Workers (Economic Affairs Committee Report)

Baroness Noakes Excerpts

Thursday 8th February 2024 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I was a member of your Lordships’ Economic Affairs Committee when this report was produced, and I pay tribute to my noble friend Lord Bridges of Headley’s leadership of that committee.

We produced our report in December 2022. It then took about four months for the Government to respond and another nine months for us to get this slot to debate the report. As I have said before in your Lordships’ House, our reports really must be debated on a timely basis. The delay is a particular problem for this debate, not only because the data on which our report was based are out of date but because it is difficult to work out exactly what has happened subsequently, as my noble friend Lord Bridges and others referred to. The Office for National Statistics has paused its Labour Force Survey and is using new, experimental workforce data. We simply do not have a complete picture of what is happening at present.

In October 2022, there were 8.9 million economically inactive 16 to 64 year-olds, some 565,000 more than the pre-Covid era, which had been characterised by falling inactivity numbers. The latest figures published by the ONS, which my noble friend Lord Bridges of Headley referred to, show 9.3 million, reflecting a reweighting by the ONS. Other factors mean that the percentage inactivity increase is somewhat less. Whatever the precise number or percentage, there is clearly a problem and the trend is out of line with international experience.

As other noble Lords have said, the workforce participation rate is key to the growth of our country’s economy. The Office for Budget Responsibility’s 2023 Fiscal Risks and Sustainability report tested scenarios that increased or decreased health-related inactivity by 0.5 million. This moved the participation rate by a little more than 1 percentage point up or down, but the debt to GDP ratio moved by around 3 percentage points by 2027-28. Understanding what drives participation and inactivity rates is one of the most important issues facing economic management.

Behind the headline increases of economic inactivity, we found two key contributors: long-term sickness and inactivity among 51 to 64 year-olds. Most commentators, including the OBR, describe this in terms of the 50-plus age group getting sick and therefore leaving the workforce. Our examination found a different explanation, in that the over-50s became sick after they had decided to leave the workforce.

We really do not know much about the drivers of long-term sickness or early retirement. We were much encouraged during our evidence sessions that the Government were carrying out a workforce participation review. Several of our recommendations were aimed at ensuring that the review addressed many of the grey areas that we had identified. We thought that more work should be done on long Covid and the impact of NHS waiting lists. We wanted the review to focus on whether there had been a secular change in attitudes to work in the 50-plus demographic, and what could encourage them to stay in or return to work. We also recommended further work on the impact of savings and the furlough scheme on inactivity.

It was disappointing that the Government’s response to our report made no reference to the workforce participation review. My noble friend Lord Bridges of Headley then wrote to the Secretary of State for Work and Pensions, who replied saying that the review had resulted in a number of changes in the 2023 Budget. However, there was no sign of the further work that we had suggested. I find it curious that the Government do not want to get to the bottom of the issues impacting workforce participation and inactivity.

The government response, as is typical of government responses, listed lots of initiatives of varying degrees of significance. I do not doubt the Government’s desire to reduce economic inactivity. What I cannot see is a forensic approach to the problem. The initiatives might well produce results, but it is not clear that they are underpinned by a clear understanding of the underlying issues. This does not appear to be the best way to proceed.

I will highlight just one other area dealt with in the report, namely the impact of ageing on the UK’s workforce. This is not a new phenomenon, but in the past the reduction in the workforce due to retirement was masked by other factors, in particular the increased participation in the workforce of women. A simulation by the Bank of England shows that population ageing is increasing, knocking about five percentage points off the workforce each year by about 2032. Other factors are thought to be broadly static, so ageing will start to be a really big factor in the size of the workforce. The implications of this for economic growth are clearly significant.

In addition, successive reports from the OBR have shown how demographic changes contribute to a dramatic increase in the growth of debt as a percentage of GDP. The Government must face some difficult decisions, including about pensions and taxation, pretty soon if a longer-term financial crisis is to be avoided.

The response to our report was described as “the Government’s formal response”, but it came from the Department for Work and Pensions and ignored the broader economic issues of an ageing population. I hope my noble friend the Minister will be able to respond on behalf of the whole of government, including the Treasury, when he winds up.