensions Secretary, Liz Kendall, is now preparing to implement what she has previously described as “the biggest reforms to employment support in a generation”. The economic situation Labour inherited confers both a fiscal problem (the government needs to save money) and what the Get Britain Working group of 36 Labour MPs describes as a “moral duty” to fight worklessness and help people achieve the affluence and fulfilment that comes from having a decent job. These two imperatives reflect the bind in which the government finds itself: it needs to spend less now, but it needs to do so in a way that is conducive to growth. Success would be tremendously rewarding, because the state would spend less on benefits and have more income from a growing economy. But it will come at a heavy political price, because it will involve cutting several billion pounds from the welfare bill.
Advance warning of the plan for a new welfare system has been trailled for months. In late November last year, Keir Starmer declared that Britain “simply isn’t working”; writing in the Sun on 26 January, Rachel Reeves warned that “as a country we cannot keep footing the bill for the spiralling numbers of people out of work”; on 29 January she told ITV News: “The jobs are there – we need young people to step up and take them.”
Such language makes it sound as if there is a crisis of unemployment, but there isn’t. Unemployment is at 4.4 per cent, lower than it was for the entire 40-year period between 1975 and 2015. The dole queues of the 1980s have not returned. Instead of unemployment (people who can work, looking for jobs) we have a new crisis of “economic inactivity” and “worklessness” – people who have stopped looking for jobs, and who, in many cases, can’t work.
The government’s plans for a new careers service, thousands of new mental health staff and a “youth guarantee” to address the large number of young people not in education, employment or training were set out in a white paper published in November, titled Get Britain Working. We are approaching what Reeves described in January as “fundamental reform of our welfare system”.
What is it that afflicts our labour market – laziness, ill-health or a lack of opportunity? Is Britain really working?
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Despite many headlines warning about the “millions of Britons not working” (BBC News, November 2024), the national statistics around economic activity make for an unusually boring graph. The line of economic activity is mostly flat since 1971. When the Tories came to power in 2010, 9.4 million people were economically inactive in the UK; when they left in the middle of last year, 9.4 million people were economically inactive in the UK. The UK’s labour force participation rate – the percentage of working-age people who are in work – is exactly average for the OECD group of 38 countries. Some (Japan, Germany, the Netherlands, Scandinavia) have a higher proportion of people in work, while others are much lower. In Italy a third of the working-age population is out of work.
That hasn’t stopped the nine-million figure being portrayed as a crisis. The shadow home secretary, Chris Philp, cited it when he told the BBC recently: “We need a work ethic, we need everybody to be making a contribution.” But this is not a situation in which an “everybody” can sensibly be identified. There is no one person whose story is the story of the labour market; no Vicky from Peterborough whose situation serves as a nifty microcosm of the wider issue.
There is no simple answer to what ails the British labour market, because there is no such thing as the British labour market. “Different places across the UK have quite different labour markets,” explained Donald Houston, professor of regional economic development at the University of Birmingham and an expert on economic inactivity. A geographer by training, Houston quotes the geographer’s maxim: “National data are wrong everywhere.” Parts of the UK (some cities, but not all) have actually increased their economic activity, while others (especially rural areas) have experienced significant declines.
There are also many reasons a person can be “economically inactive”. Many of them are good things – if someone is a student, or retired, or the parent of a small child, or caring for an elderly relative. It’s a disingenuous phrase, because all of these people are clearly active in the economy, buying, learning and working in ways that are essential to a functioning society. Without the care work provided, unpaid, by millions of ostensibly “workless” parents and carers (some of whom may have retired early to provide that work), the economy would swiftly collapse.
There is one group, however, that keeps Treasury economists awake at night: the large numbers of people who want to work but are prevented from doing so by illness. In five years the number of people out of work due to ill-health has increased by 714,000, to 2.8 million. This is a serious problem for government finances. Within five years, spending on incapacity and disability benefits is forecast to grow to more than £100bn a year. Britain will soon be spending twice as much on incapacity benefits as it spends on secondary schools.
The ailing workforce is an even greater problem for economic growth. The overall number of people who are economically inactive may not have changed, but the duration of economic activity is rising. “The flows of people in and out of unemployment are very large compared to the numbers of people unemployed, so most people are only unemployed for a relatively short period of time,” Houston said, “whereas a lot of people who are economically inactive due to ill health, remain inactive due to ill health until they reach retirement age.”
The dole queue remains a memory, but in economic inactivity, we see a pattern that has a parallel with the 1980s: being out of work is becoming, for some, a permanent condition.
