Workers (Economic Affairs Committee Report)

Viscount Chandos Excerpts

Thursday 8th February 2024 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, I am delighted to follow the noble Lord, Lord Willetts, even if his incisive analysis is an extremely hard act to follow—as was the introduction by the noble Lord, Lord Bridges. Like my noble friend Lord Layard, I was privileged to be a member of the committee under the chairmanship of the noble Lord, Lord Bridges, and his introduction was as excellent as his leadership of the committee, which benefited hugely from the work and intellectual rigour of the staff who supported and guided us.

Although seasonally adjusted economic activity fell in the period following the completion of the report, from 565,000 above pre-pandemic levels to a low point of 281,000 in March to May 2023, it rose again to the most recent public figure of 410,000. There remains, therefore, the worrying adverse divergence from the experience of most of our peers, who have returned to a position as good as, or better than, pre-pandemic levels. Despite the length of time that has passed since the committee published its report, let alone since it began to take evidence, the analysis and conclusions remain valid and speak for themselves. I propose therefore to comment briefly on only a couple of points.

The committee came to recognise just how complex the various factors were that lay behind the change in the level of economic activity. “It’s complicated”, as the Alec Baldwin/Meryl Streep movie is titled, albeit in relation to personal relationships rather than labour market dynamics. The committee started work on its inquiry only months after the end of Covid-related restrictions. This can be taken, perhaps, as a proxy for the pandemic becoming endemic, rather than disappearing.

It is not surprising, therefore, that many of us started with the suspicion that long Covid and other health-related issues lay predominantly behind the increase in economic inactivity. But, as we received evidence, it became clear that this was no more than one contributory factor. Four years on from the start of the pandemic, its impact on long-term health is still hard to measure with accuracy and confidence. But it is none the less clear that—as previous speakers have highlighted—chronic health conditions of all sorts, mental as well as physical, pose a significant macroeconomic problem, as well as an even more devastating one for the individuals unfortunate enough to be affected. The desperate state of the NHS exacerbates this problem. I have no doubt that economic inactivity will remain higher than it should until the investment in, and careful reform of, the NHS are implemented—which, to be party-political for a moment, a Labour Government will do.

Early retirement emerged as arguably the most significant factor behind the economic inactivity changes, as the noble Lord, Lord Bridges, highlighted. The committee questioned whether this would, at least to some extent, reverse itself as the cost of living pressures then emerging pushed early retirees back into the labour market. I think the caution expressed in the committee’s conclusions is being borne out, but, if there is little likelihood of many of that cohort of early retirees returning to work, whatever measures might be introduced, it is highly likely that this is essentially a one-off phenomenon.

There were a number of factors that appeared to encourage early retirement with no significant adverse health issues in this cohort. Arguably, the experience of lockdown during the pandemic and, in many cases, support through the furlough schemes, offered individuals a trial period of a changed lifestyle—a number of witnesses concurred with this. Less well explored, and a subject I hope for future work, is the possible effect of a long period of low interest rates that will have enabled mortgages to be paid off earlier, facilitating early retirement, even if occupational and state pension entitlements on their own, as described by the noble Lord, Lord Willetts, might not have made this so financially feasible.

Even if the early retirement trends in recent years have contributed to the labour market issues on which we are focused, I suspect that this is an ephemeral issue and that future generations are more likely to need to continue working beyond their preferred date of retirement, rather than being able to anticipate it. Migration trends were the subject of a particularly interesting evidence session with Madeleine Sumption of Oxford University's Migration Observatory and Professor Jonathan Portes. Though they argued that the move from EU to non-EU driven immigration, resulting from Brexit, was not itself a major factor in overall labour market changes, it posed a significant problem for certain sectors such as hospitality and agriculture, where shorter-term flexibility in migration is so important; Professor Portes warned against becoming dependent on migration in the care sector in particular.

It is hard not to feel that Mel Stride’s announcement last year that the measures announced in the spring Budget represent the conclusion of the DWP review of workforce participation is a signal that the Government do not really get the severity of the problem and the need for the improvements in data from the ONS that the noble Lord, Lord Bridges, referred to.