Think tank warns that the shift in welfare benefits following the pandemic discourages unemployed people from seeking employment.
A surge in the number of benefits being paid to those who don’t have to work after the lockdown could lead to a permanent abandonment of their jobs by nearly four million people.
Policy in Practice warns that there has been a “marked shift” in welfare benefits since the pandemic, which is causing people to stop looking for work. 3.9 million now receive out-of-work benefit and do not even have to look for employment – this is twice as many claimants as those who are required to try to find a job.
The Department for Work and Pensions’ (DWP) analysis showed that this was the highest level since at least 2015. It is also up from the just over 3 million people in 2020.
This is in stark contrast to the large drop in welfare recipients whose benefits are linked to job search.
After the first lockdown, in 2020, the number of people who had “work search requirements” associated with their benefits fell from 2,5 million to 1,63 million.
Policy in Practice’s new analysis states: “The benefits systems risks driving people away from employment.”
A senior Bank of England official had warned that the increase in the number of unemployed people was a “very serious issue” for the UK economy.
Catherine Mann, a member of the Monetary Policy Committee’s (MPC), said that there has been a “dramatic decline in the estimated supply potential for the United Kingdom” at an event organized by the Centre for Economic Policy Research.
Where does this information come from? The UK’s labour force participation rate has not yet recovered to the pre-Covid level. The US and euro zone are both above their pre-Covid rates of labour force participation. This is a major issue.
Rishi Sunak said that he wanted to cut the benefits bill in order to fund his plans to abolish national insurance.
The government has announced major reforms in the work capability assessment, which determines if people are fit to work. Most of the changes won’t begin until the next Parliament.
Deven Ghelani of Policy in Practice said that the Government was genuinely trying, but in certain respects, damage had already been done.
Mr Ghelani stated that the lack of support for those seeking work or waiting to be treated for medical conditions, combined with the fear facing sanctions, had created “incentives” to try and escape the current back to work regime by seeking out more generous benefits without work conditions.
The report stated: “People who otherwise would be treated and returned to work find themselves forced into economic inactivity, and are reliant on disability benefits.”
According to Policy in Practice, welfare reforms in the 2010s led by former Chancellor George Osborne resulted in “a steep tightening of requirements for work” which forced more single parents to seek employment.
The number of people who are required to work has increased dramatically from 767,000 individuals in 2015, to 1.2 millions in 2019.
Researchers at Policy in Practice said: “The post pandemic trend is a markedly different one. We are seeing an increase in people who do not have to meet work requirements.
The pandemic has led to a permanent increase in DWP cases, which means that more people now receive welfare support.
The report warned that pandemics had cemented changes in welfare already underway. This included a rise in people who were exempted from searching for work due to musculoskeletal problems such as back and neck pain, as well as an increase in the number of claimants for mental health concerns.
Researchers said, however, that any changes to the system of benefits would need to be calibrated carefully. They cited changes made by Mr Osborne in a benefit known as Employment and Support Allowance, which reduced payments to claimants to £30 per week.
They said that this probably led to an increase of applications for more generous benefits, which pushed more people out of work. “Government reforms need to avoid finding false economies,” they added.
This analysis comes only days after officials warned of the likelihood that Britain’s unemployment crisis will continue to grow over the next few years.
Since the lockdown, the number of adults of working age who are not in employment or actively looking for work has increased by 700,000. This is now at a record high of 9,3 million. The number of people economically inactive because of long-term illness has reached a new record high.
The Office for Budget Responsibility, the government’s tax and expenditure watchdog, said last week that this trend was “worrying”. It suggests the workforce in Britain will continue to shrink over the next several years.
A government source claimed that Mel Stride and Mr Sunak, the Work and Pensions secretary, were on “welfare-reform mission”.
It’s important to maintain some perspective: today, inactivity is lower than it was every year during the previous Labour government.
Sir Keir is afraid of upsetting the party over this. It’s just as well that they have no plans to get people out of welfare and into the workforce.
A DWP spokesperson said that its £2.5bn (£2.49m) Back to Work Plan was aimed to help people with long-term illnesses: “While the level of inactivity remains lower than 2010, we have taken the long-term decision to assist everyone who is able to work to do so. This will improve lives and grow the economy.
Our welfare reforms will reduce the number of people receiving the highest level of incapacity benefit by more than 370,000. These people will now receive tailored support to get back to work.