Still, we can at least be thankful that it’s no longer the 16th century. Under the Tudors, unemployment was punishable by death. The looting of South American gold and silver by Spain had brought piles of newly created money back to Europe, causing inflation and falling real wages. In England, many people who would previously have stayed in their village began roaming for work. New laws were written to confront the issue of the “sturdy beggar”, an able-bodied person without a job. Under the Vagrancy Act of 1547, someone who had been out of work for as little as three days could be branded with a hot iron or enslaved. Repeat offenders were executed. In 1601 the first Poor Law was passed, and the state began to distinguish between the “impotent poor” – those unable to work – and the unemployed, for whom it decreed work would be found in a “house of correction” (prison, but with unpaid labour). Over time the punishments became less lethal but a principle had been established: some people were deserving of help, others were to be pressed into work.
The Industrial Revolution would cause another surge in unemployment, as work moved from the country to the cities, and the principle held; the “deserving poor” received charity and able-bodied people without jobs were sent to workhouses. In the mid-19th century it remained relatively common for people without work to starve to death. Friedrich Engels, who saw “20 or 30 persons” succumb to such a fate during his time in England during the early 1840s, observed that “the police will take care that [the starving person] does so in a quiet and inoffensive manner”.
It was only in the late-19th and early-20th centuries that working people began to be insured against loss of income, first by trades unions and then the state. In 1971 the collection of modern statistics on employment and benefits began with the Labour Force Survey.
Six years later, in 1977, Bill Wells joined what was then the Department for Employment. He would continue working as a civil service economist, specialising in employment, until his retirement in 2014. During that time, Wells saw the state’s oversight of work and unemployment change dramatically. In 1995 the department was broken up. Training and employment were overseen by the Department for Education and Employment, while the regulation of pay and industrial relations were moved to the Department for Trade and Industry. In 2001, responsibility for benefits was moved into the newly created Department for Work and Pensions.
While this break-up allowed government departments to cope with overseeing an economy growing in size and complexity, it also meant that priorities changed. When Wells joined the civil service, the UK had been a world leader in getting school leavers into work. The Department for Employment and its predecessor, the Ministry of Labour, had existed to alleviate worklessness and poverty. The Department for Education had a different aim: to get people into university. Britain became much better at producing graduates, and much worse at getting school leavers into work.
This change in priorities was reflected in the administration of the benefits system. Out-of-work benefits were once accompanied by face-to-face contact, once a week. Over the years this shifted to once a fortnight, then once a month. Now, Universal Credit is paid monthly and people on health-related benefits can spend years without speaking to an employment adviser in person. This process took away what Wells describes as “the most effective policy we have”, which is “to actually talk to someone”.
In 2008 the Labour government introduced the Work Capability Assessment. The point was to get more people looking for work, but Wells advised the government against it. He warned ministers that quick decisions would have “permanent consequences” for those assessed. To Wells, it seemed like a recipe for long-duration joblessness: “If your own government tells you you’re permanently incapable of work, you probably wouldn’t look for a job, would you?”
When the assessment system began it was overzealous – two-thirds of claimants were declared fit for work – but this led more and more applicants to ask to be reassessed. The bureaucracy around the test grew, and in 2015 it was outsourced to an American company. Since then, claimants have become far more likely to be declared fit for work; more than 80 per cent of people assessed are now found to have limited capability for work.
By far the most common type of condition recorded during work capability assessments is “mental and behavioural disorders”, which include depression, mental disorders related to the use of drugs or alcohol, and generalised anxiety. In work capability assessments in which any health issue is recorded, 85 per cent record a mental or behavioural disorder.
For many economists this is a health crisis that manifests as a labour crisis, and the government’s main intervention so far has been £22.6bn in additional funding for the NHS and the hiring of 8,500 new mental health staff. But Wells said it also works the other way, that we are seeing the health impact of widespread worklessness: “Everybody thinks it’s about their health. It’s not. It’s about whether you’re looking for jobs or not. You can’t get a job if you ain’t looking for a job.”
What Wells means by this is not that people are deliberately avoiding work, but that the processes involved push people into a choice between trying to get work or trying to get enough benefits to live on. An idea popular on the political right is that it is too easy to get on to benefits, but in fact securing welfare can be a full-time occupation. “It takes months, particularly if you’re applying for health-related benefits… to get on to the benefit. And whilst you’re doing all of that, you’re not looking for work, because your main task is to get the benefit.” Wells joked darkly that Universal Credit has become “Hotel California”, in that “you can never leave”.
