Workers (Economic Affairs Committee Report)

Lord Willetts Excerpts

Thursday 8th February 2024 Lords Chamber

[Lord Willetts (Con)]

My Lords, I congratulate my noble friend Lord Bridges on an excellent opening to this debate and all members of the committee on a really topical and important review—made even more topical by Monday’s ONS announcements, revealing how little we understand what is happening to the labour market and making his call for better data particularly important. I would like to draw on my position as president of the Resolution Foundation to make four practical proposals as to how we might tackle this problem by intervening at different ages of the life cycle.

First, among young people aged 18 to 24, we seem to have an increasing problem of inactivity, particularly due to ill health, which has doubled, and within that mental ill-health. There is clearly a complex link with low skills because, by and large, more educated young people, even if they report mental health problems, appear to be more likely to remain in work and in the workforce, so low skills and inactivity are linked to ill health, particularly mental ill-health. It is very tricky to challenge this, but I am increasingly concerned by the Government’s proposal to defund 200,000 BTECs—the 200,000 young people studying BTECs, a vocational qualification introduced back in the 1980s—in the expectation that they will instead do T-levels, which are currently taken up by 5,000 people and are a far more academic qualification. There is a real risk that the defunding of BTECs over the next two years will contribute to a rise in inactivity and worklessness among young people, as they find that there is no suitable educational altercation which justifies their remaining in study until the age of 18. I hope that the Minister will give us assurances that the effects of this phasing out of the funding of BTECs will not lead to an increase in worklessness.

Secondly, for women—it is preponderantly women—with children, especially less well-paid women working relatively small hours for low pay and unemployed mothers with young children, the Government have an excellent initiative to increase access to formal childcare. However, low-paid and less educated mothers are least likely to be accessing formal childcare; their childcare arrangements tend to be less formal and, therefore, they are least likely to be helped by the Government’s initiative, however welcome it is. There are two specific things that could be done to help them. First, they are very likely to be using childminders, but the regulations about childminding that is accessible and will be publicly funded are very strict, so a more liberal regime on funding childminding might help a group whom it would be particularly beneficial to get into the workforce. Secondly, although universal credit also helps with childcare costs, the processes are very bureaucratic. There is no specifically identified line of universal credit for your childcare and, if you increase your hours, there will be an unpredictable reduction in your total universal credit entitlement, even if you are using childcare to reduce your hours. Therefore, the free childcare option that the Government are currently pursuing is not sufficient to tackle inactivity among less-educated low-paid mothers with children.

Thirdly, on sickness and the links between sickness and inactivity, the committee draws attention to the fact that, sadly, being long-term sick seems to lead to people disengaging from the labour market. We on these Benches are always very wary of more labour market regulation—our labour market is already very heavily regulated—but, at the moment, when you cease receiving sick pay from your employer and go on to sickness benefit, you lose all rights to remain in contact with, and have the potential to return to, your employer. There is an argument for a right to return for the long-term sick, in order to keep them in touch with their employer. Such an initiative that is worth considering.

Fourthly, on older people, as the committee explains, the British model, with a higher rate of pension income from funded savings and less dependence on state benefits means that the benefit regime is less shaping behaviour—you keep on working until you get your benefit—and behaviour is more influenced by private pension savings. The Government already have some proposals in place for increasing the age at which you can access your private pension savings without tax penalty to 57. There is a strong case for raising that age further, so that if you wish to access your pension savings, you have to remain in work—you are not able to do so without a significant tax penalty—until you are even older than 57. I have always been rather a hardliner on raising the pension age. I personally think that the obvious way to help offset the enormous costs of the triple lock is to carry on raising the pension age as rapidly as possible. At least the proposal is to link the tax relief—the tax benefits—to pension age minus 10, but I think pension age minus 10 is too generous; we should have a more ambitious goal so that people are able to access their funded savings only at a later age.

Finally, I very much agree with the points in the committee’s report that, although there is frustration about what has happened to the stock of economically inactive people, we should focus in particular on the flow of people into economic activity; there is more we can do there and that should be the policy priority. Although it is rather a cliché at the end of every piece of policy research to say that more data is needed, on this occasion it really is very important. As my noble friend explained in his powerful opening contribution, the labour market statistics, particularly the Labour Force Survey, are now in a total mess. Nobody can make sense of what is happening, the ONS has confessed it cannot really understand it, and this is an area where more data and research are certainly needed.