A U-shaped legacy
In an election year, jobs and benefits are often centre stage. Alongside the UK’s stagnant wage growth, there is one big issue that will face the next government: the rises in economic inactivity and health-related benefit claims. Real pay growth, unemployment and vacancies have all returned roughly to 2019 rates. But there is one aspect of the labour market that remains far from normal: the UK employment rate is still lower than pre-pandemic, with economic inactivity up from 20.5 per cent to 21.8 per cent, equivalent to 700,000 people. And the continued rise shows little sign of slowing as the pandemic recedes. The UK is the only G7 country with a lower employment rate than before the pandemic.
This rise in economic inactivity has been U-shaped by age: those aged 16-24 and 50-64 account for nine-tenths of the rise in economic inactivity among working-age adults since the end of 2019. And while there are more young people who are economically inactive and in full-time education (up 160,000, or 15 per cent, in the past year), it is the rise in economic inactivity due to long-term sickness that stands out. The number of working-age adults who are economically inactive due to long-term sickness has been growing for over four years and stood at 2.7 million in November-January 2024, having peaked at a record-high 2.8 million a couple of months earlier.
These developments are concerning, first and foremost for the 2.7 million people whose health and living standards are affected. But it is also a worry for the Treasury, with claims for illness- and disability-related benefits rising fast. By December 2023, almost a third of people in receipt of Universal Credit (UC) had a health condition or disability that affected their ability to work, and again the pattern is U-shaped by age. More than half of claimants in their late fifties and sixties have a health condition or disability reflected in their UC award. But UC claimants in their early twenties are more likely than those in their thirties or early forties to have a health condition or disability that restricts their ability to work, and it is among young adults that health-related UC awards have increased most significantly in recent years.