The Employment Minister, Alison McGovern, has been concerned by Britain’s ailing labour market for a long time. It’s personal as well as political: McGovern grew up on Merseyside during the 1980s and 1990s, when working-age people were leaving the area at such a rate that the population was shrinking. “You sort of got the impression that opportunity was elsewhere,” she told me, “and that’s not acceptable to me. It’s not acceptable that this generation goes through that feeling that there’s nothing for us here.” McGovern wants to create opportunities for people to re-engage with looking for work – on the day we met, she had been in Bolton to observe the trial of a “Job Centre on wheels” – but she agrees that the more combative approach to benefits adopted under the Conservatives has not had the effect that Iain Duncan Smith envisaged when he introduced Universal Credit in 2013. Rather than smoothing people’s path into work as intended, it has made the divisions between some groups “higher and harder… Once people are put in that group, limited capacity for work related activity, they don’t leave.”
Part of the challenge McGovern faces is that the problems faced by Britain’s labour market extend well beyond the employment statistics. This is one more way in which Britain’s economy is held back by its grossly inflated housing market. In the online forums in which people discuss, unguarded, the choice between living on benefits or in minimum wage jobs, it becomes clear that no one thinks unemployment benefit (Jobseeker’s Allowance) is enough, at £90.50 per week, to live on in the long term. These calculations change dramatically, however, when incapacity and disability-related benefits such as Employment and Support Allowance and Personal Independence Payments (PIPs) are concerned, and especially where Universal Credit extends to covering housing costs.
More than a million people in the UK spend more than half their take-home salary on rent. For those on the lowest and most precarious incomes, who might have their hours cut or their zero-hours contract ended with little if any warning, it is easy to see how benefits can seem like a safer and easier alternative, especially when combined with savings such as reduced council tax, free prescriptions, subsidised rates for some utilities and none of the expenses of working life such as commuting and buying lunch.
None of the commenters in these forums want to be on benefits – “It’s embarrassing, degrading, wasting away with chronic illness in a box room at my parents,” one writes – but many suggest they have been made to consider it by extortionate rent and a lack of job security. “Low paid work just doesn’t pay well enough,” writes another.
The largest overall number of people who are workless due to ill health are the over-fifties, but it is the speed at which young people are falling out of the labour market that is of particular concern. Between 2020 and 2024, the number of new claims for the main health-related benefit (the PIP) by under-18s in England and Wales more than doubled.
“For the first time, we have sizeable numbers of young people who are out of work due to ill health,” said Louise Murphy, senior economist at the Resolution Foundation. There have been periods of relatively high youth worklessness before, but these seemed more temporary – a recession pushing young men into unemployment, a rise in teen pregnancy keeping young women out of the labour market – but the rise in ill health has been rapid and increasingly severe. A report by Murphy and her colleague Charlie McCurdy last year found that people in their early twenties are now more likely to be out of work due to ill health than people in their early forties. “They should be the healthiest people in the labour market,” said McGovern. “They’re also missing out on a really important moment in their career, that first job… statistically, we know that it can be very damaging, but psychologically, I would also argue people are really missing out.”
In April 2024, the then prime minister, Rishi Sunak, claimed the benefits system was “medicalising the everyday challenges and anxieties of life”. The implication was that people receiving benefits were using mental health diagnoses to get out of work.
It is true that such diagnoses have become a great deal more common. One study found “a 787 per cent, exponential increase in recorded incidence of autism diagnoses” between 1998 and 2018. In the past five years alone, the number of prescriptions issued for ADHD medications has doubled, and many doctors have concerns that a diagnosis can be obtained through a single online appointment with a private doctor.
But the rise in mental ill-health is not confined to out-of-work adults. There have been large rises in mental ill-health among young children and adults who are in work. Tom Pollard, who is both an economist and an NHS mental health worker, told me: “I just don’t believe that many people choose to put themselves in a position where they say, ‘I’m not going to work because of my mental health,’ and, actually, there’s nothing going on with their mental health and they’re fine. I think it’s worth taking those declarations in relatively good faith.” Among those who are out of work, a mental health condition is usually only part of the picture, with 40 per cent of claims listing five or more conditions.
The mental health statistics also support Bill Wells’ picture of a country that has focused on university education at the expense of school leavers. Four out of five young people who aren’t working due to ill health have no qualifications beyond their GCSEs.
“If you are on track to go to university, the pathway ahead of you is fairly clear,” said Murphy. “Your school will help you with the application, you go to university and then think about graduate jobs. Whereas in the UK in particular, compared to other comparable countries, if you want to go straight into work or an apprenticeship or a college course, it’s not clear who’s responsible to help you with that.”
Once young people arrive in work, they encounter a product that is still very much made in Britain: a shitty boss. Ineffective, selfish and rude, the Great British Manager might appear to be the real villain of the labour market, but it’s not necessarily his or her (but usually, let’s face it, his) fault. A 2023 study by the Chartered Management Institute found that 82 per cent of people newly recruited into management positions were not given any management training. Half the employees surveyed who had an ineffective manager said they planned to quit within a year.
This is not just something we like to gripe about. It is a serious defect in our economy. Murphy said the management problem “comes up very strongly” when she and her colleagues interview young people about work. They are often told by younger people working in areas such as hospitality that they don’t know who their manager is, or have no regular communication with them. Contrast this with the experience of a young person at a university with tutors, on-site counsellors and staff dedicated to pastoral care.
A young person who quits their first job in disillusion might not realise the scale of the decision they are making about their future. Even a temporary spell of worklessness is associated with a higher chance of being out of work in later life, and lower employment prospects. And once in the Hotel California of the benefits system they may come to see future attempts to find work as a risk to the income they have managed to secure from the state. Losing the additional health benefit portion of Universal Credit comes at a cost of around £400 a month, and many people receiving benefits think they will be entirely cut off. They won’t – 38 per cent of the UK’s six million Universal Credit claimants are in work – but the system can apply a higher effective tax rate on an extra pound earned by a Universal Credit claimant than it does to someone earning a six-figure salary. “The evidence from interviews with claimants,” Murphy told me, “is that people’s understanding of the system isn’t totally in tune with the reality. They don’t know what their finances will be, and people can worry that they will be a lot worse off.”
As if this wasn’t enough of a complex problem already, the task before the government has been made even more difficult. The main source of data used to justify any policy to get people into work, the Labour Force Survey (LFS), has become almost unusable. Before the pandemic the LFS was conducted by knocking on doors, but during lockdown this changed to phone calls and emails, and the response rate – which had never been all that high – collapsed. The sample size of the LFS, the UK’s biggest household survey, had been dropping steeply for a decade, from more than 90,000 interviews in 2015 to just over 50,000 in early 2024. The chair of the Treasury Select Committee, Meg Hillier, wrote to the Office for National Statistics last year that she had “major concerns about the UK’s ability to set monetary and fiscal policy appropriately in the absence of reliable data about the labour market”.
There is also, of course, the fact that there is no money left. Jeremy Hunt sauntered out of Downing Street last year having left Rachel Reeves with the thinnest possible slice of fiscal headroom and a £20bn hole in current spending. Not only that, but Hunt’s figures for the cost of employment benefit were based on planned changes to the Work Capability Assessment that were supposed to shave £3bn off the disability benefits bill. In January, those changes were found to have been unlawful. They had already been shown, by the Office for Budget Responsibility, to be performative: the OBR estimate the reforms would have cut benefits for 420,000 people, but only 15,000 extra people would have rejoined the workforce over five years.
But Hunt was playing fantasy fiscal policy, fudging the numbers before an election that his party were obviously going to lose. Liz Kendall and Alison McGovern have to make real policy and ensure that it works. The government still plans to change the WCA – which McGovern said “doesn’t work for anybody”, but it now faces even greater cost pressures as it plans for higher spending on defence.
Cutting billions from the welfare system could also be politically toxic, both with the public and among ministers. Starmer has already lost a cabinet minster, Anneliese Dodds, over cuts to the aid budget. On 10 March Starmer told Labour MPs the current state of the welfare system is “unsustainable”, “indefensible” and is creating “a wasted generation” of young people out of work. His audience broadly agreed, but Labour backbenchers have warned against “draconian” cuts and “a rerun of austerity”.
Previous attempts to save a quick buck from the benefits system only contributed to the mess. Austerity came at a significant cost to public health, which put pressure on the NHS, which was less able to cope with the pandemic, which led the UK to have some of the longest hospital care waiting times in the developed world. That is part of the reason millions of people are now claiming benefits for untreated conditions, rather than working. Nor does it work simply to deregulate the economy and hope growth will provide. Again, part of the reason our workforce is fragile is that it has been exposed to poor working conditions, zero-hours contracts, poor pay and bad management, and far too many people hand over most of what they earn to their landlord (who continues to enjoy a more comfortable tax regime than the typical worker).
This is a crisis that has taken decades to develop, and which previous governments ignored or prevaricated over for far too long. It is now unlikely that the government will be able to solve this double problem – the social malaise of worklessness and the fiscal abscess it creates – with anything so simple as a few changes to incentives in the benefits system, which could in any case backfire if they make claimants still more fearful of losing their income.
But the crisis must be addressed before the trend for ever longer durations out of work becomes still more established. The UK is the only G7 economy in which labour force participation hasn’t yet recovered to pre-pandemic levels. The more workless people the UK has, the more fragile our economy will be, and the fewer choices we will have in an unstable world.
[See more: Labour’s collision course]
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This article appears in the 12 Mar 2025 issue of the New Statesman, Why Britain isn’t working